Environmental Liabilities: Cleanup Costs From Certain DOD Operations Are Not Being Reported
Published: 2001-12-14T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: GAO examined the environmental cleanup costs of ongoing operations of the Department of Defense (DOD). These include general property, plant, and equipment facilities or other assets that are being operated or are in use at DOD installations.
section_title: What GAO Found
paragraphs: GAO found that DOD has not developed policies, procedures, and methodologies to ensure that cleanup costs required for all of its ongoing and inactive or closed operations are identified, consistently estimated, and appropriately reported. As a result, DOD's financial statements and environmental reports continue to underreport environmental liabilities and related long-term budgetary needs. The military installations GAO visited had a total of 221 sites with estimated cleanup costs of $259 million. Of these, only 45 sites with estimated cleanup costs of $61 million were being reported for the Defense Environmental Restoration Program Annual Report to Congress, and only that amount was likely included in DOD's financial statements. GAO found DOD was not reporting 149 sites related to ongoing operations with estimated cleanup costs of $91 million and 27 inactive and closed operations with estimated cleanup costs of $107 million. The environmental offices at the six installations GAO visited had comprehensive records for the installation sites subject to cleanup requirements. Although these records were reasonably accurate, the records used to maintain accountability over related land, buildings, and structures were significantly flawed. If properly maintained, the real property records should play a significant role in ensuring the accuracy of environmental site records.

section_title: Letter
paragraphs: The previous Chairman of your Committee expressed concern about the  long-term budgetary implications associated with environmental cleanup  costs related to the ongoing operations of the Department of Defense  (DOD).  Since most of these costs had not been reported by DOD, the  Chairman requested that we review and report on (1) the scope of ongoing  operations at DOD installations that have associated environmental  cleanup costs, (2) the potential magnitude of cleanup costs associated with  those operations, and (3) the availability of data to develop related cleanup  cost estimates. Ongoing operations refer to general property, plant, and  equipment (PP&E) facilities or other assets that are currently being  operated or are currently in use on DOD installations.  Examples of  operating facilities and other assets with associated cleanup costs include  hazardous and solid waste landfills and incinerators, hazardous waste  storage facilities, open burn/open detonation sites, and underground  storage tanks.
The previous Chairman also requested a similar review of DOD’s training  ranges that have associated environmental cleanup and disposal costs, and  we recently issued a separate report on that category of PP&E.  We have  also issued a series of reports related to the environmental liability  associated with the cleanup and disposal of DOD’s weapons systems.
Because DOD did not have a centralized or comprehensive system for  identifying, summarizing, maintaining, and reporting the cleanup costs  associated with all of its ongoing operations, we could not determine the  full scope and magnitude of its related liability.  Therefore, as agreed with  your staff, we selected 6 of the more than 1,500 active installations reported  by DOD—2 from each military service—to review.  Based on DOD records,  these installations appeared to have a high potential for environmental  cleanup costs related to facilities and assets used in operations.  We  reviewed the associated environmental cleanup information at the  installations and their respective regulatory agency offices.  We also  reviewed the information that was available in the real property records at  the DOD installations we visited.  Finally, we obtained cleanup cost  estimates for those six installations.
While we originally focused on ongoing operations, the information at the  six installations we visited indicated that DOD also was not estimating and  reporting liabilities associated with a significant portion of PP&E that was  no longer being used in its operations.  Neither DOD’s financial statements  nor the Defense Environmental Restoration Program (DERP) Annual  Report to Congress have provided the Congress with cleanup cost  information on all of DOD’s closed or inactive operations known to result  in hazardous wastes. Therefore, we expanded our work to cover these  additional unreported liabilities as well.  We did not, however, verify the  accuracy of most of the data that DOD provided to us.
Except as noted above, our work was conducted in accordance with  generally accepted government auditing standards from August 2000  through May 2001.  Further details on our scope and methodology are  included in appendix I.
subsections: section_title: Background
paragraphs: DOD is subject to various environmental laws and regulations that govern  restoration (cleanup) of contamination from past operations and control of  hazardous waste related to active facilities (ongoing operations).  DOD  must also follow federal accounting standards and its own Financial  Management Regulation (FMR) to ensure complete recognition and  financial reporting of the associated liabilities.  DOD has taken incremental  steps in recent years to report a more complete picture of its environmental  liabilities, but substantial issues remain in certain areas, including  accounting for and reporting estimated cleanup costs for all ongoing and  inactive/closed operations.
subsections: section_title: Laws and Regulations
paragraphs: The Congress passed the Comprehensive Environmental Response,  Compensation, and Liability Act (CERCLA) in 1980 to provide a framework  for cleanup of the nation’s worst hazardous waste sites.  CERCLA focuses  on the cleanup of inactive/closed hazardous waste sites and on making the  parties responsible for generating and handling hazardous substances at  these sites responsible for cleanup costs.  In 1986, the Congress passed the  Superfund Amendments and Reauthorization Act (SARA) which, among  other things, established the DERP to implement DOD’s environmental  cleanup activities.  Through the DERP, a $2 billion per year program  managed by the Deputy Under Secretary of Defense for Environmental  Security (DUSD(ES)), DOD is cleaning up contamination at active military  installations and former defense properties throughout the United States  and restoring the land for new uses.  DOD reports annually to the Congress  on the status of DERP cleanup efforts and future funding requirements,  largely based on data input from installations across the military services.   DOD also uses installation DERP data to compile a significant portion of its  environmental liabilities for financial statement reporting purposes.  For  fiscal year 2000, DOD reported approximately $18 billion on its financial  statements for liabilities associated with DERP cleanup on active  installations and formerly used defense sites.
Subtitle C of the Resource Conservation and Recovery Act (RCRA) of 1976,  as amended, provides hazardous waste management requirements for  generators and transporters of waste and owners and operators of  treatment, storage, and disposal facilities.  Hazardous waste has properties  that make it dangerous or capable of having a harmful effect on human  health or the environment.  Some types of hazardous waste are identified  by their source, that is, by the specific industrial processes that produce the  waste, such as electroplating, which generates sludge from the wastewater  treatment.  Other types are defined by certain characteristics that make the  waste hazardous, such as whether it is flammable, corrosive, reactive, or  toxic. Examples of related operations include hazardous waste landfills  and incinerators, open burn/open detonation sites, and hazardous waste  storage facilities.  RCRA also regulates the operation and closure of  underground storage tanks containing petroleum or hazardous substances  and governs the cleanup of tank releases.  Under RCRA, operators of  facilities that treat, store, or dispose of hazardous waste must typically  obtain an operating permit subject to regulatory oversight and periodic  renewal.  Figures 1 and 2 show examples of a hazardous waste storage  bunker and underground storage tank regulated under RCRA.
section_title: Accounting Requirements
paragraphs: Two federal accounting standards, Statement of Federal Financial  Accounting Standards (SFFAS) Nos. 5 and 6, establish the criteria for  recognizing and reporting environmental liabilities.  SFFAS No. 5,  Accounting for Liabilities of the Federal Government, effective beginning  in fiscal year 1997, defines a liability as a probable future outflow of  resources due to a past government transaction or event.  SFFAS No. 5  further states that recognition of a liability in the financial statements is  required if it is both probable and measurable.  SFFAS No. 6, Accounting  for Property, Plant, and Equipment, supplements the requirements of  SFFAS No. 5 with regard to PP&E cleanup costs, most notably those  associated with general PP&E (e.g., landfills).  Cleanup costs are defined as  costs for removing, containing, and/or disposing of hazardous wastes or  materials that, because of quantity, concentration, or physical or chemical  characteristics, may pose a substantial present or potential hazard to  human health or the environment.  SFFAS No. 6, effective beginning in  fiscal year 1998, requires that cleanup costs for general PP&E be allocated  to operating periods in a “systematic and rational manner” based on use of  the physical capacity of the associated PP&E (e.g., expected usable landfill  area) whenever possible.  If physical capacity is not applicable or  estimable, cleanup costs may be accrued over the useful life of the  associated PP&E.  Regardless of allocation method, this accounting  treatment should result in the accumulation of the total cleanup cost  liability at the time when the PP&E ceases operation.
The Office of the Under Secretary of Defense (Comptroller) issues the  FMR, which contains DOD’s financial management policies and  procedures.  DOD FMR Volume 4, Chapter 13, Accrued Environmental and  Nonenvironmental Disposal Cost Liabilities, prescribes the accounting  policy for estimating and recognizing liabilities associated with the  disposition of property, structures, equipment, munitions, and weapons.   DOD FMR Volume 4, Chapter 14, Accrued Environmental Restoration  (Cleanup) Liabilities, prescribes the accounting policy for estimating and  recognizing liabilities associated with the containment, treatment, or  removal of contamination.  Chapter 14 specifies that cost estimates  reported by installations to DUSD(ES) for preparation of budgetary  requests and the DERP Annual Report to Congress shall be used by DOD  components as the baseline for liability measurement for financial  statement purposes.
section_title: Reported Environmental Liabilities
paragraphs: DOD’s financial statements should provide a comprehensive reporting of  its environmental liabilities since, unlike the DERP Annual Report to  Congress, the ultimate source of funding does not impact financial  reporting requirements.  DOD reported approximately $63 billion in  environmental liabilities in its fiscal year 2000 financial statements, which  was comprised of cost estimates for:  (1) cleanup of nontraining range  sites—$23 billion, (2) chemical weapons disposal—$15 billion, (3) training  range cleanup—$14 billion, and (4) disposal of nuclear-powered aircraft  carriers/submarines— $11 billion.  Included in the $23 billion component  were $18 billion for DERP-funded cleanup, as well as $1.4 billion and $175  million disclosed separately by the Army and Air Force, respectively, for  non-DERP cleanup on active installations.  Army disclosed that of its  reported $1.4 billion, approximately $500 million related to ongoing  operations, including closure of open burn/open detonation sites.  Army  reported that the other $900 million related to elements that include RCRA  corrective action/closure plans and underground storage tanks.
Deficiencies in DOD’s reporting of environmental liabilities continue to be  a major contributing factor to our inability to express an opinion on the  federal government’s consolidated financial statements.  For fiscal year  2000, we reported that DOD did not maintain adequate systems or have  sufficient information to develop an accurate estimate of key components  of its environmental and disposal liabilities.
section_title: Unreported Cleanup Liabilities Are Significant
paragraphs: We found that the scope and magnitude of unreported cleanup costs for  ongoing and inactive/closed operations were significant at the six  installations we visited.  Although the installations have a process in place  to accumulate the data needed for DERP reporting, this process does not  encompass all operations with probable and reasonably estimable cleanup  costs.  Working largely with personnel already responsible for DERP  reporting, we identified over 200 sites with estimated cleanup costs in  excess of $250 million, most of which had not been previously reported.
The 6 installations we visited had a total of 221 ongoing and inactive/closed  sites requiring cleanup.  We identified the sites by using environmental site  records maintained at the installations, which we substantiated through a  combination of regulatory agency record review, visual inspection, and  interviews with personnel from the respective regulatory agencies and  installation environmental offices.  At our request, the installation  environmental offices readily prepared or provided cleanup cost estimates  totaling approximately $259 million for all 221 sites.
We found some sites at each installation already in various stages of  cleanup, and some of these sites were being funded through the  department’s environmental restoration accounts.  Sites funded through  these accounts are to be included in the DERP Annual Report to Congress  and in DOD’s environmental liabilities reported in its financial statements.  We confirmed that 45 of the 221 sites, with estimated cleanup costs of $61  million, were included in DERP reporting by the installations.
The remaining 176 sites were not included in DERP reporting, and of the  $259 million in estimated cleanup costs, $198 million, or 76 percent, was  not reported through DERP and therefore likely not reported in DOD’s  financial statements.  Of the 176 unreported sites, 149 involved ongoing  operations with total estimated cleanup costs of $91 million.  The  remaining 27 unreported sites were inactive and/or closed operations with  total estimated cleanup costs of $107 million. Tables 1 and 2 provide  additional details on the number/types of sites at the six installations,  corresponding cleanup cost estimates, and reporting status.  Appendix IV  provides these data by installation.
Based on our analysis of six installations, the amount of unreported  environmental liabilities associated with ongoing and inactive/closed  operations is significant.  DOD stated in its fiscal year 1999 DERP Annual  Report to Congress that it has over 1,500 funded active installations with  approximately 6,000 sites in some stage of cleanup.  We believe that other  installations may have the same issues we found at the six we visited.  In  addition, given the deficiencies discussed later in this report regarding the  real property records that we used to select the six installations we visited,  some of the other installations could have even more significant cleanup  costs than we identified.
subsections: section_title: DOD Accounting Guidance Inadequate for Operations Identified
paragraphs: DOD issued accounting guidance for environmental liabilities in 1999 by  adding new chapters to the FMR.  However, neither of the separate  chapters issued for asset disposal and restoration/cleanup liabilities  adequately addresses the types of unreported liabilities that we identified.
Volume 4, Chapter 13, of the FMR applies to costs associated with asset  disposal.  Many of the cases that we identified do not involve the actual  disposal of assets, but rather closure of an operation and, where necessary,  cleanup of the site for future use.  Landfills are a good example of this  scenario—rather than selling the property when landfill operations cease,  DOD usually caps or covers the facility for closure and conducts  postclosure monitoring of the site consistent with regulatory requirements,  usually for a period of at least 30 years.  We did not find the guidance  needed to report the liability for landfills in Chapter 13.
SFFAS No. 6 specifically states that cleanup includes closure and  postclosure costs.  Therefore, Volume 4, Chapter 14, of the FMR, which  applies to restoration (cleanup) liabilities, should encompass the types of  operations that we identified.  However, as currently written, this chapter  does not clearly indicate that closure and postclosure activities are  elements of cleanup.  Chapter 14 defines cleanup as “…the containment,  treatment, or removal of contamination that could pose a threat to public  health and the environment.”  As a result, this definition does not  adequately address the types of operations that we identified, such as  landfills, open burn/open detonation sites, and underground storage tanks.
While Chapter 14 contains specific guidance on DERP cleanup and  specifically references the site inventory and cost estimating guidance  contained in the “DERP Management Guidance” document issued by  DUSD(ES), it does not have equivalent guidance for non-DERP cleanup.  As  discussed previously, however, 176 (80 percent) of the 221 sites that we  identified at the 6 installations, and 76 percent of the $259 million in  estimated costs that we obtained for all sites, were not included in DERP  reporting.  Consequently, Chapter 14 would be further strengthened by  specifically addressing non-DERP cleanup.
section_title: Real Property Records and Cost Estimating Methodologies Are Not Reliable
paragraphs: Installation environmental offices at the six installations we visited  maintain comprehensive records for their own sites and operations subject  to cleanup requirements for regulatory purposes and have demonstrated  that cleanup costs for ongoing and inactive/closed operations can be  estimated.  However, we found that corresponding real property records  are not reliable and cost estimating methodologies are not standardized.   Further, we found that DOD does not have the policies and formalized  processes in place to systematically accumulate, maintain, and report site  and cost data at a departmentwide level, as well as to ensure that these  data are complete.  As a result, DOD’s financial statements likely do not  present an accurate, comprehensive report of its environmental liabilities  as required by federal accounting standards.
subsections: section_title: Environmental Office Records Identify Cleanup Sites
paragraphs: The installation environmental offices that we visited had extensive  records that identify cleanup sites by size and type.  We found that the  initial identification of sites by each of the six installations was the result of  extensive investigations conducted pursuant to federal, state, and/or local  laws.  For example, as part of the RCRA permitting process, installations  perform a comprehensive environmental assessment of all operations to  identify actual and potential cleanup sites.  This process results in a RCRA  Facility Assessment Report (RFA), which documents the results of the  assessment and includes a detailed list of identified sites.  Figures 3 and 4  show two examples of the types of sites identified in the RFA:  an open  burn/open detonation site and a landfill operation.
The environmental offices at all six installations had extensive knowledge  of the sites listed in their own RFA and periodically updated the data, as  required by the permitting process, to reflect newly discovered sites and  the current cleanup status of all sites.  Underground storage tanks, which  represented over half of the 221 sites, are registered through state and local  regulatory agencies and installation environmental offices have records to  identify them.  Thus, these offices maintain detailed environmental site  records related to the RFA, updated permitting data, and underground  storage tanks.
section_title: Real Property Records Cannot Be Used to Validate Environmental Site Records
paragraphs: According to DOD, real property records should be a comprehensive  source of data for all installation land, buildings, and related structures,  regardless of whether or not cleanup requirements apply.  As such, if  properly maintained, they should contain information needed to ensure the  accuracy of environmental site records, including data on site descriptions,  in-service dates, and useful lives.  Since both real property records and  environmental office site records provide information needed to prepare  DOD’s financial statements and are therefore subject to audit, periodic  reconciliations between the two sets of records would help ensure their  accuracy.  However, we determined that the records maintained by each  installation’s real property office were not being reconciled and did not  agree with the environmental office site records that we had substantiated  through review of regulatory agency records, visual inspection, and  interviews.  We investigated the differences and found significant errors in  the real property records.  These errors related to sites that were not  properly added to or deleted from the real property records, as well as sites  incorrectly categorized in the real property records.
We found a total of 237 errors in the real property records related to  operations with hazardous waste.  As table 3 shows, 206 of the 237 errors,  or 87 percent, resulted from additions and deletions that were not made.   The 206 were comprised of 182 adjustments to add property that existed  but was not recorded, and another 24 to delete property that was recorded  but no longer existed at the installations.  The remaining 31 errors related  to property that had been incorrectly categorized in the real property  records.  For example, we found both underground and aboveground  storage tanks categorized together, even though different cleanup and  closure requirements apply to each type of tank.  Appendix IV provides  these data by installation.  Because we used the installations’ real property  records, which we have since found to be unreliable, as the basis for our  selection of the six installations for this review, we may not have chosen  installations from among those with the most significant cleanup costs as  we intended.
We found cases of significant numbers of additions and deletions not being  made at some installations.  For example, at Camp Pendleton Marine Corps  Base, California, we identified 52 underground storage tanks that were not  recorded in the real property records.  At Fort Polk, Louisiana, the real  property records showed 48 underground storage tanks, while the  environmental site records showed only 16 in existence.  Several real  property office personnel cited problems in receiving the proper  documentation from the base engineer or other installation personnel to  prompt an adjustment to the real property records.  We identified these  significant errors despite existing requirements that installations perform  periodic inventories of real property assets.
We also found that policies regarding the recording of land-related assets  were not consistently applied by the installations.  For example, at two of  the installations visited—Fort Carson, Colorado, and Cherry Point Marine  Corps Air Station, North Carolina—we found that the installations’ real  property offices did not always record assets related to land (e.g., landfills,  open burn/open detonation sites, and fire training pits) in their records as  required.  For these two installations, we identified 33 additions that should  have been made.  However, we noted that the Fort Polk and Camp  Pendleton real property offices did record landfills and other land-related  assets.
We found other inconsistencies in the recording of active and  inactive/closed facilities in the real property records.  For example, at  several installations, active facilities were included in the records but  inactive/closed facilities still incurring closure and postclosure costs were  not included.  Additionally, we noted instances where several real property  assets located in the same vicinity were recorded as one asset.  For  example, at Fort Polk, the real property records showed one 160,000-gallon  underground storage tank.  After further review and inquiry, we determined  that there were actually four separate 40,000-gallon tanks at that location.
The remaining 31 errors that we found involved assets being incorrectly  categorized in the real property records.  For example, at Fort Polk, we  identified 20 aboveground storage tanks that were categorized as  underground storage tanks.  Because different cleanup and closure  requirements apply to each type of tank, the installations’ real property  records must categorize these assets separately to support the  environmental site records.
The errors that we identified are symptoms of a lack of formal  communication between the real property and environmental offices at  some installations.  Proper coordination between the property  management and environmental management communities is critical to  ensuring consistent and reliable tracking and reporting for financial  management, regulatory compliance, and other purposes.
section_title: Lack of Consistent Methodologies for Estimating Cleanup Costs
paragraphs: The environmental offices at the 6 installations that we visited were able to  provide us with estimates of future cleanup costs for all 221 sites.   However, DOD does not have standardized and validated methodologies  for developing cleanup cost estimates and installation personnel used a  variety of methods to develop those estimates.  The methods used by the  installation environmental offices included: (1) applying different costing  models, including Remedial Action Cost Engineering and Requirements  (RACER) and Means Cost Estimating, (2) tailoring cost estimates from  prior closures to the specific characteristics (e.g., location, technology,  type of waste, capacity) of the new site and adjusting for inflation, (3)  relying on staff expertise and experience in cleanup cost estimating, and  (4) using an average of prior actual costs.
The installations’ use of various costing methods resulted in significant  variances in cleanup cost estimates for operations with similar cleanup  requirements.  For example, Fort Polk adjusted a recent removal contract  and estimated the cost to remove a 5,000-gallon underground storage tank  at approximately $43,000, while Camp Pendleton estimated the cost to  remove a 20,000-gallon underground tank at only $13,000 by using an  average of past removal costs.  Based on inquiries of installation personnel  responsible for the separate cost estimates, we could not identify a reason  for the significant variance other than the different estimation methods that  were used.
Until DOD develops and validates standard methodologies for estimating  cleanup costs, there is no assurance that these cost estimates will be  comparable and reliable for decisionmaking and budget planning.  DOD  already has guidance in effect (DOD Instruction 5000.61;  DOD Modeling  and Simulation Verification, Validation, and Accreditation) which  requires that cost models be validated to ensure that the results produced  can be relied upon.
section_title: Leadership and Focus on Cleanup Costs Are Lacking
paragraphs: DOD lacks leadership to ensure comprehensive reporting of the cleanup  costs for ongoing operations and certain inactive/closed operations on  active installations.  While the Office of the Deputy Under Secretary of  Defense (Environmental Security) was created in 1993 as the office  responsible for environmental cleanup within DOD, its primary focus has  been on the cleanup of operations covered and reported by the DERP.   Although the requirements for reporting liabilities for non-DERP cleanup  have existed for years, DOD has not established adequate or consistent  policies to reliably develop the required cleanup cost estimates or to ensure  those estimates are maintained, accumulated, and reported in its financial  statements.  DOD also lacks procedures for periodic communication  between environmental, real property, and accounting personnel to ensure  that site and cost information is accurate and complete.  We made this  same observation in our recent report on cleanup cost estimates for DOD  training ranges.
section_title: Conclusions
paragraphs: Although detailed information exists to identify operations requiring  cleanup and to estimate the related cleanup costs at the six installations we  visited, DOD does not have a comprehensive, controlled process to  capture, summarize, maintain, and report this data for all operations.  DOD  currently has a structured process in place to compile and report site and  cost data for DERP cleanups; however, the department is not using this  process for all cleanup costs associated with ongoing and inactive/closed  operations.  Since many of the same installation personnel manage DERP  and non-DERP cleanups, the current framework could be expanded to  encompass both.  In addition, DOD is not routinely coordinating between  installation property management and environmental management  personnel.  Consequently, DOD is not properly maintaining its real property  records or reconciling them with environmental site records.
These issues exist primarily because DOD does not have adequate  guidance and leadership to ensure that: (1) all future cleanup costs are  identified and reported as part of an overall approach to managing all of its  environmental liabilities, and (2) real property records are properly  maintained and coordinated with environmental site records.  As our work  reveals, the guidance and procedures must be developed and implemented  with effective coordination across the environmental, property  management, and accounting communities.  Until DOD addresses the  issues discussed in this report, particularly in the areas of guidance and  leadership, we cannot assure the Congress that DOD’s reported  environmental liabilities can be relied on for long-range budget planning  decisions.
section_title: Recommendations
paragraphs: We recommend that the Secretary of Defense designate a focal point with  the appropriate authority to oversee and manage the reporting of DOD’s  liability for the cleanup of all ongoing and inactive/closed operations.
We recommend that the Secretary of Defense require the DOD Comptroller  to revise the FMR to include:  (1) an expanded definition of cleanup,  consistent with SFFAS No. 6, that includes closure/postclosure activities,  and (2) guidance that addresses all restoration/cleanup liabilities,  regardless of funding source or type of operation, in accordance with  federal accounting standards.
We recommend that the Secretary of Defense require the Deputy Under  Secretary of Defense (Installations and Environment) to ensure that (1)  existing errors in real property records are corrected, and (2) real property  and environmental site records are periodically reconciled.
We also recommend that the Secretary of Defense require the designated  focal point to work with the appropriate DOD organizations to develop  guidance and procedures to implement the revised FMR requirements, to  include the following:  (1) standardized and validated methodologies for  estimating cleanup costs, and (2) a comprehensive, controlled process to  systematically capture, summarize, maintain, and report the cleanup sites  and costs resulting from all operations known to result in hazardous waste.
section_title: Agency Comments and Our Evaluation
paragraphs: On October 11, 2001, we received DOD’s comments, dated August 29, 2001,  which addressed a draft of this report.  In commenting on the draft, DOD  concurred with the overall intent of our recommendations and fully  concurred with our specific recommendation to designate a focal point to  oversee and manage the reporting of DOD’s liability for the cleanup of all  ongoing and inactive/closed operations.  DOD partially concurred with the  remaining three recommendations.   Our response to DOD’s partial  concurrences is included in appendix III.
In addition, DOD expressed concern that some aspects of the report were  misleading due to its interpretation of certain terms used in the report.   Specifically, DOD objected to the use of the term “cleanup” and instead  preferred what it stated were the more precise terms of “environmental  restoration” and “accrued environmental disposal cost.”  However, the term  “cleanup,” as used in this report (see footnote 1), is defined by federal  accounting standards  to include specific activities and costs encompassing  more than just environmental restoration and/or disposal costs.  To limit a  discussion of cleanup costs to only those related to restoration and  disposal inappropriately narrows the applicability of the accounting  standard.  In accordance with the definition of cleanup and the scope of the  accounting standard, the estimated cost to clean up the 221 ongoing and  inactive/closed sites identified in the report are for those actions required  by federal, state, and/or local statutes to remove, contain, and/or dispose of  (1) hazardous waste from property, or (2) material and/or property that  consists of hazardous waste at permanent or temporary closure or  shutdown of associated PP&E.  If the required action—which in  accordance with the accounting standard may include, but is not limited to,  decontamination, decommissioning, site restoration, site monitoring,  closure, and postclosure costs—has not been accomplished, the liability  for the future costs still remains.  Therefore, the liability for the estimated  future costs to clean up the 221 sites in the report includes future closure  and postclosure costs based on requirements in current operating permits,  as well as liabilities for the remaining closure and postclosure costs of  inactive/closed operations, and closure costs for underground storage  tanks.  Included also are liabilities for remaining costs of decontamination  and/or site restoration required by corrective actions for previous  contamination of inactive/closed operations.
DOD acknowledged that it did not fully estimate all of its environmental  cleanup costs, but believes our report overstates the extent of the  underestimation.  However, our report focuses only on the results of our  reviews conducted at six specific DOD installations and the extent of likely  understatement by those installations.  As discussed in the body of this  report, 76 percent of the total estimated cleanup for the six installations, or  $198 million, was not included in DERP reporting and therefore, likely not  reported in financial statements.   In addition, DOD stated that our report  did not acknowledge a liability of $1.5 billion reported in its fiscal year 2000  financial statements for the types of activities covered by the report.  We  disagree.  Our draft report clearly stated that the Army disclosed $1.4  billion for non-DERP cleanup on active installations.  Although we  continue to believe that we appropriately concluded that the Air Force’s  disclosure of $175 million in non-DERP cleanup was not significant to its  financial statements, we have modified our report to specifically identify  this amount.
Further, DOD stated that many of the statements made in this report were  speculative and lacked supporting evidence.  We disagree and have  addressed DOD’s specific concerns in appendix III. Overall, we reiterate  our position that our findings and conclusions are well-supported by our  results at the six installations we visited, as well as the systemic  weaknesses we identified in the areas of DOD-wide reporting systems,  record-keeping coordination and maintenance, guidance in reporting  environmental cleanup liabilities, and leadership and focus.  Further, as  explained in the introduction to the report and in appendix I, we intended  to use a representative sample to respond to our requester’s question  regarding the magnitude of cleanup costs associated with DOD’s ongoing  operations.  However, because DOD did not have a comprehensive system  for identifying, summarizing, maintaining, and reporting cleanup costs for  ongoing operations, DOD was unable to provide us with a reliable  population from which to select a representative sample.  Instead, we  selected two installations from each of the three military services as  examples and our conclusions about the magnitude of unreported  liabilities relate only to those six installations.
We are sending copies of this report to the Ranking Minority Member,  House Committee on the Budget, and to other interested congressional  committees.  We are also sending copies to the  Secretary of Defense; the  Under Secretary of Defense for Acquisition, Technology, and Logistics; the  Under Secretary of Defense (Comptroller); the Deputy Under Secretary of  Defense for Installations and Environment; and the Director of the Office  of Management and Budget.  Copies will be made available to others upon  request.
Please contact me at (202) 512-9095 if you or your staff have any questions  about this report.  Other GAO contacts and key contributors to this report  are listed in appendix V.
section_title: Objectives, Scope, and Methodology
paragraphs: Our objectives were to determine: (1) the scope of ongoing DOD  operations with potentially significant cleanup costs, (2) the potential  magnitude of costs to clean up and dispose of the hazardous waste  resulting from those operations, and (3) the availability of data for  developing cleanup cost estimates.  Our review, with the exception of  training ranges and weapons systems (national defense PP&E), included all  ongoing and inactive/closed operations on six active installations known to  result in hazardous waste and subject to federal, state, and/or local laws or  regulations requiring removal, containment, or disposal of that waste.
Compliance with federal accounting standards requires the recognition of a  liability if a future outlay of resources is both probable and reasonably  estimable.  To determine if a cleanup liability was probable, we reviewed  federal financial accounting standards, environmental laws and  regulations, and DOD accounting guidance that address environmental  cleanup requirements.  We also interviewed DOD officials responsible for  financial reporting and environmental program management and regional  Environmental Protection Agency (EPA) officials responsible for  overseeing the administration of federal environmental laws and  regulations applicable to DOD operations.  To determine if a cleanup  liability was reasonably estimable, we interviewed state regulatory agency  personnel responsible for administering federal, state, and local  environmental laws and regulations that regulate DOD activities and  similar commercial waste management operations.  We obtained  information on plans for cleanup, closure, and postclosure monitoring  required as part of the permitting of waste management operations for both  DOD and similar commercial activities.  We also obtained information on  cost estimates to accomplish those plans for commercial activities.
To determine the potential scope of DOD operations requiring  environmental cleanup, we obtained the real property databases of each  military service and extracted the assets whose category descriptions (e.g.,  hazardous waste storage facility) indicated an association with a hazardous  or solid waste management or underground storage tank operation.
Because DOD did not have a centralized or comprehensive system for  identifying, summarizing, maintaining, and reporting the cleanup costs  associated with all of its ongoing operations, we could not use  representative sampling techniques to determine the full scope and  magnitude of its related liability.  Therefore, as agreed with our requester,  we selected 6 of the more than 1,500 active installations reported by DOD  to use as examples. To make preliminary planning decisions about the  potential magnitude of the DOD-wide estimated future cleanup costs for  the operations indicated by the real property extracts, we conducted a  telephone survey of the regulatory officials from 13 states to determine an  average estimated cleanup cost for similar commercial waste management  operations.  We applied the average commercial costs, making assumptions  about operational status and remaining useful lives, to the extracted real  property assets, and ranked individual installations in order of the resulting  potential total cleanup costs. We then selected six DOD installations, two  from each military service, to conduct on-site reviews of the actual scope  and magnitude of the estimated future cleanup costs of their operations  known to result in hazardous waste.  With one exception, which was  selected for its geographical location, the remaining five installations were  selected from the top five in each service with what appeared to be the  highest potential cleanup costs. Appendix II lists the primary locations  where we performed our review.
To determine the scope and related future cleanup cost estimates of waste  management operations and underground storage tanks for the six  individual DOD installations selected, we conducted on-site reviews at the  state regulatory agencies having jurisdiction over each installation, and at  each selected DOD installation.
Our objective at each state regulatory agency was to obtain an  understanding of the nature, scope, and cleanup requirements of the waste  management activities at each selected DOD installation.  To accomplish  this, we: (1) interviewed relevant state regulatory agency officials, (2)  reviewed oversight, permitting, and compliance documents for the DOD  installations, and (3) if available, obtained and reviewed documentation of  cleanup cost estimates for similar commercial operations.
Our objectives at each of the six DOD installations visited were to:   substantiate and supplement the information and insight gained at the   determine the scope of ongoing and inactive/closed operations requiring  cleanup at each installation,  determine the estimated cleanup costs for these operations, and  determine the extent to which these cleanup costs are currently being  reported for budgetary planning and financial statement purposes.
To accomplish our objectives, we: (1) interviewed installation  environmental officials and reviewed supporting documentation  evidencing operations and their status, (2) reconciled listings of operations  and/or related assets and their status, obtained from the regulator, to  installation environmental office records, (3) physically observed the  existence and status of selected operations and the related PP&E, (4)  obtained future cleanup cost estimates prepared by the environmental  office, (5) compared our findings to installation reporting for DERP  purposes, and (6) reconciled our PP&E extracts from the military service  real property databases, and supplemental information provided by  installation real property office records, to environmental office records of  operations requiring cleanup.
We summarized the data obtained and analyzed the results of our review by  individual installation and environmental category (see appendix IV).  We  did not independently verify the reliability of the cleanup cost estimates,  nor did we verify the existence or cleanup status of all relevant operations  at each installation visited.
Except as noted above, our work was conducted in accordance with  generally accepted government auditing standards from August 2000  through May 2001.  On October 11, 2001, we received DOD’s comments,  dated August 29, 2001, which addressed a draft of this report.  DOD’s  comments are discussed in the “Agency Comments and Our Evaluation”  section and are reprinted in appendix III, which also includes our detailed  response to DOD’s specific comments.
section_title: Locations Visited
subsections: section_title: Department of Defense
section_title: Environmental Protection Agency
section_title: Air Force
section_title: Army
section_title: Navy/Marine Corps
section_title: State Regulatory Agencies
section_title: Other
paragraphs: Other individuals were contacted via telephone and electronic mail.
section_title: Comments from the Department of Defense
subsections: section_title: GAO’s Comments
paragraphs: The following are GAO’s comments on the letter dated August 29, 2001  (received October 11, 2001), from the Department of Defense. 1. See the “Agency Comments and Our Evaluation” section of this report. 2. Chapter 14 of DOD’s FMR, “Accrued Environmental Restoration  (Cleanup) Liabilities,” is intended to provide guidance in accounting for  and accruing a liability for the costs associated with the containment,  treatment, or removal of contamination that could cause a threat to  public health and the environment.  However, the included guidance  centers around environmental cleanup primarily relating to restoration  activities and costs.  Chapter 13 of DOD’s FMR, “Accrued  Environmental And Non-environmental Disposal Cost Liabilities,”  provides guidance in accounting for and accruing a liability for the  costs associated with the disposal of property, structures, equipment,  munitions, and weapons.  As stated in the “Agency Comments and Our  Evaluation” section, the federal accounting standard requirement to  account for environmental cleanup cost encompasses more than the  restoration and disposal costs guidance currently provided by the FMR.   Regardless of the terminology used, we continue to recommend that  the FMR address the broad range of activities included in the scope of  the federal accounting standard, such as closure and postclosure  monitoring costs. 3. On May 15, 2001, DOD created the new position referred to in its  comment letter, the Deputy Under Secretary of Defense (Installations  and Environment), within the Acquisition, Technology and Logistics  office.  Because DOD has combined responsibility for both real  property and environmental issues in this position, we modified our  recommendation to require the Deputy Under Secretary of Defense  (Installations and Environment) to correct errors in real property  records and to reconcile those records with environmental site records. 4. We have modified the report to clarify the definition of “standard” as  used in this report and to change the word “methodology” to  “methodologies.”  The underground storage tank example in our report  illustrates how the use of nonstandard methodologies can result in  inconsistent and incomparable cost estimates. 5. We disagree that the report’s conclusions about the significance of  DOD’s unreported liabilities are not supported. As discussed in the  body of our report and in the “Agency Comments and Our Evaluation”  section, the unreported environmental cleanup liability for the six  installations visited was 76 percent of the total estimated cleanup costs  for these locations.  The report’s “Conclusions” section points out the  lack of and/or weaknesses in DOD-wide reporting systems, record- keeping coordination and maintenance, and leadership and guidance in  reporting environmental cleanup liabilities.  When considered in light of  these DOD-wide weaknesses, we believe the unreported cleanup  liabilities found at the visited installations are more than adequate  support for our conclusion.  Nevertheless, in response to DOD’s  concern, we have modified our report to state that until DOD addresses  the issues discussed in this report, particularly in the areas of guidance  and leadership, we cannot assure the Congress that DOD’s reported  environmental liabilities can be relied on for long-range budget  planning decisions.
Further, as stated in footnote 12 to our report, federal accounting  standards do not require DOD to record the entire cleanup cost of  ongoing operations as a liability on its current financial statements.   However, those same accounting standards (SFFAS No. 6, par. 109)  would require disclosure of the unrecognized portion of estimated total  cleanup costs.  In other words, DOD would be required to disclose in  the footnotes to its financial statements that portion of the estimated  total liability of $91 million for environmental cleanup of ongoing  operations not reported as a liability on its financial statements. 6. We agree that the scope of our work did not include an audit of all the  real property records at the installations visited and have clarified the  wording of our report to address only the relevant real property  records. 7. DOD is correct in observing that we were purposely trying to survey the  installations with the highest potential costs.  In lieu of using a  representative sample (which was not possible due to problems in  identifying a reliable population from DOD’s records, as discussed in  comment 8), we selected, with one exception, two installations in each  service from the top five having the highest potential environmental  cleanup cost.  This was an attempt to obtain as complete an  understanding as possible of the broad range of cleanup activities that  may be associated with DOD’s ongoing operations.  Further details on  our methodology are disclosed in appendix I, “Objectives, Scope, and  Methodology.”  Our assessment of potential environmental cleanup  costs for individual installations was based on data obtained from  DOD’s real property records.  Review of this data during our installation  visits disclosed significant errors in the relevant real property records,  which in turn caused the initial determinations of potential cleanup  costs to be unreliable.  Thus, we could no longer be certain whether  other DOD installations would have had higher potential cleanup costs  than those selected. 8. We disagree with DOD that our methodology deviated from standard  governmental auditing procedures.  Audit sampling is applicable only  when the auditor expects to draw a conclusion about a population.   Because DOD did not have a comprehensive system for identifying,  summarizing, maintaining, and reporting cleanup cost for ongoing  operations, DOD could not provide a reliable population from which to  select a representative sample.  Instead, as stated in the body of our  report and more fully disclosed in appendix I, “Objectives, Scope, and  Methodology,” we selected two installations from each of the three  military services as examples, and reached conclusions about the  magnitude of unreported liabilities for only those six installations.  Our  selection was not intended to be a representative sample of DOD  installations and we drew no conclusions about any population based  solely on the results of our review of the six installations. 9. We have modified the report to disclose the amount actually reported  by the Air Force. 10. Because DOD could not provide us with detailed lists of all the costs  that comprise its reported liability, we have modified the report to  indicate that estimated cleanup costs not reported through DERP were  “not likely” to have been reported in DOD’s financial statements.  We  also clarified our support for this issue in footnote 13.
section_title: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Acknowledgments
paragraphs: Staff making key contributions to this report were Fannie Bivins, Francine  DelVecchio, Steve Lipscomb, David Merrill, Sheila Miller, Octavia Parks,  Lisa Powell, Ben Severson, and Patrick Tobo.
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section_title: Public Affairs