a

GAO

United States Government Accountability Office

Report to Congressional Requesters

March 2006 ENVIRONMENTAL 

LIABILITIES

Long-Term Fiscal 

Planning Hampered by 

Control Weaknesses 

and Uncertainties in 

the Federal 

Government’s 

Estimates

GAO-06-427
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

March 2006

ENVIRONMENTAL LIABILITIES 

Long-Term Fiscal Planning Hampered by 

Control Weaknesses and Uncertainties in 

the Federal Government's Estimates 

Highlights of GAO-06-427, a report to 

congressional requesters 

The nation’s military installations 

and nuclear weapons production

facilities have accumulated many

types of waste and contamination

over the years. The federal

government estimated its 

environmental liability to clean up 

this waste at $249 billion in fiscal

year 2004, representing the federal

government’s third largest reported 

liability. It represents a significant 

future outflow of funds at the same 

time as many other competing 

demands for federal dollars, but is 

currently not auditable. GAO was 

asked to address (1) the nature and

extent of the government’s 

environmental liabilities, (2) the

extent to which Energy’s and 

Defense’s processes and controls

were designed to estimate and

report environmental liabilities in 

accordance with federal

accounting standards, and (3) the 

nature and types of uncertainties 

that are currently not estimable but 

could affect the cost of cleanup. 

The federal government’s environmental liability reflects the estimated cost 

to clean up and dispose of environmental contamination in every state in the

nation. The Departments of Energy and Defense report about 99 percent of 

this liability. Energy’s reported liability of $182 billion relates primarily to the 

cleanup and disposal of nuclear waste, contamination, and by-products that 

resulted from decades of nuclear weapons production. Defense’s reported 

liability of $64 billion is primarily for the cleanup of hazardous wastes at 

training ranges, military bases, and former defense sites; disposal of nuclear 

ships and submarines; and disposal of chemical weapons. 

While the design of Energy’s internal controls have enabled its auditors to 

determine that Energy’s financial statements were presented fairly and in 

accordance with federal accounting principles, significant weaknesses in 

Defense’s controls have hindered it from producing auditable environmental 

liability estimates. Specifically, Defense’s outdated and incomplete 

accounting guidance for developing and reporting its environmental liability 

estimates led to errors in financial reporting; its policies and procedures for 

determining, reporting, and documenting environmental liability estimates 

were not consistently followed; and none of the military services had 

adequate controls in place to help ensure that all identified contaminated 

sites were included in their environmental liability cost estimates. These 

weaknesses not only affected the reliability of Defense’s environmental 

liability estimate, but also that of the federal government as a whole. 

 

Even if Defense resolved its internal control weaknesses, uncertainties exist 

for both Energy and Defense—the effect of which cannot currently be 

estimated—that could increase the government’s environmental liabilities 

beyond the currently recorded amounts. These uncertainties involve the lack 

of feasible or proven remediation technologies, regulatory impediments and 

legal challenges, and uncertainties with the agencies’ abilities to meet their 

current cost and schedule targets. It is important to understand the nature 

and extent of these uncertainties because they have the potential to 

materially impact the ultimate cost and timing of cleanup activities. 

Craters Left as a Result of Underground Nuclear Testing at the Nevada Test Site 

Source: National Nuclear Security Administration / Nevada Site Office

Energy’s sites, for which estimated 

costs of remediation are not reported 

because no feasible remediation 

approach has been identified, include 

the nuclear explosion test area at the 

Nevada Test Site where over 900 

nuclear test explosions have left 

residual radioactivity.

What GAO Recommends

GAO is making eight 

recommendations to help Defense 

improve its internal controls over

its environmental liabilities by 

improving its financial 

management guidance and 

processes. We are also making a 

recommendation to help Energy

improve its process for ensuring all 

litigation for potential disclosure is 

documented. Both Defense and

Energy concurred with the 

recommendations, and described 

corrective actions being taken to 

address them. 

www.gao.gov/cgi-bin/getrpt?GAO-06-427.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Linda Calbom 

at (202) 512-9508 or calboml@gao.gov. 
Page i GAO-06-427 Environmental Liabilities

Contents

Letter 1

Results in Brief 4

Background 6

The Federal Government’s Environmental Liabilities Are Significant, 

Widespread, and Complex 11

Energy’s Processes and Controls Allowed It to Produce Estimates in 

Accordance with Federal Accounting Standards; Defense’s Did 

Not 21

Major Uncertainties Will Affect Future Cleanup Costs and Funding 

Demands 31

Conclusions 42

Recommendations For Executive Action 43

Agency Comments and Our Evaluation 44

Appendixes

Appendix I: Scope and Methodology 47

Appendix II: Comments from the Department of Defense 49

Appendix III: GAO Contact and Staff Acknowledgments 54

Related GAO Reports 55

Tables Table 1: Primary Categories of Environmental Waste and 

Byproducts 7

Table 2: Accounting Requirements for Recording or Disclosing a 

Liability in the Federal Financial Statements 10

Figures Figure 1: The Federal Government’s Reported Fiscal Year 2004 

Environmental Liabilities by Agency 12

Figure 2: Energy’s Cleanup Locations and Waste Repositories as of 

September 30, 2004 14

Figure 3: Number of Defense’s Reported Cleanup Locations by 

State 16

Figure 4: Energy’s Reported Fiscal Year 2004 Environmental 

Liabilities by Type 18

Figure 5: Waste Drum Being Opened and Contents Processed 

through a Remote-Handled Waste Facility 19

Figure 6: Defense’s Reported Fiscal Year 2004 Environmental 

Liabilities by Type 20
Contents

Page ii GAO-06-427 Environmental Liabilities

Figure 7: Aerial View of the Waste Treatment Plant under 

Construction at Hanford 25

Figure 8: Craters Left As A Result Of Underground Nuclear Testing 

At The Nevada Test Site 33

Figure 9: View of an Exploratory Tunnel at Yucca Mountain 36

Figure 10: An Excavator Removes Buried Transuranic Waste at 

Energy’s Idaho Cleanup Location 38

This is a work of the U.S. government and is not subject to copyright protection in the 

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Page 1 GAO-06-427 Environmental Liabilities

United States Government Accountability Office

Washington, D.C. 20548

A

March 31, 2006 Letr

The Honorable Todd R. Platts 

Chairman

Subcommittee on Government Management, 

Finance, and Accountability

Committee on Government Reform

House of Representatives

The Honorable Darrell E. Issa

Chairman

Subcommittee on Energy and Resources

Committee on Government Reform

House of Representatives

The nation’s military installations and nuclear weapons production 

facilities have accumulated many types of waste and contamination over 

the years. This material, which includes radioactive byproducts from 

nuclear weapons production, nonradioactive but hazardous chemicals 

such as polychlorinated biphenyls (PCB), and unexploded ordnance such 

as bombs and missiles at military ranges, poses a potential threat to the 

public’s health and well-being.1

 Various federal laws, agreements with 

states, and court decisions require the government to clean up these 

environmental hazards. Federal accounting standards require agencies 

responsible for cleaning up this waste and contamination to estimate the 

cleanup and disposal cost and report it in their financial statements as 

environmental liabilities.2

 In the federal government’s fiscal year 2004 

consolidated financial statements, these environmental liabilities were 

estimated at $249 billion—the third largest reported liability facing the

1

Polychlorinated biphenyls (PCB) are chemicals once used as coolants and lubricants in 

transformers, capacitors, fluorescent lighting fixtures, and other electrical equipment. The 

manufacture of PCBs was banned in the United States in 1977 because of evidence that they 

build up in the environment and cause harmful effects in humans and in wildlife.

2

Throughout this report, we use the terms cleanup or remediation interchangeably to refer 

to a wide range of activities intended to restore the environment, such as stabilizing 

contaminated soil, treating contaminated groundwater, decontaminating and demolishing 

contaminated buildings, and exhuming buried drums of waste.
Page 2 GAO-06-427 Environmental Liabilities

federal government.3 This amount is currently unauditable and likely 

misstated given the problems we discuss later in this report with the 

Department of Defense’s (Defense) controls over its estimation processes. 

Paying for this liability will require a significant future outflow of funds at 

the same time that the federal government will be facing many other 

competing demands for its limited dollars, such as escalating health care 

costs and growing Social Security obligations. 

Given that the inability to estimate total environmental liabilities has 

contributed to our disclaimer of opinion on the U.S. government’s 

consolidated financial statements, and that the ultimate cost of cleanup 

and disposal activities will affect the long-term fiscal outlook of the federal 

government, you asked us to review the government’s financial reporting of 

its environmental liabilities.4

 We focused our work on the two federal 

agencies primarily responsible for those efforts—the Department of 

Energy (Energy), which oversees the nation’s nuclear weapons facilities, 

and Defense, which oversees the nation’s military installations and 

weapons systems. Together, these two agencies comprised 99 percent of 

the cleanup and disposal cost estimates reported in the federal 

government’s fiscal year 2004 consolidated financial statements. In 

response to your request, our report addresses 

• the nature and extent of the environmental cleanup and disposal cost 

liabilities as reported in the federal government’s financial statements, 

• the extent to which Energy’s and Defense’s processes and controls are 

adequately designed to estimate and report environmental liabilities in 

accordance with related federal accounting standards, and 

• the nature and types of uncertainties that are currently not estimable 

but could affect the ultimate cost of Energy’s and Defense’s 

environmental cleanup efforts. 

3

In this report, we primarily use environmental liability amounts reported as of fiscal yearend 2004. At the time we developed our audit approach and began our work, it was the most 

recent fiscal year for which an entire year’s data were available. Reported environmental 

liabilities as of fiscal year-end 2005, compiled after our work began, totaled $259.8 billion. 

4

As discussed later in this report, we previously reported on shortcomings with the federal 

budgeting process for environmental liabilities. See GAO, Long-Term Commitments: 

Improving the Budgetary Focus on Environmental Liabilities, GAO-03-219 (Washington, 

D.C.: Jan. 24, 2003).
Page 3 GAO-06-427 Environmental Liabilities

In performing our work, we focused our review on Energy’s and Defense’s 

Performance and Accountability Reports for fiscal year 2004, the most 

recent completed fiscal year at the time we began our review, to determine 

what the agencies recorded and reported in their financial statements with 

respect to their environmental liabilities.5

 We interviewed Energy and 

Defense officials, visited various sites, and reviewed policies and other 

documentation to obtain a better understanding of each agency’s cleanup 

responsibilities and the cleanup and disposal issues being addressed by 

each agency, their internal controls and procedures for developing their 

environmental liability estimates, and the uncertainties that could affect 

the ultimate cost of cleanup and disposal. In reviewing both agencies’ 

internal controls, we did not review or test detailed contractor estimates 

but instead focused on each agency’s procedures for compiling and 

developing its environmental liability amounts. 

Because an independent public accounting firm audited Energy’s fiscal 

year 2004 financial statements and found them to be fairly stated, we 

reviewed those statements, traced and verified environmental liabilities 

amounts to supporting schedules, and reviewed audit workpapers where 

available. We otherwise relied on the work performed by the independent 

auditors and did not perform additional audit procedures to verify the 

completeness or accuracy of the amounts reported. Because Defense has 

acknowledged serious data reliability problems related to its financial 

systems and information, including those involved in the reporting of its 

environmental liabilities, auditors did not attempt to perform audit 

procedures and disclaimed an opinion on Defense’s fiscal year 2004 

financial statements. Therefore, it was not our objective to—and we did 

not—audit the completeness or accuracy of Defense’s reported 

environmental liabilities amounts. Although we have previously reported 

on the potential for Defense to incur costs in voluntary restoration 

initiatives in conjunction with returning overseas Defense facilities to host 

nations, these activities are not reported as environmental liabilities in its 

financial statements, and we did not review their international operations

5

An agency’s performance and accountability report contains the agency’s description of its 

performance for the year as well as its annual financial statements and independent 

auditor’s reports. Fiscal year 2004 reports reflect each agency’s financial results and 

positions as of and for the year ended September 30, 2004.
Page 4 GAO-06-427 Environmental Liabilities

or processes.6 Since Defense’s reported amounts are not reliable, we are 

providing them in this report for informational purposes only. 

We also reviewed Energy’s and Defense’s fiscal year 2005 Performance and 

Accountability Reports primarily to determine whether any significant new 

issues had arisen subsequent to the issuance of the fiscal year 2004 

financial statements. We performed our work from October 2004 through 

January 2006 in accordance with generally accepted government auditing 

standards. Appendix I provides further details on our scope and 

methodology. 

Results in Brief The environmental liability amount reported in the federal government’s 

consolidated financial statements reflects an estimate of the cost to clean 

up and dispose of environmental contamination in every state in the nation. 

Of the $249 billion reported for fiscal year 2004, Energy’s recorded liability 

was $182 billion, the largest of any agency, and was related primarily to the 

cleanup of nuclear waste and contamination at about 50 Energy locations 

around the country. Over 40 percent of Energy’s total liability relates to 

cleanup at three locations in Washington, South Carolina, and Idaho where 

most of the nation’s nuclear weapons production activities occurred during 

World War II and the subsequent Cold War. The estimated cleanup costs 

relate to the treatment and disposal of millions of gallons of radioactive 

byproducts from making plutonium and other nuclear materials, 

decontamination and demolition of facilities used for decades in nuclear 

materials production, and the cleanup of contaminated soil and 

groundwater at these locations. Energy’s recorded environmental 

liabilities also include estimates for the future cleanup of its current, or 

“active,” facilities; long-term stewardship and monitoring at sites after they 

are cleaned up; and disposal of high-level waste, used (“spent”) nuclear 

fuel, and excess special nuclear material. The radioactivity of most of 

Energy’s waste makes its cleanup effort technically difficult, costly, and 

subject to significant legal challenges. 

Defense’s unaudited cleanup cost estimate, reported at $64 billion in fiscal 

year 2004, accounted for the bulk of the government’s remaining reported 

environmental liability balance. Its cleanup responsibilities include 

treatment and disposal of many types of hazardous wastes associated with 

6

GAO, Opportunities Exist to Improve Future Comprehensive Master Plans for Changing 

U.S. Defense Infrastructure Overseas, GAO-05-680R (Washington, D.C.: June 27, 2005).
Page 5 GAO-06-427 Environmental Liabilities

military operations; disposal of weapons systems including nuclear ships 

and submarines; storage and disposal of highly toxic chemical weapons 

such as nerve agents and sulfur mustard blister agents; and environmental 

cleanup at military installations affected by base realignment and closures. 

Defense has identified about 600 military locations and over 1,700 formerly 

used defense locations requiring remediation in all 50 states. 

Energy’s processes and internal controls over the financial reporting of its 

environmental liabilities have enabled it to produce an estimate of its 

environmental liabilities in accordance with federal accounting standards 

for several years; however, Defense’s have not. Key components of 

Energy’s environmental liability estimation process include the issuance of 

internal control guidance to its field locations for the development and 

annual update of environmental liability estimates, independent reviews of 

selected projects, and establishment of a requirement that project work 

scope changes and cost increases be approved by a control board. Another 

key part of Energy’s financial reporting process is its “contingency 

estimate,” which is used to take into account the inherent uncertainties in 

estimating the cost of environmental cleanup activities. Adding this 

component to the liability helped Energy achieve a clean financial 

statement audit opinion in fiscal year 1999 and in subsequent years.

In contrast, numerous weaknesses in the design of Defense’s processes and 

internal controls for estimating and reporting environmental liabilities have 

precluded it from producing an auditable estimate of its environmental 

liabilities. While some progress has been made over the years, we found 

that (1) Defense’s outdated and incomplete accounting guidance for 

developing and reporting its environmental liabilities estimates led to 

errors in financial reporting; (2) its policies and procedures for 

determining, reporting, and documenting environmental liability estimates 

were not consistently followed; and (3) none of the military services had 

adequate controls in place to help ensure that all identified contaminated 

sites were included in their reported environmental liability estimates. 

These weaknesses not only impacted the reliability of Defense’s 

environmental liability estimate, but also that of the federal government as 

a whole. 

Even if Defense resolves all of its control deficiencies and reports cost 

estimates that meet all federal accounting standards, nonquantifiable 

uncertainties currently exist for both Energy and Defense that could 

increase the eventual cost of the cleanup beyond the estimated amounts 

recorded in the federal government’s consolidated financial statements. 
Page 6 GAO-06-427 Environmental Liabilities

While not quantifiable, these, like the quantified environmental liabilities, 

add to the fiscal exposures of the federal government and will affect the 

long-term fiscal outlook. For example, various regulatory requirements 

and legal challenges have caused multiple delays in the licensing and 

design of the nation’s planned high-level waste repository at Yucca 

Mountain, Nevada, and many of the environmental liability cost estimates 

are predicated upon Yucca Mountain opening and accepting this waste by 

certain milestone dates. Further delays could cause construction, interim 

storage, and other costs to increase, but Energy has not yet committed to a 

new target date for opening the repository. These uncertainties do not 

affect the auditability of the liability because under current federal 

accounting standards a potential liability that cannot be estimated but is 

considered at least reasonably possible to occur is not required to be 

recorded, only disclosed. Both Energy and Defense currently disclose 

these types of uncertainties in the notes to their financial statements, 

although improvements in their disclosures are warranted at both agencies. 

Given these uncertainties and the extensive internal control weaknesses at 

Defense, the ultimate cost and funding requirements of cleanup and 

disposal of the federal government’s environmental contamination cannot 

be fully determined. Improving Defense’s financial management processes 

and controls are critical to ensuring that environmental liability estimates 

are as reliable as possible under current circumstances. We are making 

eight recommendations to Defense that, if properly implemented, will 

improve internal controls at Defense to help ensure that its environmental 

liabilities estimates are adequately supported and properly reported. We 

are also making a recommendation to Energy to help improve disclosure in 

the notes to the financial statements of uncertainties that could have a 

significant impact on ultimate cleanup costs. We provided Energy and 

Defense with a draft of applicable sections of this report for their review 

and comment. We received verbal comments from Energy, and written 

comments from Defense that are reprinted in appendix II. Each concurred 

with the respective recommendations made to them and described the 

corrective actions they were taking to address them.

Background Federal agencies’ responsibilities for environmental cleanup are set forth in 

a number of different laws, regulations, and agreements. For example, 

many of Energy’s and Defense’s cleanup activities are governed by the
Page 7 GAO-06-427 Environmental Liabilities

Resource, Conservation, and Recovery Act of 1976, as amended,7 and the 

Comprehensive Environmental Response, Compensation, and Liability Act 

of 1980, as amended.8

 Additionally, the Nuclear Waste Policy Act of 1982, 

as amended,9 established a program for the development of a geologic 

repository (a permanent deep disposal system) for disposing of high-level 

radioactive waste and spent nuclear fuel; the Waste Isolation Pilot Plant 

Land Withdrawal Act10 provided for the establishment of a repository for 

transuranic wastes. Furthermore, 10 U.S.C. §§ 2701-2709 established the 

Defense Environmental Restoration Program to identify, investigate, and 

clean up properties contaminated by Defense’s activities. Table 1 describes 

the primary categories of waste and materials that the government is faced 

with cleaning up.

Table 1: Primary Categories of Environmental Waste and Byproducts 

7

42 U.S.C. §§ 6901-6991k.

8

42 U.S.C. §§ 9601-9675.

9

42 U.S.C. §§ 10101-10270.

10Pub. L. No. 102-579, 106 Stat. 4777 (October 30, 1992), as amended by Pub. L. No. 104-201, 

div. C, title XXXI, §§ 3181-3191, 110 Stat. 2422, 2851 (September 23, 1996).

Type Description 

Spent nuclear fuel Fuel elements and irradiated targets that have been removed from nuclear reactors. These 

spent fuels are highly radioactive and must be stored in special facilities that shield and cool 

the materials. 

High-level waste Highly radioactive liquid left over when spent nuclear fuel is reprocessed to recover reusable 

uranium or plutonium. Most of Energy’s high-level waste came from the production of 

plutonium. This designation is also applied to solids made when liquid high-level waste is 

treated. This waste typically contains highly radioactive, short-lived fission products as well 

as long-lived isotopes, hazardous chemicals, and toxic heavy metals. High-level waste must 

be isolated from the environment for thousands of years. 

Transuranic waste Waste contaminated with transuranic elements at a concentration higher than 100 

nanocuries per gram. This includes soil and chemicals as well as contaminated tools, 

equipment, and clothing. Transuranic waste is generated during nuclear weapons 

production and other activities involving long-lived transuranic elements, such as plutonium. 

Some of these isotopes have half-lives of tens of thousands of years, thus requiring longterm isolation. 

Low-level waste Any radioactive waste that does not fall into one of the above categories regardless of 

content, activity level, or longevity. Most low-level waste contains small amounts of 

radioactivity in large volumes of material. 
Page 8 GAO-06-427 Environmental Liabilities

Source: GAO.

In our report on major challenges facing the nation in the 21st century, we 

pointed out that progress in cleaning up sites frequently does not meet 

expected time frames and the costs dramatically exceed available funding 

levels.11 Furthermore, the current approaches to cleaning up the various 

sites are not consistent and, in some cases, not especially efficient or 

effective. Such issues are some of the reasons we have designated aspects 

of Energy’s and Defense’s operations as high-risk areas for the federal 

government.12 We have also previously reported on shortcomings with the 

federal budgeting process for environmental liabilities.13 Specifically, we 

reported that because the federal budget is primarily calculated on a cash 

basis, the full costs of a program that will have cleanup costs are not 

recognized in the budget, nor are estimates of these future costs provided 

elsewhere in budget documents. Consequently, the budget itself does not 

provide policymakers the information to compare the full costs of certain 

programs and thus, the long-term fiscal exposures. We have previously 

suggested to the Congress that budget process mechanisms be developed 

to prompt more deliberations about such fiscal exposures while 

recognizing the uncertainty inherent in estimating some long-term costs.14

Meeting these cleanup responsibilities carries a financial cost, and federal 

accounting standards require the costs associated with the federal 

government’s environmental cleanup responsibilities to be reported in the 

respective agencies’ financial statements as well as the federal 

Hazardous waste Hazardous wastes are chemical wastes containing substances defined as hazardous by 

law. These are capable of causing illness, death, or some other harm to humans and other 

life forms when mismanaged or released into the environment.

Mixed waste Waste that contains both radioactive and chemically hazardous materials. Some high-level, 

transuranic, and low-level wastes are also hazardous and thus are also considered mixed 

waste.

(Continued From Previous Page)

Type Description 

11GAO, 21st Century Challenges: Reexamining the Base of the Federal Government, GAO05-325SP (Washington, D.C.: February 2005).

12GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: January 2005).

13GAO, Long-Term Commitments: Improving the Budgetary Focus on Environmental 

Liabilities, GAO-03-219 (Washington, D.C.: Jan. 24, 2003).

14GAO, Fiscal Exposures: Improving the Budgetary Focus on Long-Term Costs and 

Uncertainties, GAO-03-213 (Washington, D.C.: Jan. 24, 2003).
Page 9 GAO-06-427 Environmental Liabilities

government’s consolidated financial statements. The Federal Accounting 

Standards Advisory Board’s Statement of Federal Financial Accounting 

Standards (SFFAS) No. 5, Accounting for Liabilities of the Federal 

Government, requires the recognition of a liability when there has been a 

past government-related event and there is both a probable and a 

reasonably estimable future outflow or sacrifice of resources.15 If a future 

outflow of resources is probable but the amount is not reasonably 

estimable, then SFFAS No. 5 requires the disclosure of a liability in the 

notes to the financial statements with a statement that the amount of the 

liability cannot be estimated. If a future outflow of resources is not 

considered probable but there is at least a reasonable possibility that a loss 

or future expenditure may be incurred, SFFAS No. 5 requires disclosure of 

the possible liability in the notes to the financial statements. Table 2 

explains in more detail the accounting criteria for determining when to 

record a liability in the federal financial statements, disclose it in the notes 

to the financial statements, or not disclose it at all.16

15Recognition means reporting a dollar amount on the face of the financial statements.

16Several other federal accounting standards also apply to environmental liability 

disclosures. The Federal Accounting Standards Advisory Board’s Federal Financial 

Accounting and Auditing Technical Release No. 2, Determining Probable and Reasonably 

Estimable for Environmental Liabilities in the Federal Government, provides further 

guidance to agencies in recognizing their environmental liabilities. SFFAS No. 6, 

Accounting for Property, Plant, and Equipment, addresses cleanup that is deferred until 

the operation of the associated property, plant, or equipment ceases permanently or 

temporarily. SFFAS No. 6 requires the entity to estimate the total cleanup cost when the 

associated property, plant, or equipment is placed into service and to recognize a portion of 

the estimated total cleanup cost as an expense during each period the facility is in 

operation.
Page 10 GAO-06-427 Environmental Liabilities

Table 2: Accounting Requirements for Recording or Disclosing a Liability in the Federal Financial Statements

Source: Statement of Federal Financial Accounting Standards, No. 5.

a

For liabilities related to litigation, probable is defined as a future confirming event(s) that is likely to 

occur. 

Federal agencies are also obligated to establish and maintain effective 

internal control. We issue the standards for internal control in the federal 

government, which provide the overall framework for establishing and 

maintaining internal control and for identifying and addressing major 

performance and management challenges and areas at greatest risk of 

fraud, waste, abuse, and mismanagement.17 According to the standards, 

internal control is an integral component of an organization’s management 

that provides reasonable assurance that agency objectives—such as the 

reliability of financial reporting and the effectiveness and efficiency of 

operations—are being met. These standards define the minimum level of 

quality acceptable for internal control in government and provide the basis 

against which internal control is to be evaluated.

Degree to which loss can be measured

Likelihood of future outflow 

or other sacrifice of resources

Loss amount can be 

reasonably measured

Loss range can be reasonably 

measured

Loss amount or range 

cannot be reasonably 

measured

Probable: Future confirming 

event(s) are more likely to occur 

than not a

Record a liability (reported on 

balance sheet and statement 

of net cost) 

Record a liability for best estimate 

or minimum amount in loss range 

if there is no best estimate, and 

disclose nature and range of 

estimated liability 

Disclose nature of liability and 

include a statement that an 

estimate cannot be made 

Reasonably possible: 

Possibility of future confirming 

event(s) occurring is more than 

remote and less than likely 

Disclose nature of possible 

liability and estimated loss 

amount 

Disclose nature of possible liability 

and estimated loss range 

Disclose nature of possible 

liability and include a statement 

that an estimate cannot be 

made 

Remote: Possibility of future 

event(s) occurring is slight 

No disclosure No disclosure No disclosure 

17GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1

(Washington, D.C.: November 1999).
Page 11 GAO-06-427 Environmental Liabilities

The Federal 

Government’s 

Environmental 

Liabilities Are 

Significant, 

Widespread, and 

Complex

For fiscal year 2004, the estimated cost for environmental cleanup reported 

in the federal government’s consolidated financial statements was 

$249.2 billion—the third largest reported liability. The government’s 

responsibility for cleanup extends to locations in every state of the nation, 

with Energy and Defense showing marked differences in the nature of 

these locations and the types of cleanup needed.18 Energy’s liability is 

primarily for the cleanup of waste resulting from the nation’s nuclear 

weapons complex, and the number of these locations is considerably fewer 

than the locations for which Defense is responsible. Although 

concentrated at fewer locations, the radioactivity associated with much of 

Energy’s cleanup work make the efforts technically difficult and costly. 

Defense’s liability is for contamination from current and past military 

activities at over 2,300 locations across the country, creating difficult 

management challenges. While cleanup at many of these locations may not 

carry the same technical challenges as those associated with Energy’s 

nuclear cleanup responsibilities, some Defense locations have chemical 

weapons or hazardous waste that carry considerable challenges of their 

own. 

The Federal Government’s 

Cleanup Responsibilities 

Are Vast and Span the 

Nation

The federal government’s reported environmental liability is an estimated 

amount, stated in current dollars. As illustrated in figure 1, Energy and 

Defense together made up $246 billion (99 percent) of the federal 

government’s total reported environmental liability at the end of fiscal year 

2004. The remaining $3 billion (1 percent) of the reported 2004 liability 

represented the estimated environmental cleanup costs of 12 other federal 

agencies, with the three largest being the Department of Transportation 

($1.1 billion), National Aeronautics and Space Administration 

($987 million), and the Department of Veterans Affairs ($339 million).

18For purposes of this report, we use the term location to refer to all of the environmental 

cleanup at a particular place, such as at Energy’s Hanford nuclear reservation or Defense’s 

Puget Sound Naval Shipyard. We use the term site to refer to the various cleanup projects or 

areas of contamination awaiting cleanup at a location. Thus, a particular cleanup location 

could have many contaminated sites.
Page 12 GAO-06-427 Environmental Liabilities

Figure 1: The Federal Government’s Reported Fiscal Year 2004 Environmental 

Liabilities by Agency

The size of the overall estimate makes the environmental liability amount 

the third largest reported liability that the federal government faces, behind 

federal debt securities held by the public with their related accrued interest 

and federal employee and veteran benefits payable.19 As such, 

management of the environmental liability represents one of the federal 

government’s major challenges from both financial and environmental 

perspectives. 

The majority of Energy’s environmental liability, reported at $182 billion as 

of September 30, 2004, comes from nuclear weapons production during 

World War II and the Cold War. During this period, the United States built a 

massive industrial complex to research, produce, and test nuclear 

weapons. At all locations where these activities took place, environmental 

contamination of buildings, soil, surface water, and groundwater occurred. 

This environmental legacy of nuclear weapons production also produced 

large volumes of radioactive and chemical waste requiring treatment, 

19Under federal accounting standards, the reported liability for social security is only that 

amount due and payable at the end of the fiscal year, not the estimated amount of future 

payments. As previously mentioned, the environmental liability estimate is likely misstated 

given Defense’s internal control weaknesses with its estimation processes, discussed later 

in this report.

26%

73%

Source: Fiscal year 2004 Financial Report of the U.S. Government and GAO.

1%

Other agencies

$3.2 billion

Department of Energy

$181.7 billion

Department of Defense

$64.3 billion 

•

•

•
Page 13 GAO-06-427 Environmental Liabilities

stabilization, and disposal. Collectively, the waste remaining from the 

development and production of nuclear weapons is referred to as legacy 

waste. Energy is also responsible for stabilizing and disposing of waste 

from ongoing operations at active facilities, such as at its national 

laboratories, which carry out scientific research for national and defense 

purposes.20 Additionally, Energy is tasked with disposing of radioactive 

special nuclear materials and depleted uranium surplus from our national 

defense needs, including the nation’s surplus plutonium and highly 

enriched uranium used in nuclear weapons. Energy has about 50 locations 

nationwide for which it is responsible for cleaning up, stabilizing, and 

disposing of hazardous and radioactive wastes and materials resulting from 

past and current operations.21 Figure 2 shows major Energy locations 

where legacy and active facility wastes require cleanup either currently or 

in the future. Although Energy’s legacy and active facility waste cleanup 

and disposal locations are dispersed throughout the United States, over 

40 percent of Energy’s total environmental liabilities estimate pertains to 

cleanup and related long-term monitoring at just three locations: Hanford 

near Richland, Washington; Savannah River near Aiken, South Carolina; 

and Idaho National Laboratory near Idaho Falls, Idaho.

20The national laboratories are a system of research facilities funded and controlled by 

Energy to advance science and help promote the economic and defensive interests of the 

country.

21Energy’s Office of Environmental Management (EM) has responsibility for managing the 

environmental cleanup of its legacy waste. Energy refers to “active facilities” as those 

facilities requiring cleanup that are operated by programs other than EM. The Office of 

Legacy Management has responsibility for long-term stewardship after locations are 

remediated and closed.
Page 14 GAO-06-427 Environmental Liabilities

Figure 2: Energy’s Cleanup Locations and Waste Repositories as of September 30, 2004

Note: Map locations not drawn to scale.

In contrast to Energy, Defense reports a need to clean up over 2,300 

locations around the country. This includes about 600 current and base 

realignment and closure (BRAC) military locations and over 1,700 formerly 

Legacy cleanup

Active facilities

Legacy and active

Waste repositories

(18)

(11)

(16)

 (2)

Source: U.S. Department of Energy support for its September 30, 2004, audited financial statements, and GAO.

Location type
Page 15 GAO-06-427 Environmental Liabilities

used defense locations in every state in the country.22 Defense is required 

to clean up contamination resulting from past and current waste disposal 

practices, leaks, spills, and other activities that have created a public health 

or environmental risk. Defense is also responsible for costs of (1) closure 

and monitoring associated with the transportation, storage, and disposal of 

hazardous wastes, (2) disposal of weapons systems such as nuclear ships 

and submarines and their associated spent nuclear fuel, (3) storage and 

disposal of highly toxic chemical weapons, and (4) environmental cleanup 

related to base realignments and closures. As figure 3 shows, every state 

has at least one such Defense cleanup location, and 14 states have more 

than 100.

22These formerly used defense sites were once owned or controlled by Defense but are now 

owned by states, local governments, and individuals. The U.S. Army Corps of Engineers is 

responsible for identifying, investigating, and cleaning up hazardous, toxic, and radioactive 

wastes; ordnance and explosive wastes; and unsafe buildings if Defense caused the unsafe 

condition.
Page 16 GAO-06-427 Environmental Liabilities

Figure 3: Number of Defense’s Reported Cleanup Locations by State 

Note: Map does not reflect the locations of chemical weapons and nuclear ships and submarines. The 

number of states reflected in the legend includes the District of Columbia.

Source: Defense’s Environmental Restoration Program Database as of September 30, 2004, and GAO. 

Up to 50

51-100 

Over 100

Number of locations

(20)

(17)

(14)
Page 17 GAO-06-427 Environmental Liabilities

Cleanup Efforts Pose 

Diverse Challenges

As shown in figure 4, about $130 billion (72 percent) of Energy’s reported 

fiscal year 2004 environmental liability relates primarily to the cleanup and 

long-term stewardship of legacy waste at sites where weapons research, 

production, and testing took place. By comparison, Energy’s 2004 liability 

for the estimated cost of cleaning up its active facilities when current 

operations cease was only $30 billion, 17 percent of the total. Energy’s plan 

is to dispose of its high-level waste and spent nuclear fuel in a deep 

geologic repository that will also be used for the disposal of such waste 

from other federal agencies and commercial nuclear generators. Energy’s 

allocated share of the disposal cost at the repository is $15 billion, 

8 percent of its reported environmental liability.23 The remaining $6 billion,

3 percent of the liability, primarily relates to the disposal of special nuclear 

material in excess of national defense needs. 

23As discussed later in this report, the estimated target date for the opening of the repository, 

which currently hasn’t been constructed, has been delayed several times due to various legal 

and regulatory challenges. Due to recent difficulties, Energy has not committed to a new 

target date and thus, there is significant uncertainty as to what the final cost of the 

repository might be.
Page 18 GAO-06-427 Environmental Liabilities

Figure 4: Energy’s Reported Fiscal Year 2004 Environmental Liabilities by Type

Energy’s cleanup and disposal efforts involve difficult and costly technical 

challenges. The physical characteristics and radioactivity of its wastes 

affect the handling requirements, treatment, and disposal methods, and 

thus the cost of cleanup. For example, Energy’s cleanup efforts involve 

large amounts of radioactive waste from nuclear weapons production. 

While the level of radioactivity varies, some waste—such as waste 

contaminated with plutonium—will stay radioactive for thousands of 

years. As a result, some wastes must be remotely handled with special 

robotic machines sealed in heavily shielded rooms because they are too 

dangerous for workers to physically handle. This further adds to the cost 

of cleanup. 

10%

17%

8%

62%

Source: Energy’s Fiscal Year 2004 Performance and Accountability Report and GAO.

3%

Special nuclear material disposal

$6.1 billion

High-level waste and spent nuclear

fuel disposal

$14.9 billion

Legacy waste cleanup

$112.8 billion

Long-term stewardship

$17.5 billion

•

•

•

•

• Active facilities cleanup

$30.4 billion
Page 19 GAO-06-427 Environmental Liabilities

Figure 5: Waste Drum Being Opened and Contents Processed through a RemoteHandled Waste Facility

Furthermore, Energy is developing and testing technologies and methods 

of treatment for certain types of waste because there are currently no 

proven methods for cleaning them up. As discussed later in this report, 

some of these treatment methods have proved unsuccessful, requiring 

Energy to pursue new methods. This lack of treatment technology means 

that the cost to treat these wastes will likely increase. Also, the hazardous 

and long-lived nature of much of Energy’s waste has resulted in contention 

between interested parties as to the best way and extent to which cleanup 

should occur. As discussed later in this report, this has at times resulted in 

legal challenges, which can also increase the extent and cost of cleanup. 

Source: U.S. Department of Energy.
Page 20 GAO-06-427 Environmental Liabilities

The Defense portion of the federal government’s environmental liabilities 

also poses significant challenges. Defense’s environmental liabilities, 

shown in figure 6, consist primarily of (1) hazardous waste disposal and 

cleanup on training ranges, including removal of unexploded ordnance, 

(2) disposal of nuclear ships and submarines, and (3) disposal of chemical 

weapons. The “other” category includes cleanup of hazardous wastes 

(such as petroleum products and PCBs) at military bases and formerly used 

defense sites. 

Figure 6: Defense’s Reported Fiscal Year 2004 Environmental Liabilities by Type

Although the technical processes for dealing with Defense’s cleanup may 

be more clearly defined and understood at this point than the processes for 

dealing with some of Energy’s cleanup of high-level radioactive wastes, 

many of Defense’s cleanup efforts are nonetheless significant and 

challenging. Not only are Defense’s cleanup efforts spread across the 

nation, but estimating the future costs of disposing of nuclear ships and 

submarines is complicated by the uncertainty surrounding the final 

disposal location of spent nuclear fuel, as discussed more fully later in this 

report. Further, Defense has responsibility for safeguarding the 

environment and human life from the extreme risks inherent in storing the 

nation’s stockpile of deadly chemical weapons—including highly toxic 

17%

30%

17%

36%

Source: Defense’s Fiscal Year 2004 Performance and Accountability Report and GAO.

Chemical weapons

$11.2 billion

Training range cleanup

$22.6 billion

Nuclear ships and submarines

$11.2 billion

•

•

•

•

Other cleanup

$19.5 billion
Page 21 GAO-06-427 Environmental Liabilities

nerve agents and sulfur mustard blister agents—while working to develop 

alternative methods for their disposal. 

Energy’s Processes and 

Controls Allowed It to 

Produce Estimates in 

Accordance with 

Federal Accounting 

Standards; Defense’s 

Did Not

Energy’s processes and internal controls for developing its overall 

environmental liability estimate have evolved and improved over time to 

the point where, for fiscal years 1999 through 2004, its auditors determined 

that the financial statements that reported the estimated environmental 

liabilities were presented fairly and in accordance with federal accounting 

principles.24 Key components of Energy’s environmental liability 

estimation process include the issuance of internal control guidance to its 

field locations for the development and annual update of environmental 

liability estimates; independent reviews of selected projects; and 

establishment of a requirement that project work scope changes and cost 

increases be approved by a control board. Another key part of Energy’s 

financial reporting process is its “contingency estimate,” which is used to 

take into account the inherent uncertainties in estimating the cost of 

environmental cleanup activities. Adding this component to the liability 

estimate helped Energy achieve a clean financial statement audit opinion in 

fiscal year 1999 and subsequent years. While Energy’s auditors identified 

some issues related to the environmental liability reporting process that 

require corrective action, none of these were significant enough to 

materially impact the reasonableness of the overall liability estimate. 

Defense has made some improvements to its controls in recent years, such 

as issuing management guidance for reporting environmental cleanup costs 

that are not funded under the Defense Environmental Restoration 

Program. However, there remain significant weaknesses in Defense’s 

processes and internal controls that have hindered it from producing 

auditable estimates of its environmental liabilities. Specifically, Defense’s 

outdated and incomplete accounting guidance for developing and reporting 

its environmental liabilities estimates led to errors in financial reporting; its 

policies and procedures for determining, reporting, and documenting 

24Energy’s auditors disclaimed an opinion on Energy’s fiscal year 2005 financial statements 

due to limitations on the scope of work they could perform on the overall audit. During 

2005, Energy implemented a new accounting system and chart of accounts and reorganized 

its finance and accounting services, which resulted in a significant number of conversion, 

posting, reconciliation, and reporting issues that Energy was unable to resolve by fiscal 

year-end. As a result, the auditors were not able to perform the work necessary to express 

an opinion on Energy’s financial statements for the year. Energy reported environmental 

liabilities of $189.7 billion in its fiscal year 2005 financial statements.
Page 22 GAO-06-427 Environmental Liabilities

environmental liability estimates were not consistently followed; and none 

of the military services had adequate controls in place to help ensure that 

all identified contaminated sites were included in their environmental 

liability cost estimates. These weaknesses not only impacted the reliability 

of Defense’s environmental liability estimate, but also that of the federal 

government as a whole. 

Auditors Found Energy’s 

Processes and Controls 

Sufficient to Produce 

Reliable Environmental 

Liability Estimates in 

Accordance with Federal 

Accounting Standards 

Over the years, the design of Energy’s processes and internal controls for 

developing its overall environmental liability estimate has evolved and 

improved, which enabled its auditors to determine that Energy’s financial 

statements that reported these estimates were presented fairly and in 

accordance with federal accounting principles from fiscal years 1999 

through 2004. Beginning in fiscal year 1999, Energy issued written internal 

control guidance to its field offices outlining requirements they are to 

follow in the development and annual update of environmental liability 

estimates, such as assigning responsibilities, maintaining supporting 

documentation, and reviewing and approving the estimates. Energy’s 

estimating process for its legacy waste cleanup, which represented 

62 percent of its fiscal year 2004 environmental liability estimate, normally 

starts with life cycle cost estimates that are usually prepared by Energy’s 

contractors based on the extent of cleanup, timing of the work, and funding 

levels. External independent reviews are to be conducted each year on 

selected projects, and headquarters management is to perform baseline 

validation reviews of projects before they are put under Energy’s 

configuration control process. The configuration control process requires 

that proposed changes to a particular project, such as a change in cost 

estimate or a change in work scope, be approved by Energy’s configuration 

control board.25 Energy’s second largest environmental liability 

component—the future clean up of its active facilities—represented 

17 percent of its 2004 environmental liability total. Unlike the legacy waste 

component that is managed entirely by Energy’s Office of Environmental 

Management, active facilities may be managed by any of several different 

programs, such as Energy’s Office of Science or the National Nuclear 

25The configuration control board is made up of deputy assistant secretaries in Energy’s 

Office of Environmental Management. According to one board official, the board meets at 

least monthly to review project baselines and proposed baseline changes. Proposed 

baseline changes that result in a decrease in cost estimate do not require the configuration 

control board’s approval but do require formal notification to the board of the change.
Page 23 GAO-06-427 Environmental Liabilities

Security Administration (NNSA).26 Energy’s Office of the Chief Financial 

Officer developed an approach in 1996 that uses a cost-estimating model to 

develop its active facilities baseline estimate. With the model, various 

parameters, such as facility type and size, are used to estimate the total 

cost of cleanup, including facility deactivation and decommissioning. 

Some locations, such as the Idaho National Laboratory, have developed 

their own site-specific active facilities liability estimates, and thus, are not 

included in the baseline model. Idaho lab officials indicated they develop 

their estimate based on more specific information about their facilities than 

the baseline model requires, which enables them to prepare a more 

detailed active facilities estimate.

Accounting standards recognize that no one accounting estimate can be 

considered accurate with certainty.27 One of the auditors’ criticisms of 

Energy’s fiscal year 1998 environmental liability estimate was that it did not 

sufficiently reflect significant uncertainties associated with the technical 

cleanup scope of the program. Thus, in fiscal year 1999 Energy began 

adding an amount—which Energy refers to as a contingency estimate—to 

its environmental liabilities baseline amount to help recognize the risks 

associated with its projects, such as the reliance on new technology and 

complex construction projects. In fiscal year 2004, Energy added 

$33.2 billion to its baselines estimates for this contingency estimate, 

18.3 percent of its total environmental liabilities, which the auditors 

reviewed as part of Energy’s annual financial statement audit.28

Although the contingency amount is significant, it is not intended to 

estimate all uncertainties. Federal accounting standards require recording 

a liability only when a future outflow of resources is considered both 

probable and measurable. The estimated liability may be a specific amount 

or range of amounts. If the estimate is a range, the standards require only 

26NNSA is a separate entity within Energy responsible for the management and security of 

the nation’s nuclear weapons, nonproliferation, and naval reactor programs.

27American Institute of Certified Public Accountants, Statement on Auditing Standards No. 

57, Auditing Accounting Estimates, AU §342.14. This standard became effective for audits 

of financial statements for periods beginning on or after January 1, 1989.

28The $33.2 billion contingency estimate primarily represents the contingency amount 

generated by Energy’s contingency model. In some cases, specific locations or projects 

develop their own contingency amounts separate from the model. The actual contingency 

percentages generated by the model in fiscal year 2004 ranged from 26.3 percent for the 

legacy waste component to 16.9 percent for the long-term stewardship portion of the 

liability.
Page 24 GAO-06-427 Environmental Liabilities

the minimum amount in the range to be recognized unless some amount 

within the range is a better estimate. Energy developed its contingency 

methodology to derive its best estimate within the range. For each project, 

the cognizant project manager assigns a risk score of one to five to each of 

three project characteristics: project definition, which refers to how well 

the project is defined in terms of its cost, schedule, and scope; innovation, 

which refers to the maturity of technology upon which the project is 

reliant; and complexity, which refers to the difficulty and number of 

processing and treatment steps required. These risk scores are then input 

to a statistical model that predicts the range of total life-cycle cleanup costs 

and the mean within the range. The difference between the mean and the 

current project baseline total is the amount that is recorded as the 

contingency estimate.

This additional contingency amount is necessary because Energy’s cleanup 

cost estimates can and have experienced significant increases. For 

example, Energy is currently constructing a waste treatment plant 

consisting of three treatment facilities, an analytical laboratory, and several 

support structures to attempt to treat over 53 million gallons of radioactive 

and hazardous waste at its Hanford location, but this complex project has 

experienced several cost increases. It was originally approved for $4.3 

billion in 2000, but later increased to $5.8 billion in 2003. Subsequent 

problems—including required changes to the design’s seismic criteria after 

the seismic assumptions were found inadequate—resulted in the 

contractor revising the cost estimate in 2005 to $8.0—$8.3 billion, which 

Energy has not yet approved. The Army Corps of Engineers (Corps) 

reviewed the contractor’s revised cost estimate under an agreement with 

Energy, and found that the actual cost could be an additional $1.3 billion 

higher than the revised estimate. Although Energy has not yet approved a 

revised estimate, both the contractor’s revised estimate and Corps’ review 

of it indicated that the final cost will likely be significantly higher than the 

current $5.8 billion estimate. At Energy’s request, the contractor 

subsequently submitted a more detailed cost estimate in early fiscal year 

2006, which the Corps is now reviewing. Because of the uncertainty of the 

project estimate, Energy added both a project-specific contingency 

estimate and included this project in the statistical model calculation of its 

overall contingency estimate in fiscal year 2005. These construction cost 

increases are the types of things for which Energy established its 

contingency amount. Using this overall approach to develop its 

environmental liability estimate, Energy has been able to produce an 

auditable estimate from fiscal years 1999 through 2004. 
Page 25 GAO-06-427 Environmental Liabilities

Figure 7: Aerial View of the Waste Treatment Plant under Construction at Hanford

Minor Improvements at 

Energy Would Help 

Enhance Reliability of 

Estimates

In its audit report on Energy’s fiscal year 2004 financial statements, 

Energy’s independent auditors did not identify any material weaknesses or 

reportable conditions related to environmental liabilities, but did identify 

two matters related to environmental liabilities that warranted 

communicating to management for corrective action.29 While not material 

to the overall estimate, continued attention to improvement helps ensure 

the future auditability of the estimate. The following are the issues the 

auditors identified in fiscal year 2004.

Source: U.S. Department of Energy.

29Reportable conditions are significant deficiencies in the design or operation of internal 

control that could adversely affect the entity's ability to record, process, summarize, and 

report financial data consistent with the assertions of management in the financial 

statements. A material weakness is a reportable condition in which the design or operation 

of one or more of the internal control components does not reduce to a relatively low level 

the risk that misstatements caused by error or fraud in amounts that would be material in 

relation to the financial statements being audited may occur and not be detected within a 

timely period by employees in the normal course of performing their assigned functions.
Page 26 GAO-06-427 Environmental Liabilities

• As previously discussed, Energy uses a cost-estimating model to 

estimate its environmental liability for the future remediation of active 

facilities. Field location personnel are responsible for inputting and 

verifying certain facility data such as type of facility (e.g., office space, 

laboratory), size, and a general characterization of the type of 

contamination in the facility. The model then uses the data to estimate 

the active facilities’ portion of the environmental liability estimate. In 

fiscal year 2004, the auditors tested a statistical sample of facilities and 

structures from each of five locations to test the reliability and accuracy 

of selected facility data, and found immaterial errors at two of the five 

locations. The auditors made recommendations to correct the specific 

errors and to improve internal controls for verifying the accuracy of the 

data.

• The auditors’ review of selected key projects identified two instances 

where the field location did not have adequate supporting 

documentation on file for its cost estimates. For both projects, the field 

location was ultimately able to produce detailed information that 

satisfied the auditors as to the reasonableness of the cost estimates. 

However, the auditors made recommendations to establish procedures 

to ensure that all project cost estimates were adequately supported by 

written documentation and reviewed.

In fiscal year 2005, the auditors also noted immaterial errors in the active 

facilities’ data and supporting documentation tested, although the specific 

locations at which these errors were identified may have changed. The 

auditors made specific recommendations in each instance, and indicated 

that management generally agreed with the findings and was responsive to 

the recommendations.

In addition, we learned of an instance during our review where the 

estimated cleanup cost of a particular project was erroneously excluded 

from a prior-year environmental liability estimate. Specifically, in fiscal 

year 2003, Energy’s Office of Environmental Management recorded a 

liability for the estimated cost of operating the Savannah River Site’s H 

Canyon Processing Facility through fiscal year 2007, and assumed that 

NNSA would take over responsibility for the facility and record the liability 

for fiscal years 2008 through 2010. However, NNSA never agreed to take 

over responsibility for this facility and thus did not record those costs, 

which were estimated at $632 million. The Office of Environmental 

Management subsequently included the full amount in its fiscal year 2004 

estimates. Subsequent to the costs being excluded, Energy issued a policy 
Page 27 GAO-06-427 Environmental Liabilities

requiring such transfers to be formally documented, agreed to by the 

affected parties, and approved by the Secretary of Energy through the 

Chief Financial Officer. If properly implemented, this should help ensure 

that estimates associated with such transfers are not excluded in future 

estimates.

While these errors and omissions were not material to the overall liability 

estimate, continued attention and improvements to Energy’s internal 

controls would help provide additional assurance that its overall 

environmental liability estimates are reliable and are reported in 

accordance with federal accounting standards.

Outdated and Incomplete 

Financial Management 

Guidance Impeded 

Defense’s Ability to Reliably 

Estimate Environmental 

Liabilities 

At the time of our review, the accounting guidance provided by Defense’s 

Financial Management Regulations (FMR) had not been updated to reflect 

current federal accounting standards for determining and reporting 

environmental liabilities. This outdated and incomplete guidance 

contributed to financial reporting errors in fiscal years 2004 and 2005 as 

follows. 

• Changes in federal accounting standards, which eliminated the asset 

category of National Defense Property, Plant, and Equipment, and 

changed the required accounting for the associated environmental 

liabilities were issued in May 2003.30 Defense’s FMR had not been timely 

updated to reflect the effect of these changes for recognition of cleanup 

costs related to nuclear ships and submarines. Consequently, the Navy 

was recording the cleanup cost estimates in full at the time the ships and 

submarines were placed into service rather than incrementally over the 

useful life of the vessels, as the new standards required. This could 

result in an overstatement of the estimated environmental liability for 

the affected vessels.

• FMR accounting guidance did not completely identify all the budgetary 

cost elements that should be considered when determining the unpaid 

costs required to be included in reported environmental liability 

30Statement of Federal Financial Accounting Standards, No. 23, Eliminating the Category 

National Defense Property, Plant, and Equipment.
Page 28 GAO-06-427 Environmental Liabilities

estimates.31 In certain circumstances, such as for estimates of 

remediation costs on BRAC bases, some Defense component officials 

told us that they were excluding certain cleanup costs once 

appropriations had been received to pay those costs, even though actual 

payments had not yet been made. As a result, certain costs (e.g., 

unsigned contracts) intended to be paid for with prior-year budgetary 

authority were not included in BRAC cleanup cost estimates, even 

though this is required to comply with federal accounting standards. 

Defense Office of Comptroller financial management personnel told us that 

the FMR had not been updated in a timely manner because of personnel 

turnover and inadequate staffing. Subsequent to our inquiries, but prior to 

the release of this report, the FMR was updated to address the issues we 

identified, and to reflect current federal accounting standards requirements 

for measuring and recognizing estimated cleanup costs related to 

environmental liabilities. According to Defense component officials, 

cleanup cost estimates will be reported in accordance with the new FMR 

guidance no later than September 30, 2006. 

Defense’s Existing Policies 

and Procedures for 

Determining, Reporting, and 

Documenting 

Environmental Liability 

Estimates Were Not 

Consistently Followed 

In addition to the guidance problems, certain policies and procedures 

included in Defense’s FMR related to environmental liabilities are not being 

consistently followed by some military service components. Further, there 

continues to be a lack of adequate documentation supporting estimates of 

environmental liabilities, which precluded Defense’s management from 

properly carrying out their oversight responsibilities related to the 

estimation process. This lack of documentation also precludes Defense’s 

financial auditors from making a determination of the reasonableness of 

the liability amount recorded in the financial statements. These 

compliance lapses were caused in part by a lack of financial management 

review and oversight of the environmental liability estimation process at 

both the Department of Defense and the military services level. We 

identified several instances where the failure to follow established policies 

and procedures resulted in errors in the liability estimates, as follows.

• The Navy has not been estimating and reporting all costs for disposing 

of spent nuclear fuel produced by its nuclear ships and submarines. The 

31Department of Defense, Financial Management Regulations (FMR) vol. 4, ch. 13, 

Accounting Policy and Procedures, Environmental and Nonenvironmental Liabilities

(Washington, D.C.: October 2005).
Page 29 GAO-06-427 Environmental Liabilities

Navy’s financial reporting and program management personnel believed 

that the Navy’s responsibility for estimating costs for spent nuclear fuel 

disposal stopped with the fuel’s removal from the ship or submarine, 

since at that point the fuel became the property of Energy. The Navy’s 

management assumed, but had not verified, that Energy was recording 

this liability. However, further discussions with the Navy’s and Energy’s 

financial management confirmed that the liability for disposing of 

nuclear fuel generated by Navy ships and submarines was not being 

estimated and reported by either department. Prior to the issuance of 

this report, Navy financial management assumed responsibility for 

reporting a liability for disposing of spent nuclear fuel, which Defense 

has estimated may be as much as $4 billion, in its financial statements 

beginning in fiscal year 2006. 

• The Navy’s financial management was unaware that the Navy had been 

discontinuing the reporting of cost estimates for disposing of nuclear 

ships and submarines when appropriated funds were obligated, which is 

prior to the actual disposal costs being paid, and is contrary to federal 

accounting requirements. Naval Sea Systems, which has responsibility 

for estimating and reporting these disposal liabilities, ceased doing so 

once individual ships or submarines were scheduled for inactivation, a 

contract for disposal was executed with the Puget Sound Naval 

Shipyard, and funds were obligated for the cost of disposal. Because it 

is not unusual for the actual inactivation of a ship or submarine to be 

extended to meet operational demands and for the disposal activities to 

take over a year to accomplish, costs may not be paid for months or 

years after the liability estimate was omitted from the reporting process. 

As a result, the Navy has understated reported environmental liabilities 

by the unpaid costs of ships and submarines still in the process of 

inactivation and disposal. 

• The Air Force has not been including in its environmental liability 

estimates all of the unpaid costs that are required by both Defense’s 

FMR and federal accounting standards.32 Personnel at two Air Force 

major commands told us that estimates for completing Defense 

Environmental Restoration Program (DERP) efforts reflected only 

32Department of Defense, Financial Management Regulations (FMR), vol. 4, ch. 13, 

Accounting Policy and Procedures, Environmental and Nonenvironmental Liabilities

(Washington, D.C.: October 2005) and Statement of Federal Financial Accounting 

Standards, No. 5, Accounting for Liabilities of the Federal Government.
Page 30 GAO-06-427 Environmental Liabilities

those costs that had not yet been funded. Costs that had been incurred 

in prior years and for which funding had been received but payments 

had not been made were not included in the DERP estimates. These 

omissions were also contrary to Air Force guidance that required 

estimates to include “all anticipated costs required to effect the 

restoration of the site.”33 Because Air Force financial management did 

not have a monitoring process in place to ensure that guidance was 

understood and being followed, the Air Force has been understating its 

cost estimates by the amount of incurred but unpaid prior-year costs. 

• The military services are not preparing or retaining documentation that 

supports the consistency and adequacy of their reported environmental 

cleanup and disposal cost estimates. In its annual Performance and 

Accountability Reports for fiscal years 2003 through 2005, Defense has 

acknowledged—and independent financial auditors have reported—

that inadequate supporting documentation for environmental liabilities 

is an ongoing material weakness in the department’s system of internal 

control. In addition, in recent audit reports specifically targeting 

environmental liability controls, various military audit agencies reported 

a general lack of adequate documentation to support cost estimates in 

the military services.34 One auditor told us that environmental 

personnel completing or updating environmental liability estimates 

erroneously believed that an electronic file created by a cost estimating 

model was sufficient supporting documentation, even though the model 

did not explain or contain source documentation for variables used in 

the cost calculation, such as remaining capacity, usage rates, 

contractors estimates, or engineering studies. According to military 

service representatives, environmental engineers see no need to retain 

supporting documentation for cost estimates since management does 

not request or review it. Neither financial or program management nor 

auditors will be able to assess the reliability of environmental cost 

estimates until estimators develop and retain sufficient documentation 

to support their calculations. 

33Department of the Air Force, Thirty Year Maximum Combined Remedial Action 

Operation/Long-Term Management Criteria. 

34U.S. Department of Defense, Office of Inspector General, Financial Management: 

Environmental Liabilities Required To Be Reported on Annual Financial Statements, D2004-080 (Arlington, VA: May 5, 2004) and Department of the Navy, Naval Audit Service, 

Agreed-Upon Procedures Attestation Engagement of Department of the Navy General 

Fund, Fiscal Year 2004 Environmental Liabilities Account, N2005-0050 (Washington, 

D.C.: July 15, 2005).
Page 31 GAO-06-427 Environmental Liabilities

Defense’s Internal Controls 

Are Inadequate to Help 

Ensure That All Cleanup 

Sites Are Included in the 

Environmental Liability 

Estimate 

Even if the guidance and monitoring issues previously discussed are 

remedied, none of the military services have a structured process in place 

and working at the installation level to provide reasonable assurance that 

all known contaminated sites and hazardous operations are included in the 

reported environmental liability cost estimates. One example of such a 

control would be a comparison of the cleanup sites and hazardous waste 

operations actually being reported by specific programs on each base to a 

comprehensive inventory of all sites and hazardous waste operations 

located on each base that was prepared without regard to reporting 

program or Defense component use. Defense’s FMR requires a 

reconciliation of environmental and property records, and indicates the 

purpose of the resulting inventory is to ensure that all disposal liabilities 

are recognized.35 The FMR stops short of specifically requiring a 

comparison of the reconciled site inventory to sites included in 

environmental liability reporting, and no Army, Navy, or Air Force program 

or financial management personnel we spoke with were aware of any 

activity at the base level making such a comparison. As a result, 

contaminated sites and operations that are not included in a reporting 

program are at risk of not being identified and reported as required, and the 

related cost estimates could be understated. For example, we spoke with 

Defense component personnel who expressed conflicting views about 

responsibility for reporting cleanup costs associated with underground 

storage tanks physically located on a military base that contain fuel owned 

and managed by another Defense component. Thus, the associated liability 

is at risk of not being reported by any Defense component. Without a 

comparison of site lists as described, such an oversight would likely go 

undetected.

Major Uncertainties 

Will Affect Future 

Cleanup Costs and 

Funding Demands

Beyond the issues previously discussed that make Defense’s and the 

federal government’s environmental liability estimates unauditable, the 

ultimate cost of the cleanup will be affected by major uncertainties, the 

impact of which cannot be currently estimated. These uncertainties, which 

primarily involve the lack of feasible or proven remediation technologies, 

regulatory impediments and legal challenges to cleanup and disposal, and 

uncertainties as to the agencies’ abilities to meet their current cost and 

35Department of Defense, Financial Management Regulations (FMR) vol. 4, ch. 13,

Accounting Policy and Procedures, Environmental and Nonenvironmental Liabilities

(Washington, D.C.: October 2005).
Page 32 GAO-06-427 Environmental Liabilities

schedule targets, do not impact the auditability of the liability because 

under current federal accounting standards a potential liability that cannot 

be estimated but is considered at least reasonably possible to occur is not 

required to be recorded on the face of the financial statements, only 

disclosed in the notes. Both Energy and Defense currently disclose various 

uncertainties in the notes to their financial statements, although 

improvements to their disclosures are warranted at both agencies. It is 

important to understand the nature and extent of these uncertainties in 

assessing future funding demands for environmental cleanup because they 

have the potential to materially affect the ultimate cost and timing of 

cleanup activities.

Remediation Technologies 

for Some Sites Are 

Nonexistent or Uncertain

The nature and extent of contamination the federal government must clean 

up is complex and vast, and suitable technologies to address all of the 

waste do not currently exist. As stated in Energy’s fiscal year 2004 

Performance and Accountability Report, estimated cleanup costs at sites 

for which there is no current feasible remediation approach would be 

higher if some remediation were assumed for these areas, but because 

Energy has not identified effective remediation technologies for these sites, 

no basis for estimating costs is available. Energy has identified 18 

significant uncertainties, at various and multiple locations, where no 

currently feasible remediation technology exists or the effectiveness of 

technologies currently being explored remains to be seen. An example of a 

location for which Energy reported that cleanup costs were excluded is the 

nuclear explosion test area at the Nevada Test Site. The Nevada Test Site, 

an area larger than Rhode Island, was the site of over 900 atmospheric and 

underground nuclear test explosions that occurred over four decades 

ending in 1992. These nuclear detonations left residual radioactivity, but 

most of the radioactivity is in highly inaccessible underground locations. 

According to Energy, effective, feasible remediation technologies have not 

yet been developed to address this widespread contamination, and 

Energy’s fiscal year 2004 environmental liability estimate primarily for the 

Nevada Test Site only included an estimate of approximately $3.3 billion for 

monitoring of groundwater contamination plumes, disposal of active 

facilities, and long-term stewardship.
Page 33 GAO-06-427 Environmental Liabilities

Figure 8: Craters Left As A Result Of Underground Nuclear Testing At The Nevada 

Test Site

In other cases, potential remediation technologies have been identified, but 

their effectiveness has yet to be successfully demonstrated. For example, 

during operations at Energy’s Hanford location from 1943 through 1989, 

Energy generated large volumes of hazardous and radioactive waste. Some 

of this waste was deposited directly into the ground, while some of the 

most hazardous and radioactive material was stored in underground tanks 

that have leaked contaminants into the soil. Over time, concern has 

developed about the impact of Hanford’s waste moving through the ground 

and toward the Columbia River. As we have previously reported, Energy 

has used three main approaches to treat the groundwater near the river, but 

Source: National Nuclear Security

Administration / Nevada Site Office
Page 34 GAO-06-427 Environmental Liabilities

has experienced problems with all three.36 For example, one approach has 

been to use a chemical barrier near the Columbia River to block chromium 

from entering the river near major fish breeding areas.37 The barrier 

consists of a series of wells where Energy injected a chemical into the 

groundwater that reacts with chromium to change it to a less hazardous 

and less mobile form. However, in 2004 Energy reported that the barrier 

was not fully effective, and that the hazardous form of chromium was 

detected in groundwater readings beyond the barrier. Energy is currently 

evaluating alternative approaches to contain the chromium or fix the 

barrier. Until an effective remediation technology can be identified, tested, 

and implemented, the ultimate cost of cleaning up this groundwater 

contamination remains unknown. 

Regulatory Requirements 

and Legal Challenges 

Remain Unresolved

Various regulatory requirements and legal challenges also affect the 

ultimate cost, extent, and timing of cleanup at several sites. The primary 

uncertainty facing the federal government’s cleanup efforts relates to the 

opening of the national geologic repository for high-level waste and spent 

nuclear fuel. The disposal of Energy’s and Defense’s high-level waste and 

spent nuclear fuel is contingent upon the opening of this repository 

planned for Yucca Mountain. However, multiple challenges related to the 

regulatory and legal requirements it must meet have caused several delays 

in its licensing and design. Additionally, the degree of cleanup required by 

regulations can vary from site to site and depend on how the land is 

expected to be used after it has been cleaned up. These decisions must 

usually be agreed upon by various federal and state agencies, with input 

from interested parties, such as community representatives. Even after an 

agreement has been signed, various parties may raise legal challenges to 

the agreement, the outcome of which could affect both the cost and timing 

of cleanup plans. Thus, it can take years to determine the final cleanup 

requirements for some sites. Until these issues are resolved, the ultimate 

cost of cleanup and disposal of the federal government’s environmental 

contamination cannot be fully determined. The following are examples of 

current regulatory and legal uncertainties Energy and Defense are facing, 

the resolution of which could significantly impact the final cost of cleanup.

36GAO, Department of Energy: Preliminary Information on the Potential for Columbia 

River Contamination from the Hanford Site, GAO-06-77R (Washington, D.C.: Nov. 4, 

2005).

37Chromium is toxic to fish and this portion of the Columbia River is a major salmon 

breeding area.
Page 35 GAO-06-427 Environmental Liabilities

• Over the years, regulatory requirements and legal challenges have 

caused multiple delays in the licensing and design of the Yucca 

Mountain geologic repository, which is intended to be the nation’s first 

high-level waste and spent nuclear fuel disposal site. For example, 

Energy reported that it did not meet its goal of submitting a license 

application for the repository to the Nuclear Regulatory Commission by 

the end of calendar year 2004, in part due to a July 2004 decision by the 

U.S. Court of Appeals to invalidate the Environmental Protection 

Agency’s (EPA) radiation standard, which set a 10,000 year time frame in 

which the amount of radiation that can be released from the repository 

would be limited.38 The court held that EPA violated section 801 of the 

Energy Policy Act of 1992, which required the agency to issue standards 

for Yucca Mountain based upon and consistent with findings by the 

National Academy of Sciences. In August 2005, EPA issued a proposed 

standard that extended protection to 1 million years to be consistent 

with the Academy’s recommendations. Because the repository must be 

designed to comply with the EPA standard, approval of a revised 

standard is critical. Consequently, Energy acknowledged that it will not 

meet its goal of commencing disposal operations by 2010 but has not 

committed to a new target date for opening the repository. Energy 

acknowledged that delays in opening the repository could cause project 

costs to increase, including the cost of constructing the repository as 

well as interim storage and other costs, for the Energy and Defense 

locations that are expected to ship waste to Yucca Mountain. For 

example, officials at Energy’s Savannah River location estimated that if 

there was a 5-year delay in the opening of the repository, the additional 

costs incurred for their spent nuclear fuel disposal could range 

anywhere from about $50 million to $200 million, depending on how 

Energy decides to deal with the fuel during such a delay.

38Energy is responsible for the construction, management, and operation of the intended 

geologic repository at Yucca Mountain. EPA is responsible for developing site-specific 

standards for Yucca Mountain to protect public health and the environment from harmful 

exposure to the radioactive waste that would be stored and disposed of in the repository. 

The Nuclear Regulatory Commission is responsible for licensing Energy to construct the 

repository and to dispose of high-level radioactive waste and spent nuclear fuel in the 

repository, which includes determining whether Energy can meet EPA’s standards. 
Page 36 GAO-06-427 Environmental Liabilities

Figure 9: View of an Exploratory Tunnel at Yucca Mountain

• The 2005 Defense Base Closure and Realignment Commission 

recommended 22 major base closures and 33 major base realignments. 

Although cleanup costs for Defense property in prior BRAC rounds are 

included in Defense’s environmental liabilities, some of the cleanup 

costs that will result from the 2005 BRAC round have not yet been 

estimated, such as the estimated cleanup cost of currently operational 

ranges with ordnance or other explosive material. In addition, the 

decision to realign or close a base may result in a change to its planned 

use and thus require a change in cleanup estimate based on those plans. 

For example, the cleanup requirements and therefore the cleanup costs 

are less if the property is expected to be used for industrial purposes 

than if it is to be used for residential purposes. But before planned use 

can be decided, Defense must determine who the next owner will be. If, 

as in previous BRAC rounds, most property is transferred to nonfederal 

ownership for economic development and other purposes, communities 

receiving the property transfer will likely want contamination removal. 

Source: U.S. Department of Energy.
Page 37 GAO-06-427 Environmental Liabilities

Defense may prefer containment to save costs, thus, the adopted 

cleanup plan and final associated costs will often be the result of 

negotiation and agreement among all of the involved parties including 

Defense, EPA, and various community representatives. Until all of these 

significant new decisions are made for each site, the cost to remediate 

excess property as a result of the 2005 BRAC round remains uncertain. 

• At the Idaho National Laboratory there is a great deal of controversy 

over how much buried transuranic waste Energy will have to excavate 

and remove from the lab’s Subsurface Disposal Area, an 88-acre area 

where radioactive transuranic waste has been buried in shallow pits and 

trenches since 1952. In April 2002, the State of Idaho sued Energy over 

its interpretation of a 1995 settlement agreement concerning the amount 

of transuranic waste that must be removed from the Idaho National 

Laboratory. Specifically, Energy asserted that the agreement requires 

only certain stored waste to be removed, but the state asserted that the 

agreement also applied to all buried transuranic waste. In March 2003, 

the District Court of Idaho ruled in favor of the state and concluded that 

Energy was responsible for removing all transuranic waste buried or 

stored at the laboratory. Energy appealed, and in December 2004, the 

court of appeals reversed the decision and sent the case back to the 

district court for further consideration. Energy is currently removing 

selected portions of the buried waste totaling 4 acres where it has 

identified the highest concentrations of radioactivity and has recorded a 

corresponding environmental liability for this portion of the waste. 

However, officials indicated that the cost to excavate all 88 acres would 

be extremely costly and cannot be estimated. Should the state 

ultimately prevail, the resulting additional costs could be substantial.
Page 38 GAO-06-427 Environmental Liabilities

Figure 10: An Excavator Removes Buried Transuranic Waste at Energy’s Idaho 

Cleanup Location

Ability to Effectively Meet 

Current Cost and Schedule 

Targets is Uncertain

Both Energy’s and Defense’s environmental liabilities estimates are based 

upon current plans and targets for accomplishing their cleanup 

responsibilities. However, our previous reports have identified project 

management weaknesses at both agencies that could hinder them from 

meeting these goals.39 At Energy, we have previously reported that many of 

its major projects, including environmental cleanup projects, have 

experienced substantial cost overruns and delays. For example, our 2002 

assessment of Energy’s contract reform initiatives found that 5 of the 16 

major projects we examined had more than doubled in cost—for billions of 

dollars in total cost overruns—and experienced more than 5 years in

Source: U.S. Department of Energy.

39See the Related GAO Reports section of this report. Many of these reports identify 

weaknesses with Energy’s and Defense’s management of their environmental cleanup 

programs. 
Page 39 GAO-06-427 Environmental Liabilities

delays.40 In late 2002, Energy began implementing an accelerated cleanup 

plan to address the uncontrolled cost and schedule overruns that had 

occurred over many years. In describing this plan, Energy reported that it 

would reduce the total cost of the cleanup program by an estimated 

$50 billion and would complete its cleanup activities by 2035—35 years 

earlier than called for in previous plans. While Energy has made some 

progress since it implemented its plan, both we and the Energy Inspector 

General have identified cleanup projects and activities that are behind 

schedule and thus may cost more than currently planned.41 Although 

Energy reevaluates and adjusts its environmental liability estimates each 

year, its history of cost and schedule overruns raises additional 

uncertainties as to what the ultimate cost of cleanup will be.

In addition to the processes and internal control weaknesses discussed 

earlier that have prevented Defense from developing an auditable estimate 

of its environmental liabilities, we have also previously reported on 

program management weaknesses at Defense that add to the uncertainty 

about its current estimates. For example, we previously reported that 

Defense had made limited progress in its program to identify, assess, and 

clean up sites that may be contaminated with military munitions, and that 

its plan to address potentially contaminated sites relied on preliminary cost 

estimates that can change significantly because they were developed using 

incomplete information.42 In another report, we found that the U.S. Army 

Corps of Engineers did not have a sound basis for determining that about 

38 percent of former defense sites—sites now owned by states, local 

governments, and individuals and used for parks, farms, schools, and

40GAO, Contract Reform: DOE Has Made Progress, but Actions Needed to Ensure 

Initiatives Have Improved Results, GAO-02-798 (Washington, D.C.: Sept. 13, 2002).

41See for example, U.S. Department of Energy, Office of Inspector General, Accelerated Tank 

Waste Retrieval Activities at the Hanford Site, DOE/IG-706 (Washington, D.C.: Oct. 17, 

2005); GAO, Nuclear Waste: Better Performance Reporting Needed to Assess DOE’s Ability 

to Achieve the Goals of the Accelerated Cleanup Program, GAO-05-764 (Washington, D.C.: 

July 29, 2005); and U.S. Department of Energy, Office of Inspector General, National 

Nuclear Security Administration’s Pit Disassembly and Conversion Facility, DOE/IG0688 (Washington, D.C.: May 3, 2005). 

42GAO, Military Munitions: DOD Needs to Develop a Comprehensive Approach for 

Cleaning Up Contaminated Sites, GAO-04-147 (Washington, D.C.: Dec. 19, 2003).
Page 40 GAO-06-427 Environmental Liabilities

homes—did not need further study or cleanup action.43 As a result, the 

Corps’ assessment may not be accurate, and the Corps cannot be 

reasonably certain that it has identified all hazards that may require further 

study or cleanup. These issues raise questions as to whether Defense and 

Energy can effectively perform the necessary cleanup work within current 

cost and schedule targets and thus raise additional uncertainties as to the 

ultimate cost of cleanup.

Energy’s and Defense’s 

Financial Disclosures 

Acknowledge Uncertainties, 

but Improvements Are 

Warranted

As mentioned earlier in this report, federal accounting standards require 

recording a liability only if the future outflow of resources is considered 

both probable and measurable. If one of the two conditions is not met but 

the future outflow of resources is considered at least reasonably possible, 

then it does not need to be recorded as a liability in the financial statements 

but should be disclosed in the notes to the financial statements. Both 

Energy and Defense disclose in the notes to their financial statements 

various uncertainties that are not included in their liability estimates 

because the events are not considered probable or the amount of the 

liability cannot be reasonably estimated. Some examples of Energy’s 

disclosures in its notes to the fiscal year 2004 financial statements include 

the following.

• “The Department has identified approximately 10,400 potential release 

sites from which contaminants could migrate into the environment. 

Although virtually all of these sites have been at least partially 

characterized, final remedial action and/or regulatory decisions have not 

been made for many sites. Site-specific assumptions regarding the 

amount and type of contamination and the remediation technologies 

that will be utilized were used in estimating the environmental liability 

related to these sites.”

• “Cost estimates for management of the Department’s high-level waste 

are predicated upon assumptions as to the timing and rate of acceptance 

of the waste by the first geologic repository. Delays in opening the 

repository could cause EM project costs to increase.”

43GAO, Environmental Contamination: Corps Needs to Reassess Its Determinations That 

Many Former Defense Sites Do Not Need Cleanup, GAO-02-658 (Washington, D.C.: Aug. 23, 

2002).
Page 41 GAO-06-427 Environmental Liabilities

• “Estimated cleanup costs at sites for which there is no current feasible 

remediation approach are excluded from the baseline estimates, 

although applicable stewardship and monitoring costs for these sites are 

included. The cost estimate would be higher if some remediation were 

assumed for these areas. However, because the Department has not 

identified effective remedial technologies for these sites, no basis for 

estimating costs is available. An example of a site for which cleanup 

costs are excluded is the nuclear explosion test area at the Nevada Test 

Site.”

As noted previously, the State of Idaho is currently in litigation with Energy 

over the amount of transuranic waste that must be removed from the Idaho 

National Laboratory, and in March 2003 the Idaho District Court ruled in 

the state’s favor. Energy did not disclose this potential liability in the notes 

to its fiscal year 2004 financial statements. We questioned Energy’s 

decision not to disclose this case in its fiscal year 2004 financial statements 

given that it had an adverse court ruling at the time that would seem to 

indicate that there was at least a reasonably possible likelihood that Energy 

would ultimately be required to remediate additional acreage. Energy 

officials stated that, at the time, the case was under appeal and they 

thought the likelihood that they would be required to remediate all 

transuranic waste within the 88 acres was remote. However, Energy did 

not document this conclusion, the reasons behind its conclusion, and 

whether its legal counsel concurred with that conclusion in its fiscal year 

2004 legal representation letter.44 

Subsequent to the issuance of its fiscal year 2004 financial statements on 

November 15, 2004, the court of appeals reversed the decision and sent the 

case back to the district court for further consideration, which is still 

ongoing. Nonetheless, Energy disclosed this matter in the notes to its fiscal 

year 2005 financial statements. According to Energy officials, activities at 

the site to evaluate the waste in the area have indicated that the amount of 

waste that would have to be removed should Idaho prevail would be 

greater than what Energy originally estimated, and thus it documented in 

44Legal representation letters are generally prepared by the agency’s general counsel to 

document its evaluation of the likelihood of an unfavorable outcome by categorizing each 

case as probable, reasonably possible, or remote in accordance with federal accounting 

standards. These letters are used to inform the agency’s auditor about litigation, claims, and 

assessments to help the auditor determine the adequacy of the financial accounting and 

reporting of such matters in the agency’s financial statements. Energy uses two kinds of 

letters that collectively contain its legal representations.
Page 42 GAO-06-427 Environmental Liabilities

its fiscal year 2005 legal representation letter that there was a reasonably 

possible likelihood of an unfavorable outcome. Energy’s fiscal year 2005 

financial statement disclosure noted that the State of Idaho was 

challenging Energy’s interpretation of the 1995 settlement agreement 

concerning the shipment of transuranic waste from the Idaho National 

Laboratory. It further disclosed that, should the state prevail, the resulting 

costs could be substantial but Energy had not recorded a provision for such 

costs in its financial statements. 

Because of these and other uncertainties discussed in Energy’s 

Performance and Accountability Report, Energy’s auditors have included 

an emphasis paragraph with the audit opinion since fiscal year 1999, 

emphasizing that the cost estimates supporting Energy’s environmental 

liabilities are based upon assumptions regarding future actions and 

decisions, many of which are beyond Energy’s control.45 In essence, this 

highlights the fact that, should circumstances change in the future, the 

effects of such changes could be material.

Defense disclosed one uncertainty in the notes to its financial statements. 

Defense acknowledged that, because the extent of buried chemical 

munitions and agents is not known, the Army was unable to provide a 

reasonable estimate of its liability to clean up buried chemical munitions 

and agents. 

However, Defense failed to disclose the liability implications of its 2005 

BRAC round. In its September 8, 2005, report to the President, the 2005 

Defense Base Closure and Realignment Commission reported that Defense 

will likely incur additional environmental cleanup and restoration costs 

resulting from these base realignment and closure activities. Since the 

additional costs could be significant, the lack of a discussion of the 2005 

BRAC round in the notes precludes financial statement users from having a 

full understanding of Defense’s environmental liability exposures. 

Conclusions The federal government is responsible for cleaning up environmental 

contamination that is both complex and widespread. The estimated cost of 

cleaning up this waste is substantial and will be competing for limited 

45An emphasis paragraph is explanatory and is not construed as a qualification of the 

auditor’s opinion. It is intended to highlight circumstances of particular importance and to 

aid in interpreting the financial statements.
Page 43 GAO-06-427 Environmental Liabilities

federal resources over many years. Therefore, proper reporting of the 

government’s environmental liabilities is important to help determine 

priorities for cleanup and disposal activities and to appropriately consider 

future budgetary resources needed to carry out these activities. However, 

weaknesses in Defense’s processes and internal controls are largely 

responsible for the federal government’s inability to reasonably estimate or 

adequately support the amounts reported for its environmental liabilities. 

Also, significant uncertainties at both Energy and Defense surrounding 

how waste will be cleaned up and when it will be disposed of make it 

inherently impossible to fully determine the ultimate cost of cleanup; 

therefore, it is essential that disclosures of such uncertainties help keep 

policymakers informed of potential future resource needs. Without 

adequate policies, processes, and internal controls for identifying, 

estimating, recording, and disclosing its environmental liabilities, the 

federal government does not have sufficient information on the potential 

cost of addressing these liabilities for long-term fiscal planning.

Recommendations For 

Executive Action 

To address Defense-related deficiencies, we are making the following eight 

recommendations. To improve internal controls over the development and 

reporting of environmental liabilities and to prevent recurrence of the types 

of problems we identified in our report, we recommend that the Secretary 

of Defense direct the Under Secretary of Defense (Comptroller) and the 

Secretaries of the Army, Navy, and Air Force, as appropriate, to 

• develop, document, and implement a program for financial management 

review, approval, assessment, and monitoring of the estimation and 

reporting processes for environmental liabilities, 

• improve compliance with federal accounting standards and FMR 

guidance and remedy the specific deficiencies we identified by 

• designing a process and controls at the department level to identify 

new federal accounting standards and to update the FMR for changes 

and additions in a timely manner, 

• reassessing its process for ensuring that all required financial 

statement disclosures are made, and disclosing in the notes to the 

financial statements for the department and for the Army, Navy, and 

Air Force, as appropriate, all significant uncertainties in accordance 

with current federal accounting standards, including the effects of 

the 2005 BRAC round on reported environmental liabilities, 
Page 44 GAO-06-427 Environmental Liabilities

• estimating, updating, and reporting the accrued environmental 

liability for the cost of disposing of the Navy’s spent nuclear fuel, 

• implementing revised FMR guidance for recognizing cleanup costs 

for the Navy’s nuclear ships and submarines over the estimated lives 

of those assets, 

• including all appropriate budget elements for reporting financial 

liabilities for (1) the Navy’s nuclear ships and submarines, (2) the Air 

Force’s cleanup and restoration costs, and (3) all costs intended to be 

paid for with prior-year budgetary authority (e.g., unsigned 

contracts) by the Army, Navy, and Air Force, 

• reconciling the Army’s, Navy’s, and Air Force’s installation-level 

environmental records to installation-level property records as 

required and then using the corrected site inventories to determine 

that all sites with cleanup or corrective action costs and all 

hazardous waste operations with cleanup or closure costs are 

included in financial reports of environmental liabilities and all are 

reported by the appropriate Defense component, and

• producing and maintaining adequate supporting documentation for 

Army, Navy, and Air Force environmental liabilities at all levels in 

accordance with internal control standards in the federal 

government. 

To address the deficiency identified with Energy’s legal representation 

letters, we recommend that the Secretary of Energy reassess Energy’s 

process for ensuring that all litigation is appropriately documented in its 

legal representation letters, including its evaluation of the likelihood of an 

unfavorable outcome, the basis for its conclusion, and whether its legal 

counsel concurred with that conclusion.

Agency Comments and 

Our Evaluation

We provided a draft of this report to Defense for review and comment. In 

written comments, Defense’s Principal Deputy Under Secretary of Defense 

(Comptroller) stated that Defense concurred with all eight 

recommendations in the report and was taking actions to correct the noted 

deficiencies. For example, Defense stated that the military departments 

have been instructed to include steps and milestones in their Financial
Page 45 GAO-06-427 Environmental Liabilities

Improvement Plan46 to comply with several of the recommendations. 

Defense also established a workgroup to improve the financial reporting of 

environmental liabilities, and it plans to assist the military departments in 

meeting the key milestones. Defense also noted that it was updating the 

financial statement reporting guidance in the FMR to improve its 

disclosures and would change some of its environmental liability 

accounting procedures to comply with applicable federal accounting 

standards and FMR guidance. Once properly implemented, these steps 

should significantly improve Defense’s environmental liability reporting.

We received verbal comments from Energy officials on a draft of this 

report. Energy officials concurred with our recommendation, and stated 

that they will implement procedures to help ensure that all cases are 

appropriately documented in their legal representation letters. Specifically, 

Energy officials said that the headquarters program offices will now send 

the field offices' summary evaluations and backup documentation on each 

case to the office of the Chief Financial Officer in addition to the office of 

General Counsel. Once the office of General Counsel prepares the final 

legal representation letter, staff in the office of the Chief Financial Officer 

are to compare the cases listed in the letter with the case summaries 

received from the field offices to help ensure that all cases were 

appropriately included in the letter. If properly implemented, these actions 

appear responsive to the recommendation.

We are sending copies of this report to other interested congressional 

committees; the Secretary of Energy; the Secretary of Defense; the Under 

Secretary of Defense (Comptroller); and the Secretaries of the Army, the 

Air Force, and the Navy. Copies will be made available to others upon 

request. In addition, this report is available at no charge on the GAO Web 

site at http://www.gao.gov.

Please contact me at (202) 512-9508 or calboml@gao.gov if you or your 

staffs have any questions about this report. Contact points for our Offices

46According to the written comments, the Department of Defense Financial Improvement 

and Audit Readiness Plan includes key milestones addressing the issues of financial 

management review, approval, and assessment of the estimation and reporting process.
Page 46 GAO-06-427 Environmental Liabilities

of Congressional Relations and Public Affairs may be found on the last 

page of this report. Other GAO contacts and key contributors to this report 

are listed in appendix III.

Linda M. Calbom

Director

Financial Management and Assurance
Page 47 GAO-06-427 Environmental Liabilities

Appendix I

Scope and Methodology AAppenednxidexiIs

To determine the nature and extent of the federal government’s reported 

environmental liabilities, we reviewed the Performance and 

Accountability Reports of all federal agencies that reported environmental 

liabilities for fiscal year 2004, the most recent completed fiscal year at the 

time we began our review. Because Energy’s fiscal year 2004 financial 

statements were audited by an independent public accounting firm and 

determined to be reliable, we reviewed those statements, traced and 

verified environmental liabilities amounts to supporting schedules, and 

reviewed audit workpapers, where available. We otherwise used the work 

performed by the independent auditors and did not perform additional 

audit procedures to verify the completeness or accuracy of the amounts 

reported. Because Defense has acknowledged serious data reliability 

problems related to its financial systems and information, auditors did not 

attempt to perform audit procedures and disclaimed an opinion on 

Defense’s fiscal year 2004 financial statements. Therefore, it was not our 

objective to—and we did not—audit the completeness and accuracy of 

Defense-reported environmental liabilities amounts. Although we have 

previously reported on the potential for Defense to incur costs related to 

voluntary restoration initiatives in conjunction with returning overseas 

Defense facilities to host nations, these activities are not reported as 

environmental liabilities in its financial statements, and we did not review 

its international operations or processes.1

 Since Defense-reported amounts 

are not reliable, we are providing them in this report for informational 

purposes only. We also reviewed Energy’s and Defense’s fiscal year 2005 

Performance and Accountability Reports primarily to determine whether 

any significant new issues had arisen subsequent to the issuance of the 

fiscal year 2004 statements.

At Energy and Defense, we interviewed agency officials and performed site 

visits to obtain a better understanding of the types of environmental 

contamination being addressed. We met with officials at Energy 

headquarters and visited its three largest cleanup locations (the Hanford 

nuclear reservation in Washington State, the Savannah River location in 

South Carolina, and the Idaho National Laboratory in Idaho). For Defense, 

we met with program management, financial management, and financial 

reporting officials for the relevant environmental programs for each 

military service. For additional background information, we also visited 

Defense’s Puget Sound Naval Shipyard in Washington State, which 

1

GAO, Opportunities Exist to Improve Future Comprehensive Master Plans for Changing 

U.S. Defense Infrastructure Overseas, GAO-05-680R (Washington, D.C.: Jun. 27, 2005).
Appendix I

Scope and Methodology

Page 48 GAO-06-427 Environmental Liabilities

dismantles and disposes of nuclear ships and submarines that are being 

removed from service. 

To determine the extent to which Energy’s and Defense’s processes and 

internal controls are adequately designed to assure estimating and 

reporting environmental liabilities in accordance with federal accounting 

standards, we interviewed Energy’s financial auditors and reviewed 

selected workpapers prepared for its annual financial statement audit; 

interviewed Energy and Defense program and financial management 

officials at agency headquarters and at the field locations we visited; and 

reviewed agency documentation supporting their processes. We did not 

review or test detailed contractor estimates but focused on each agency’s 

procedures for compiling and developing its environmental liability 

amounts. We compared Energy’s and Defense’s processes and internal 

controls to GAO’s Standards for Internal Control in the Federal 

Government2

 and reviewed applicable federal accounting standards and 

guidance for the recognition and reporting of environmental liabilities.

To determine the nature and types of uncertainties that might affect the 

ultimate cost of Energy’s and Defense’s environmental cleanup efforts, we 

interviewed Energy and Defense program and financial management 

officials and reviewed supporting documentation. During interviews with 

agency, contractor, and state agency officials, we inquired about sites that 

have not been fully estimated or reported as well as other uncertainties that 

could affect the total cost to the federal government of cleaning up the 

contamination. We also reviewed Energy’s and Defense’s recent 

Performance and Accountability Reports for further information on 

disclosed uncertainties that are not estimated in their environmental 

liabilities balances, and reviewed our relevant prior reports. Our work was 

conducted from October 2004 through January 2006 and was performed in 

accordance with generally accepted government auditing standards. 

2

GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1 

(Washington, D.C.: November 1999).
Page 49 GAO-06-427 Environmental Liabilities

Appendix II

Comments from the Department of Defense ApendxiI
Appendix II

Comments from the Department of Defense

Page 50 GAO-06-427 Environmental Liabilities
Appendix II

Comments from the Department of Defense

Page 51 GAO-06-427 Environmental Liabilities
Appendix II

Comments from the Department of Defense

Page 52 GAO-06-427 Environmental Liabilities
Appendix II

Comments from the Department of Defense

Page 53 GAO-06-427 Environmental Liabilities
Page 54 GAO-06-427 Environmental Liabilities

Appendix III

GAO Contact and Staff Acknowledgments ApendxiI

GAO Contact Linda M. Calbom, (202) 512-9508 or calboml@gao.gov

Acknowledgments In addition to the contact named above, Molly Boyle, Assistant Director; 

Doreen Eng, Assistant Director; Stephen Lipscomb, Assistant Director; 

William Bates; Jessica Gray; Mary Ann Hardy; Charles Hodge; Nancy 

Kintner-Meyer; Rick Kusman; Delores Lee; Jenny Li; Tom Perry; Bennet 

Severson; and Stan Stenerson made key contributions to this report.
Page 55 GAO-06-427 Environmental Liabilities

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Page 57 GAO-06-427 Environmental Liabilities

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(190133)
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