United States General Accounting Office
GAO Report to the Secretary of Defense
November 1997
FINANCIAL
MANAGEMENT
DOD’s Liability for
Aircraft Disposal Can
Be Estimated
GAO/AIMD-98-9
United States
GAO General Accounting Office
Washington, D.C. 20548
Accounting and Information
Management Division
B-273004
November 20, 1997
The Honorable William S. Cohen
The Secretary of Defense
Dear Mr. Secretary:
Recent laws have enhanced the legislative requirements to provide
policymakers and agency program managers with more reliable financial
information to formulate budgets, manage government programs, and
make difficult policy choices.1 Recognizing the extent of incomplete and
unreliable information on the cost and consequences of government
programs and activities, these laws have made implementation of new
accounting standards and audited financial statements a priority. New
federal accounting standards have been adopted to enhance financial
statements by requiring that government agencies show the financial
results of their entire operations and provide relevant information on
agencies’ true financial status. This report discusses one such requirement
for valuable information related to the disposal costs of federal agencies’
property, plant, and equipment (PP&E). The second in a planned series of
reports on the Department of Defense’s (DOD) implementation of this
requirement, this report focuses on aircraft.2 The disposal process for
aircraft includes removal from active service, demilitarization, removal
and disposal of hazardous materials, storage, reclamation of parts, and
final disposal/salvage.
In October 1990, the Federal Accounting Standards Advisory Board
Background (FASAB) 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,
executives agencies, and other users of federal financial information.
Using a due process and consensus building approach, the nine-member
Board, which has since its formation included a member from DOD,
recommends accounting standards for the federal government. Once FASAB
recommends accounting standards, the Secretary of the Treasury, the
Director of OMB, and the Comptroller General decide whether to adopt the
1
The Chief Financial Officers Act (CFO) of 1990, the Government Management Reform Act (GMRA) of
1994, and the Federal Financial Management Improvement Act of 1996.
2
See our first report, Financial Management: Factors to Consider in Estimating Environmental
Liabilities for Removing Hazardous Materials in Nuclear Submarines and Ships (GAO/AIMD-97-135R,
August 7, 1997).
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recommended standards. If they are adopted, the standards are published
as Statements of Federal Financial Accounting Standards (SFFAS) by OMB
and by GAO. In addition, the Federal Financial Management Improvement
Act of 1996, as well as the Federal Managers’ Financial Integrity Act,
requires federal agencies to implement and maintain financial
management systems that will permit the preparation of financial
statements that substantially comply with applicable federal accounting
standards.
Issued in December 1995 and effective beginning with fiscal year 1997,
SFFAS No. 5, Accounting for Liabilities of the Federal Government, requires
the recognition of a liability for any probable and measurable future
outflow of resources arising from past transactions.3 The statement
defines probable as that which is likely to occur based on current facts
and circumstances. It also states that a future outflow is measurable if it
can be reasonably estimated. The statement recognizes that this estimate
may not be precise and in such cases, it provides for recording the lowest
estimate and disclosing in the financial statements the full range of
estimated outflows that are likely to occur.
SFFAS No. 6, Accounting for Property, Plant, and Equipment, which is
effective beginning in fiscal year 1998, deals with various accounting
issues pertaining to PP&E. This statement establishes several new
accounting categories of PP&E, collectively called stewardship PP&E. Other
PP&E is referred to as general PP&E. One of the new stewardship
categories—federal mission PP&E—is defined as tangible items owned by a
federal government entity, principally DOD, that have no expected
nongovernmental use, are held for use in the event of emergency, war, or
natural disaster, and have an unpredictable useful life. Federal mission
PP&E, which includes ships, submarines, aircraft, and combat vehicles, is a
major part of DOD’s total PP&E.
SFFAS No. 6 also provides information on how SFFAS No. 5’s standard on
liabilities should be applied to PP&E. Specifically, SFFAS No. 6 discusses how
to recognize the liability for the clean up4 of hazardous waste in PP&E.
While this statement modifies SFFAS No. 5 with respect to the timing of
3
These requirements generally mirror those of the Statement of Financial Accounting Standard No. 5,
Accounting for Contingencies (FASB No. 5), which was effective prior to the development of SFFAS
No. 5.
4
SFFAS No. 6 defines cleanup as the removal, containment, and/or disposal 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 property, plant, and equipment.
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liability recognition for general PP&E, it has no effect on accounting for
liabilities related to aircraft and other federal mission PP&E.
DOD has not yet implemented the federal accounting standard that requires
Results in Brief recognizing and reporting liabilities such as those associated with aircraft
disposal, nor has it provided guidance to the military services. Aircraft
disposal is an ongoing process and the cost can be reasonably estimated.
Accordingly, these activities meet the criteria for a reportable liability.
Information on the three major disposal processes—demilitarization,
storage and maintenance, and hazardous materials removal and
disposal—is available to develop cost estimates. The Congress has
recognized the importance of accumulating and considering disposal cost
information. In the National Defense Authorization Act for Fiscal Year
1995, the Congress required DOD to develop life-cycle environmental costs,
including demilitarization and disposal costs, for major defense acquisition
programs.
We undertook this review to assist DOD in its efforts to meet the new
Objectives, Scope, federal accounting standard, SFFAS No. 5, and because of our responsibility
and Methodology to audit the federal government’s consolidated financial statements
beginning with fiscal year 1997. Our objectives were to determine (1) the
status of DOD’s efforts to implement the new federal accounting standard
for disclosure of liabilities, such as aircraft disposal, and (2) whether an
estimate of the minimum disposal liability for aircraft, including the
removal and disposal of hazardous materials, could be made. The
following was done to accomplish our objectives.
To assess the status of DOD’s efforts to implement SFFAS No. 5, we reviewed
DOD regulations and interviewed officials from the DOD Comptroller’s
office. To gain an understanding of the procedures and the financial and
logistical management information systems that can be used to
accumulate and report on aircraft disposal costs, we (1) examined the
management and financial reporting for these programs used by the
services, (2) reviewed applicable DOD and service instructions and
regulations, and (3) interviewed DOD, Air Force, Army, and Navy officials.
To determine if the liability is reasonably estimable, we identified the
financial and logistical management information systems and reporting
mechanisms in place that contain information about the costs of aircraft
disposal, including demilitarization and hazardous material disposal
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processes. We visited DOD’s designated aircraft storage, reclamation, and
disposal facility at the Aerospace Maintenance and Regeneration Center
(AMARC) where data were readily available for addressing removal and
disposal costs of older, out of service aircraft systems. To determine if the
liability could be estimated for newer aircraft, we selected five aircraft for
review. The five aircraft selected were the Air Force’s F-16 and B-1B, the
Navy’s F-14 and F-18, and the Army’s AH-64 Apache Helicopter. We chose
these five aircraft because they represent the primary fighter or attack and
bomber aircraft for each of the services, have the largest number in their
class, and represent about 17 percent of the services’ combined active and
inactive inventory.
Because environmental costs are more variable and are likely to raise
more complex estimation issues, we performed a more in-depth analysis
of these costs. Using data initially obtained at AMARC, information in the
DOD hazardous material disposal manual, and visits to maintenance depots,
we prepared a list of hazardous materials associated with each of these
aircraft. On a case-by-case basis, we then obtained depot level officials’
concurrence that these items represent the primary hazardous material on
each of these aircraft.
To compute the cost of removing hazardous materials from each aircraft,
we reviewed documents that stated a standard or estimated removal time
for each of the hazardous material items from the depot responsible for
program depot maintenance on the applicable aircraft and AMARC’s hourly
labor rate. We did not independently verify the data obtained from the
inventory and financial systems or the reported removal times.
We interviewed the services’ environmental engineers to determine which
hazardous materials require disposal. To determine the costs of disposing
of these materials, we reviewed disposal and shipping records at AMARC
and the various depots. For those materials that were not scheduled for
disposal, we interviewed various depot personnel to determine their
methods for reusing and recycling them. We also discussed disposal
procedures with various offices of the Defense Reutilization and
Marketing Service.
During our review, we contacted personnel and/or conducted work at
various locations including the Army Aviation and Troop Command
Headquarters, St. Louis, Missouri; Aerospace Maintenance and
Regeneration Center, Davis-Monthan Air Force Base, Arizona; Air
Logistics Centers at Hill Air Force Base, Utah, and Tinker Air Force Base,
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Oklahoma; Office of the Chief of Naval Operations; Naval Aviation Depots
at Jacksonville, Florida and North Island, California; Corpus Christi Army
Depot, Corpus Christi, Texas; offices of the Defense Reutilization and
Marketing Service, Battle Creek, Michigan; and applicable headquarters
offices in the Washington, D.C., area.
We conducted our review from July 1996 through June 1997 in accordance
with generally accepted government auditing standards. We provided a
draft of this report to the Department of Defense for review and comment.
We received oral comments which have been incorporated as appropriate.
Although SFFAS No. 5 is effective beginning with fiscal year 1997, as of the
DOD Has Not end of the fiscal year on September 30, 1997, DOD had not established a
Implemented SFFAS policy to implement this federal accounting standard. On September 30,
No. 5 1997, the DOD Comptroller’s office posted revisions to the electronic
version of DOD’s Financial Management Regulation to include SFFAS Nos. 1
through 4, but SFFAS No. 5 was not included. In addition, the DOD
Comptroller, who is responsible for developing and issuing guidance on
accounting standards, and the Under Secretary of Defense (Acquisition
and Technology), who is responsible for the operational activities
associated with aircraft disposal, have not provided implementation
guidance to the services to assist them in estimating the disposal costs for
aircraft. Service officials stated that they are reluctant to estimate a
liability for their aircraft until they receive DOD-wide guidance. Unless
prompt action to implement this standard is taken, it is unlikely that DOD’s
fiscal year 1997 financial statements will include an estimate of aircraft
disposal costs as required.
One of the key criteria cited in SFFAS No. 5 for a liability to be reported is
Aircraft Disposal that a future cost is probable—that is, the future outflow of resources is
Liability Has Been likely to occur. While the likelihood of a future outflow may be difficult to
Incurred determine and an entity may have difficulty deciding whether to record a
liability for certain events, DOD continually disposes of aircraft and has an
amount for disposal costs in its annual budget. Thus, because it is known
at the time of acquisition that costs will be incurred for the disposal of
aircraft, the probability criterion for recording a liability is met. The
Congress has also recognized that disposal costs will be incurred and has
emphasized the importance of accumulating and considering this
information. For example, the National Defense Authorization Act for
Fiscal Year 1995 requires the Secretary of Defense to determine, as early in
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the acquisition process as feasible, the life-cycle costs for major defense
acquisitions, including the materials to be used and methods of disposal.
The life-cycle cost estimates are required before proceeding with the
major acquisition.
Aircraft Disposal Process All aircraft are eventually disposed of using the same basic processes. Any
estimate of the disposal liability must take into account these processes
and use them as the basis for determining costs. The disposal process
starts with the decision to remove an aircraft from service, referred to as
retirement (Army), decommissioning (Air Force), and striking (Navy) of
military aircraft. Aircraft disposal consideration begins when the services
prepare an updated force structure plan. The plan shows the projected
requirements for each type of aircraft and includes new procurement and
various attrition factors including crashes, programmed retirements,
airframe stress tests, parts reclamation needs, and foreign military sales.
Active aircraft not needed to meet the services’ current and forecasted
requirements are sent to AMARC, DOD’s designated storage and disposal
facility for aircraft for temporary or long-term storage and eventual
disposal.
Aircraft arriving at AMARC are either placed in a flyable or temporary hold
status, prepared for foreign military sales, salvaged for parts, or placed
into long-term storage awaiting either eventual disposal or reuse
determination. AMARC officials stated that, in general, planes that undergo
the storage process are not recalled and are ultimately disposed of through
sales or salvage. Once the military services have determined no further
need exists for the aircraft, they are released for disposal. These aircraft
and related parts are subjected to demilitarization processes to prevent
further military use before they are transferred to the Defense
Reutilization and Marketing Service (DRMS) for sale as scrap.5
Demilitarization may take place at the air base, at AMARC, or at the local
DRMS field office. Part of the demilitarization process involves removing all
remaining hazardous materials from the aircraft.
Inventory of Aircraft Aircraft acquired by the services are, in general, considered mission
assets. The Air Force’s Reliability and Maintainability Information System
(REMIS), the Navy’s Aircraft Inventory Reporting System (AIRS), the Army’s
Continuing Balance System-Expanded (CBS-X), and AMARC’s Aircraft Status
5
The way the disposal process works is detailed in our report Federal Property Disposal: Information
on DOD’s Personal Property Disposal Process (GAO/NSIAD-97-155BR, July 8, 1997).
Page 6 GAO/AIMD-98-9 DOD’s Liability for Aircraft Disposal
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Directory identify the number of active and inactive aircraft and are used
by the services to keep track of their aircraft inventories. As shown in
table 1, DOD reported about 18,000 active aircraft as of September 30, 1996,
the most recent data available.
Table 1: DOD’s Aircraft Inventory as of
September 30, 1996 Service/aircraft type Active Inactive
Air Force
B-1B Bomber 95 0
B-52 Bomber 94 124
C-130 Transport 682 90
F-4 Fighter 0 903
F-15 Fighter 767 121
F-16 Fighter 1,541 354
F-111 Fighter/Bomber 18 285
KC-135 Tanker 492 67
Other 2,298 1,266
Army
AH-64 Apache Helicopter 727 0
UH-60 Blackhawk Helicopter 1,351 0
UH-1 Huey Helicopter 2,011 211
AH-1 Cobra Helicopter 622 17
Other 2,191 28
Navy
A-4 Fighter/Bomber 0 263
A-7 Attack Bomber 0 234
AV-8 Fighter 195 40
F-14 Fighter 311 90
F-18 Fighter 811 52
P-3 Surveillance 285 136
T-34 Trainer 319 26
CH-46 Helicopter 262 0
Other 2,634 975
Total 17,706 5,282
Source: AMARC, Army (CBS-X), Navy (AIRS), and Air Force (REMIS) data. We did not
independently verify these data. See footnote 6 for information on reliability problems associated
with DOD’s accounting and logistical data.
The aircraft inventory serves as the basis for estimating the disposal
liability although factors such as foreign military sales would have to be
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considered in adjusting the number of aircraft. According to a March 1997
AMARC report, about 4 percent of AMARC’s inventory at any given time is
scheduled for foreign military sales. Aircraft lost during operations,
however, are generally replaced to maintain the inventory at certain levels.
As a result, operational losses may not reduce the total liability for aircraft
disposal.
The second key criterion in SFFAS No. 5 for reporting of a liability is that an
Aircraft Disposal amount be reasonably estimable. Information is available to develop cost
Liability Could Be estimates for each of the major aircraft disposal processes described in
Estimated the previous section—demilitarization, storage maintenance, and
hazardous materials removal and disposal.6 These processes account for
most of the aircraft disposal costs.
Our review focused on five aircraft (the Air Force’s F-16 and B-1B, the
Navy’s F-14 and F-18, and the Army’s Apache Helicopter). Although data
were available for each of the disposal processes, we performed a more
detailed analysis of the costs associated with the removal and disposal of
hazardous materials because these costs are more variable and likely to
present more complex estimation issues. The information in the following
sections indicates the types and sources of information available for DOD
to develop an aircraft disposal cost estimate. As stated in SFFAS No. 5, this
process may result in a range of potential aggregate costs, the lowest of
which should be recorded unless an amount within the range which is
most likely to occur is estimable.
Estimated Demilitarization Demilitarization includes removing weapons and other designated items
Costs from the aircraft and then taking the aircraft off line. Other
demilitarization actions include removing equipment that has, directly or
indirectly, a significant military utility or capacity, such as sensitive radar
equipment. A salvage or residual value for the aircraft was deducted from
the demilitarization costs, since historically the remains of aircraft are sold
as scrap at the time of disposal. As shown in table 2, demilitarization costs
varied considerably for the three aircraft in our review for which this
information was readily available from program offices. Although the B-1B
and the Apache Helicopter are newer aircraft for which demilitarization
6
We, as well as the DOD Inspector General and service auditors, have reported problems with the
reliability of information in DOD’s accounting and logistical systems. While there are limitations in the
data, DOD is working to improve the systems which should over time, increase the accuracy of the
information and improve the disposal liability estimates. See GAO report Defense Financial
Management (GAO/HR-97-3, February 1997).
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plans and costs have not yet been developed, disposal cost estimates could
be based on cost experience for other aircraft with similar missions. AMARC
officials stated that disposal tasks are generally similar among aircraft
although the quantity and complexity of specific items may differ. For new
weapons systems, including aircraft, the disposal costs, including
demilitarization costs, are to be developed as part of the life-cycle costs
required by the National Defense Authorization Act for Fiscal Year 1995.
Table 2: Estimated Demilitarization
Costs Residual
Demilitarization recouped from Net demilitarization
Type of aircraft costs per aircraft sale costs
F-14 $107,819 $3,020 $104,799
F-16 $8,561 $1,693 $6,868
F-18 $20,550 $1,700 $18,850
Source: GAO computation based on AMARC and maintenance depot data.
Jacksonville Naval Depot officials stated that the demilitarization cost for
the F-14 was significantly more than the other two aircraft because of the
complexity of the disposal work effort and the related costs.
Estimated Cost to Maintain Aircraft are stored at AMARC’s long-term storage facility. All openings,
Aircraft in Storage cracks, and joints have to be sealed and delicate surfaces protected from
the hot sun, wind, and sand. The preservation process is repeated every 4
to 5 years to ensure that each aircraft is adequately protected. According
to AMARC’s costing system, the maintenance costs of aircraft in long-term
storage are about $400 per aircraft per year. According to an AMARC
official, aircraft, on average, are kept in long-term storage for 20 years.
They also stated that, in general, planes that undergo the storage process
are not recalled and are ultimately disposed of through sales or salvage.
Such storage costs could result in a significant liability. For example, if the
current active inventory of 18,000 aircraft were all maintained in storage
for the average of 20 years and AMARC’s estimated maintenance cost of
$400 per aircraft per year were used, the storage costs would be at least
$140 million.
Removal and Disposal of All five aircraft types we reviewed contained hazardous materials that
Hazardous Materials must be removed, and if necessary, disposed of when the aircraft are taken
out of service. Some hazardous materials can be recycled and reused
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multiple times, but the materials may ultimately have to be disposed of
appropriately. For the five aircraft, sufficient information was available in
DOD’s and the services’ financial and management information systems to
estimate a cost for the removal of hazardous materials contained in these
aircraft. Costs associated with disposal of these materials are currently
insignificant, but will need to be considered based on assumptions of final
disposal methods.
There are numerous sources available to DOD for identifying which
materials used in aircraft are considered hazardous and have to be cleaned
up before aircraft disposal. DOD Manual 4160.21-M, known as the Property
Disposal Manual and 40 Code of Federal Regulations (C.F.R.) 261 identify
which materials are considered hazardous. Environmental managers at the
services’ program offices and at the depots responsible for the aircraft, as
well as maintenance personnel, are knowledgeable about the hazardous
materials unique to specific aircraft. In addition, environmental managers
at various Defense Reutilization and Marketing Offices (DRMOs) are
familiar with the hazardous materials on aircraft. The aircraft we reviewed
contain various hazardous materials, as shown in table 3. See appendix I
for definitions of these materials.
Table 3: Hazardous Materials on the
Five Aircraft Aircraft
Hazardous materials F-16 B-1B F-14 F-18 Apache
Fire suppressant √ √ √ √ √
Hydrazine √
Batteries √ √ √ √ √
Petroleum, oil, & lubricants (POL)a √ √ √ √ √
Composites b
√ √ √ √
Magnesium thorium √
Pyrotechnics √ √ √ √ √
Coolants √ √ √ √
Fuel cells √
Tubing removal √
Liquid oxygen √
a
POL products are not hazardous materials under Federal law, but a number of states including
Alaska, California, and Florida, consider POL products hazardous materials.
b
While the Air Force considers composites, such as carbon fiber wings, to be hazardous
materials, the Navy does not if the material’s structural integrity is not compromised. We included
composites because DRMS, which is responsible for their removal and disposal, considers
composites to be hazardous material.
Source: AMARC and maintenance depot logistical systems.
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Some hazardous materials in aircraft are not shown in the above table. For
example, there are many items on the aircraft, such as cadmium-plated
bolts and other small items, that are too numerous to separately remove
and account for during the disposal process. Because the cadmium plated
items are sold for scrap and the specific items and quantities are not
separately identified, they were not included in the sample aircraft
analysis. However, DOD and the services would have to consider the
significance of such items in the aggregate on a servicewide or DOD-wide
basis.
Information on the removal costs of hazardous materials in older aircraft
is generally available at AMARC and is based on its experience in aircraft
disposal. However, AMARC officials said they did not yet have significant
experience in dismantling and disposing of the five aircraft in our review.
Therefore, the officials suggested that a reasonable estimation approach
would be to use removal times that are reported by the cognizant depots
that perform maintenance on these systems. The removal times for each
hazardous material can then be multiplied by AMARC’s hourly labor rate.
Using this estimation method, table 4 shows the estimated cost of
removing hazardous materials from the five aircraft.
Table 4: Estimated Cost for Removing
Hazardous Material Removal cost per
Aircraft type aircraft
F-16 $ 14,788
B-1B $123,084
F-14 $ 14,725
F-18 $ 10,753
Apache Helicopter $ 313
Source: GAO computation based on AMARC hourly labor rate and the maintenance depot’s
removal times.
The wide variance in hazardous material removal costs can be accounted
for by differences in the size and complexity of the five aircraft. For
example, the B-1B weighs about 190,000 pounds compared to the smaller
F-16 which weighs about 18,000 pounds. Moreover, the B-1B has over
1,000 items associated with pyrotechnics that cost an estimated $92,000 to
remove. The cost to remove pyrotechnics from the F-16 is only about
$1,700 per aircraft. Similarly, it takes a significant number of staff hours,
estimated at about $11,000, to remove the fuel from the B-1B tanks and
fuel lines and to take the protective measures for the fuel system. For the
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F-16, the same procedures take just a few hours at an estimated cost of
about $200. The fuel is removed from the aircraft because it can be reused.
The Apache Helicopter hazardous material removal cost estimate is much
less than for the other aircraft because it contains considerably less
hazardous material. For example, it costs an estimated $68 per aircraft to
remove pyrotechnics from the Apache compared to about $1,700 to
remove pyrotechnics from an F-16. The F-16 cost estimate includes
removing one or two ejection seats and canopies and related detonating
cord devices, compared to removing only emergency escape explosive
bolts and related material for the Apache’s crew doors.
For some mission assets, such as nuclear submarines, the actual
hazardous material disposal costs are significant. However, unlike the
removal costs, hazardous material disposal costs for the five aircraft in our
review appear not to be significant because these materials are often
reutilized, recycled, consumed (as is the case for fuel), or sold. Also, DOD
does not track disposal costs by specific aircraft system since hazardous
materials are disposed of in bulk. For example, AMARC transfers its
nonrecyclable fuel to Davis-Monthan Air Force Base, which then disposes
of it along with the base’s waste fuel through its bulk disposal contract.
For the first 6 months of fiscal year 1996, AMARC paid Davis-Monthan less
than $54,000 to dispose of all of its hazardous material. However, although
recycling and reuse accounts for much of the hazardous material disposal
costs, currently the possibility that reuse or recycling needs and capacity
will change in the future must be considered in estimating the ultimate
disposal costs for hazardous materials.
DOD officials have pointed out that the total disposal cost estimate for
Reporting Total aircraft will result in a significant liability—much of which would not
Disposal Costs by require outlays in the current year. Thus, one way to provide a proper
Future Time Periods context for this reported liability and make it more meaningful to
decisionmakers would be to, in a footnote to the financial statements,
Would Be Useful provide a breakdown of the liability based on the approximate time
periods the aircraft are expected to be taken out of service. Table 5 is a
simplified illustration of how the aircraft disposal liability could be
reported by time period. For the purposes of this illustration, the following
assumptions were used: (1) all aircraft had the same disposal costs,
(2) 50 percent of the aircraft were currently awaiting disposal and the
remaining aircraft were to be disposed of over the next 10 years, and
(3) the total estimated liability was $500.
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Table 5: Example of How the Liability
Could Be Disclosed by Time Period Liability associated
with aircraft Liability associated with aircraft to be
currently awaiting deactivated in fiscal years
disposal 1998 1999 2000 2001 2002 Thereafter Total
$250 $25 $25 $25 $25 $25 $125 $500
This information could provide an important context for congressional
and other budget decisionmakers on the total liability by showing the
potential annual impact of the actions that have already occurred or are
expected to occur during various budget periods including those outside
the annually submitted Future Years Defense Program. Further, if the time
periods used to present these data are consistent with budget justification
documents, such as DOD’s Future Years Defense Program, this type of
disclosure would provide a link between budgetary and accounting
information, one of the key objectives of the CFO Act.
As of September 30, 1997, DOD had not incorporated SFFAS No. 5 in its
Conclusions Financial Management Regulation. In addition, the DOD Comptroller and
the Under Secretary of Defense (Acquisition and Technology) had not
issued implementation guidance to the services to assist them in
estimating aircraft disposal costs. Such costs are both probable and
estimable and therefore meet the criteria stated in SFFAS No. 5 for
reportable liabilities. DOD and the military services have information
available to develop cost estimates on each of the major aircraft disposal
processes. Development of the needed policy and implementing guidance
is necessary to help ensure that an estimate of aircraft disposal costs is
recorded in DOD’s fiscal year 1997 financial statements as required.
Moreover, life-cycle cost estimates that include disposal costs will provide
important information to the Congress and other decisionmakers on the
true costs of aircraft as well as other weapon systems.
We recommend that you ensure that
Recommendations
• the DOD Comptroller incorporate SFFAS No. 5 in DOD’s Financial
Management Regulation,
• the DOD Comptroller and the Under Secretary of Defense (Acquisition and
Technology) promptly issue joint implementing guidance for the services
on the SFFAS No. 5 requirements for recognition of a liability for aircraft
disposal costs, and
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• the DOD Comptroller include the estimated aircraft disposal liability in
DOD’s fiscal year 1997 financial statements.
In commenting on a draft of this report, Department of Defense officials
Agency Comments concurred with our recommendations that SFFAS No. 5 be incorporated in
and Our Evaluation DOD’s Financial Management Regulation and that joint implementing
guidance be issued promptly on the SFFAS No. 5 requirements for
recognition of a liability for aircraft disposal costs. In addition, DOD stated
that current disposal cost estimates can be reasonably determined for
aircraft that have been in the active inventory for some time. However,
DOD stated that it would be necessary to delay the reporting of the aircraft
disposal liability until fiscal year 1998 because the development and
coordination of procedures and reporting guidance would take time to
complete. They also stated that the cleanup cost provisions in SFFAS No. 6
must be considered.
SFFAS No. 5 was issued almost 2 years ago, to allow agencies ample time to
develop implementing policies and procedures prior to its fiscal year 1997
effective date. As stated in the report, information is available on all of the
major aircraft disposal processes to develop a reasonable estimate of
these costs. Such an estimate need not be precise—SFFAS No. 5 permits the
reporting of a range. Also, as noted in this report, the cleanup cost
provisions of SFFAS No. 6 do not affect the reporting of the aircraft disposal
liability. Accordingly, we believe that DOD, with a concentrated effort, can
develop an estimate of aircraft disposal costs for its fiscal year 1997
financial statements.
This report contains recommendations to you. The head of a federal
agency is required by 31 U.S.C. 720 to submit a written statement on
actions taken on these recommendations. You should submit your
statement to the Senate Committee on Governmental Affairs and the
House Committee on Government Reform and Oversight within 60 days of
the date of this report. A written statement also must be sent to the House
and Senate Committees on Appropriations with the agency’s first request
for appropriations made over 60 days after the date of this report.
We are sending copies of this report to the Chairmen and Ranking
Minority Members of the House and Senate Committees on
Appropriations, the House and Senate Committees on the Budget, the
Senate Committee on Armed Services, the House Committee on National
Page 14 GAO/AIMD-98-9 DOD’s Liability for Aircraft Disposal
B-273004
Security, the Senate Committee on Governmental Affairs, the House
Committee on Government Reform and Oversight and its Subcommittee
on Government Management, Information, and Technology, and the
Director of the Office of Management and Budget. We are also sending
copies to the Acting Under Secretary of Defense (Comptroller), the Air
Force Assistant Secretary for Financial Management and Comptroller, the
Army Assistant Secretary for Financial Management and Comptroller, the
Navy Assistant Secretary for Financial Management and Comptroller, the
Under Secretary of Defense (Acquisition and Technology), the Deputy
Under Secretary of Defense for Environmental Security, and the Acting
Director, Defense Finance and Accounting Service. Copies will be made
available to others upon request.
Please contact me at (202) 512-9095 if you have any questions concerning
this report. Major contributors to this report are listed in appendix II.
Sincerely yours,
Lisa G. Jacobson
Director, Defense Audits
Page 15 GAO/AIMD-98-9 DOD’s Liability for Aircraft Disposal
Appendix I
Hazardous Materials in Aircraft
Hazardous material - Any waste that, because of its quantity, concentration
or toxicity, corrosiveness, mutagenicity or flammability, or physical,
chemical, or infectious characteristics may (1) cause, or significantly
contribute to, an increase in mortality or an increase in serious irreversible
or incapacitating reversible illness or (2) pose a substantial present or
potential hazard to human health or the environment when improperly
treated, stored, transported, disposed of, or otherwise managed. Some of
the hazardous materials contained in the aircraft we reviewed are
discussed below.
Batteries - Batteries consist of the following types: lead-acid, lithium-sulfur
dioxide, magnesium, silver-bearing, mercury, and nickel cadmium. Unless
batteries are to be recycled or reused, they must be turned in as hazardous
material or hazardous waste.
Composites - Carbon composite fiber material made of long carbon fibers
mixed with bonding and hardening agents, such as epoxy resins. The
health hazards associated with composite fibers appear to be similar to the
effects of fiberglass, including inhalation of the fibers, which can cause
bronchial irritation.
Coolant - A fluid that circulates through a machine or over some of its
parts in order to draw off heat. This includes chemical substances used in
aircraft for cooling radar and related equipment. Certain forms of this
material may be harmful if skin contact occurs.
Fire suppressant - Substances used to keep materials on aircraft, such as
fuel, from igniting and burning. Halon, one such suppressant, is an
ozone-depleting substance that is reclaimed or recovered.
Fuel cells - Fuel cells, which hold fuel, are not in themselves considered
hazardous material, but because they are contaminated with fuel they can
become hazardous. Aviation fuel contains benzene and toluene, both
hazardous materials.
Hydrazine - Supplemental liquid propellant, found only on the F-16, used to
power an emergency power unit in the event of main engine failure.
Hydrazine is an extremely dangerous material if inhaled and has to be
specially handled during transfer by teams dressed in protective gear.
Page 16 GAO/AIMD-98-9 DOD’s Liability for Aircraft Disposal
Appendix I
Hazardous Materials in Aircraft
Magnesium Thorium - Alloy of thorium and magnesium used to produce a
strong, lightweight aircraft component. Thorium presents an internal and
external radiation hazard.
Petroleum, oil, and lubricants - Includes jet fuel, hydraulic fluid, antifreeze
products, and other lubricants found on aircraft. In some states, these
products are not considered hazardous.
Pyrotechnics - Explosive devices used to jettison the canopy and activate
the pilot’s ejection seat. On helicopters, these devices are used to shear off
hinge pins on the fuselage doors to enable crew to extricate themselves in
the event of a crash-landing.
Page 17 GAO/AIMD-98-9 DOD’s Liability for Aircraft Disposal
Appendix II
Major Contributors to This Report
William D. Grindstaff, Assistant Director
Accounting and Jacob W. Sprouse, Jr., Audit Manager
Information Linda Brigham, Auditor
Management Division, Francine M. DelVecchio, Communications Analyst
Washington, D.C.
Dieter M. Kiefer, Assistant Director
Kansas City Office Marshall S. Picow, Auditor in Charge
Gary L. Nelson, Auditor
Darryl S. Meador, Evaluator
(918878) Page 18 GAO/AIMD-98-9 DOD’s Liability for Aircraft Disposal
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Address Correction Requested
Financial Management: DOD's Liability for Aircraft Disposal Can Be Estimated
Published by the Government Accountability Office on 1997-11-20.
Below is a raw (and likely hideous) rendition of the original report. (PDF)