Background:
Operating Material and Supplies (OM&S) assets include ammunition, missiles, and related spare and repair parts. The Army is responsible for the storage, safeguarding, and demilitarization of OM&S assets. According to DoD Manual 4160.28, demilitarization eliminates the functional capabilities and inherent military design features from DoD material to prevent them from being used against the United States. As of September 30, 2016, there was a 471,767-ton stockpile of OM&S assets awaiting demilitarization.
Finding:
We determined that the Army properly reused OM&S assets, safeguarded assets in the demilitarization stockpile, and appropriately disposed of the assets when no longer needed. In addition, although the cost to demilitarize assets exceeded the storage cost, the Army appropriately prioritized the demilitarization workload to focus on safety, policy and legal requirements, and maximizing storage capacity for operational assets.
However, the Office of the Assistant Secretary of the Army (Financial Management and Comptroller) did not report the liability associated with the cost of disposing the demilitarization stockpile on the FY 2016 Army General Fund Financial Statements and related notes. This occurred because Office of the Assistant Secretary of the Army (Financial Management and Comptroller) personnel had not approved a methodology to ensure that the disposal estimate provided by Joint Munitions Command had sufficient support. As a result, the Army materially misstated the disposal liability on the FY 2016 Army General Fund Financial Statements and did not provide decision makers adequate information on the funding needed to properly dispose of the demilitarization stockpile.
Recommendations:
We recommend that the Assistant Secretary of the Army (Financial Management and Comptroller) develop procedures to annually determine a reasonable estimate for the cost to dispose of the demilitarization stockpile and report the associated liability on the Army General Fund Balance Sheet and related notes.
Management Comments and Our Response:
The Deputy Assistant Secretary of the Army (Financial Operations), responding for the Assistant Secretary of the Army (Financial Management and Comptroller), agreed with our findings and recommendation. Specifically, the Deputy Assistant Secretary of the Army (Financial Operations) agreed to work with Army Materiel Command and Joint Munitions Command to review the current disposal estimation methodology, make improvements as needed, and disclose a supported estimate in the year end FY 2018 financial statements and related notes.
Therefore, this recommendation is resolved, but will remain open. We will close the recommendation once we verify that the Deputy Assistant Secretary of the Army (Financial Operations) has taken corrective actions to develop procedures to determine demilitarization disposal cost estimates and report the associated liability as required.
This report is a result of Project No. D2016-D000FI-0193.000.