Environmental Liabilities: Cleanup Costs From Certain DOD	 
Operations Are Not Being Reported (14-DEC-01, GAO-02-117).	 
								 
GAO examined the environmental cleanup costs of ongoing 	 
operations of the Department of Defense (DOD). These include	 
general property, plant, and equipment facilities or other assets
that are now being operated or are currently in use on DOD	 
installations. DOD has not developed policies, procedures, and	 
methodologies to ensure that cleanup costs required for all of	 
its ongoing and inactive or closed operations are identified,	 
consistently estimated, and appropriately reported. As a result, 
DOD's financial statements and environmental reports continue to 
underreport environmental liabilities and related long-term	 
budgetary needs. The installations GAO visited had a total of 221
sites with estimated cleanup costs of $259 million. Of these,	 
only 45 sites with estimated cleanup costs of $61 million were	 
being reported for the Defense Environmental Restoration Program 
Annual Report to Congress, and only that amount was likely	 
included in DOD's financial statements. GAO found DOD was not	 
reporting 149 sites related to ongoing operations with estimated 
cleanup costs of $91 million and 27 inactive and closed 	 
operations with estimated cleanup costs of $107 million. The	 
environmental offices at the six installations GAO visited had	 
comprehensive records for the installation sites subject to	 
cleanup requirements. Although these records were reasonably	 
accurate, the records used to maintain accountability over	 
related land, buildings, and structures were significantly	 
flawed. If properly maintained, the real property records should 
play a significant role in ensuring the accuracy of environmental
site records.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-117 					        
    ACCNO:   A02563						        
  TITLE:     Environmental Liabilities: Cleanup Costs From Certain DOD
Operations Are Not Being Reported				 
     DATE:   12/14/2001 
  SUBJECT:   Environmental policies				 
	     Financial statements				 
	     Hazardous substances				 
	     Solid waste management				 
	     Waste disposal					 
	     Cost analysis					 
	     Records management 				 
	     Environmental monitoring				 
	     Reporting requirements				 
	     DOD Environmental Restoration Program		 

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GAO-02-117
     
A

Report to the Chairman, Committee on the Budget, House of Representatives

December 2001 ENVIRONMENTAL LIABILITIES Cleanup Costs From Certain DOD
Operations Are Not Being Reported

GAO- 02- 117

Letter 1 Results in Brief 3 Background 6 Unreported Cleanup Liabilities Are
Significant 11 Real Property Records and Cost Estimating Methodologies Are
Not Reliable 15

Leadership and Focus on Cleanup Costs Are Lacking 21 Conclusions 21
Recommendations 22 Agency Comments and Our Evaluation 22

Appendixes

Appendix I: Objectives, Scope, and Methodology 26

Appendix II: Locations Visited 29

Appendix III: Comments from the Department of Defense 31 GAO?s Comments 37

Appendix IV: Installation- Level Data on Environmental Sites, Estimated
Cleanup Costs, and Errors in Real Property Records 40

Appendix V: GAO Contacts and Staff Acknowledgments 43 Tables Table 1:
Estimated Cleanup Costs at the Six Installations Visited 13

Table 2: Operational and Reporting Status of Cleanup Sites at the Six
Installations Visited 13 Table 3: Errors in Real Property Records 18 Table
4: Type and Number of Sites Requiring Cleanup 40 Table 5: Operational and
Reporting Status of Sites Requiring Cleanup 40

Table 6: Estimated Future Cleanup Costs by Environmental Category (in
millions) 41 Table 7: Estimated Future Cleanup Costs by Operational/
Reporting

Status (in millions) 41 Table 8: Errors in Real Property Records 42

Figures Figure 1: Hazardous Waste Storage Bunker 9 Figure 2: Underground
Storage Tank Being Transported After Removal 9

Figure 3: Open Burn/ Open Detonation Site 16

Figure 4: Solid Waste Landfill 17

Lett er

December 14, 2001 The Honorable Jim Nussle Chairman Committee on the Budget
House of Representatives

Dear Mr. Chairman: The previous Chairman of your Committee expressed concern
about the long- term budgetary implications associated with environmental
cleanup costs 1 related to the ongoing operations of the Department of
Defense (DOD). Since most of these costs had not been reported by DOD, the
Chairman requested that we review and report on (1) the scope of ongoing
operations at DOD installations that have associated environmental cleanup
costs, (2) the potential magnitude of cleanup costs associated with those
operations, and (3) the availability of data to develop related cleanup

cost estimates. Ongoing operations refer to general property, plant, and
equipment (PP& E) 2 facilities or other assets that are currently being
operated or are currently in use on DOD installations. Examples of operating
facilities and other assets with associated cleanup costs include

hazardous and solid waste landfills and incinerators, hazardous waste
storage facilities, open burn/ open detonation sites, and underground
storage tanks.

1 Cleanup costs are those associated with hazardous waste removal,
containment, or disposal and include decontamination, decommissioning, site
restoration, site monitoring, closure, and postclosure costs.

2 Statement of Federal Financial Accounting Standards No. 6 defines general
PP& E as any property, plant, and equipment used in providing goods or
services. It typically has one or more of the following characteristics: (1)
it could be used for alternative purposes (e. g., by other federal programs,
state or local governments, or non- governmental entities) but is used to
produce goods and services, or to support the mission of the entity, (2) it
is used in business- type activities, or (3) it is used in activities whose
costs can be compared to those of other entities performing similar
activities (e. g., federal hospital services in comparison to other
hospitals).

The previous Chairman also requested a similar review of DOD?s training
ranges that have associated environmental cleanup and disposal costs, and we
recently issued a separate report on that category of PP& E. 3 We have

also issued a series of reports related to the environmental liability
associated with the cleanup and disposal of DOD?s weapons systems. 4 Because
DOD did not have a centralized or comprehensive system for identifying,
summarizing, maintaining, and reporting the cleanup costs associated with
all of its ongoing operations, we could not determine the full scope and
magnitude of its related liability. Therefore, as agreed with your staff, we
selected 6 of the more than 1,500 active installations reported by DOD- 2
from each military service- to review. Based on DOD records, these
installations appeared to have a high potential for environmental cleanup
costs related to facilities and assets used in operations. We reviewed the
associated environmental cleanup information at the installations and their
respective regulatory agency offices. We also reviewed the information that
was available in the real property records at the DOD installations we
visited. Finally, we obtained cleanup cost estimates for those six
installations.

3 Environmental Liabilities: DOD Training Range Cost Estimates Are Likely
Understated (GAO- 01- 479, April 11, 2001). 4 Financial Management: Factors
to Consider in Estimating Environmental Liability for Removing Hazardous
Materials in Nuclear Submarines and Ships (GAO/ AIMD- 97- 135R, August 7,
1997), Financial Management: DOD's Liability for Aircraft Disposal Can Be
Estimated (GAO/ AIMD- 98- 9, November 20, 1997), and Financial Management:
DOD?s Liability for Missile Disposal Can Be Estimated (GAO/ AIMD- 98- 50R,
January 7, 1998).

While we originally focused on ongoing operations, the information at the
six installations we visited indicated that DOD also was not estimating and
reporting liabilities associated with a significant portion of PP& E that
was no longer being used in its operations. Neither DOD?s financial
statements nor the Defense Environmental Restoration Program (DERP) Annual

Report to Congress 5 have provided the Congress with cleanup cost
information on all of DOD?s closed or inactive operations known to result in
hazardous wastes. Therefore, we expanded our work to cover these additional
unreported liabilities as well. We did not, however, verify the accuracy of
most of the data that DOD provided to us. Except as noted above, our work
was conducted in accordance with generally accepted government auditing
standards from August 2000 through May 2001. Further details on our scope
and methodology are

included in appendix I. Results in Brief DOD has not yet developed the
policies, procedures, and methodologies

needed to ensure that cleanup costs required for all of its ongoing and
inactive or closed operations are identified, consistently estimated, and
appropriately reported. As a result, DOD?s financial statements and
environmental reports continue to underreport environmental liabilities and
the related long- term budgetary needs. Based on our work, the scope

and magnitude of DOD?s unreported liabilities for the six installations we
visited are significant; however, the installations appear to have the data
needed to identify and estimate those liabilities. The installations we
visited had a total of 221 sites 6 with total estimated cleanup costs of
$259 million. Of these, only $61 million for 45 of the 221 5 The Office of
the Deputy Under Secretary of Defense (Environmental Security) issues this
report pursuant to 10 U. S. C. 2706. The report provides details on the
technical and financial status of DOD?s cleanup of contamination resulting
from past activities at current and former DOD installations, and formerly
used defense sites, and outlines future cleanup plans and funding
requirements. DERP cleanup at active installations and former defense
properties is funded through five separate environmental restoration
accounts included in DOD?s operation and maintenance appropriations: (1)
Army, (2) Navy, (3) Air Force, (4)

Formerly Used Defense Sites, and (5) Defense- Wide. Funding for cleanup at
base realignment and closure installations occurs through a separate account
included in DOD?s military construction appropriations. 6 Sites consist of
discrete locations on installations where contaminants either have been, or
could potentially be, released into the environment.

sites was being reported for the DERP and, therefore, only that amount was
likely included in DOD?s financial statements. We found that 149 sites
related to ongoing operations with total estimated cleanup costs of $91
million and 27 inactive and/ or closed operations with total estimated
cleanup costs of $107 million were not being reported by DOD. DOD has

more than 1,500 active installations that may have the same issues we
identified at the 6 installations we visited.

The environmental offices at the six installations that we visited had
comprehensive records for the installation sites subject to cleanup
requirements. The initial identification of sites at these installations was

the result of extensive investigations conducted pursuant to federal, state,
and/ or local regulations. We also found that the records were updated
periodically by environmental personnel to reflect new sites and the current
cleanup status of all sites. As a result, information needed to identify
assets subject to cleanup requirements and to develop the related

cost estimates was readily available at the six installations. However, DOD
does not have the policies and processes in place to ensure that a cleanup
cost estimate is prepared and reported for each identified site or to
systematically accumulate and maintain these data at a departmentwide

level. Although we found the environmental site records maintained for
regulatory purposes at the individual installations visited to be reasonably
accurate, the installation real property records used to maintain
accountability over related land, buildings, and structures were

significantly flawed. If properly maintained, the real property records
should be a primary source for ensuring the accuracy of environmental site
records. However, in our efforts to reconcile real property and
environmental site records, we found significant differences. These
differences represented errors related to sites that were not properly added
to or deleted from the real property records, as well as sites incorrectly
categorized in the real property records. For example, the real property
records at one installation identified 48 underground storage tanks, while
environmental site records showed that only 16 were in existence. Because we
used DOD?s real property records to identify the six

installations for our review, we may not have selected from among those with
the highest potential for cleanup costs as we intended. As a result, DOD may
have other installations with more significant cleanup costs than the ones
we reviewed.

Finally, DOD does not have standard methodologies 7 to develop consistent,
reliable cost estimates. Each of the six installations independently
developed its cost estimates using different methodologies. As a result,

estimates for similar assets could have significant variances. For example,
Camp Pendleton Marine Corps Base, California, used an ?average removal cost?
methodology to estimate the cost to remove a 20, 000- gallon

underground storage tank at $13,000. However, Fort Polk, Louisiana, elected
to adjust a specific prior removal contract for another underground storage
tank and estimated the cost to remove a 5,000- gallon underground storage
tank at more than $43,000.

Reporting of complete and accurate environmental liability estimates will
require that DOD environmental, property management, and accounting
personnel coordinate their efforts to develop and maintain comprehensive
cleanup cost information and to develop and implement policies and
procedures for consistently estimating and reporting all related
liabilities. Therefore, we are making recommendations that address the need
for DOD leadership and focus to ensure that the liability for environmental
cleanup related to ongoing and inactive/ closed operations is reported in
accordance with federal accounting standards. Such leadership should address
key issues, including (1) providing necessary guidance, (2) correcting real
property records, (3) providing for the periodic reconciliation of real
property and environmental site records, (4) developing and implementing
standard methodologies for estimating related cleanup costs, and (5)
systematically accumulating and maintaining the site inventory and cost
information needed to report this liability. 7 By using the term ?standard?,
we mean that methodologies used to develop cleanup cost estimates for
similar types of assets should be formalized so that they consistently
include all applicable costing components (e. g., the actual cleanup
activities of containment, removal, disposal, restoration, and monitoring)
and provide for periodic updating for changes in inflation, current pricing,
relevant physical circumstances, regulatory requirements, and intended
technology use. The standard methodologies should then be validated to
ensure that resulting estimates are accurate and reliable.

In commenting on a draft of this report, DOD concurred with the overall
intent of our recommendations and fully concurred with our specific
recommendation to designate a focal point to oversee and manage the
reporting of DOD?s liability for the cleanup of all ongoing and inactive/
closed operations. DOD partially concurred with the remaining three
recommendations. In addition, DOD expressed concern that some aspects of the
report were misleading due to its interpretation of certain terms used in
the report. Specifically, DOD objected to the use of the term

?cleanup? and instead preferred what it stated were the more precise terms
of ?environmental restoration? and ?accrued environmental disposal cost.?
However, the term ?cleanup,? as used in this report, includes specific
activities and costs encompassing more than just environmental restoration
and/ or disposal costs, in accordance with federal accounting standards. 8
The standards specifically include closure and postclosure costs. Therefore,
to limit a discussion of cleanup costs to only those related to restoration
and disposal inappropriately narrows the applicability of the accounting
standard. Further, DOD stated that many of the statements related to our
findings in the report were speculative and lacked supporting evidence. We
disagree and reiterate our position that our findings and conclusions are
well- supported by our results from the six

installations we visited, as well as by the systemic weaknesses we
identified in the areas of DOD- wide reporting systems, record- keeping,
guidance for reporting environmental cleanup liabilities, and leadership and
focus. Our detailed response to DOD?s specific comments is included

in appendix III. Background DOD is subject to various environmental laws and
regulations that govern restoration (cleanup) of contamination from past
operations and control of

hazardous waste related to active facilities (ongoing operations). DOD must
also follow federal accounting standards and its own Financial Management
Regulation (FMR) to ensure complete recognition and financial reporting of
the associated liabilities. DOD has taken incremental

steps in recent years to report a more complete picture of its environmental
liabilities, but substantial issues remain in certain areas, including

8 The Federal Accounting Standards Advisory Board (FASAB) promulgates
accounting principles for federal government reporting entities. The FASAB
standards provide generally accepted accounting principles covering most
transactions for the federal government.

accounting for and reporting estimated cleanup costs for all ongoing and
inactive/ closed operations.

Laws and Regulations The Congress passed the Comprehensive Environmental
Response, Compensation, and Liability Act (CERCLA) in 1980 to provide a
framework for cleanup of the nation?s worst hazardous waste sites. CERCLA
focuses on the cleanup of inactive/ closed hazardous waste sites and on
making the

parties responsible for generating and handling hazardous substances at
these sites responsible for cleanup costs. In 1986, the Congress passed the
Superfund Amendments and Reauthorization Act (SARA) which, among other
things, established the DERP to implement DOD?s environmental cleanup
activities. Through the DERP, a $2 billion per year program managed by the
Deputy Under Secretary of Defense for Environmental Security (DUSD( ES)),
DOD is cleaning up contamination at active military installations and former
defense properties throughout the United States and restoring the land for
new uses. DOD reports annually to the Congress on the status of DERP cleanup
efforts and future funding requirements, largely based on data input from
installations across the military services. DOD also uses installation DERP
data to compile a significant portion of its environmental liabilities for
financial statement reporting purposes. For fiscal year 2000, DOD reported
approximately $18 billion on its financial statements for liabilities
associated with DERP cleanup on active installations and formerly used
defense sites. 9

9 DOD reported $63 billion in total environmental restoration and disposal
liabilities in fiscal year 2000, comprised of $37 billion in environmental
restoration liabilities- of which DERPfunded liabilities totaled $18
billion- and $26 billion for disposal of weapons systems and chemical
weapons. The remaining $19 billion of restoration liabilities primarily
relates to liabilities for cleanup of training ranges and base realignment
and closure installations.

Subtitle C of the Resource Conservation and Recovery Act (RCRA) of 1976, as
amended, provides hazardous waste management requirements for generators and
transporters of waste and owners and operators of

treatment, storage, and disposal facilities. Hazardous waste has properties
that make it dangerous or capable of having a harmful effect on human health
or the environment. Some types of hazardous waste are identified by their
source, that is, by the specific industrial processes that produce the
waste, such as electroplating, which generates sludge from the wastewater
treatment. Other types are defined by certain characteristics that make the
waste hazardous, such as whether it is flammable, corrosive, reactive, or
toxic. Examples of related operations include hazardous waste landfills and
incinerators, open burn/ open detonation sites, and hazardous waste

storage facilities. 10 RCRA also regulates the operation and closure of
underground storage tanks containing petroleum or hazardous substances and
governs the cleanup of tank releases. Under RCRA, operators of

facilities that treat, store, or dispose of hazardous waste must typically
obtain an operating permit subject to regulatory oversight and periodic
renewal. Figures 1 and 2 show examples of a hazardous waste storage bunker
and underground storage tank regulated under RCRA.

10 Subtitle D of RCRA addresses operations involving nonhazardous waste (e.
g., household and/ or agricultural garbage). Examples include sanitary
landfills and certain bio- solid disposal operations.

Figure 1: Hazardous Waste Storage Bunker Figure 2: Underground Storage Tank
Being Transported After Removal

Accounting Requirements Two federal accounting standards, Statement of
Federal Financial Accounting Standards (SFFAS) Nos. 5 and 6, establish the
criteria for recognizing and reporting environmental liabilities. SFFAS No.
5, Accounting for Liabilities of the Federal Government, effective beginning

in fiscal year 1997, defines a liability as a probable future outflow of
resources due to a past government transaction or event. SFFAS No. 5 further
states that recognition of a liability in the financial statements is
required if it is both probable and measurable. SFFAS No. 6, Accounting for
Property, Plant, and Equipment, supplements the requirements of

SFFAS No. 5 with regard to PP& E cleanup costs, most notably those
associated with general PP& E (e. g., landfills). Cleanup costs are defined
as costs for removing, containing, and/ or disposing of hazardous wastes or

materials that, because of quantity, concentration, or physical or chemical
characteristics, may pose a substantial present or potential hazard to human
health or the environment. SFFAS No. 6, effective beginning in fiscal year
1998, requires that cleanup costs for general PP& E be allocated to
operating periods in a ?systematic and rational manner? based on use of the
physical capacity of the associated PP& E (e. g., expected usable landfill
area) whenever possible. 11 If physical capacity is not applicable or
estimable, cleanup costs may be accrued over the useful life of the
associated PP& E. Regardless of allocation method, this accounting treatment
should result in the accumulation of the total cleanup cost liability at the
time when the PP& E ceases operation.

The Office of the Under Secretary of Defense (Comptroller) issues the FMR,
which contains DOD?s financial management policies and procedures. DOD FMR
Volume 4, Chapter 13, Accrued Environmental and Nonenvironmental Disposal
Cost Liabilities, prescribes the accounting policy for estimating and
recognizing liabilities associated with the disposition of property,
structures, equipment, munitions, and weapons. DOD FMR Volume 4, Chapter 14,
Accrued Environmental Restoration

(Cleanup) Liabilities, prescribes the accounting policy for estimating and
recognizing liabilities associated with the containment, treatment, or
removal of contamination. Chapter 14 specifies that cost estimates

reported by installations to DUSD( ES) for preparation of budgetary requests
and the DERP Annual Report to Congress shall be used by DOD

11 For general PP& E already in service as of the effective date of the
standard, and associated with operations not charging a fee intended to
recover costs, the estimated cleanup costs may be recognized in full when
implementing the standard.

components as the baseline for liability measurement for financial statement
purposes. Reported Environmental

DOD?s financial statements should provide a comprehensive reporting of
Liabilities

its environmental liabilities since, unlike the DERP Annual Report to
Congress, the ultimate source of funding does not impact financial reporting
requirements. DOD reported approximately $63 billion in environmental
liabilities in its fiscal year 2000 financial statements, which was
comprised of cost estimates for: (1) cleanup of nontraining range sites-$ 23
billion, (2) chemical weapons disposal-$ 15 billion, (3) training range
cleanup-$ 14 billion, and (4) disposal of nuclear- powered aircraft
carriers/ submarines- $11 billion. Included in the $23 billion component
were $18 billion for DERP- funded cleanup, as well as $1. 4 billion and $175

million disclosed separately by the Army and Air Force, respectively, for
non- DERP cleanup on active installations. Army disclosed that of its
reported $1. 4 billion, approximately $500 million related to ongoing
operations, including closure of open burn/ open detonation sites. Army

reported that the other $900 million related to elements that include RCRA
corrective action/ closure plans and underground storage tanks.

Deficiencies in DOD?s reporting of environmental liabilities continue to be
a major contributing factor to our inability to express an opinion on the
federal government?s consolidated financial statements. For fiscal year
2000, we reported that DOD did not maintain adequate systems or have
sufficient information to develop an accurate estimate of key components

of its environmental and disposal liabilities. 12 Unreported Cleanup

We found that the scope and magnitude of unreported cleanup costs for
Liabilities Are

ongoing and inactive/ closed operations were significant at the six
installations we visited. Although the installations have a process in place
Significant

to accumulate the data needed for DERP reporting, this process does not
encompass all operations with probable and reasonably estimable cleanup
costs. Working largely with personnel already responsible for DERP

12 Our audit report on the federal government?s fiscal year 2000
consolidated financial statements is included as an attachment in our
testimony on the audit results - U. S. Government Financial Statements: FY
2000 Reporting Underscores the Need to Accelerate Federal Financial
Management Reform (GAO- 01- 570T, March 30, 2001).

reporting, we identified over 200 sites with estimated cleanup costs in
excess of $250 million, most of which had not been previously reported. The
6 installations we visited had a total of 221 ongoing and inactive/ closed
sites requiring cleanup. We identified the sites by using environmental site
records maintained at the installations, which we substantiated through a
combination of regulatory agency record review, visual inspection, and

interviews with personnel from the respective regulatory agencies and
installation environmental offices. At our request, the installation
environmental offices readily prepared or provided cleanup cost estimates

totaling approximately $259 million for all 221 sites. We found some sites
at each installation already in various stages of cleanup, and some of these
sites were being funded through the department?s environmental restoration
accounts. Sites funded through these accounts are to be included in the DERP
Annual Report to Congress and in DOD?s environmental liabilities reported in
its financial statements.

We confirmed that 45 of the 221 sites, with estimated cleanup costs of $61
million, were included in DERP reporting by the installations. The remaining
176 sites were not included in DERP reporting, and of the

$259 million in estimated cleanup costs, $198 million, or 76 percent, was
not reported through DERP and therefore likely not reported in DOD?s
financial statements. 13 Of the 176 unreported sites, 149 involved ongoing
operations with total estimated cleanup costs of $91 million. 14 The
remaining 27 unreported sites were inactive and/ or closed operations with
13 According to DOD officials, the DERP Annual Report is the basis for its
financial statement

reporting of inactive and/ or closed operation sites on active
installations. Our work did not include tracing data for the specific sites
at the six installations we reviewed into the DERP Annual Report to Congress
and DOD?s financial statements. However, it is unlikely that these specific
sites are included in DOD?s reported liability because (1) a majority of the
unreported costs that we identified were for inactive or closed operations
that were not reported in DERP (see table IV. 4) and (2) many of the
estimates we cite were developed

after DOD?s financial statements were compiled and reported. 14 Accounting
standards generally require that cleanup costs associated with operating
facilities and assets be recorded and reported over the period of time that
the assets are, or are expected to be, in use. Therefore, DOD is not
required to report the total cleanup costs for ongoing operations as a
liability in its financial statements. For the operating sites we looked at,
only $37 million of the total $91 million would have to be reported as of
fiscal year 2000. However, agencies may choose to record the total liability
for assets and facilities in use at the time the accounting standards became
effective if no fees are charged to the users of those assets.

total estimated cleanup costs of $107 million. Tables 1 and 2 provide
additional details on the number/ types of sites at the six installations,
corresponding cleanup cost estimates, and reporting status. Appendix IV
provides these data by installation.

Table 1: Estimated Cleanup Costs at the Six Installations Visited Estimated
Number

cleanup costs Environmental category of sites

(in millions)

Hazardous, solid, and bio- solid waste landfills 51 $239. 6 Hazardous waste
storage facilities 18 2. 2 Open burn/ open detonation, chemical burning and
fire 19 7. 6 training pits, and incinerators Underground storage tanks 133
9. 9

Total 221 $259.3 Table 2: Operational and Reporting Status of Cleanup Sites
at the Six Installations Visited

Estimated Number

cleanup costs Operational and reporting status of sites

(in millions)

Sites included in DERP reporting a 45 $61.1 Unreported ongoing operation
sites 149 91. 1 Unreported inactive and/ or closed operation sites 27 107. 1

Total 221 $259.3

a Includes only those DERP reported sites falling within the scope of our
review (e. g., inactive/ closed landfills).

Based on our analysis of six installations, the amount of unreported
environmental liabilities associated with ongoing and inactive/ closed
operations is significant. DOD stated in its fiscal year 1999 DERP Annual
Report to Congress that it has over 1, 500 funded active installations with

approximately 6,000 sites in some stage of cleanup. We believe that other
installations may have the same issues we found at the six we visited. In
addition, given the deficiencies discussed later in this report regarding
the real property records that we used to select the six installations we
visited,

some of the other installations could have even more significant cleanup
costs than we identified.

DOD Accounting Guidance DOD issued accounting guidance for environmental
liabilities in 1999 by Inadequate for Operations

adding new chapters to the FMR. However, neither of the separate Identified
chapters issued for asset disposal and restoration/ cleanup liabilities
adequately addresses the types of unreported liabilities that we identified.

Volume 4, Chapter 13, of the FMR applies to costs associated with asset
disposal. Many of the cases that we identified do not involve the actual
disposal of assets, but rather closure of an operation and, where necessary,
cleanup of the site for future use. Landfills are a good example of this
scenario- rather than selling the property when landfill operations cease,

DOD usually caps or covers the facility for closure and conducts postclosure
monitoring of the site consistent with regulatory requirements, usually for
a period of at least 30 years. We did not find the guidance needed to report
the liability for landfills in Chapter 13. SFFAS No. 6 specifically states
that cleanup includes closure and postclosure costs. Therefore, Volume 4,
Chapter 14, of the FMR, which applies to restoration (cleanup) liabilities,
should encompass the types of operations that we identified. However, as
currently written, this chapter does not clearly indicate that closure and
postclosure activities are elements of cleanup. Chapter 14 defines cleanup
as ?? the containment, treatment, or removal of contamination that could
pose a threat to public health and the environment.? As a result, this
definition does not adequately address the types of operations that we
identified, such as

landfills, open burn/ open detonation sites, and underground storage tanks.
While Chapter 14 contains specific guidance on DERP cleanup and specifically
references the site inventory and cost estimating guidance contained in the
?DERP Management Guidance? document issued by DUSD( ES), it does not have
equivalent guidance for non- DERP cleanup. As discussed previously, however,
176 (80 percent) of the 221 sites that we identified at the 6 installations,
and 76 percent of the $259 million in estimated costs that we obtained for
all sites, were not included in DERP reporting. Consequently, Chapter 14
would be further strengthened by specifically addressing non- DERP cleanup.

Real Property Records Installation environmental offices at the six
installations we visited and Cost Estimating

maintain comprehensive records for their own sites and operations subject to
cleanup requirements for regulatory purposes and have demonstrated
Methodologies Are Not

that cleanup costs for ongoing and inactive/ closed operations can be
Reliable estimated. 15 However, we found that corresponding real property
records

are not reliable and cost estimating methodologies are not standardized.
Further, we found that DOD does not have the policies and formalized
processes in place to systematically accumulate, maintain, and report site
and cost data at a departmentwide level, as well as to ensure that these
data are complete. As a result, DOD?s financial statements likely do not
present an accurate, comprehensive report of its environmental liabilities
as required by federal accounting standards.

Environmental Office The installation environmental offices that we visited
had extensive Records Identify Cleanup

records that identify cleanup sites by size and type. We found that the
Sites

initial identification of sites by each of the six installations was the
result of extensive investigations conducted pursuant to federal, state,
and/ or local laws. For example, as part of the RCRA permitting process,
installations perform a comprehensive environmental assessment of all
operations to identify actual and potential cleanup sites. This process
results in a RCRA

Facility Assessment Report (RFA), which documents the results of the
assessment and includes a detailed list of identified sites. Figures 3 and 4
show two examples of the types of sites identified in the RFA: an open burn/
open detonation site and a landfill operation.

15 We did not audit the cleanup cost estimates prepared by the installations
and therefore did not verify that all of the data elements needed to develop
individual estimates were included and accurate.

Figure 3: Open Burn/ Open Detonation Site

Figure 4: Solid Waste Landfill

The environmental offices at all six installations had extensive knowledge
of the sites listed in their own RFA and periodically updated the data, as
required by the permitting process, to reflect newly discovered sites and

the current cleanup status of all sites. Underground storage tanks, which
represented over half of the 221 sites, are registered through state and
local regulatory agencies and installation environmental offices have
records to identify them. Thus, these offices maintain detailed
environmental site records related to the RFA, updated permitting data, and
underground

storage tanks. Real Property Records

According to DOD, real property records should be a comprehensive Cannot Be
Used to Validate

source of data for all installation land, buildings, and related structures,
regardless of whether or not cleanup requirements apply. 16 As such, if
Environmental Site Records properly maintained, they should contain
information needed to ensure the accuracy of environmental site records,
including data on site descriptions,

16 Defense Property, Plant and Equipment Accountability Manual (Draft), DOD
Directive Number 5000. nn- xxx.

in- service dates, and useful lives. Since both real property records and
environmental office site records provide information needed to prepare
DOD?s financial statements and are therefore subject to audit, periodic
reconciliations between the two sets of records would help ensure their
accuracy. However, we determined that the records maintained by each

installation?s real property office were not being reconciled and did not
agree with the environmental office site records that we had substantiated
through review of regulatory agency records, visual inspection, and
interviews. We investigated the differences and found significant errors in
the real property records. These errors related to sites that were not
properly added to or deleted from the real property records, as well as
sites

incorrectly categorized in the real property records. We found a total of
237 errors in the real property records related to operations with hazardous
waste. As table 3 shows, 206 of the 237 errors, or 87 percent, resulted from
additions and deletions that were not made. The 206 were comprised of 182
adjustments to add property that existed but was not recorded, and another
24 to delete property that was recorded but no longer existed at the
installations. The remaining 31 errors related to property that had been
incorrectly categorized in the real property records. For example, we found
both underground and aboveground

storage tanks categorized together, even though different cleanup and
closure requirements apply to each type of tank. Appendix IV provides these
data by installation. Because we used the installations? real property
records, which we have since found to be unreliable, as the basis for our
selection of the six installations for this review, we may not have chosen

installations from among those with the most significant cleanup costs as we
intended.

Table 3: Errors in Real Property Records Types of errors Number of errors

Additions not made 182 Deletions not made 24 Categorized incorrectly 31

Tot al 237

We found cases of significant numbers of additions and deletions not being
made at some installations. For example, at Camp Pendleton Marine Corps
Base, California, we identified 52 underground storage tanks that were not

recorded in the real property records. At Fort Polk, Louisiana, the real
property records showed 48 underground storage tanks, while the
environmental site records showed only 16 in existence. Several real
property office personnel cited problems in receiving the proper
documentation from the base engineer or other installation personnel to
prompt an adjustment to the real property records. We identified these

significant errors despite existing requirements that installations perform
periodic inventories of real property assets.

We also found that policies regarding the recording of land- related assets
were not consistently applied by the installations. For example, at two of
the installations visited- Fort Carson, Colorado, and Cherry Point Marine
Corps Air Station, North Carolina- we found that the installations? real
property offices did not always record assets related to land (e. g.,
landfills, open burn/ open detonation sites, and fire training pits) in
their records as required. For these two installations, we identified 33
additions that should

have been made. However, we noted that the Fort Polk and Camp Pendleton real
property offices did record landfills and other land- related assets.

We found other inconsistencies in the recording of active and inactive/
closed facilities in the real property records. For example, at several
installations, active facilities were included in the records but inactive/
closed facilities still incurring closure and postclosure costs were

not included. Additionally, we noted instances where several real property
assets located in the same vicinity were recorded as one asset. For example,
at Fort Polk, the real property records showed one 160,000- gallon
underground storage tank. After further review and inquiry, we determined
that there were actually four separate 40, 000- gallon tanks at that
location.

The remaining 31 errors that we found involved assets being incorrectly
categorized in the real property records. For example, at Fort Polk, we
identified 20 aboveground storage tanks that were categorized as underground
storage tanks. Because different cleanup and closure requirements apply to
each type of tank, the installations? real property

records must categorize these assets separately to support the environmental
site records. The errors that we identified are symptoms of a lack of formal
communication between the real property and environmental offices at some
installations. Proper coordination between the property management and
environmental management communities is critical to

ensuring consistent and reliable tracking and reporting for financial
management, regulatory compliance, and other purposes. Lack of Consistent

The environmental offices at the 6 installations that we visited were able
to Methodologies for provide us with estimates of future cleanup costs for
all 221 sites. Estimating Cleanup Costs However, DOD does not have
standardized and validated methodologies for developing cleanup cost
estimates and installation personnel used a variety of methods to develop
those estimates. The methods used by the

installation environmental offices included: (1) applying different costing
models, including Remedial Action Cost Engineering and Requirements (RACER)
and Means Cost Estimating, (2) tailoring cost estimates from

prior closures to the specific characteristics (e. g., location, technology,
type of waste, capacity) of the new site and adjusting for inflation, (3)
relying on staff expertise and experience in cleanup cost estimating, and
(4) using an average of prior actual costs. The installations? use of
various costing methods resulted in significant variances in cleanup cost
estimates for operations with similar cleanup requirements. For example,
Fort Polk adjusted a recent removal contract and estimated the cost to
remove a 5, 000- gallon underground storage tank

at approximately $43,000, while Camp Pendleton estimated the cost to remove
a 20, 000- gallon underground tank at only $13, 000 by using an average of
past removal costs. Based on inquiries of installation personnel responsible
for the separate cost estimates, we could not identify a reason for the
significant variance other than the different estimation methods that were
used.

Until DOD develops and validates standard methodologies for estimating
cleanup costs, there is no assurance that these cost estimates will be
comparable and reliable for decisionmaking and budget planning. DOD

already has guidance in effect (DOD Instruction 5000.61; DOD Modeling and
Simulation Verification, Validation, and Accreditation) which requires that
cost models be validated to ensure that the results produced

can be relied upon.

Leadership and Focus DOD lacks leadership to ensure comprehensive reporting
of the cleanup

on Cleanup Costs Are costs for ongoing operations and certain inactive/
closed operations on active installations. While the Office of the Deputy
Under Secretary of Lacking

Defense (Environmental Security) was created in 1993 as the office
responsible for environmental cleanup within DOD, its primary focus has been
on the cleanup of operations covered and reported by the DERP. Although the
requirements for reporting liabilities for non- DERP cleanup have existed
for years, DOD has not established adequate or consistent policies to
reliably develop the required cleanup cost estimates or to ensure those
estimates are maintained, accumulated, and reported in its financial

statements. DOD also lacks procedures for periodic communication between
environmental, real property, and accounting personnel to ensure that site
and cost information is accurate and complete. We made this same observation
in our recent report on cleanup cost estimates for DOD

training ranges. 17 Conclusions Although detailed information exists to
identify operations requiring cleanup and to estimate the related cleanup
costs at the six installations we visited, DOD does not have a
comprehensive, controlled process to capture, summarize, maintain, and
report this data for all operations. DOD currently has a structured process
in place to compile and report site and cost data for DERP cleanups;
however, the department is not using this process for all cleanup costs
associated with ongoing and inactive/ closed

operations. Since many of the same installation personnel manage DERP and
non- DERP cleanups, the current framework could be expanded to encompass
both. In addition, DOD is not routinely coordinating between installation
property management and environmental management personnel. Consequently,
DOD is not properly maintaining its real property

records or reconciling them with environmental site records. These issues
exist primarily because DOD does not have adequate guidance and leadership
to ensure that: (1) all future cleanup costs are identified and reported as
part of an overall approach to managing all of its environmental
liabilities, and (2) real property records are properly

maintained and coordinated with environmental site records. As our work
reveals, the guidance and procedures must be developed and implemented 17
Environmental Liabilities: DOD Training Range Cost Estimates Are Likely
Understated (GAO- 01- 479, April 11, 2001).

with effective coordination across the environmental, property management,
and accounting communities. Until DOD addresses the issues discussed in this
report, particularly in the areas of guidance and leadership, we cannot
assure the Congress that DOD?s reported environmental liabilities can be
relied on for long- range budget planning decisions.

Recommendations We recommend that the Secretary of Defense designate a focal
point with the appropriate authority to oversee and manage the reporting of
DOD?s

liability for the cleanup of all ongoing and inactive/ closed operations. We
recommend that the Secretary of Defense require the DOD Comptroller to
revise the FMR to include: (1) an expanded definition of cleanup, consistent
with SFFAS No. 6, that includes closure/ postclosure activities, and (2)
guidance that addresses all restoration/ cleanup liabilities, regardless of
funding source or type of operation, in accordance with federal accounting
standards.

We recommend that the Secretary of Defense require the Deputy Under
Secretary of Defense (Installations and Environment) to ensure that (1)
existing errors in real property records are corrected, and (2) real
property

and environmental site records are periodically reconciled. We also
recommend that the Secretary of Defense require the designated focal point
to work with the appropriate DOD organizations to develop guidance and
procedures to implement the revised FMR requirements, to include the
following: (1) standardized and validated methodologies for

estimating cleanup costs, and (2) a comprehensive, controlled process to
systematically capture, summarize, maintain, and report the cleanup sites
and costs resulting from all operations known to result in hazardous waste.
Agency Comments and

On October 11, 2001, we received DOD?s comments, dated August 29, 2001, Our
Evaluation

which addressed a draft of this report. In commenting on the draft, DOD
concurred with the overall intent of our recommendations and fully concurred
with our specific recommendation to designate a focal point to oversee and
manage the reporting of DOD?s liability for the cleanup of all ongoing and
inactive/ closed operations. DOD partially concurred with the remaining
three recommendations. Our response to DOD?s partial concurrences is
included in appendix III.

In addition, DOD expressed concern that some aspects of the report were
misleading due to its interpretation of certain terms used in the report.
Specifically, DOD objected to the use of the term ?cleanup? and instead
preferred what it stated were the more precise terms of ?environmental

restoration? and ?accrued environmental disposal cost.? However, the term
?cleanup,? as used in this report (see footnote 1), is defined by federal
accounting standards to include specific activities and costs encompassing
more than just environmental restoration and/ or disposal costs. To limit a
discussion of cleanup costs to only those related to restoration and
disposal inappropriately narrows the applicability of the accounting
standard. In accordance with the definition of cleanup and the scope of the
accounting standard, the estimated cost to clean up the 221 ongoing and
inactive/ closed sites identified in the report are for those actions
required by federal, state, and/ or local statutes to remove, contain, and/
or dispose of

(1) hazardous waste from property, or (2) material and/ or property that
consists of hazardous waste at permanent or temporary closure or shutdown of
associated PP& E. If the required action- which in accordance with the
accounting standard may include, but is not limited to, decontamination,
decommissioning, site restoration, site monitoring, closure, and postclosure
costs- has not been accomplished, the liability for the future costs still
remains. Therefore, the liability for the estimated future costs to clean up
the 221 sites in the report includes future closure and postclosure costs
based on requirements in current operating permits,

as well as liabilities for the remaining closure and postclosure costs of
inactive/ closed operations, and closure costs for underground storage
tanks. Included also are liabilities for remaining costs of decontamination
and/ or site restoration required by corrective actions for previous
contamination of inactive/ closed operations.

DOD acknowledged that it did not fully estimate all of its environmental
cleanup costs, but believes our report overstates the extent of the
underestimation. However, our report focuses only on the results of our
reviews conducted at six specific DOD installations and the extent of likely
understatement by those installations. As discussed in the body of this
report, 76 percent of the total estimated cleanup for the six installations,
or

$198 million, was not included in DERP reporting and therefore, likely not
reported in financial statements. In addition, DOD stated that our report
did not acknowledge a liability of $1.5 billion reported in its fiscal year
2000 financial statements for the types of activities covered by the report.
We disagree. Our draft report clearly stated that the Army disclosed $1.4
billion for non- DERP cleanup on active installations. Although we

continue to believe that we appropriately concluded that the Air Force?s

disclosure of $175 million in non- DERP cleanup was not significant to its
financial statements, we have modified our report to specifically identify
this amount. Further, DOD stated that many of the statements made in this
report were speculative and lacked supporting evidence. We disagree and have
addressed DOD?s specific concerns in appendix III. Overall, we reiterate our
position that our findings and conclusions are well- supported by our
results at the six installations we visited, as well as the systemic
weaknesses we identified in the areas of DOD- wide reporting systems,

record- keeping coordination and maintenance, guidance in reporting
environmental cleanup liabilities, and leadership and focus. Further, as
explained in the introduction to the report and in appendix I, we intended
to use a representative sample to respond to our requester?s question

regarding the magnitude of cleanup costs associated with DOD?s ongoing
operations. However, because DOD did not have a comprehensive system for
identifying, summarizing, maintaining, and reporting cleanup costs for
ongoing operations, DOD was unable to provide us with a reliable population
from which to select a representative sample. Instead, we selected two
installations from each of the three military services as examples and our
conclusions about the magnitude of unreported

liabilities relate only to those six installations. We are sending copies of
this report to the Ranking Minority Member, House Committee on the Budget,
and to other interested congressional committees. We are also sending copies
to the Secretary of Defense; the Under Secretary of Defense for Acquisition,
Technology, and Logistics; the Under Secretary of Defense (Comptroller); the
Deputy Under Secretary of Defense for Installations and Environment; and the
Director of the Office of Management and Budget. Copies will be made
available to others upon

request.

Please contact me at (202) 512- 9095 if you or your staff have any questions
about this report. Other GAO contacts and key contributors to this report
are listed in appendix V.

Sincerely yours, Gregory D. Kutz Director Financial Management and Assurance

Appendi Appendi xes x I

Objectives, Scope, and Methodology Our objectives were to determine: (1) the
scope of ongoing DOD operations with potentially significant cleanup costs,
(2) the potential magnitude of costs to clean up and dispose of the
hazardous waste resulting from those operations, and (3) the availability of
data for developing cleanup cost estimates. Our review, with the exception
of training ranges and weapons systems (national defense PP& E), included
all ongoing and inactive/ closed operations on six active installations
known to result in hazardous waste and subject to federal, state, and/ or
local laws or

regulations requiring removal, containment, or disposal of that waste.
Compliance with federal accounting standards requires the recognition of a
liability if a future outlay of resources is both probable and reasonably
estimable. To determine if a cleanup liability was probable, we reviewed
federal financial accounting standards, environmental laws and regulations,
and DOD accounting guidance that address environmental cleanup requirements.
We also interviewed DOD officials responsible for

financial reporting and environmental program management and regional
Environmental Protection Agency (EPA) officials responsible for overseeing
the administration of federal environmental laws and regulations applicable
to DOD operations. To determine if a cleanup liability was reasonably
estimable, we interviewed state regulatory agency personnel responsible for
administering federal, state, and local environmental laws and regulations
that regulate DOD activities and

similar commercial waste management operations. We obtained information on
plans for cleanup, closure, and postclosure monitoring required as part of
the permitting of waste management operations for both

DOD and similar commercial activities. We also obtained information on cost
estimates to accomplish those plans for commercial activities. To determine
the potential scope of DOD operations requiring environmental cleanup, we
obtained the real property databases of each military service and extracted
the assets whose category descriptions (e. g.,

hazardous waste storage facility) indicated an association with a hazardous
or solid waste management or underground storage tank operation.

Because DOD did not have a centralized or comprehensive system for
identifying, summarizing, maintaining, and reporting the cleanup costs
associated with all of its ongoing operations, we could not use

representative sampling techniques to determine the full scope and magnitude
of its related liability. Therefore, as agreed with our requester, we
selected 6 of the more than 1, 500 active installations reported by DOD to
use as examples. To make preliminary planning decisions about the

potential magnitude of the DOD- wide estimated future cleanup costs for the
operations indicated by the real property extracts, we conducted a telephone
survey of the regulatory officials from 13 states to determine an average
estimated cleanup cost for similar commercial waste management operations.
We applied the average commercial costs, making assumptions

about operational status and remaining useful lives, to the extracted real
property assets, and ranked individual installations in order of the
resulting potential total cleanup costs. We then selected six DOD
installations, two from each military service, to conduct on- site reviews
of the actual scope and magnitude of the estimated future cleanup costs of
their operations known to result in hazardous waste. With one exception,
which was selected for its geographical location, the remaining five
installations were

selected from the top five in each service with what appeared to be the
highest potential cleanup costs. Appendix II lists the primary locations
where we performed our review.

To determine the scope and related future cleanup cost estimates of waste
management operations and underground storage tanks for the six individual
DOD installations selected, we conducted on- site reviews at the state
regulatory agencies having jurisdiction over each installation, and at each
selected DOD installation.

Our objective at each state regulatory agency was to obtain an understanding
of the nature, scope, and cleanup requirements of the waste management
activities at each selected DOD installation. To accomplish this, we: (1)
interviewed relevant state regulatory agency officials, (2) reviewed
oversight, permitting, and compliance documents for the DOD

installations, and (3) if available, obtained and reviewed documentation of
cleanup cost estimates for similar commercial operations.

Our objectives at each of the six DOD installations visited were to:

 substantiate and supplement the information and insight gained at the
regulatory agencies,

 determine the scope of ongoing and inactive/ closed operations requiring
cleanup at each installation,

 determine the estimated cleanup costs for these operations, and

 determine the extent to which these cleanup costs are currently being
reported for budgetary planning and financial statement purposes. To
accomplish our objectives, we: (1) interviewed installation

environmental officials and reviewed supporting documentation

evidencing operations and their status, (2) reconciled listings of
operations and/ or related assets and their status, obtained from the
regulator, to installation environmental office records, (3) physically
observed the existence and status of selected operations and the related PP&
E, (4) obtained future cleanup cost estimates prepared by the environmental
office, (5) compared our findings to installation reporting for DERP

purposes, and (6) reconciled our PP& E extracts from the military service
real property databases, and supplemental information provided by
installation real property office records, to environmental office records
of operations requiring cleanup. We summarized the data obtained and
analyzed the results of our review by individual installation and
environmental category (see appendix IV). We did not independently verify
the reliability of the cleanup cost estimates,

nor did we verify the existence or cleanup status of all relevant operations
at each installation visited.

Except as noted above, our work was conducted in accordance with generally
accepted government auditing standards from August 2000 through May 2001. On
October 11, 2001, we received DOD?s comments,

dated August 29, 2001, which addressed a draft of this report. DOD?s
comments are discussed in the ?Agency Comments and Our Evaluation? section
and are reprinted in appendix III, which also includes our detailed

response to DOD?s specific comments.

Appendi x II

Locations Visited We contacted personnel and conducted work at the following
locations: Department of Defense  DOD Inspector General Headquarters,
Arlington, VA Environmental Protection

 Regional Office - Region VIII, Denver, CO Agency

Air Force  Cannon Air Force Base, Environmental Flight & Pollution
Prevention, Clovis, NM

 Vandenberg Air Force Base, Environmental Compliance/ Pollution Prevention
Section, Lompoc, CA

Army  Fort Carson, Division of Environmental Compliance, Colorado Springs,
CO

 Fort Polk, Compliance Management Branch, Leesville, LA

 U. S. Army Forces Command, Internal Review Audit Compliance, McPherson, GA

Navy/ Marine Corps  Camp Pendleton Marine Corps Base, Inspection &
Compliance Division, Ocean City, CA

 Cherry Point Marine Corps Air Station, Environmental Affairs Department,
Havelock, NC State Regulatory Agencies  California Environmental Protection
Agency - Department of Toxic &

Substance Control, Southern California Region, Cypress & Glendale, CA

 County of San Diego - Department of Environmental Health, San Diego, CA

 Santa Barbara Public Health Department, Santa Barbara, CA

 Colorado Department of Public Health & Environment, Denver, CO

 Louisiana Department of Environmental Quality, Baton Rouge, LA

 State of New Mexico Environment Department, Santa Fe, NM

 North Carolina Department of Environment & Natural Resources, Raleigh &
Washington, NC

Other Other individuals were contacted via telephone and electronic mail.

Appendi x I II

Comments from the Department of Defense See comment 1. See comment 1.

See comment 2.

See comment 3. See comment 4.

See comment 5. See comment 6. See comment 7. See comment 8.

See comment 4. See comment 9. See comment 1. See comment 10. See comment 2.

GAO?s Comments The following are GAO?s comments on the letter dated August
29, 2001 (received October 11, 2001), from the Department of Defense.

1. See the ?Agency Comments and Our Evaluation? section of this report. 2.
Chapter 14 of DOD?s FMR, ?Accrued Environmental Restoration

(Cleanup) Liabilities,? is intended to provide guidance in accounting for
and accruing a liability for the costs associated with the containment,
treatment, or removal of contamination that could cause a threat to public
health and the environment. However, the included guidance centers around
environmental cleanup primarily relating to restoration activities and
costs. Chapter 13 of DOD?s FMR, ?Accrued

Environmental And Non- environmental Disposal Cost Liabilities,? provides
guidance in accounting for and accruing a liability for the costs associated
with the disposal of property, structures, equipment, munitions, and
weapons. As stated in the ?Agency Comments and Our Evaluation? section, the
federal accounting standard requirement to account for environmental cleanup
cost encompasses more than the restoration and disposal costs guidance
currently provided by the FMR. Regardless of the terminology used, we
continue to recommend that the FMR address the broad range of activities
included in the scope of the federal accounting standard, such as closure
and postclosure monitoring costs.

3. On May 15, 2001, DOD created the new position referred to in its comment
letter, the Deputy Under Secretary of Defense (Installations and
Environment), within the Acquisition, Technology and Logistics office.
Because DOD has combined responsibility for both real property and
environmental issues in this position, we modified our

recommendation to require the Deputy Under Secretary of Defense
(Installations and Environment) to correct errors in real property records
and to reconcile those records with environmental site records.

4. We have modified the report to clarify the definition of ?standard? as
used in this report and to change the word ?methodology? to

?methodologies.? The underground storage tank example in our report
illustrates how the use of nonstandard methodologies can result in
inconsistent and incomparable cost estimates. 5. We disagree that the
report?s conclusions about the significance of

DOD?s unreported liabilities are not supported. As discussed in the

body of our report and in the ?Agency Comments and Our Evaluation? section,
the unreported environmental cleanup liability for the six installations
visited was 76 percent of the total estimated cleanup costs for these
locations. The report?s ?Conclusions? section points out the lack of and/ or
weaknesses in DOD- wide reporting systems, recordkeeping coordination and
maintenance, and leadership and guidance in reporting environmental cleanup
liabilities. When considered in light of these DOD- wide weaknesses, we
believe the unreported cleanup

liabilities found at the visited installations are more than adequate
support for our conclusion. Nevertheless, in response to DOD?s concern, we
have modified our report to state that until DOD addresses the issues
discussed in this report, particularly in the areas of guidance and
leadership, we cannot assure the Congress that DOD?s reported environmental
liabilities can be relied on for long- range budget planning decisions.

Further, as stated in footnote 12 to our report, federal accounting
standards do not require DOD to record the entire cleanup cost of ongoing
operations as a liability on its current financial statements. However,
those same accounting standards (SFFAS No. 6, par. 109) would require
disclosure of the unrecognized portion of estimated total cleanup costs. In
other words, DOD would be required to disclose in the footnotes to its
financial statements that portion of the estimated

total liability of $91 million for environmental cleanup of ongoing
operations not reported as a liability on its financial statements. 6. We
agree that the scope of our work did not include an audit of all the

real property records at the installations visited and have clarified the
wording of our report to address only the relevant real property records.

7. DOD is correct in observing that we were purposely trying to survey the
installations with the highest potential costs. In lieu of using a
representative sample (which was not possible due to problems in identifying
a reliable population from DOD?s records, as discussed in comment 8), we
selected, with one exception, two installations in each service from the top
five having the highest potential environmental

cleanup cost. This was an attempt to obtain as complete an understanding as
possible of the broad range of cleanup activities that may be associated
with DOD?s ongoing operations. Further details on

our methodology are disclosed in appendix I, ?Objectives, Scope, and
Methodology.? Our assessment of potential environmental cleanup

costs for individual installations was based on data obtained from DOD?s
real property records. Review of this data during our installation visits
disclosed significant errors in the relevant real property records, which in
turn caused the initial determinations of potential cleanup costs to be
unreliable. Thus, we could no longer be certain whether other DOD
installations would have had higher potential cleanup costs than those
selected.

8. We disagree with DOD that our methodology deviated from standard
governmental auditing procedures. Audit sampling is applicable only when the
auditor expects to draw a conclusion about a population. Because DOD did not
have a comprehensive system for identifying, summarizing, maintaining, and
reporting cleanup cost for ongoing operations, DOD could not provide a
reliable population from which to select a representative sample. Instead,
as stated in the body of our

report and more fully disclosed in appendix I, ?Objectives, Scope, and
Methodology,? we selected two installations from each of the three military
services as examples, and reached conclusions about the magnitude of
unreported liabilities for only those six installations. Our selection was
not intended to be a representative sample of DOD installations and we drew
no conclusions about any population based solely on the results of our
review of the six installations.

9. We have modified the report to disclose the amount actually reported by
the Air Force.

10. Because DOD could not provide us with detailed lists of all the costs
that comprise its reported liability, we have modified the report to
indicate that estimated cleanup costs not reported through DERP were ?not
likely? to have been reported in DOD?s financial statements. We also
clarified our support for this issue in footnote 13.

Installation- Level Data on Environmental Sites, Estimated Cleanup Costs,
and Errors in

Appendi x V I Real Property Records Table 4: Type and Number of Sites
Requiring Cleanup Installations visited

Camp Cherry

Cannon Vandenberg

Ft. Carson, Ft. Polk,

Pendleton Point

Environmental category AFB, NM AFB, CA CO LA MCB, CA

MCAS, NC Total

Hazardous, solid and bio- solid waste 13 5 14 6 3 10 51

landfills Hazardous waste storage facilities 1 1 1 0 13 2 18

Open burn/ open detonation, chemical 4 1640419 burning and fire training
pits and incinerators

Underground storage tanks 0 9 43 16 52 13 133 Total 18 16 64 26 68 29 221

Table 5: Operational and Reporting Status of Sites Requiring Cleanup
Installations visited

Camp Cherry

Cannon Vandenberg

Ft. Carson, Ft. Polk,

Pendleton Point

Operational and reporting status AFB, NM AFB, CA CO LA MCB, CA

MCAS, NC Total

Sites included in DERP reporting a 3 418711245 Unreported ongoing operation
sites 3 12 40 18 67 9 149

Unreported inactive and/ or closed 12 0 6 1 0 8 27

operation sites Tot al 18 16 64 26 68 29 221

a Includes only those DERP reported sites falling within the scope of our
review (e. g., inactive/ closed landfills.)

Table 6: Estimated Future Cleanup Costs by Environmental Category (in
millions) Installations visited

Camp Cherry

Cannon Vandenberg

Ft. Carson, Ft. Polk,

Pendleton Point

Environmental category AFB, NM AFB, CA CO LA MCB, CA

MCAS, NC Total

Hazardous, solid and bio- solid waste $100.7 $32.4 $30. 8 $15. 8 $41.4 $18.
6 $239. 6

landfills Hazardous waste storage facilities .1 .3 .2 0 1. 3 .4 2.2

Open burn/ open detonation, chemical .4 .3 .4 3. 8 0 2.7 7.6

burning and fire training pits and incinerators Underground storage tanks 0
.2 1. 7 .8 .7 6. 5 9.9 Total $101.2 $33.1 $33. 0 $20. 4 $43.3 $28. 2 $259. 3

Table 7: Estimated Future Cleanup Costs by Operational/ Reporting Status (in
millions) Installations visited

Camp Cherry

Cannon Vandenberg

Ft. Carson, Ft. Polk,

Pendleton Point

Operational and reporting status AFB, NM AFB, CA CO LA MCB, CA

MCAS, NC Total

Costs included in DERP reporting a $ .4 $ 6.2 $14. 7 $15.2 $ 3.5 $21.2 $61.1

Unreported costs for ongoing operation 3.4 27.0 18.1 5. 0 36.9 .7 91.1

sites Unreported costs for inactive and/ or 97. 4 0 .2 .2 2. 9 6. 4 107.1

closed operation sites Tot al $101.2 $33.1 $33. 0 $20.4 $43.3 $28.2 $259.3

a Includes only those DERP reported sites falling within the scope of our
review (e. g., inactive/ closed landfills.) Note: Totals may not add due to
rounding.

Table 8: Errors in Real Property Records Installations visited

Camp Cherry

Cannon Vandenberg

Ft. Carson, Ft. Polk,

Pendleton Point

Types of errors AFB, NM AFB, CA CO LA MCB, CA

MCAS, NC Total

Additions not made 11 14 52 24 54 27 182

Deletions not made 0 0 0 24 0 0 24

Categorized incorrectly 5 0 1 20 4 1 31 Total 16 14 53 68 58 28 237

Appendi x V

GAO Contacts and Staff Acknowledgments GAO Contacts Molly B. Boyle (202)
512- 9524 Dianne D. Guensberg (202) 512- 5285 Acknowledgments Staff making
key contributions to this report were Fannie Bivins, Francine DelVecchio,
Steve Lipscomb, David Merrill, Sheila Miller, Octavia Parks,

Lisa Powell, Ben Severson, and Patrick Tobo.

(918990) Lett er

a

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Appendix I

Appendix I Objectives, Scope, and Methodology

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Appendix I Objectives, Scope, and Methodology

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Appendix II

Appendix II Locations Visited

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Appendix III

Appendix III Comments from the Department of Defense

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Appendix III Comments from the Department of Defense

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Appendix III Comments from the Department of Defense

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Appendix III Comments from the Department of Defense

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Appendix III Comments from the Department of Defense

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Appendix III Comments from the Department of Defense

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Appendix III Comments from the Department of Defense

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Appendix III Comments from the Department of Defense

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Appendix IV

Appendix IV Installation- Level Data on Environmental Sites, Estimated
Cleanup Costs, and Errors

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Appendix IV Installation- Level Data on Environmental Sites, Estimated
Cleanup Costs, and Errors

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Appendix V

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