Deferred Maintenance Reporting: Challenges to Implementation (Letter
Report, 01/30/98, GAO/AIMD-98-42).

Pursuant to a congressional request, GAO reviewed: (1) the plans and
progress of 11 agencies toward implementing the new deferred maintenance
requirements of the Statement of Federal Financial Accounting Standards
(SFFAS) No. 6; and (2) the official position of agency Chief Financial
Officers (CFO) and Inspector Generals (IG) with respect to its
implementation.

GAO noted that: (1) agency officials at the 9 agencies specifically
required to implement the standard for fiscal year (FY) 1998 told GAO
that they intend to comply with the deferred maintenance requirements of
SFFAS No. 6; (2) if effectively implemented, the new federal accounting
requirements will improve information on the maintenance of federal
assets; (3) accurate reporting of deferred maintenance is an important
step toward more informed decision-making; (4) by improving the validity
of information on maintenance, the disclosure of deferred maintenance
has the potential to improve both the allocation of federal resources
and, ultimately, the condition of federal assets; (5) the federal
requirement to disclose deferred maintenance amounts presents agencies
with a new challenge for which they must adequately prepare; (6) some
initial steps have been taken, but significant work remains to be done
for all agencies to effectively implement the deferred maintenance
requirements promptly; (7) 4 of the cognizant IGs expressed confidence
that their respective agencies would implement the deferred maintenance
requirements and 5 expressed reservations or were reluctant to assess
agency progress; (8) although most agencies do not have experience
generating agencywide estimates of deferred maintenance because
historically they have not been required to do so, all agencies reported
that they have estimated maintenance for ad hoc and budgetary purposes;
(9) a critical step in generating a deferred maintenance estimate is a
complete and reliable inventory of property, plant and equipment (PP&E)
on which to assess maintenance needs; (10) the results of the FY 1996
financial audits show that 4 agencies are hampered in their efforts to
report deferred maintenance because they have been unable to fully
report PP&E reliably; (11) the Department of Defense holds about 80
percent of the federal government's PP&E, and it faces significant
issues to implement the deferred maintenance requirements; (12) even for
agencies where the independent audits indicated no report modifications
that pertained to PP&E, the deferred maintenance requirements present a
significant challenge; (13) the flexibility in SFFAS No. 6 increases the
need for agencies to develop departmental policies and guidance that are
compatible with agency mission and organizational structure; and (14)
adequate data collection and tracking systems will be necessary to
gather and verify information on deferred maintenance amounts.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  AIMD-98-42
     TITLE:  Deferred Maintenance Reporting: Challenges to Implementation
      DATE:  01/30/98
   SUBJECT:  Maintenance costs
             Federal property
             Financial management
             Maintenance standards
             Reporting requirements
             Internal controls
             Financial statements
             Federal agency accounting systems
             Accounting procedures

             
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Cover
================================================================ COVER


Report to the Chairman, Committee on Appropriations, U.S.  Senate

January 1998

DEFERRED MAINTENANCE REPORTING -
CHALLENGES TO IMPLEMENTATION

GAO/AIMD-98-42

Deferred Maintenance Reporting

(935245)


Abbreviations
=============================================================== ABBREV

  A/FBO - Office of Foreign Buildings Operations
  ARS - Agriculture Research Service
  CAS - Condition Assessment Survey
  CFO - Chief Financial Officer
  DOD - Department of Defense
  DOE - Department of Energy
  DOI - Department of the Interior
  DOT - Department of Transportation
  FAA - Federal Aviation Administration
  FASAB - Federal Accounting Standards Advisory Board
  FASM - Financial and Accounting Standards Manual
  FMFIA - Federal Managers' Financial Integrity Act
  GSA - General Services Administration
  IG - inspector general
  IPA - independent public accountant
  LCAM - Life Cycle Asset Management Order
  LMI - Logistics Management Institute
  MARAD - Maritime Administration
  NASA - National Aeronautics and Space Administration
  OMB - Office of Management and Budget
  PP&E - Property, Plant and Equipment
  SFFAS - Statement of Federal Financial Accounting Standards
  SGL - U.S.  Standard General Ledger
  TVA - Tennessee Valley Authority
  USCG - U.S.  Coast Guard
  USDA - Department of Agriculture
  USPS - U.S.  Postal Service
  VA - Department of Veterans Affairs

Letter
=============================================================== LETTER


B-278767

January 30, 1998

The Honorable Ted Stevens
Chairman
Committee on Appropriations
United States Senate

Dear Mr.  Chairman: 

Maintenance of government-owned assets has been a long-standing
concern.  For example, a 1993 report of the U.S.  Advisory Commission
on Intergovernmental Relations noted that maintenance often does not
receive adequate attention, especially in times of tight budgets, and
that deferred maintenance can result in poor quality facilities,
reduced public safety, higher subsequent repair costs and poor
service to the public.  While federal agencies historically have not
been required to periodically report on deferred maintenance,
agencies have provided maintenance estimates for budgetary and ad hoc
reporting purposes.  The validity of these past estimates has been
questioned.  We previously reported to you on reporting requirements
and maintenance issues identified by GAO and agency inspectors
general (IGs).\1

Recent laws have imposed requirements to provide policymakers and
agency program managers with more reliable financial information to
formulate budgets, manage government programs and help make difficult
policy choices.  The Chief Financial Officers (CFO) Act of 1990 and
its subsequent expansion through the Government Management Reform Act
of 1994 established a solid framework for improving financial
management and accountability for federal resources and will result
in the preparation and audit of financial statements for the
government's 24 major departments and agencies, which are responsible
for over 99 percent of the government's outlays.  These laws also
have made the implementation of new federal accounting standards a
priority. 

The Statement of Federal Financial Accounting Standards (SFFAS) No. 
6, Accounting for Property, Plant and Equipment (PP&E), recently
recommended by the Federal Accounting Standards Advisory Board
(FASAB)\2 and approved by GAO, the Office of Management and Budget
(OMB) and the Department of Treasury, specifically addresses the need
for better information on maintenance by requiring the disclosure\3
of deferred maintenance in agency financial statements beginning for
fiscal years after September 30, 1997.\4 FASAB addressed the issue of
deferred maintenance in part because of concerns raised by many
groups about the deteriorating condition of government-owned PP&E. 
Further, the Board believes that deferred maintenance represents a
cost and that adequate information on these costs is important to
users of financial statements. 

However, while providing useful new information for decision-making,
the standard raises some implementation and definitional
challenges--such as determining the acceptable condition of assets
and the estimation methods to be used.  Your office expressed your
continued interest in ensuring the effective and timely
implementation of the deferred maintenance requirements of SFFAS No. 
6 and requested us to explore the implementation plans and
capabilities of federal agencies with respect to the new
requirements.  Specifically, this report responds to your request
that we (1) look at the plans and progress of 11 agencies\5 toward
implementing the new deferred maintenance requirements of SFFAS No. 
6 and (2) obtain the official position of agency CFOs and IGs with
respect to its implementation. 

To achieve these objectives, we asked agency CFOs and their staffs a
series of questions about estimating maintenance needs and
implementing the deferred maintenance requirements of SFFAS No.  6. 
In addition, because of their experience with the agency's financial
reporting, we asked agency IGs a series of questions about the
agency's progress toward implementing the deferred maintenance
requirements of SFFAS No.  6.  Our work focused on department-level
implementation efforts rather than the work of individual bureaus
within an agency.  Agency responses were confirmed with each agency's
CFO and IG to ensure that they accurately reflected the agency's
official position.\6 Where available, we reviewed agency financial
statements and relevant policy documentation. 


--------------------
\1 Deferred Maintenance:  Reporting Requirements and Identified
Issues, GAO/AIMD-97-103R, May 23, 1997. 

\2 In October 1990, the nine member Federal Accounting Standards
Advisory Board was established by the Secretary of the Treasury, the
Director of the Office of Management and Budget (OMB) and the
Comptroller General of the United States to consider and recommend
accounting standards to address the financial and budgetary
information needs of the Congress, executive agencies and other users
of federal financial information.  Once FASAB recommends accounting
standards, the Secretary of the Treasury, the Director of OMB and the
Comptroller General decide whether to adopt the recommended
standards.  If they are adopted, the standards are published as
Statements of Federal Financial Accounting Standards by OMB and GAO. 

\3 A disclosure is an explanation or exhibit attached to a financial
statement containing a fact, opinion, or detail required or helpful
in the interpretation of the statement. 

\4 The deferred maintenance requirement of SFFAS No.  6 applies to
all property, plant and equipment. 

\5 In our previous work, we identified 11 agencies responsible for
almost 99 percent of the government's reported PP&E as of September
30, 1996.  These agencies include:  Department of Defense (DOD),
Tennessee Valley Authority (TVA), National Aeronautics and Space
Administration (NASA), Department of Transportation (DOT), Department
of Energy (DOE), United States Postal Service (USPS), Department of
the Interior (DOI), General Services Administration (GSA), Department
of Veterans Affairs (VA), Department of Agriculture (USDA) and
Department of State (State).  Of these 11 agencies, nine are
specifically required to implement the deferred maintenance
requirements for fiscal year 1998.  TVA and USPS follow private
sector practices in their financial statement reporting.  However,
TVA and USPS are included in the governmentwide financial statements
and will be subject to reporting deferred maintenance under SFFAS No. 
6 if their amounts prove material to the governmentwide statements. 

\6 In several cases, the agency did not have a CFO or IG in place at
the time of our review.  In these cases, we received responses and
confirmation from the deputy or acting CFO or IG.  In the case of
DOD, we received responses and confirmation from the Acting Under
Secretary of Defense (Comptroller). 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Agency officials at the nine agencies specifically required to
implement the standard for fiscal year 1998 told us that they intend
to comply with the deferred maintenance requirements of SFFAS No.  6. 
If effectively implemented, the new federal accounting requirements
will improve information on the maintenance of federal assets. 
Accurate reporting of deferred maintenance is an important step
toward more informed decision-making.  By improving the validity of
information on maintenance, the disclosure of deferred maintenance
has the potential to improve both the allocation of federal resources
and, ultimately, the condition of federal assets. 

The federal requirement to disclose deferred maintenance amounts
presents agencies with a new challenge for which they must adequately
prepare.  Some initial steps have been taken, but significant work
remains to be done for all agencies to effectively implement the
deferred maintenance requirements promptly.  Four of the cognizant
IGs expressed confidence that their respective agencies would
implement the deferred maintenance requirements promptly and five
expressed reservations or were reluctant to assess agency progress. 
Although most agencies do not have experience generating agencywide
estimates of deferred maintenance because historically they have not
been required to do so, all agencies reported that they have
estimated maintenance for ad hoc and budgetary purposes.  Two
agencies--DOI and NASA--indicated that they had agencywide estimates
of deferred maintenance and four other agencies--USDA, State, DOT,
and DOD--reported that they had previously made at least partial
estimates of deferred maintenance.  None of the deferred maintenance
estimates, including the agencywide estimates, have been subjected to
independent audit. 

A critical step in generating a deferred maintenance estimate is a
complete and reliable inventory of PP&E on which to assess
maintenance needs.  However, the results of the fiscal year 1996
financial audits show that four agencies--USDA, DOD, DOI, and
DOT--are hampered in their efforts to report deferred maintenance
because they have been unable to fully report PP&E reliably.  While
the lack of an accurate accounting of PP&E will impede efforts to
implement the deferred maintenance requirements, implementation can
proceed while agencies work on improving their PP&E reporting. 

DOD holds about 80 percent of the federal government's PP&E, and it
faces significant issues to implement the deferred maintenance
requirements.  In particular, a study being conducted for DOD is
expected to determine methods of measuring and recording deferred
maintenance data for mission assets and to provide recommendations on
implementation.  However, the study is not expected to be completed
until March 1998.  This completion date does not allow sufficient
time for the agency to establish the policies and guidance necessary
to ensure consistent and timely disclosure of deferred maintenance
amounts in its fiscal year 1998 financial statement.  In addition,
audits of DOD financial statements have received disclaimers of
opinion due in part to DOD's inability to adequately account for its
PP&E. 

Even for agencies where the independent audits indicated no report
modifications that pertained to PP&E, the deferred maintenance
requirements present a significant challenge.  The flexibility in
SFFAS No.  6 increases the need for agencies to develop departmental
policies and guidance that are compatible with agency mission and
organizational structure.  Such departmental guidance would help
ensure consistent reporting across agency units and facilitate the
preparation of agencywide financial statements.  GAO has issued a
series of reports to assist DOD in implementing deferred maintenance
reporting that would be useful to other agencies as well.\7

In determining the extent of additional departmental guidance to
provide units, agencies must balance the desirability of consistent
reporting with the need for flexibility due to the diversity of
missions and assets.  In addition, adequate data collection and
tracking systems will be necessary to gather and verify information
on deferred maintenance amounts.  Overcoming these challenges to help
ensure reliable and meaningful reporting at the departmental level is
critical to the effective implementation of the deferred maintenance
requirements of SFFAS No.  6. 


--------------------
\7 For example, see Financial Management:  Issues to Be Considered by
DOD in Developing Guidance for Disclosing Deferred Maintenance on
Aircraft (GAO/AIMD-98-25, December 30, 1997), Financial Management: 
DOD Needs to Expedite Plans to Implement Deferred Maintenance
Accounting Standard (GAO/AIMD-97-159R, September 30, 1997), and
Deferred Maintenance:  Reporting Requirements and Identified Issues
(GAO/AIMD-97-103R, May 23, 1997). 


   BACKGROUND
------------------------------------------------------------ Letter :2

PP&E consists of tangible assets, including land, that:  (1) have an
estimated useful life of 2 or more years, (2) are not intended for
sale in the ordinary course of operations, and (3) have been acquired
to be used or available for use by the entity.  The amount of PP&E
reported by agencies can aid in identifying agencies that may have
deferred maintenance.  These amounts only include PP&E owned by the
federal government--not assets financed by the federal government but
owned by other entities such as state and local governments.  Table 1
presents the amount of PP&E reported for fiscal year 1996 by the 11
agencies that account for almost 99 percent of total reported PP&E. 
DOD is the largest single holder of PP&E in the federal government,
controlling about 80 percent of the reported total, while the next
largest holders--TVA, NASA and DOT--hold about 3 percent each. 



                                Table 1
                
                Reported Property, Plant, and Equipment
                  by Federal Agency, Fiscal Year 1996

                         (Dollars in billions)

                                                            Percent of
Agency                                       Total PP&E     total PP&E
----------------------------------------  -------------  -------------
Department of Defense                              $773           80.5
Tennessee Valley Authority                           30            3.2
National Aeronautics and Space                       26            2.7
 Administration
Department of Transportation                         24            2.5
Department of Energy                                 22            2.3
U.S. Postal Service                                  18            1.9
Department of the Interior                           17            1.7
General Services Administration                      12            1.3
Department of Veterans Affairs                       11            1.2
Department of Agriculture                             9             .9
Department of State                                   5             .5
All other agencies                                   14            1.4
======================================================================
Total\a                                            $960          100.0
----------------------------------------------------------------------
\a Figures do not add precisely due to rounding. 

Source:  Data from audited financial statements for 11 agencies.  For
all other agencies, data reported to the Department of the Treasury. 
This information was not independently verified by GAO. 

The new accounting requirements for deferred maintenance contained in
SFFAS No.  6 have the potential to improve information on maintenance
needs.  SFFAS No.  6 requires that a line item for "deferred
maintenance amounts" be presented on the statement of net cost.  The
statement of net cost is one of several financial statements.  It is
designed to report the gross and net costs of providing goods,
services and benefits.  Although no dollar amounts for deferred
maintenance are to be reported on the statement of net cost itself
and thus are not included in the net costs of activities, the
explanatory notes to the financial statements must include dollar
estimates of deferred maintenance.  When agencies begin to disclose
deferred maintenance in their fiscal year 1998 financial statements
in compliance with the standard, the annual audits of agency
financial statements will help ensure that whatever is reported is
subject to independent scrutiny.  As the objective of the financial
statement audit is to obtain reasonable assurance about the financial
statements as a whole, individually reported deferred maintenance
amounts will receive varying levels of audit coverage depending on
their materiality to the financial statements.  Because of the nature
of these estimates, the auditor's assessment will depend in part, on
management's judgement of the asset condition, maintenance needs, and
the methodology chosen to estimate deferred maintenance. 

Deferred maintenance is defined in SFFAS No.  6 as "maintenance that
was not performed when it should have been or was scheduled to be and
which, therefore, is put off or delayed for a future period."
Maintenance--described as the act of keeping fixed assets in
acceptable condition--includes preventive maintenance and normal
repairs, including the replacement of parts and structural components
and other activities needed to preserve the asset so that it
continues to provide acceptable service and achieve its expected
life.  Modifications or upgrades that are intended to expand the
capacity of an asset are specifically excluded from the definition. 

SFFAS No.  6 recognizes that determining maintenance needs is a
management function and accordingly allows management flexibility and
judgment within broadly defined requirements.  For example, the
standard acknowledges that determining the asset condition--condition
rating--is a management function because what constitutes acceptable
condition may differ both across entities and for different items of
PP&E held by the same entity.  Under the standard, it is management's
responsibility to (1) determine the level of service and condition of
the asset that are acceptable, (2) disclose deferred maintenance by
major classes of assets, and (3) establish methods to estimate and
report any material amounts of deferred maintenance.\8 In addition,
the standard has an optional disclosure for stratification between
critical and noncritical amounts of maintenance.  Management must
decide whether to distinguish between critical and noncritical
deferred maintenance amounts and, if it chooses to do so, what
constitutes critical. 

Of the 11 agencies included in our review, nine agencies are required
specifically to implement the standard for fiscal year 1998.  TVA and
USPS follow private sector practices in their financial statement
reporting.  However, TVA and USPS are included in the governmentwide
financial statements and will be subject to reporting deferred
maintenance under SFFAS No.  6 if their amounts prove material\9 to
the governmentwide statements.  Treasury officials are addressing
whether there are any significant issues regarding how to include
entities in the consolidated statements that are not required to
follow federal accounting standards, such as TVA and USPS. 


--------------------
\8 The standard provides that amounts disclosed for deferred
maintenance may be measured using either condition assessment surveys
or life-cycle cost forecasts.  Condition assessment surveys are
periodic inspections of PP&E to determine both its current condition
and estimated costs to correct any deficiencies.  Life-cycle costing
is an acquisition or procurement technique which considers operating,
maintenance, and other costs in addition to the acquisition cost of
assets.  Since it results in a forecast of maintenance expense, these
forecasts may serve as a basis against which to compare actual
maintenance expense and estimate deferred maintenance. 

\9 An item is considered material if its inclusion or omission would
influence or change the judgment of a reasonable person. 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
------------------------------------------------------------ Letter :3

The objectives of our work were to (1) look at the plans and progress
of the 11 agencies to implement the deferred maintenance requirements
of SFFAS No.  6 and (2) obtain the official position of agency CFOs
and IGs with respect to its implementation.  To achieve these
objectives we first reviewed SFFAS No.  6, including the significant
considerations made by the board in developing the standard. 

We then developed an interview guide covering (1) previous agency
experience with maintenance reporting, (2) agency management plans
for and commitment to implementing deferred maintenance reporting in
compliance with SFFAS No.  6, and (3) the status of agency policies
and procedures for implementing such reporting.  Interviews using
this guide were held with 11 agency CFOs and their related staff.  In
addition, because of their experience with agency financial
reporting, we developed an interview guide which was used to obtain
agency IGs' views about their agency's readiness and progress towards
implementing the deferred maintenance requirements and about any
previous relevant audit reports.  Interviews were conducted only with
the IG's at the nine agencies specifically required to implement the
deferred maintenance requirements of SFFAS No.  6.  Agency responses
were confirmed with each agency's CFO and IG to ensure that they
accurately reflected the agency's official position.\10 Our work
focused on departmental level implementation efforts rather than the
work of individual bureaus within an agency.  We also reviewed agency
financial statements, relevant policy documentation, and prior GAO
and IG reports on deferred maintenance.  We requested written
comments on a draft of this report from agency officials.  Several
agencies provided comments of a technical nature which were
incorporated into this report.  The Deputy CFO for DOT and the Under
Secretary of Defense provided us with formal written comments, which
are reprinted in appendixes XII and XIII, respectively. 

We conducted our work from September through November 1997 in
accordance with generally accepted auditing standards.  Throughout
the rest of the report, unless otherwise noted, agencies refers to
the nine agencies specifically required to implement the deferred
maintenance requirements of SFFAS No.  6 for fiscal year 1998. 


--------------------
\10 In several cases, the agency did not have a CFO or IG in place at
the time of our review.  In these cases, we received responses and
confirmation from the deputy or acting CFO or IG.  In the case of
DOD, we received responses and confirmation from the Acting Under
Secretary of Defense (Comptroller). 


   AGENCIES HAVE LIMITED
   EXPERIENCE IN DEVELOPING
   COMPREHENSIVE ESTIMATES
------------------------------------------------------------ Letter :4

Historically, deferred maintenance reporting was not required, thus
agencies have limited experience in developing agencywide estimates
of deferred maintenance or maintenance backlogs.  Although all
agencies said that they have estimated maintenance needs for ad hoc
and budgetary purposes, only two agencies--DOI and NASA\11
--indicated that they have made agencywide deferred maintenance
estimates.  These estimates have not been audited to ensure their
reliability or conformance with the new requirements included in
SFFAS No.  6. 

Four other agencies--USDA, State, DOT, and DOD--have previously made
at least partial estimates of deferred maintenance for other than
financial statement reporting purposes.  USDA noted that its deferred
maintenance estimate included activities to expand and upgrade PP&E
items--which are not considered deferred maintenance under SFFAS No. 
6.  State's estimate of deferred maintenance is based upon an
inventory of known facility maintenance requirements.  However the
CFO for State cautioned that not all of these known requirements may
be deferred maintenance as defined by SFFAS No.  6.  DOT noted that
its estimates of deferred maintenance included the Maritime
Administration and the Federal Aviation Administration, but did not
include the Coast Guard.  Similarly, DOD cited Air Force estimates
for deferred maintenance for depot and real property but had no
agencywide estimate.  Three agencies--DOE, GSA, and VA--did not have
deferred maintenance estimates.  Although DOE was able to provide
policies requiring field offices/sites to manage their maintenance
backlogs, the Acting CFO told us the department has no requirement
for reporting to headquarters. 

None of the deferred maintenance estimates, including the agencywide
estimates, had been subject to an independent audit.  GAO and IG
reports have questioned the validity of agency estimates of deferred
maintenance and maintenance backlogs.  For example, GAO reports on
the DOI's National Park Service confirmed deteriorating conditions at
the National Parks but questioned whether the Park Service had
adequate financial and program data or controls to know the nature or
extent of resource problems or the effectiveness of measures taken to
address the problems.\12 Similarly, a 1993 Department of State IG
report found that while the department had progressed in identifying
its maintenance and repair deficiencies, information on the
maintenance backlog had not been summarized, quantified or monitored. 

Further, the size and scope of DOD PP&E creates special problems in
its reporting of deferred maintenance, many of which have been
previously reported by GAO.  As noted in our May 1997 report,\13
DOD's changes in its definition of backlogs have led to large
decreases in its "unfunded requirements" for maintenance.  We also
noted that the military services have expressed concern about the
adequacy of funding to maintain and repair all of their facilities
and have reported growing maintenance and repair backlogs.  However,
the services also have many excess buildings which could be
demolished to avoid millions of dollars of recurring maintenance
costs.  Also, we recently reported\14 that, while military service
installation officials cited increases in backlogs of deferred
maintenance and repair projects in recent years, reliable composite
information was not available due to differences in how services
develop and maintain these data.  Further, recent efforts by the
Office of the Secretary of Defense to develop a comprehensive system
for performing facilities condition assessment have not been
successful and systems maintained by the individual services vary in
terms of their capabilities to identify funding requirements. 

Most recently, we reported on DOD's plans to implement the deferred
maintenance requirements for national defense assets, noting that DOD
needs to expedite plans to implement this new disclosure.\15 In
particular, we recommended that DOD (1) ensure that DOD-wide policy
is in place as soon as possible so that DOD can comply with the
effective date of the deferred maintenance requirements, (2)
establish milestones for key actions in the policy development
process to ensure issuance of the policy no later than March 1998,
and (3) modify the ongoing study of existing DOD methods for
determining deferred maintenance to complete the study by the end of
March. 


--------------------
\11 The NASA estimate of deferred maintenance addresses only
facilities maintenance.  The CFO reported (See appendix II) that NASA
expected the new deferred maintenance reporting requirements to occur
primarily in the facilities maintenance area. 

\12 See National Parks:  Difficult Choices Need To Be Made About the
Future of the Parks (GAO/RCED-95-238, August 30, 1995) and National
Park Service:  Better Management and Broader Restructuring Efforts
Are Needed (GAO/T-RCED-95-101, February 9, 1995). 

\13 Deferred Maintenance:  Reporting Requirements and Identified
Issues (GAO/AIMD-97-103R, May 23, 1997). 

\14 Defense Infrastructure:  Demolition Of Unneeded Buildings Can
Help Avoid Operating Costs (GAO/NSIAD-97-125, May 13, 1997). 

\15 Financial Management:  DOD Needs to Expedite Plans to Implement
Deferred Maintenance Accounting Standard (GAO/AIMD-97-159R, September
30, 1997). 


   STATUS OF AGENCY IMPLEMENTATION
   EFFORTS
------------------------------------------------------------ Letter :5

Although some initial steps have been taken, significant work remains
to be done for all agencies to effectively implement the deferred
maintenance requirements for fiscal year 1998 reporting.  CFOs at the
nine agencies specifically required to implement the standard for
fiscal year 1998 expressed the intention to implement the deferred
maintenance requirements on time.  Each had designated an individual
or individuals to lead this effort. 

None of the nine agencies had fully addressed other implementation
issues.  The standard specifies that management needs to (1)
determine the level of service and condition of the asset that are
acceptable, (2) disclose deferred maintenance by major classes of
assets, and (3) establish what method--condition assessment or
life-cycle--to use to estimate and report any material amounts of
deferred maintenance.  Thus, the development of departmental guidance
to ensure consistent reporting within an agency may be particularly
important given that the standard allows flexibility within broadly
defined requirements.  Seven agencies had not drafted departmental
guidance\16 addressing these issues as a means of ensuring
consistency in reporting and facilitating the preparation of
agencywide financial statements.  Further, neither of the two
agencies (VA and USDA) that had developed departmental guidance
specifically addressing the deferred maintenance requirements
provided detailed guidance on deferred maintenance beyond that
included in the standard.  While all agencies could articulate their
approach to implementing the deferred maintenance requirements of
SFFAS No.  6, only one, GSA, had a written plan outlining preparation
steps and recommended completion dates for activities important to
the deferred maintenance disclosure requirements.\17

IG views on whether agencies would be ready to implement the deferred
maintenance requirements were divided.  Four of the nine IGs
expressed confidence that their agency would implement SFFAS No.  6
promptly.  IGs from two agencies--DOD, with 80 percent of reported
PP&E, and DOT--stated that their agencies would not be prepared to
implement the deferred maintenance requirements and the remaining
three IGs were unwilling to assess agency readiness.  The DOD IG
indicated that DOD's time frame for implementation would not allow
sufficient time for preparation of the fiscal year 1998 financial
statements.  The IG for DOT stated that the agency has not
established a formal system to centrally identify or track deferred
maintenance estimates and the operating administrations of DOT do not
have an accurate accountability of all assets.  Table 2 provides an
overview of each agency IG's assessment of whether the agency will be
prepared to implement the deferred maintenance requirements on time. 



                                Table 2
                
                 IG Assessments of Agency Readiness to
                   Implement the Deferred Maintenance
                              Requirements

IG Assessments of Agency Readiness                            Agencies
----------------------------------------  ----------------------------
Agency should be prepared to implement         VA, USDA,\a State, NASA
 the deferred maintenance requirements
Agency will not be prepared to implement                      DOT, DOD
 the deferred maintenance requirements
No opinion provided                                      GSA, DOI, DOE
----------------------------------------------------------------------
\a USDA IG stated that this is contingent on the agency completing
its PP&E inventory. 


--------------------
\16 In this report, departmental guidance refers to draft or final
implementation policies or manuals that provide instructions to
agency officials on how to implement the requirements in SFFAS No. 
6. 

\17 Although GSA refers to this plan as guidance, we did not consider
this departmental guidance because it does not provide instructions
to agency officials on how to implement the requirements in SFFAS No. 
6. 


      AGENCIES ARE TAKING
      DIFFERENT APPROACHES IN
      THEIR PRELIMINARY EFFORTS TO
      IMPLEMENT THE DEFERRED
      MAINTENANCE REQUIREMENTS
---------------------------------------------------------- Letter :5.1

At the time of our review, agencies were still in the preliminary
stages of preparing to implement the deferred maintenance
requirements and were taking different approaches.  Given these
different approaches and the flexibility provided in the standard, no
single indicator provides a complete picture of agency progress
towards implementing the deferred maintenance requirements.  For
example, an agency that has issued written but general departmental
guidance could not be assumed to have made a greater level of
progress than an agency that has not issued departmental guidance,
but has previous experience in estimating deferred maintenance or has
established working groups identifying key implementation issues. 

Approaches used by agencies in preparing to implement the deferred
maintenance requirements fall into three general categories--revision
of existing policies and procedures, issuance of minimal departmental
guidance, and study of implementation issues prior to the issuance of
departmental guidance.  The agencies using these general approaches
are discussed below.  Additional detail on each agency is included in
appendixes I to XI. 


         TWO AGENCIES PLAN TO
         REVISE EXISTING POLICIES
         AND PROCEDURES
-------------------------------------------------------- Letter :5.1.1

Two agencies--DOE and NASA--plan to revise established policies on
estimating and reporting deferred maintenance or maintenance
backlogs.  Both indicated that these policies would provide the
foundation for implementing the deferred maintenance requirements
under SFFAS No.  6. 

DOE has existing policies that require field offices to estimate and
document deferred maintenance amounts, but has no requirement for
reporting this information to headquarters.  According to DOE's
Acting CFO, her office has reviewed DOE's existing policies and
determined that for the most part the department was complying with
the requirements of SFFAS No.  6.  For areas not in full compliance
with the standard, the department anticipates issuing new or
clarifying guidance.  The Acting CFO stated that her office is
working to develop a cost-effective approach for accumulating data
from DOE field offices and reporting this information to the
department's headquarters.  DOE's Deputy IG stated that although it
was too early to make a definitive judgment about the readiness and
capability of the department to implement the deferred maintenance
requirements, based on the department's representations regarding its
implementation plans, it appeared that the deferred maintenance
disclosure will be auditable.  Appendix IV presents additional
information on DOE's implementation efforts. 

NASA also anticipated that with some minor adjustments the agency's
current deferred maintenance estimating and reporting process would
allow the agency to meet the deferred maintenance requirements. 
According to NASA's CFO, the agency expects to have any policy
revisions completed by June 30, 1998, and to meet the deferred
maintenance requirements without difficulty.  The CFO reported that
NASA policy requires that Centers continuously assess facility
conditions in a manner which results in an appropriate identification
and quantification (in terms of dollars) of the backlog of
maintenance and repair.  Once deficiencies are identified, industry
standard estimating guides are used to arrive at estimated repair
costs.  NASA's IG expressed the view that, based on audit experience,
NASA will be able to support the deferred maintenance amounts. 
Appendix II presents additional information on NASA's implementation
efforts. 


         TWO AGENCIES HAD
         ESTABLISHED WRITTEN
         POLICIES BUT DETAILED
         GUIDANCE WAS MINIMAL
-------------------------------------------------------- Letter :5.1.2

Two agencies--VA and USDA--have developed written policies
specifically addressing the deferred maintenance requirements
included in SFFAS No.  6.  VA's draft policy reiterates the
definitional and reporting requirements for deferred maintenance but
does not provide guidance on which measurement method--life cycle or
condition assessment--should be used.  VA's CFO indicated that the
department is leaning towards using condition assessment and that
additional guidance and specific procedures would likely be
established as the policy is implemented through the department. 
However, if no additional guidance is provided, operating units will
have to determine which method to use.  The CFO also noted that the
general approach will be to provide guidance to units and have the
units report an estimate of deferred maintenance.  The CFO office
plans to use a statistical account\18 in its general ledger\19 to
compile this information to provide the basis for the disclosure. 
VA's Acting IG--citing the agency's progress in financial reporting
over the last few years--stated that the department will likely be
prepared to implement the deferred maintenance requirements.\20 The
VA's Acting IG indicated that the ability to audit any deferred
maintenance disclosure will depend on the department providing an
audit trail and a good system of information.  He also stated that a
challenge will be whether the VA issues ground rules to facilities so
that consistency will occur among the 173 Medical Centers and other
VA units.  Appendix VII presents additional information on VA's
implementation efforts. 

USDA's policy calling for the implementation of the deferred
maintenance requirements is outlined in the USDA Financial and
Accounting Standards Manual.  The policy covers the accounting
standards for PP&E and deferred maintenance.  According to the Acting
CFO and IG, the guidance provided in this policy conforms to SFFAS
No.  6.  The policy provides additional guidance on asset
classification beyond that included in SFFAS No.  6 but does not
provide significant additional guidance with respect to estimating
deferred maintenance.  USDA provides its operating administrations
with most of the flexibility provided to management by SFFAS No. 
6--and this is reflected in the deferred maintenance section of its
policy.  The Acting CFO noted that operating administration managers
below the departmental level are in the best position to make
determinations on what is most appropriate for a particular agency
within USDA.  Hence, each operating administration has the option of
choosing whichever of the allowable methodologies under SFFAS No.  6
it deems most appropriate.  One exception to the extension of the
standard's flexibility downward is USDA's requirement that mission
area or agency management distinguish between critical and
noncritical deferred maintenance amounts and disclose the basis for
that determination. 

USDA's IG said that since the department has disseminated the policy
for implementing the standard, the individual USDA operating
administrations need to develop operating procedures for estimating
and reporting deferred maintenance.  Assuming that USDA operating
administrations continue to emphasize financial management and the
Forest Service completes its inventory of PP&E, the USDA IG expects
that USDA should be able to implement the standard on time, and the
disclosure should be auditable.  Appendix VIII presents additional
information on USDA's implementation efforts. 


--------------------
\18 A statistical account is a data gathering account maintained in
VA's integrated accounting system used to track and report management
information. 

\19 The general ledger contains accounting and fiscal information
used for the preparation of financial reports. 

\20 At the time of our interviews, the VA had an Acting IG who
responded to GAO's questions.  As of November 7, 1997, a new IG was
confirmed for this agency. 


         MOST AGENCIES WERE
         STUDYING IMPLEMENTATION
         ISSUES BEFORE DETERMINING
         THE EXTENT OF
         DEPARTMENTAL GUIDANCE
-------------------------------------------------------- Letter :5.1.3

At the time of our review, five of the nine agencies--DOD, GSA,
State, DOI, and DOT-- had not yet determined the extent of detailed
departmental guidance to provide with respect to implementing the
deferred maintenance requirements.  Most of these agencies were
conducting or were planning to conduct studies to provide additional
information on key implementation issues.  Findings from these
studies would be used to help determine the extent and content of
departmental guidance. 

DOD contracted with the Logistics Management Institute (LMI), to
assess existing DOD methods of determining, measuring, and recording
deferred maintenance data for mission assets.  The LMI study, which
only will address DOD's mission or defense assets and will not cover
general PP&E, is expected to be completed in March 1998.  DOD then
plans to review the results and provide financial and logistic policy
for deferred maintenance.  Recent GAO reports have stated that this
timetable will not allow sufficient time to ensure consistent and
timely deferred maintenance disclosures because the military services
may not have the DOD-wide guidance in time to develop
service-specific policies and procedures for fiscal year 1998
financial statements.\21 In addition, DOD's Acting Comptroller\22
stated that for general PP&E--other than real property--DOD has not
yet determined whether amounts are material and therefore warrant
reporting.  DOD's IG agreed with our recommendations that completion
of the LMI study be accelerated, milestones established, and that
DOD-wide policy be in place as soon as possible so that DOD can
comply with the effective date of the standard.  The IG expressed the
view that DOD would not be prepared to implement the deferred
maintenance requirements.  Appendix I presents additional information
on DOD's implementation efforts. 

GSA worked with an independent accounting firm to develop an
implementation report with recommended completion dates for several
of the new federal accounting standards including SFFAS No.  6.  This
report recommended that GSA develop and implement a methodology for
estimating and compiling deferred maintenance costs by the first
quarter of 1998.  At the time of our review, GSA had not developed an
estimate of deferred maintenance and had not yet developed
departmental guidance.  GSA's CFO stated that the agency had not yet
determined whether condition assessment and/or life-cycle cost
methodologies will be used, nor has it decided whether to distinguish
between critical and noncritical assets.  The IG, citing a lack of
information, declined to express a view on whether GSA would be
prepared to implement the deferred maintenance requirements. 
Appendix VI presents additional information on GSA's implementation
efforts. 

Similarly, State had contracted with a firm to provide
recommendations on implementing the new federal accounting standards
including SFFAS No.  6.  At the time of our review, State had not
developed departmental guidance on implementing the deferred
maintenance requirements.  According to the CFO, the department
expects to develop a policy on deferred maintenance by April 1998. 
The IG believes that the department will be able to implement the
deferred maintenance requirements for fiscal year 1998 but cautioned
that until her office reviews the amounts, it cannot attest to their
reliability.  Appendix IX presents additional information on State's
implementation efforts. 

DOI plans to rely heavily on the findings of an internal working
group in developing departmental guidance on the implementation of
the deferred maintenance requirements of SFFAS No.  6.  Since March
1997, a multibureau team at DOI has been studying issues surrounding
the implementation of the deferred maintenance requirements.  The
Acting CFO reported that this team is expected to provide the agency
with data on current and deferred maintenance as well as guidance on
standard definitions and methodologies for improving the accumulation
of necessary information.  The Acting CFO believes that
recommendations coming out of this team will call for uniform
information and condition assessments which are supportive of the new
standards.  DOI is also working to standardize definitions and
procedures throughout the agency.  The Acting CFO stated that DOI
intends to include deferred maintenance disclosures in its fiscal
year 1997 Annual Report in advance of the fiscal year 1998 reporting
requirements.  DOI's IG declined to express a view on whether the
department would be prepared to implement the deferred maintenance
requirements in fiscal year 1998.  According to the IG, his office is
planning to assess the deferred maintenance information provided in
the department's fiscal year 1997 financial statements.  Thus, DOI's
early implementation approach should provide the agency with some
indication of readiness to implement the deferred maintenance
requirements for fiscal year 1998.  Appendix V presents additional
information on DOI's implementation efforts. 

DOT is taking a decentralized approach to implementing the deferred
maintenance requirements.  The Deputy CFO reported that, where it is
useful, DOT applies financial policies issued centrally within the
Executive Branch with any necessary interpretation.  DOT distributed
SFFAS No.  6 to its operating administrations without additional
guidance.  Each operating administration will be responsible for
determining how the deferred maintenance requirements will be
implemented.  The Deputy CFO indicated that his office will provide
more detailed guidance on departmental reporting of deferred
maintenance by issuing guidance for preparation of the fiscal year
1998 financial statements.  The IG expressed concerns about the
department's approach and indicated that, in his view, DOT would not
be prepared to implement the deferred maintenance requirements. 
According to the IG, although the operating administrations have the
basic elements in place to implement the requirements, the department
has not established a formal system to centrally identify or track
deferred maintenance estimates.  Further, the IG pointed out that the
relevant operating administrations do not have an accurate accounting
of all assets.  Appendix III presents additional information on DOT's
implementation efforts. 


--------------------
\21 See Financial Management:  DOD Needs to Expedite Plans to
Implement Deferred Maintenance Accounting Standard (GAO/AIMD-97-159R,
September 30, 1997) and Financial Management:  Issues to Be
Considered by DOD in Developing Guidance for Disclosing Deferred
Maintenance on Aircraft (GAO/AIMD-98-25, December 30, 1997). 

\22 At the time of our interviews, DOD had an Acting Comptroller who
responded to GAO's questions.  As of November 19, 1997, a new
comptroller was confirmed for this agency. 


      APPLICABILITY OF SFFAS
      NO.  6 TO TVA AND USPS IS
      LIMITED
---------------------------------------------------------- Letter :5.2

TVA and USPS follow private sector accounting standards in their
financial statement reporting.  However, since they are included in
the consolidated financial statements of the U.S.  government, TVA
and USPS will be subject to reporting deferred maintenance under
SFFAS No.  6 if their amounts prove material to the governmentwide
financial statements.  As of November 1997, neither USPS or TVA
reported that it had been contacted by the Treasury with regard to
the deferred maintenance reporting requirements for fiscal year 1998. 
A Treasury official confirmed that TVA and USPS have not been
contacted regarding the fiscal year 1998 implementation of the
deferred maintenance reporting requirements contained in SFFAS No. 
6.  Treasury officials are starting to address whether there are any
significant reporting issues regarding how to include entities in the
consolidated statements that are not required to follow federal
accounting standards. 

The TVA CFO stated that his office was unaware of the deferred
maintenance requirements.  Although TVA has certain estimates of
deferred maintenance, the CFO noted that TVA's definition of deferred
maintenance differs from that of SFFAS No.  6 and varies by category
of asset.  For example, he stated that for fossil fuels and hydro
power, deferred maintenance is defined as repair work that is not
performed on equipment if the problem has minor effects on the
performance of that equipment.  For building facilities, he stated
that TVA defines deferred maintenance as maintenance that can be
delayed indefinitely based on factors such as the change in the
PP&E's function, an increase/decrease in PP&E life expectancy, and
the relationship between repair, replacement, or abandonment costs. 
However, should TVA be required to report deferred maintenance for
the consolidated U.S.  government financial statements, the CFO
reported that TVA would comply and would not require significant
preparation time.  Appendix X presents additional information on
TVA's implementation efforts. 

The USPS CFO stated that the agency does not defer maintenance
because of the potential effect such actions might have on employee
safety and on-time mail delivery.  The majority of USPS assets are
buildings to house postal facilities, mail processing and computer
equipment, and vehicles to move and deliver the mail.  USPS standard
maintenance plans are provided in its handbooks and policies and
funding needs for maintenance are routinely addressed in its base
budget.  USPS has a schedule of useful lives for equipment, and local
operating management has the authority to replace items when it is
not cost effective to repair them.  The USPS CFO also stated that the
agency does not own any airplanes, railroad cars, or ships to move
the mail; this is all done via contracts with commercial entities
which also perform maintenance on this equipment.  Appendix XI
presents additional information on USPS implementation efforts. 


   AGENCIES FACE CHALLENGES IN
   IMPLEMENTING THE DEFERRED
   MAINTENANCE REQUIREMENTS
------------------------------------------------------------ Letter :6

Agencies will be facing a number of challenges as they continue their
implementation efforts.  These challenges stem from the relative
newness of the deferred maintenance requirements, the inherently
difficult definitional issues associated with determining maintenance
spending, the need for adequate systems to collect and track data,
and, perhaps most importantly, the need for complete and reliable
inventories of assets on which to develop estimates.  As noted
earlier, agencies are taking a variety of approaches to these issues. 


      INADEQUATE PP&E REPORTING
      WILL IMPEDE IMPLEMENTATION
      EFFORTS
---------------------------------------------------------- Letter :6.1

Improving PP&E reporting is a critical step to implementing the
deferred maintenance requirements because deferred maintenance
estimates are contingent upon a complete and reliable inventory of
PP&E.  Three agencies--DOD, USDA, and DOT--comprising 84 percent of
total government reported PP&E received disclaimers of opinion\23 in
part because of difficulties reporting PP&E.  A fourth agency, DOI
received a qualified opinion due to the inability to support the
reported PP&E amounts at one of its bureaus, the Bureau of Indian
Affairs.  Even agencies with unqualified opinions may need to
continue efforts to improve PP&E reporting.  For example, the fiscal
year 1996 financial statement audit reports for both DOE and VA
described internal control weaknesses that could adversely affect the
departments' future ability to accurately report PP&E.  Thus, for
many agencies, an appropriate step toward implementing the deferred
maintenance requirements of SFFAS No.  6 is to improve their overall
ability to identify and account for PP&E. 

DOD has received disclaimers of opinion on its fiscal year 1996
financial statements due in part to its inability to adequately
account for its PP&E.  DOD's IG reported that control procedures over
assets were inadequate and caused inaccurate reporting of real
property, capital leases, construction in progress, inventory, and
preparation of footnotes. 

USDA also received a disclaimer of opinion on its fiscal year 1996
financial statements due in part to its inability to report PP&E at
the Forest Service.  In an effort to improve the accuracy of PP&E
reporting, the Forest Service in USDA is undertaking a complete
physical inventory of PP&E.  At the same time, the Forest Service
Acting CFO stated that the agency plans to estimate deferred
maintenance needs.  The USDA IG concurs that a critical step to
implementing the deferred maintenance requirements of SFFAS No.  6
for USDA is to develop complete inventories of its PP&E without this
inventory, the IG states that little reliance could be placed on
estimates reported for deferred maintenance.  Similarly, the DOT IG
stated that DOT is focusing its efforts on correcting weaknesses
identified in prior financial statement audits, particularly in the
area of PP&E.  Because deferred maintenance is linked to PP&E, the IG
acknowledged that DOT needs to identify and validate PP&E before
estimating amounts of deferred maintenance. 

At DOI, reporting issues are limited to the Bureau of Indian Affairs
which in fiscal year 1996 could not provide adequate documentation or
reliable accounting information to support $170 million in PP&E.  DOI
intends to include deferred maintenance disclosures in its fiscal
year 1997 Consolidated Annual Report even though they are not
required until fiscal year 1998.  Since the IG plans to assess DOI's
fiscal year 1997 deferred maintenance disclosures, DOI's early
implementation approach should provide the agency with some
indication of its readiness to implement the deferred maintenance
requirements for fiscal year 1998. 

Even for agencies where independent audits indicated no report
modifications pertaining to PP&E, the deferred maintenance
requirement of SFFAS No.  6 presents a significant challenge.  While
providing useful new information for decision-making, the deferred
maintenance requirements raise a number of new implementation and
definitional issues--such as determining the acceptable condition of
assets and the estimation methods to be used.  The necessary
flexibility in the standard increases the need for some departmental
policies and guidance that are designed to be compatible with agency
mission and organizational structure.  Such departmental guidance
could help ensure consistent reporting across agency units and
facilitate the preparation of agencywide financial statements. 
However, the development of departmental guidance is complicated by
the number and diversity of missions and assets even within a single
agency.  In determining the extent of additional departmental
guidance to provide units, agencies must balance the desirability of
consistent reporting with the need for flexibility. 

In addition, adequate data collection and tracking systems will be
necessary to gather and verify information on deferred maintenance
costs.  However, as we have previously reported\24 and as was
acknowledged in June 1997 by both OMB and the Chief Financial
Officers Council,\25 the condition of agency financial systems
remains a serious concern.  Our past audit experience has indicated
that numerous agencies' financial management systems do not maintain
or generate original data to readily prepare financial statements. 
Although some recent improvements have been made, agencies are still
struggling to comply with governmentwide standards and requirements. 
Overcoming the above challenges to help ensure reliable and
meaningful reporting at the departmental level is critical to the
effective implementation of the deferred maintenance requirements. 


--------------------
\23 A disclaimer is a statement in an auditor's report indicating the
inability of the auditor to express an opinion on the fairness of the
financial statements referred to in the report. 

\24 Financial Management:  Implementation of the Federal Financial
Management Improvement Act of 1996 (GAO/AIMD-98-1, October 1, 1997). 

\25 Federal Financial Management Status Report & Five Year Plan,
issued by OMB, June 1997, and Status Report on Federal Financial
Management Systems, Investing in Improvements to Support Better
Management, prepared by the Chief Financial Officers Council and OMB,
June 1997. 


   GAO OBSERVATIONS
------------------------------------------------------------ Letter :7

If effectively implemented, the new deferred maintenance reporting
required by SFFAS No.  6 will improve information for
decision-making.  However, the deferred maintenance requirements
present agencies with a significant challenge for which they must
adequately prepare.  While agencies have taken some initial steps to
implement the deferred maintenance requirements, significant work
remains in order for all agencies to effectively implement them on
time.  Moreover, agencies need to continue to address their systems
problems so that this and other reporting requirements can be
effectively met. 

Since agencies are most responsive to issues in which there is
demonstrated interest, continued congressional and executive branch
oversight would increase the chances of the standard being
implemented successfully and on time.  Monitoring of agency progress
toward implementation, including the development of appropriate
departmental guidance compatible with agency mission and
organizational structure, could help ensure effective and timely
implementation. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :8

Agency officials generally concurred with our conclusion that
significant work remains to effectively implement the deferred
maintenance reporting requirements under SFFAS No.  6.  Several
agencies provided comments of a technical nature which were
incorporated into our report as appropriate.  Two agencies, DOT and
DOD, expressed reservations about certain sections of this report. 
The Deputy CFO for DOT indicated that a formal system for tracking
deferred maintenance is not required by SFFAS No.  6.  While
technically correct, it is anticipated that deferred maintenance
disclosures and estimates will be adequately documented by agencies. 
Accurate tracking of PP&E and deferred maintenance can be a valuable
management tool for assessing program status and supporting resource
allocation decisions on an ongoing basis.  The Deputy CFO for DOT
also did not believe that it was necessary to fully validate PP&E
prior to estimating deferred maintenance.  While we believe that the
lack of an accurate accounting of PP&E will certainly impede any
efforts to implement the deferred maintenance requirements, we agree
that implementation of SFFAS No.  6 can--and should--proceed, even as
agencies are continuing to validate their PP&E reporting. 

The Under Secretary of Defense, while stating that DOD is striving to
comply with the reporting requirements, questioned if the benefits to
be derived from reporting deferred maintenance will be proportionate
to the effort required to obtain and report this information.  He
noted that deferred maintenance reporting represents a "snap-shot" at
a specific time and stressed that, given the diversity of DOD's PP&E
systems, implementation of the requirements represents a significant
challenge that will be costly in terms of both funding and personnel. 
He expressed concern that the report does not assess the impact on
agencies of implementing and complying with the standard. 

Federal financial accounting standards, including the deferred
maintenance requirements, are developed by FASAB using a due process
and consensus building approach that considers the financial and
budgetary information needs of the Congress, executive agencies, and
other users of federal financial information as well as comments from
the public.  DOD is a participant in these proceedings and has a
member on FASAB.  In its deliberations on deferred maintenance
reporting, FASAB considered both the need to improve information on
the condition of federal assets and the complexities of measuring and
reporting this information.  FASAB determined that deferred
maintenance was a cost and that information on this cost was
important to users.  However, in recognition of measurement
challenges and the limitations in the capacity of agency systems,
FASAB developed the standard to provide entities flexibility in
setting maintenance requirements and in establishing cost beneficial
methods to estimate deferred maintenance amounts.  The standard
allows management flexibility to define deferred maintenance at a
level meaningful for the agency.  For example, acceptable asset
condition is a management determination--the level of detailed
information obtained is dependent on management's determination of
decisionmakers' needs. 

As discussed in the Statement of Federal Financial Accounting
Concepts No.  1 Objectives of Federal Financial Reporting, federal
financial reporting is intended to address four broad
objectives---budgetary integrity, operating performance, stewardship,
and systems and controls.  Disclosure of deferred maintenance amounts
is consistent with these objectives.  The systematic financial
reporting of deferred maintenance can improve information on
operating performance and stewardship and thus assist in determining
how well government assets are maintained.  In contrast, the
usefulness of DOD's current reporting of deferred maintenance through
the budget process is more limited because estimates are developed on
an ad-hoc basis and reporting is inconsistent among the military
services and weapons systems.  In addition, much of the data used are
based on anticipated budgetary resources and not subjected to
independent audit. 

The disclosure of deferred maintenance is an important management
issue.  Management should have this information throughout the year
to assess the status of management programs and to support resource
allocations on an ongoing basis.  In the case of DOD, deferred
maintenance applicable to mission assets, if reliably quantified and
reported, can be an important indicator of mission asset condition (a
key readiness factor) as well as an indicator of the proper
functioning of maintenance and supply lines.  Disclosure of deferred
maintenance can also aid in supporting budget and performance
measurement information.  Because all financial reporting, including
deferred maintenance, represents a "snap-shot" at a specific period
in time--the value of financial reporting lies in the data collection
and reporting systems developed to create and support the financial
statements.  Thus, the data systems that support financial statements
can provide the capability for monitoring and managing day-to-day
operations. 

We recognize that the deferred maintenance requirement presents DOD
with a challenge in determining and disclosing reliable estimates of
deferred maintenance--especially in addressing the broad range of
financial management systems problems facing DOD.  DOD's longstanding
system problems are repeatedly cited as reasons for inadequate
financial information.  Development of reliable systems should
enhance DOD's ability to meet financial reporting requirements,
including the deferred maintenance disclosure requirement. 

The flexibility provided in the standard and the diversity of agency
missions and assets increases the importance of department-level
guidance to ensure consistent reporting.  For example, we recently
highlighted the key issues to be considered in developing guidance
for disclosing deferred maintenance on aircraft.\26 In particular, we
noted that implementing guidance is needed so that all military
services consistently apply the deferred maintenance standard.  This
means that DOD must address a number of issues, including (1) what
constitutes acceptable condition, (2) determining whether--or how--to
distinguish between critical and noncritical deferred maintenance,
(3) determining when maintenance needed but not performed is
considered deferred, and (4) whether deferred maintenance should be
reported for assets that are not necessary for current requirements. 
In this and another report,\27 DOD concurred with our statements
citing the need for developing guidance promptly in order to ensure
timely implementation of the deferred maintenance reporting
requirements. 


--------------------
\26 Financial Management:  Issues to Be Considered by DOD in
Developing Guidance for Disclosing Deferred Maintenance on Aircraft
(GAO/AIMD-98-25, December 30, 1997). 

\27 See also Financial Management:  DOD Needs to Expedite Plans to
Implement Deferred Maintenance Accounting Standard (GAO/AIMD-97-159R,
September 30, 1997). 


---------------------------------------------------------- Letter :8.1

As agreed with your office, unless you publicly announce the contents
of this report earlier, we will not distribute it until 15 days from
its date.  Then, we will send copies to the Ranking Minority Member
of the Senate Appropriations Committee.  Copies will also be made
available to others upon request. 

Please contact me at (202) 512-9573 if you or your staff have any
questions concerning this report. 

Sincerely yours,

Paul L.  Posner
Director, Budget Issues


DOD RESPONSES REGARDING AGENCY
READINESS TO IMPLEMENT DEFERRED
MAINTENANCE REQUIREMENTS
=========================================================== Appendix I

REPORTED AMOUNT OF PP&E

As of September 30, 1996, DOD reported PP&E of $772.9 billion.  Of
this amount, $586.5 billion is military equipment, $123.0 billion is
structures, facilities, and leasehold improvements, and $63.5 billion
is construction in progress and other types of general PP&E.  DOD
holds approximately 80.5 percent of the federal government's reported
PP&E.  Problems with PP&E reporting contributed to a disclaimer of
opinion on DOD's fiscal year 1996 financial statements.  In
particular, DOD's IG stated that control procedures over assets were
inadequate and caused inaccurate reporting of real property, capital
leases, construction in progress, inventory and preparation of
footnotes. 

FISCAL YEAR 1996 AUDIT OPINION

For fiscal year 1996, DOD received a disclaimer of opinion from the
Office of the Inspector General based upon a scope limitation.  The
IG stated that although progress had been made, significant
deficiencies in the accounting systems and the lack of a sound
internal control structure prevented the preparation of accurate
financial statements. 

MANAGEMENT ACTIONS

The DOD Acting Comptroller\1 stated that the agency intends to
implement the new deferred maintenance requirements of SFFAS No.  6
as required for fiscal year 1998.  The DOD Acting Comptroller
reported that the agency has contracted with the Logistics Management
Institute (LMI) to perform a study to assess existing DOD methods of
determining, measuring and capturing deferred maintenance data on
National Defense PP&E.\2 DOD expects the LMI study to be completed in
March of 1998; until then, the Acting Comptroller was uncertain
whether additional changes would be required to achieve full
implementation of the standard.  For other types of general PP&E not
addressed by the LMI study, the DOD Acting Comptroller reported that
the agency is actively reviewing existing methods for reporting and
tracing maintenance and deferred maintenance within the budget
process to determine if modifications must be made or new reporting
requirements developed to achieve full compliance with SFFAS No.  6. 
However, current maintenance and deferred maintenance estimates do
not reflect SFFAS No.  6 PP&E categories.  The Acting Comptroller
also noted that the agency has identified an individual responsible
for managing DOD's effort to determine what and how reporting will be
accomplished for the deferred maintenance requirements of SFFAS No. 
6. 

STATUS OF POLICIES AND PROCEDURES

In September 1997, the Deputy CFO issued a memorandum to DOD
components stating that all eight of the accounting standards would
be incorporated into the DOD Financial Management Regulation.  As of
November 1997, the DOD Acting Comptroller reported that the agency
has not determined its measurement methodology, its application to
classes of different assets, or whether it will report both critical
and noncritical amounts of deferred maintenance.  In all cases, the
Acting Comptroller reported that these decisions will be made after
the completion of the deferred maintenance study being conducted by
LMI.  For general PP&E, the DOD Acting Comptroller stated that the
agency has not determined whether the amounts of deferred
maintenance, other than for real property, are material and warrant
reporting.  The Acting Comptroller reported that DOD currently uses
the condition assessment survey method for real property. 

AGENCY EXPERIENCE WITH DEFERRED
MAINTENANCE REPORTING

The DOD Acting Comptroller reported experience with deferred
maintenance reporting through estimates of deferred maintenance in
exhibits that support the DOD budget request.  For example, deferred
maintenance on weapons systems is reported through the agency's Depot
Maintenance Program, while deferred maintenance of real property
(buildings and facilities and housing units) is reported on budget
exhibits as the backlog of maintenance and repair.  The DOD Acting
Comptroller stated that the agency believes that this process
captures the majority of deferred maintenance but is not necessarily
comprehensive of all deferred maintenance.\3 The DOD Acting
Comptroller reported that the agency's deferred maintenance estimates
are developed from lower echelon organizations as they build their
individual budget requests and report on their level of maintenance
activity.  Estimates must then be consolidated at the departmental or
component levels of DOD.  The DOD Acting Comptroller stated that,
with perhaps some modification, the agency's deferred maintenance
estimates would satisfy SFFAS No.  6 and departmental compliance
requirements.\4

AGENCY ASSESSMENT OF KEY
CHALLENGES

The DOD Acting Comptroller stated that the primary challenges for DOD
are (1) addressing the magnitude and diversity of DOD PP&E, (2)
implementing and applying new standards and policy across the
Military Services and Defense Agencies, each of which operates
differently, and (3) modifying or establishing reporting requirements
through existing or new automated systems.  The DOD Acting
Comptroller also indicated that new barriers to implementation may be
identified when LMI completes its study. 

IG ASSESSMENT OF AGENCY READINESS
AND AUDIT ISSUES

The IG stated that DOD will not be prepared to implement the deferred
maintenance requirements.  The IG cited GAO's report which recommends
that the study be expedited\5

and asserted that it is virtually impossible for DOD to receive the
study results from LMI, develop a policy and implementing guidance,
and get all the information from the Military Services in time for
preparation of the fiscal year 1998 financial statements.  The IG
stated that her office will only be able to audit any deferred
maintenance amounts if DOD has issued a policy and implementing
guidance.  The IG indicated that her office would need to begin
preliminary work no later than March 1998 in order to complete the
audit on time.  The IG stated that DOD's size and diversity present
special problems on two key issues:  timeliness and consistency. 
And, the IG believes that DOD needs to issue specific guidance
promptly to the Military Services to assure consistent application
across the services. 


--------------------
\1 At the time of our interviews, DOD had an Acting Comptroller who
responded to GAO's questions.  As of November 19, 1997, a new
comptroller was confirmed for this agency. 

\2 National defense PP&E are the PP&E portions of (1) weapons systems
used by military departments solely for the performance of military
missions and (2) vessels held in a preservation status by the
Maritime Administration's National Defense Reserve Fleet. 

\3 As noted earlier, while military service installation officials
cited increases in backlogs of deferred maintenance and repair
projects in recent years, we found that reliable composite
information was not available due to differences in how the services
develop and maintain these data.  See Defense Infrastructure: 
Demolition of Unneeded Buildings Can Help Avoid Operating Costs
(GAO/NSIAD-97-125, May 13, 1997). 

\4 GAO has noted other problems with DOD reporting for deferred
maintenance.  See Financial Management:  Issues to Be Considered by
DOD in Developing Guidance for Disclosing Deferred Maintenance on
Aircraft (GAO/AIMD-98-25, December 30, 1997), Financial Management: 
DOD Needs to Expedite Plans to Implement Deferred Maintenance
Accounting Standard (GAO/AIMD-97-159R, September 30, 1997), and
Deferred Maintenance:  Reporting Requirements and Identified Issues
(GAO/AIMD-97-103R, May 23, 1997). 

\5 Financial Management:  DOD Needs to Expedite Plans to Implement
Deferred Maintenance Accounting Standard (GAO/AIMD-97-159R, September
30, 1997). 


NASA RESPONSES REGARDING AGENCY
READINESS TO IMPLEMENT DEFERRED
MAINTENANCE REQUIREMENTS
========================================================== Appendix II

REPORTED AMOUNT OF PP&E

For fiscal year 1996, NASA reported general PP&E of $26.4 billion. 
Of this amount, $9.2 billion is space hardware; $5.9 billion is
structures, facilities, and leasehold improvements; $5.0 billion is
work in process; $5.0 billion is equipment; and the remaining $1.4
billion is land, special tooling and test equipment, and assets under
capital lease.  NASA holds approximately 2.7 percent of the federal
government's reported PP&E. 

FISCAL YEAR 1996 AUDIT OPINION

For fiscal year 1996, NASA received an unqualified opinion on its
financial statements from the independent public accountant (IPA)
contracted for and monitored by the NASA Office of Inspector General. 
The IPA determined that the financial statements present fairly, in
all material respects, the financial position of NASA as of September
30, 1996. 

MANAGEMENT ACTIONS

The CFO stated that NASA will implement the new deferred maintenance
requirements of SFFAS No.  6 for fiscal year 1998 as required.  The
NASA CFO reported that, while his office is exploring whether there
is reportable deferred maintenance on other types of assets, the
agency expects the new reporting requirements to primarily affect
facilities maintenance for which it has a system that captures some
deferred maintenance data.  Other types of PP&E for NASA are not
anticipated to report deferred maintenance.  For example, program
equipment or contractor-held property is considered mission critical
and is subject to very stringent safety and quality measures.  As a
result, maintenance would need to be performed right away or the
equipment would be replaced.  The CFO believes that minor adjustments
to NASA's facilities maintenance system will allow it to meet the new
reporting standard.  The NASA CFO has also designated an individual
in charge of compliance issues related to the deferred maintenance
requirements of SFFAS No.  6. 

STATUS OF POLICIES AND PROCEDURES

The NASA CFO reported that agency policy will be developed and
documented by June 30, 1998; however, NASA does not plan to change
its overall approach to reporting deferred maintenance.  NASA also
uses and will continue to use the condition assessment method in
determining levels of deferred maintenance for facilities.  Although
the CFO stated that the agency plans additional work to determine
whether the same methodology will be used for all assets, the CFO is
fairly confident there will be no deferred maintenance on these
items. 

AGENCY EXPERIENCE WITH DEFERRED
MAINTENANCE REPORTING

The CFO for NASA reported that the agency currently has an estimate
of deferred maintenance on facilities as of the end of fiscal year
1996.  The CFO reported that NASA policy requires that Centers
continuously assess facility conditions in a manner which results in
an appropriate identification and quantification (in terms of
dollars) of the backlog of maintenance and repair.  Once deficiencies
are identified, industry standard estimating guides are used to
arrive at estimated repair costs.  Estimates of deferred maintenance
have not been validated; the CFO stated that NASA is reviewing SFFAS
No.  6 to determine if additional work is needed to comply with the
deferred maintenance requirements.  The NASA policy regarding
facilities maintenance is a public document available on the
Internet. 

AGENCY ASSESSMENT OF KEY
CHALLENGES

The CFO stated that a key challenge for NASA lies in implementing the
deferred maintenance requirements and other accounting standards at
the same time that it is implementing a wholly new, integrated
financial system and a full cost accounting, budgeting and management
system with declining human resources.  However, the CFO stated that
the agency believes it has the appropriate expertise to make
maintenance estimates.  In cases where workloads necessitate
additional resources, the CFO for NASA reported that the agency could
use contractor assistance. 

IG ASSESSMENT OF AGENCY READINESS
AND AUDIT ISSUES

Based upon NASA's audit history, the IG believes that NASA will be
able to implement the deferred maintenance requirements as required
by fiscal year 1998.  The IG reported that a key issue in auditing
deferred maintenance reporting for NASA will be to determine whether
the measurement method was properly and consistently applied across
the different Centers. 


DOT RESPONSES REGARDING AGENCY
READINESS TO IMPLEMENT DEFERRED
MAINTENANCE REQUIREMENTS
========================================================= Appendix III

REPORTED AMOUNT OF PP&E

For fiscal year 1996, DOT reported general PP&E of $24.4 billion.  Of
this amount, $10.4 billion is structures, facilities, and leasehold
improvements; $8.5 billion is equipment; $3.4 billion is construction
in progress;
$1.6 billion is aircraft; and the remaining $0.4 billion is in land,
assets under capital lease, ADP software, and other PP&E.  DOT holds
approximately 2.5 percent of the federal government's reported PP&E. 
Problems with PP&E reporting contributed to a disclaimer of opinion
on DOT's fiscal year 1996 consolidated financial statement.  In
particular, the IG's report cited PP&E as a material weakness,
stating that several DOT operating administrations did not (1) report
all PP&E that should be reported, (2) maintain accurate subsidiary
property records, (3) retain documentation to support the value of
property and equipment, (4) reconcile subsidiary property records
with general ledger property and equipment accounts, and (5) post
property and equipment transactions to the proper general ledger
asset accounts. 

FISCAL YEAR 1996 AUDIT OPINION

For fiscal year 1996, DOT received a disclaimer of opinion on its
Consolidated Statement of Financial Position from the IG.  The IG
noted that several operating administrations had not reconciled all
general ledger balances to subsidiary records, affecting the Property
and Equipment and Operating Materials and Supplies accounts.\1 Also,
a lack of records meant that the IG could not determine whether the
balances reported for the corresponding material line items were
fairly presented.  In addition, the IG found that operating
administrations were expensing amounts that should have been
capitalized, resulting in an understatement of assets. 

MANAGEMENT ACTIONS

The Deputy CFO for DOT stated that the agency intends to report
deferred maintenance in its fiscal year 1998 financial statements. 
The Deputy CFO for DOT stated that implementation of the deferred
maintenance requirements of SFFAS No.  6 occurs in the Maritime
Administration (MARAD), the Federal Aviation Administration (FAA),
and the U.S.  Coast Guard (USCG).  Since the requirement was not
effective until fiscal year 1998, the Deputy CFO reported that his
office has been focusing efforts to correct material weaknesses
identified in prior financial statement audits, particularly in the
area of PP&E.  However, the Deputy CFO stated that implementing the
deferred maintenance requirements, although impaired because of the
inability to support all of the account balances with subsidiary
detail, does not preclude an agency from implementing the standards. 
He further noted that for the validated PP&E, implementation can
proceed and estimates may be made where aggregate asset information
is available.  Also, the Deputy CFO stated that in cases where assets
may not have been fully validated for financial statement purposes,
he believes that deferred maintenance estimates may also be
implemented.  He described these actions as an evolving process that
will continue to improve with increased data accuracy and integrity. 
The Deputy CFO for DOT reported that a key unresolved question for
the agency is how to place assets in proper categories for financial
reporting on deferred maintenance.  He also stated that he would be
interested in guidance regarding acceptable reporting formats.  The
Deputy CFO has designated an individual in charge of compliance with
this new reporting standard. 

STATUS OF POLICIES AND PROCEDURES

The Deputy CFO for DOT reported that the agency has distributed SFFAS
No.  6 to departmental CFO and accounting offices.  He further noted
that the CFO office will provide more detailed guidance on
departmental reporting at a later date and that any additional policy
would be limited to supplementary information used to clarify areas
not clearly defined in accounting standards or by the central
agencies (e.g., Treasury or OMB).  The Deputy CFO reported that DOT
is likely to use both condition assessment and life-cycle cost,
depending on the operating administration and the classes of assets. 
He stated that MARAD has documented and communicated the reporting
requirements to staff and contractors who need to make the estimate,
while other operating administrations have not completed this step. 
The Deputy CFO reported that three relevant operating administrations
currently have standards which define "acceptable condition" for
major assets. 

AGENCY EXPERIENCE WITH DEFERRED
MAINTENANCE REPORTING

The Deputy CFO reported that each of the three operating
administrations for which major deferred maintenance occurs has its
own maintenance plans for different types of PP&E.  MARAD ships and
facilities undergo periodic inspections which typically result in the
discovery of deficiencies.  If funds are available, the appropriate
repairs are made; otherwise, the requirements are made known and
funds are requested during the normal budget process.  In some cases,
this process is automated and spending plans are developed from the
database of information.  The Deputy CFO reported that FAA relies on
the General Maintenance Handbook for Airway Facilities, which
addresses maintenance requirements, policies, and procedures for
specific assets.  FAA estimates of deferred maintenance only address
certain areas such as the modernization of building and equipment
capital investment plan.  Finally, the Deputy CFO reported that the
USCG has standard maintenance plans/requirements for its aviation,
naval, electronic, and shore assets.  USCG does not currently have an
estimate of deferred maintenance.  According to the Deputy CFO, USCG
uses these plans to (1) ensure that priority maintenance is
accomplished, (2) estimate budget requirements, (3) plan and program
resources to meet mission objectives, and (4) ensure that total
expenditures stay within budgetary limits. 

AGENCY ASSESSMENT OF KEY
CHALLENGES

The Deputy CFO cited three key challenges to implementing the
deferred maintenance requirements of SFFAS No.  6, namely (1)
identifying and validating an inventory of existing PP&E, (2)
obtaining and allocating the resources necessary to estimate,
document, and report deferred maintenance requirements, and (3)
ensuring a system that centralizes the data repository for management
and analysis to meet deferred maintenance reporting requirements. 

IG ASSESSMENT OF AGENCY READINESS
AND AUDIT ISSUES

The DOT IG does not believe that DOT will be prepared to implement
the deferred maintenance requirements.  Based on his office's
experiences in auditing property and equipment at DOT, the IG is
concerned that amounts for deferred maintenance reporting may not be
adequately supported and documented.  The IG stated that in order to
effectively implement the deferred maintenance requirements, the
operating administrations must complete physical inventories of
assets to determine what is actually owned and properly account for
these assets.  The IG stated that DOT must issue implementing
guidance for SFFAS No.  6 which should identify the types of assets
qualifying for deferred maintenance.  Finally, the IG stated that
DOT, in coordination with the operating administrations, must
establish an internal control system that requires documenting the
process of estimating amounts of deferred maintenance and accurately
reporting these estimates.  The IG stated that the key issues in
auditing the deferred maintenance amounts are that (1) each operating
administration obtain an accurate inventory of property and
equipment, (2) DOT have formal written policies on deferred
maintenance to ensure consistency among the operating
administrations, and (3) DOT establish a formal system to effectively
track and adequately document amounts reported for deferred
maintenance cost. 


--------------------
\1 These three operating administrations accounted for over 90
percent of DOT reported PP&E. 


DOE RESPONSES REGARDING AGENCY
READINESS TO IMPLEMENT DEFERRED
MAINTENANCE REQUIREMENTS
========================================================== Appendix IV

REPORTED AMOUNT OF PP&E

For fiscal year 1996, DOE reported general PP&E of $22.0 billion.  Of
this amount, $11.9 billion is structures and facilities, $5.9 billion
is equipment, $3.7 billion is construction work in process, and the
remaining $0.5 billion is land, ADP software, and natural resources. 
DOE holds approximately 2.3 percent of the federal government's
reported PP&E. 

FISCAL YEAR 1996 AUDIT OPINION

For fiscal year 1996, DOE received an unqualified opinion on its
financial statement from the DOE IG.  The IG noted that the financial
statements present fairly, in all material respects, the financial
position of the department as of September 30, 1996.  The IG did
note, however, in their report on Internal Control Structure
accompanying the financial statements, that the department needed to
strengthen its internal control system over PP&E. 

MANAGEMENT ACTIONS

The Acting CFO stated that DOE plans to implement the deferred
maintenance requirements of SFFAS No.  6 in fiscal year 1998 as
required.  In preparation for implementing the standard, the Acting
CFO reported that DOE has reviewed the deferred maintenance
requirements and considers that, for the most part, the agency is
complying with the requirements.  For example, DOE's Life Cycle Asset
Management Order (LCAM) currently requires estimates of deferred
maintenance, specifically requiring the management of backlogs
associated with maintenance, repair, and capital improvements.  The
Acting CFO stated that DOE is determining whether existing policy
requirements are sufficient to meet SFFAS No.  6 as well as to
develop a cost-effective approach for accumulating data from DOE
field offices.  The Acting CFO has also designated an individual
point of contact for meeting the deferred maintenance disclosure
requirement. 

STATUS OF POLICIES AND PROCEDURES

DOE has policies in place that require field offices to estimate and
document deferred maintenance amounts.  However, the Acting CFO
reported that there is no requirement for reporting this information
to the department's headquarters.  She further stated that DOE is in
the process of determining the most cost-effective process for
accumulating this information from the field offices and reporting it
to headquarters.  She stated that DOE uses condition assessment
methods to determine its deferred maintenance estimates. 

AGENCY EXPERIENCE WITH DEFERRED
MAINTENANCE REPORTING

While DOE did not provide a departmental estimate of deferred
maintenance, it does have experience tracking and estimating
maintenance backlogs.  DOE's LCAM order establishes minimum
requirements for asset management.  One requirement of this order
calls for the management of backlogs associated with maintenance,
repair, and capital improvements, which DOE considers to be
synonymous with deferred maintenance.  The Acting CFO for DOE
reported that approximately 50 percent of agency assets are managed
using a Condition Assessment Survey (CAS) program which follows
industry standards and inspection methods.  Sites using CAS can
determine their deferred maintenance or maintenance backlogs from the
inspection and cost estimating features of the program.  Unautomated
sites would base the deferred maintenance estimates on their
site-specific facility inspection program.  Sites annually report to
individual Operations Offices estimates of deferred maintenance as
part of their performance indicators.  These estimates are
periodically sampled by on-site individual evaluators. 

AGENCY ASSESSMENT OF KEY
CHALLENGES

The Acting CFO stated that DOE's key challenges are to (1) confirm
that field sites are complying with deferred maintenance policies,
(2) ensure that proper databases, inspection procedures, and cost
estimating programs are being used to calculate deferred maintenance,
and (3) determine the appropriate level (i.e., materiality) of the
inclusion of personal property. 

IG ASSESSMENT OF AGENCY READINESS
AND AUDIT ISSUES

Based upon DOE's representations regarding its plans, the Deputy IG
stated that it appears that the disclosure will be auditable. 
However, the Deputy IG believes it is too early to make a definitive
judgment on the readiness and capability of DOE to implement the
deferred maintenance requirements.  The Deputy IG stated that during
the fiscal year 1996 audit, his office determined that a number of
locations within DOE lacked the ability to specifically identify
amounts spent on repair and maintenance.  The IG office will have the
capacity to audit the deferred maintenance amounts, but stresses that
doing so will further diminish its capacity to provide audit coverage
for high risk areas designated by GAO and OMB.  He also noted that
coverage of high risk areas continues to decline because of
diminishing personnel resources and the continued increase in
statutory audit work.  The Deputy IG stated that audit work related
to the deferred maintenance requirement will generally address three
key questions:  (1) Has DOE developed cost-effective policies and
procedures for developing the estimate required to support the
disclosure?  (2) Is the appropriate level of expertise applied to
developing the estimate?  and (3) Is the overall estimate reasonable,
properly documented, and readily verifiable? 


DOI RESPONSES REGARDING AGENCY
READINESS TO IMPLEMENT DEFERRED
MAINTENANCE REQUIREMENTS
=========================================================== Appendix V

REPORTED AMOUNT OF PP&E

For fiscal year 1996, DOI reported general PP&E of $16.6 billion.  Of
this amount, $15.9 billion is land, buildings, dams, structures and
other facilities and the remaining $0.7 billion is vehicles,
equipment, aircraft and other property, plant, and equipment.  DOI
holds approximately 1.7 percent of the federal government's reported
PP&E.  Documentation and internal control deficiencies with PP&E
contributed to a qualified opinion on DOI's fiscal year 1996
financial statements.  The audit opinion of the IG also stated that
internal controls for PP&E at the Bureau of Indian Affairs and the
National Park Service did not ensure that transactions were properly
recorded and accounted for to permit reliable and prompt financial
reporting. 

FISCAL YEAR 1996 AUDIT OPINION

DOI received a qualified opinion on its fiscal year 1996 financial
statement from its IG because the Bureau of Indian Affairs could not
provide adequate documentation or reliable accounting information to
support $170 million for other structures and facilities, $17 million
in accounts receivable, $136 million of revenue, and $19 million of
bad debt expense. 

MANAGEMENT ACTIONS

The Acting CFO for DOI stated that the agency will implement the
accounting requirements for deferred maintenance in fiscal year 1998. 
The agency also noted that it intends to include deferred maintenance
disclosures in its fiscal year 1997 financial statements.  To
implement the deferred maintenance requirements, the Acting CFO
stated that he is relying heavily on the work of the Facilities
Maintenance Study Team and other agency officials charged with
coordinating implementation.  In March 1997, this multibureau team
was tasked with seeking better methods of determining, validating,
and correcting maintenance and repair needs.  The Acting CFO reported
that he expects the Facilities Maintenance Study Team's report to
provide the agency with current and deferred maintenance information
as well as guidance on standard definitions and methodologies for
improving the ongoing accumulation of current and deferred
maintenance information. 

STATUS OF POLICIES AND PROCEDURES

The Acting CFO for DOI stated that his office has not yet issued
guidance for implementing the deferred maintenance reporting
requirements of SFFAS No.  6.  However, he noted that the work of the
Facilities Maintenance Study Team is currently addressing how to
standardize definitions and procedures throughout the department. 
The Acting CFO stated that his office has determined that the
condition assessment method will be used to estimate deferred
maintenance for all types of PP&E.  Because information on deferred
maintenance will come from individual bureaus within DOI, the Acting
CFO reported that he plans to establish an appropriate working group
to define condition assessment criteria and procedures for different
facility types to further improve the comparability of the
information generated.  While the Acting CFO does not plan to
distinguish between critical and noncritical assets in DOI's
consolidated statements, he noted that the Bureau of Reclamation does
make a distinction between critical and noncritical deferred
maintenance. 

AGENCY EXPERIENCE WITH DEFERRED
MAINTENANCE REPORTING

The Acting CFO stated that DOI has experience reporting and tracking
maintenance spending and deferred maintenance through the budgetary
process.  Each bureau has established standards and a methodology for
determining which PP&E is not in acceptable condition due to deferred
maintenance.  However, the Acting CFO reported that DOI's past
maintenance funding requests have been tempered by available
budgetary resources.  Given the varying missions of the agency,
"acceptable condition" has had (and will continue to have) different
meanings for each bureau. 

AGENCY ASSESSMENT OF KEY
CHALLENGES

The Acting CFO believes that the key challenges to implementing the
deferred maintenance reporting requirements are (1) developing
consistent terminology and data among the bureaus, (2) integrating
the data requirements into maintenance and accounting systems, and
(3) validating estimates for accuracy, while working within limited
human and financial resources. 

IG ASSESSMENT OF AGENCY READINESS
AND AUDIT ISSUES

The IG would not express an opinion on whether DOI would be prepared
to implement the deferred maintenance requirements of SFFAS No.  6 in
fiscal year 1998.  The IG noted, however, that past IG work has
addressed the need for several bureaus within DOI to gather
maintenance information so that maintenance programs could be better
managed.  The IG stated that his office is planning to perform a
preliminary assessment of the deferred maintenance information
provided by DOI in its fiscal year 1997 financial statements. 
Further, deferred maintenance will be included in the IG audit of the
fiscal year 1998 financial statements.  Because audit requirements
for deferred maintenance have not been issued, the IG stated that his
office cannot make a determination regarding the skills or abilities
required for its audit of information reported in accordance with
this standard.  However, the IG stated that it will require
additional resources to audit the added financial statement
requirements and cost accounting standards.  The key issue in
auditing deferred maintenance will be the adequacy of systems
established by DOI to gather complete and accurate data. 


GSA RESPONSES REGARDING AGENCY
READINESS TO IMPLEMENT DEFERRED
MAINTENANCE REQUIREMENTS
========================================================== Appendix VI

REPORTED AMOUNT OF PP&E

As of September 30, 1996, GSA reported general PP&E of $12.1 billion. 
Of this amount, $6.9 billion is buildings and leasehold improvements,
$2.4 billion is construction in process, $1.7 billion is motor
vehicles and other equipment, $1.0 billion is land, and the remaining
$0.1 billion is telecommunications and ADP equipment.  GSA holds
approximately 1.3 percent of the federal government's reported PP&E. 

FISCAL YEAR 1996 AUDIT OPINION

For fiscal year 1996, GSA received an unqualified opinion on its
financial statements from an IPA contracted for and monitored by the
GSA Office of Inspector General.  The IPA stated that the financial
statements present fairly, in all material respects, the financial
position of GSA. 

MANAGEMENT ACTIONS

The GSA CFO stated that the agency intends to implement the
accounting requirements for deferred maintenance in fiscal year 1998. 
He believes that agency reporting would be more meaningful and
consistent if specific guidance relating to certain asset types would
be provided.  In this regard, he thinks that policy and coordination
could be provided by the central agencies such as OMB and the
Treasury, with additional guidance from GSA's Office of Policy,
Planning, and Evaluation.  However, the GSA CFO noted that he would
expect the individual services within GSA to define deferred
maintenance and determine a methodology for reporting whether or not
additional guidance is pending.  GSA has also designated an
individual responsible for leading GSA's efforts to implement this
standard. 

STATUS OF POLICIES AND PROCEDURES

GSA reported that policies for implementing the new accounting
standard were inherent in its Agency Accounting Manual and in
financial statement preparation guidance.  GSA also provided an
implementation guidance package prepared by an independent accounting
firm which includes actions to be taken and recommended completion
dates in order to achieve timely implementation of the standard.  The
CFO stated that GSA has not determined whether it will use condition
assessment or life-cycle cost to estimate deferred maintenance, nor
has it determined whether it will distinguish between critical and
noncritical assets. 

AGENCY EXPERIENCE WITH DEFERRED
MAINTENANCE REPORTING

While the CFO reported that GSA does have a universe of maintenance
needs, he also stated that it does not differentiate between deferred
and nondeferred maintenance, nor does it have an agencywide standard
maintenance plan.  Instead, decisions regarding the level and
frequency of PP&E maintenance are established by each GSA service. 
According to the CFO, each service performs maintenance both on a
scheduled and as needed basis.  For example, the CFO noted that the
Public Buildings Service has maintenance plans for specific buildings
in its inventory and that maintenance spending is tracked against
available resources, and funds for maintenance needs are included as
part of GSA's annual budget request.  The CFO also reported that each
service determines if PP&E is in acceptable condition as well as when
each type of PP&E ceases to be functional. 

AGENCY ASSESSMENT OF KEY
CHALLENGES

The CFO considers the key challenges to implementing the deferred
maintenance requirements of SFFAS No.  6 to be (1) developing
consistent terminology and data among the services, (2) integrating
the data requirements into maintenance and accounting systems, and
(3) working with limited human and financial resources. 

IG ASSESSMENT OF AGENCY READINESS
AND AUDIT ISSUES

The IG stated that at the present time, there is not enough
information to form an opinion as to whether GSA will meet the
deferred maintenance requirement.  However, the IG stated that he is
encouraged by the steps the agency has taken to date and its overall
commitment to financial statement reporting.  The IG noted that his
office contracts with an IPA to perform the financial statement audit
of GSA; hence, the IG expects to have the resources, skills, and
abilities needed to audit the deferred maintenance amounts.  The IG
stated that the key issues in auditing deferred maintenance are those
of definition and completeness.  He believes that it will be
necessary--but may be difficult--for the agency to obtain agreement
within GSA as to when an asset is considered to be in acceptable
condition.  Further, he noted that GSA's internal control structure
will need review to determine whether GSA has properly included all
classes of assets for purposes of calculating deferred maintenance
amounts. 


VA RESPONSES REGARDING AGENCY
READINESS TO IMPLEMENT DEFERRED
MAINTENANCE REQUIREMENTS
========================================================= Appendix VII

REPORTED AMOUNT OF PP&E

For fiscal year 1996, VA reported general PP&E of $11.1 billion.  Of
this amount, $7.1 billion is buildings, $1.9 billion is equipment,
$1.2 billion is construction in progress, and the remaining $0.8
billion is land and other PP&E.  VA holds approximately 1.2 percent
of the federal government's reported PP&E. 

FISCAL YEAR 1996 AUDIT OPINION

For fiscal year 1996, the VA Acting IG rendered an unqualified
opinion on the VA's Statement of Financial Position and a qualified
opinion on the Statement of Operations because his office was unable
to satisfy itself as to the opening balances recorded for net PP&E
and net receivables.  The Acting IG stated that the Statement of
Financial Position presented fairly, in all material respects, the
financial position of VA.  However, the Acting IG cited six
reportable conditions that could adversely affect VA's ability to
record, process, summarize, and report financial data.  One condition
cited was the need for VA to continue its efforts to refine property,
plant, and equipment records.  In particular, the Acting IG noted
problems with correctly recording depreciation and capitalizing
assets and data entry errors. 

MANAGEMENT ACTIONS

The VA CFO stated that the agency will implement SFFAS No.  6 in 1998
and is in the process of developing a formal plan for implementing
the deferred maintenance requirements.  He also noted that his office
is developing guidance to communicate deferred maintenance reporting
requirements for fiscal year 1998.  The CFO stated that VA does not
defer maintenance on medical devices or critical hospital systems but
that deferred maintenance exists on noncritical building systems such
as parking lots, roads, grounds, roofs, and windows.  The CFO has
designated an individual in charge of implementing the reporting
requirements for deferred maintenance. 

STATUS OF POLICIES AND PROCEDURES

The CFO provided a copy of a draft policy intended to provide
financial accounting policy for PP&E, noting that this policy is
currently being circulated throughout the department for concurrence. 
VA's draft policy defines deferred maintenance as in SFFAS No.  6 and
reiterates the reporting requirements for a footnote disclosure.  The
CFO also stated his intent to provide more detailed guidance to
individual units within the agency.  The CFO plans to set up a
statistical account in VA's general ledger to record deferred
maintenance information as policy is implemented throughout the
department.  The CFO is leaning towards establishing condition
assessment as the method for determining deferred maintenance and
plans to use the same methodology for all types of assets.  The CFO
also intends to require each individual unit within VA to review and
classify its deferred maintenance into the various categories of PP&E
and then record material amounts in various representative
statistical accounts.  These categories and totals are then planned
to be rolled up to the departmental level, thus providing the basis
for meeting the disclosure requirements of SFFAS No.  6. 

AGENCY EXPERIENCE WITH DEFERRED
MAINTENANCE REPORTING

The CFO noted that VA's experience with deferred maintenance
reporting is largely decentralized.  While the VA does not have an
agencywide maintenance plan, it does have a standard policy requiring
maintenance of PP&E.  For example, VA Medical Centers follow
maintenance schedules developed from equipment manufacturer's
information.  Each VA unit estimates its operational funding, which
includes maintenance.  Individual VA administrations determine the
acceptable condition of each type of PP&E based on its mission.  In
the case of critical hospital equipment, the VA CFO asserted that
maintenance is not deferred since a hospital environment requires
that equipment be operational and items must be kept in working
condition for safety and reliability reasons. 

AGENCY ASSESSMENT OF KEY
CHALLENGES

The CFO reported that VA's biggest challenges in implementing the
deferred maintenance requirements will be to (1) get VA's several
hundred units to provide comparable deferred maintenance data and (2)
determine the most efficient and effective method to estimate and
report required data for deferred maintenance. 

IG ASSESSMENT OF AGENCY READINESS
AND AUDIT ISSUES

The Acting IG\1 expressed confidence that VA will implement the
deferred maintenance requirement.  The Acting IG stated that this
confidence is based on the CFO's progress over the past 4-5 years
addressing issues raised by the IG in audits.  The Acting IG cited VA
improvements in accounts receivable and PP&E as examples.  The Acting
IG stated that his office will audit a deferred maintenance amount if
it is a material item.  The Acting IG believes that his office has
the necessary resources or would be able to get an independent
engineer or consultant to assist in evaluating any deferred
maintenance issues beyond the expertise of his office.  The Acting IG
believes that the key audit requirements are an audit trail, a good
system of information, and the ability of his office to test the
records.  The Acting IG stated that one challenge will be whether the
VA issues ground rules to facilities so that consistency will occur
among the 173 Medical Centers and other units.  The Acting IG also
noted that it is difficult to draw a line between critical and
noncritical assets and that this distinction may vary among different
administrations of VA.  Thus, the Acting IG stated that his office
would need to review each administration's definition of "critical."


--------------------
\1 At the time of our interviews, the VA had an Acting IG who
responded to GAO's questions.  As of November 7, 1997, a new IG was
confirmed for this agency. 


USDA RESPONSES REGARDING AGENCY
READINESS TO IMPLEMENT DEFERRED
MAINTENANCE REQUIREMENTS
======================================================== Appendix VIII

REPORTED AMOUNT OF PP&E

For fiscal year 1996, USDA reported general PP&E of $8.6 billion.  Of
this amount, about $5.9 billion is land; $1.8 billion is structures,
facilities, and leasehold improvements; $0.8 billion is equipment;
and the remaining $0.1 billion is ADP software and other PP&E.  USDA
holds approximately 0.9 percent of the federal government's reported
PP&E.  Problems with PP&E reporting contributed to a disclaimer of
opinion on USDA's fiscal year 1996 consolidated financial statement. 
In particular, the Forest Service, which has over 90 percent of
USDA's PP&E, was unable to provide complete auditable financial
statements for fiscal year 1996.  The IG also noted that problems
with fiscal year 1995 Forest Service reporting resulted in an adverse
opinion due to pervasive errors, material or potentially material
misstatements, and/or departures from applicable accounting
principles. 

FISCAL YEAR 1996 AUDIT OPINION

For fiscal year 1996, the USDA IG issued a disclaimer of an opinion
on the consolidated financial statements of USDA.  The IG stated that
his office did not attempt to audit the statement of financial
position and related statements because of problems with Forest
Service reporting.  In addition to the Forest Service being unable to
provide complete auditable financial statements, the IG also stated
that the Secretary of Agriculture reported that the department could
not provide assurance that, as a whole, agency internal controls and
financial management systems comply with Federal Managers' Financial
Integrity Act (FMFIA) requirements.\1 As a result, USDA's fiscal year
1996 consolidated financial statements were prepared using the Forest
Service's fiscal year 1995 account balances and activity.  With
regard to Forest Service accounting for PP&E, the IG cited inadequate
documentation, pervasive instances of errors, and material control
weaknesses. 

MANAGEMENT ACTIONS

The Acting CFO for USDA stated that the agency elected to implement
SFFAS No.  6 beginning in fiscal year 1997 and anticipates it will be
substantially implemented for fiscal year 1998 as required.  His
office provided its draft plan for implementing the standard which is
outlined in chapter 9 (Property, Plant, and Equipment) of the USDA
Financial and Accounting Standards Manual (FASM).  The Acting CFO
noted that this chapter conforms with SFFAS No.  6, but does not
include milestones.  He stated that suitable milestones will be
developed during fiscal year 1998.  With regard to designating an
official responsible for ensuring the implementation of the deferred
maintenance requirements, the Acting CFO stated that he makes
departmentwide determinations on financial statement reporting and
oversees compliance with SFFAS No.  6.  In addition, he has also
identified responsible officials in the two agencies that control the
material portion of USDA PP&E--Agriculture Research Service (ARS) and
the Forest Service.  The Acting CFO believes that his agency needs
additional guidance in the following areas:  (1) related OMB budget
requirements related to maintenance and deferred maintenance, (2)
general criteria for critical and noncritical deferred maintenance,
(3) setting priorities for deferred maintenance, (4) minimum
standards for condition assessment surveys and for life-cycle
costing, (5) criteria for distinguishing between deferred maintenance
and reconstruction, and (6) the point at which a need to perform
deferred maintenance becomes a need for a new asset. 

STATUS OF POLICIES AND PROCEDURES

USDA has established broad policies for implementing the deferred
maintenance requirements of SFFAS No.  6.  The Acting CFO stated that
rather than arbitrarily restricting the USDA agencies to only one
method of estimating deferred maintenance, USDA policy allows the use
of any of the methods described in SFFAS No.  6.  The Acting CFO
believed that the agencies within USDA are in the best position to
determine which of the allowable methods is most appropriate for
their particular agency.  The Acting CFO stated that these policies
provide a great deal of discretion to individual agencies within
USDA.  For example, each agency has the option of selecting condition
assessment and/or life cycle cost methodologies as allowed by SFFAS
No.  6.  The USDA Acting CFO expressed his belief that the agency has
described the allowable measurement methodologies (e.g., condition
assessment or life-cycle cost) but stated that it must give more
attention to communicating the methodologies to those making the
estimates.  He stated that his office intends to more clearly
communicate methodology requirements during fiscal year 1998.  The
FASM does establish mutually exclusive major classes and base units
of measurement for general, heritage, and stewardship land PP&E.  It
also requires that management distinguish between critical and
noncritical deferred maintenance and disclose the basis for
distinguishing between the two. 

AGENCY EXPERIENCE WITH DEFERRED
MAINTENANCE REPORTING

Both agencies with the material portion of USDA PP&E--Forest Service
and ARS--have some experience with deferred maintenance reporting and
have estimates for deferred maintenance.  We were told that ARS has a
standard maintenance plan for facilities that is called the ARS
10-Year Facility Plan.  The USDA Acting CFO stated that the plan
provides the framework for future decision-making, setting
priorities, and allocating resources to implement necessary
improvement, maintenance, modernization, and repairs to ARS research
facilities.  We were also told that ARS uses information from USDA's
Central Accounting System to update its 10-Year Facility Plan each
year and to ascertain that spending is in accordance with
congressional intent.  According to the Acting CFO, ARS routinely
estimates its funding needs for repairs and maintenance each fiscal
year.  In contrast, individual Forest Service managers are
responsible for assessing the condition of their PP&E and obtaining
the funding needed for maintenance.  We were told that Forest Service
managers also inspect the actual condition of PP&E, using a building
and facility handbook that broadly defines maintenance levels ranging
from level 1, not in operation, to level 5, major offices and
high-use areas. 

ARS and Forest Service provided deferred maintenance estimates.  The
Acting CFO for Forest Service cautioned that the Forest Service
estimates were overstated per SFFAS No.  6 because they included
activities needed to expand, upgrade, or reconstruct a facility.  The
USDA's Acting CFO noted that both agencies are scheduled to update
these estimates for fiscal year 1998.  He believes that the current
estimates of deferred maintenance may not comply fully with SFFAS No. 
6. 

AGENCY ASSESSMENT OF KEY
CHALLENGES

According to USDA's Acting CFO, the department's key challenges to
comply with the new deferred maintenance accounting requirements
include (1) communicating applicable requirements, (2) documenting
the correct and consistent use of allowable methodologies, (3)
establishing an accurate physical inventory of PP&E, and (4)
obtaining guidance from central agencies. 

IG ASSESSMENT OF AGENCY READINESS
AND AUDIT ISSUES

The IG stated that, assuming that agencies continue to emphasize
financial management, and the Forest Service completes its inventory
of PP&E, USDA should be prepared to implement the requirement for
fiscal year 1998.  At the time of our review, the IG noted that the
department has a draft policy for implementing the deferred
maintenance requirements that adequately mirrors requirements
addressed by SFFAS No.  6.\2 However, the IG also emphasized that
deferred maintenance estimates are contingent on a complete and
accurate inventory of PP&E.  While efforts are underway within the
Forest Service (the largest PP&E holder for USDA) to develop complete
inventories and supportable valuations for its PP&E, the IG stated
that these efforts may or may not be completed by the end of fiscal
year 1998.  The IG said that if the Forest Service cannot complete
its efforts and accurately report PP&E in its financial statements,
little reliance can be placed on estimates reported for the
associated deferred maintenance.  The IG stated that the key issues
in auditing the deferred maintenance requirements are determining if
the estimation methodology is appropriate, applied correctly, applied
consistently, and adequately documented.  And, since deferred
maintenance estimates are contingent on a complete and accurate
inventory of PP&E, audit results addressing PP&E will play an
important role in his office's evaluation of the deferred maintenance
estimates. 


--------------------
\1 FMFIA requires ongoing evaluations of the internal control and
accounting systems that protect federal programs against fraud,
waste, abuse, and mismanagement.  It further requires the heads of
federal agencies to report annually to the President and Congress on
the condition of these systems and on their actions to correct the
weaknesses identified. 

\2 According to the Acting CFO, this policy has been finalized. 


DEPARTMENT OF STATE RESPONSES
REGARDING AGENCY READINESS TO
IMPLEMENT DEFERRED MAINTENANCE
REQUIREMENTS
========================================================== Appendix IX

REPORTED AMOUNT OF PP&E

For fiscal year 1996, the Department of State reported general PP&E
of $4.6 billion.  Of this amount, $2.3 billion is land and land
improvements, $1.9 billion is capital improvements and buildings,
structures, facilities, and leaseholds, and the remaining $0.3
billion is construction in progress and vehicles and other equipment. 
State holds approximately 0.5 percent of the federal government's
reported PP&E. 

FISCAL YEAR 1996 AUDIT OPINION

For fiscal year 1996, State received a qualified opinion on its
consolidated financial statements from an IPA.  The IPA noted that,
except for any adjustments that might have been necessary had it been
possible to review undelivered orders, State's 1996 Consolidated
Statement of Financial Position is presented fairly in all material
respects.  The IPA also stated that the undelivered orders scope
limitation did not affect the Consolidated Statement of Financial
Position for the department. 

MANAGEMENT ACTIONS

The State CFO intends to implement the deferred maintenance
requirements for the fiscal year 1998 financial statements.  He cited
several actions by the agency to prepare for deferred maintenance
reporting.  The CFO reported that State has contracted with a firm to
provide recommendations on implementing the new federal accounting
standards, including SFFAS No.  6.  The CFO has also designated
individuals from the Bureau of Finance and Management Policy to
determine the reporting policy and (in conjunction with the IG
Office) oversee compliance. 

STATUS OF POLICIES AND PROCEDURES

The CFO for State reported that the agency has not yet developed a
formal policy on implementing the deferred maintenance requirements
of SFFAS No.  6, but expects to develop a policy by April 1998.  The
CFO stated that he expects, but has not decided, to use the condition
assessment method, because the process is substantially the same as
the one now used for determining maintenance requirements.  The CFO
further noted that he does not plan to disclose critical and
noncritical assets on the financial statements. 

AGENCY EXPERIENCE WITH DEFERRED
MAINTENANCE REPORTING

The CFO reported that State has experience with estimating
maintenance needs through the budget process.  For example, he noted
that each overseas mission prepares an annual budget for routine
maintenance and repair and special maintenance requirements and
submits it to the Office of Foreign Buildings Operations (A/FBO). 
The CFO said that A/FBO allots funds to overseas missions to carry
out maintenance activities.  He also reported that appropriations for
specific maintenance projects are requested as line items and are
included in the functional programs' budget submissions to OMB and
the Congress.  He noted that A/FBO then compares actual costs of
implementing these maintenance projects with the budget established
for their execution. 

The CFO reported that currently State has the results of condition
assessment and other surveys recorded in a database.  Offices review,
determine priority ratings, and develop cost estimates to implement
requirements.  The CFO reported that these priority ratings are used
to balance requirements with available resources.  Unfunded
requirements are then listed as State's maintenance and
infrastructure repair deficit.  He cautioned, however, that State's
backlog includes repair and replacement requirements and minor
property improvements, and therefore goes beyond deferred
maintenance.  He further stated that routine maintenance requirements
at individual posts are not broken out or tracked separately.  In
addition, the CFO noted that State's estimates may not separate
deferred maintenance from current maintenance requirements.  In
addition, he noted that the current estimates also include some
improvements and other projects that would not fall within the scope
of the accounting standard's definition of deferred maintenance. 

AGENCY ASSESSMENT OF KEY
CHALLENGES

The CFO described the primary problem of implementing the deferred
maintenance requirements of SFFAS No.  6 as being one of definition. 
For example, he noted problems with defining deferred maintenance and
determining when maintenance requirements are past due.  He also
cited the complexity and cost of maintaining current data for a
program responsible for management oversight of more that 3,000
properties in 260 locations worldwide. 

IG ASSESSMENT OF AGENCY READINESS
AND AUDIT ISSUES

Based upon the work that the CFO's staff has done, the IG believes
that State will be able to implement the deferred maintenance
requirement.  However, until her office reviews the deferred
maintenance information reported for fiscal year 1998, the IG is
unable to determine if the information provided will be reliable. 
The IG reported that work with the CFO has focused on establishing a
process to track deferred maintenance so that auditable information
would be available for the fiscal year 1998 financial statements. 
The IG stated that her office would be able to audit the amount
presented on the fiscal year 1998 statements and she anticipates that
she will have adequate resources and abilities to review the deferred
maintenance amount.  Although the IG has not yet developed an audit
plan for deferred maintenance, she noted that key issues for auditing
the deferred maintenance amounts included reviewing the (1)
methodology established to value deferred maintenance, (2)
qualifications of officials making the determination of the value of
deferred maintenance, and (3) completeness and accuracy of the
deferred maintenance amounts. 


TVA RESPONSES REGARDING AGENCY
READINESS TO IMPLEMENT DEFERRED
MAINTENANCE REQUIREMENTS
=========================================================== Appendix X

APPLICATION OF DEFERRED
MAINTENANCE REQUIREMENTS OF SFFAS
NO.  6

TVA follows private sector practices in its financial statement
reporting.  However, TVA is included in the governmentwide financial
statements and will be subject to reporting deferred maintenance
under SFFAS No.  6 if reported amounts prove material to the
governmentwide statements. 

REPORTED AMOUNT OF PP&E

As of September 30, 1996, TVA reported general PP&E of $30.4 billion. 
Of this amount, $22.2 billion is completed plant, $6.3 billion is
deferred nuclear generating units, $1.1 billion is nuclear fuel and
capital lease assets, and $0.8 billion is construction in progress. 
As of September 30, 1996, TVA held approximately 3.2 percent of the
federal government's reported PP&E. 

FISCAL YEAR 1996 AUDIT OPINION

For fiscal year 1996, TVA received an unqualified opinion from an
IPA.  The IPA found that TVA's financial statements present fairly,
in all material respects, the financial position of the power program
and all programs of TVA. 

MANAGEMENT ACTIONS

Prior to being contacted by GAO, the TVA CFO stated that he was
unaware of the SFFAS No.  6 reporting requirement for deferred
maintenance.  The CFO noted that TVA does comply with the U.S. 
Treasury's request for TVA financial statement information which is
then consolidated within the U.S.  government financial statements. 
However, the CFO stated that as of December 1997, TVA had not heard
from Treasury regarding compliance with the deferred maintenance
requirement in SFFAS No.  6. 

STATUS OF POLICIES AND PROCEDURES

Because the TVA was unaware of the deferred maintenance reporting
requirement, no policies and procedures for implementing the standard
have been initiated.  The CFO noted that TVA's definition of deferred
maintenance differs from that of SFFAS No.  6 and varies by category
of asset.  For example, the CFO stated that maintenance of nuclear
assets is not deferred because of safety and health reasons; hence,
deferred maintenance on these assets does not exist.  The CFO said
that deferred maintenance for fossil fuels and hydro power means
repair work that is not performed on equipment if the problem has
minor effects on the performance of the equipment.  For building
facilities, the CFO noted that TVA defines deferred maintenance as
maintenance that can be delayed indefinitely based on factors such as
the change in the PP&E's function, an increase/decrease in PP&E life
expectancy, and the relationship between repair, replacement, or
abandonment costs.  For land management, TVA defines deferred
maintenance as the delay or postponement of needed repairs or
refurbishment, and maintenance which was not performed at the
scheduled time and continues to accumulate.  However, should TVA be
required to report deferred maintenance for the consolidated U.S. 
government financial statements, the CFO reported that TVA would
comply.  The CFO indicated that TVA could provide an estimate of
deferred maintenance with about 2 months notice. 

AGENCY EXPERIENCE WITH DEFERRED
MAINTENANCE REPORTING

The TVA CFO reported that, for the most part, the agency does have
standard maintenance plans for its different types of PP&E.  For
example, the very nature of the agency's nuclear power program
requires sites to comply with Nuclear Regulatory Commission
regulations to ensure that plants can operate safely and that
equipment is not degraded.  He also noted that fossil and
hydroelectric fuel programs have standard maintenance plans and use
an automated Maintenance Planning and Control system for scheduling
and tracking of maintenance work. 

AGENCY ASSESSMENT OF KEY
CHALLENGES

The TVA CFO noted that the agency has the systems to track PP&E
related to fossil fuel and building facilities deferred maintenance,
but does not have data on hydroelectric power, transmission of power,
land management, and certain recreation areas.  The CFO also noted
that TVA has qualified in-house expertise in all operations areas who
could estimate deferred maintenance. 


USPS RESPONSES REGARDING AGENCY
READINESS TO IMPLEMENT DEFERRED
MAINTENANCE REQUIREMENTS
========================================================== Appendix XI

APPLICATION OF DEFERRED
MAINTENANCE REQUIREMENTS OF SFFAS
NO.  6

The USPS follows private sector practices in its financial statement
reporting.  However, USPS is included in the governmentwide financial
statements and will be subject to reporting deferred maintenance
under SFFAS No.  6 if reported amounts prove material to the
governmentwide statements. 

REPORTED AMOUNT OF PP&E

For fiscal year 1996, USPS reported general PP&E of $17.9 billion. 
Of this amount, $8.3 billion is structures, facilities, and leasehold
improvements; $5.9 billion is equipment; $2.1 billion is land; and
$1.6 billion is general construction in progress.  USPS holds
approximately 1.9 percent of the federal government's reported PP&E. 

FISCAL YEAR 1996 AUDIT OPINION

For fiscal year 1996, USPS received an unqualified opinion on its
financial statements from an IPA.  The IPA found that the financial
statements present fairly, in all material respects, the financial
position of USPS. 

MANAGEMENT ACTIONS

The USPS CFO stated that the agency does not have any deferred
maintenance and, therefore, will not need to disclose a figure for
purposes of the governmentwide financial statements.  The USPS CFO
indicated that he has not been contacted by officials from Treasury
with regard to deferred maintenance reporting requirements. 

STATUS OF POLICIES AND PROCEDURES

The CFO stated that USPS has standard maintenance plans provided in
agency handbooks and policies for its primary types of assets, such
as buildings, vehicles, and equipment.  These plans or schedules
include detailed records of maintenance required for each building,
vehicle, and piece of equipment in operation.  However, the CFO
stated that the agency does not own airplanes or ships to move the
mail; thus for these activities, required maintenance is performed by
the contractors as stipulated in the contracts.  For example, the CFO
stated that USPS leases planes from a contractor for its overnight
and priority mail.  The contractor is motivated to keep its planes
regularly maintained because USPS can impose fines for late or
nondelivery of mail caused by not properly maintaining such
equipment. 

AGENCY EXPERIENCE WITH DEFERRED
MAINTENANCE REPORTING

The USPS has extensive experience with reporting maintenance on its
buildings, vehicles, and equipment.  USPS buildings, vehicles, and
equipment must be regularly maintained so that the mail service
operates promptly and smoothly. 

AGENCY ASSESSMENT OF KEY
CHALLENGES

The USPS CFO did not report any challenges to implementing the
deferred maintenance requirements because he does not believe the
agency has any deferred maintenance. 




(See figure in printed edition.)Appendix XII
COMMENTS FROM THE DEPARTMENT OF
TRANSPORTATION
========================================================== Appendix XI



(See figure in printed edition.)



(See figure in printed edition.)

Now on p.  11. 

See comment 1. 

See comment 2. 

See comment 2. 

See comment 2. 

Now on p.  16. 



(See figure in printed edition.)

Now on p.  17. 

See comment 1. 

Now on p.  19. 

See comment 1. 

Now on p.  19. 

See comment 2. 

Now on p.  37. 

See comment 2. 



(See figure in printed edition.)

See comment 2. 

See comment 1. 

See comment 2. 

Now on p.  38. 

Now on p.  38. 

Now on p.  39. 

See comment 2. 


The following are GAO's comments on the Department of
Transportation's letter. 

GAO COMMENTS

1.  Discussed in the "Agency Comments and Our Evaluation" section. 

2.  We considered DOT's suggestions and have modified the report as
appropriate. 




(See figure in printed edition.)Appendix XIII
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
========================================================== Appendix XI



(See figure in printed edition.)

*** End of document. ***