Department of Defense
Further Actions Needed to Establish and Implement a Framework for Successful Business Transformation
Gao ID: GAO-04-626T March 31, 2004
GAO has issued several reports pertaining to the Department of Defense's (DOD) architecture and systems modernization efforts which revealed that many of the underlying conditions that contributed to the failure of prior DOD efforts to improve its business systems remain fundamentally unchanged. The Subcommittee on Terrorism, Unconventional Threats and Capabilities, House Committee on Armed Services, asked GAO to provide its perspectives on (1) the impact long-standing financial and related business weaknesses continue to have on DOD, (2) the underlying causes of DOD business transformation challenges, and (3) DOD business transformation efforts. In addition, GAO reiterates the key elements to successful reform: (1) an integrated business transformation strategy, (2) sustained leadership and resource control, (3) clear lines of responsibility and accountability, (4) results-oriented performance, (5) appropriate incentives and consequences, (6) an enterprise architecture to guide reform efforts, and (7) effective monitoring and oversight. GAO also offers two suggestions for legislative consideration that are intended to improve the likelihood of meaningful, broad-based financial management and related business reform at DOD.
DOD's senior civilian and military leaders are committed to transforming the department and improving its business operations and have taken positive steps to begin this effort. However, overhauling the financial management and related business operations of one of the largest and most complex organizations in the world represents a huge management challenge. Six DOD program areas are on GAO's "high risk" list, and the department shares responsibility for three other governmentwide high-risk areas. DOD's substantial financial and business management weaknesses adversely affect not only its ability to produce auditable financial information, but also to provide timely, reliable information for management and Congress to use in making informed decisions. Further, the lack of adequate transparency and appropriate accountability across all of DOD's major business areas results in billions of dollars in annual wasted resources in a time of increasing fiscal constraint. Four underlying causes impede reform: (1) lack of sustained leadership, (2) cultural resistance to change, (3) lack of meaningful metrics and ongoing monitoring, and (4) inadequate incentives and accountability mechanisms. To address these issues, GAO reiterates the keys to successful business transformation and offers two suggestions for legislative action. First GAO suggests that a senior management position be established to spearhead DOD-wide business transformation efforts. Second, GAO proposes that the leaders of DOD's functional areas, referred to as departmentwide domains, receive and control the funding for system investments, as opposed to the military services. Domain leaders would be responsible for managing business system and process reform efforts within their business areas and would be accountable to the new senior management official for ensuring their efforts comply with DOD's business enterprise architecture.
GAO-04-626T, Department of Defense: Further Actions Needed to Establish and Implement a Framework for Successful Business Transformation
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Testimony:
Before the Subcommittee on Terrorism, Unconventional Threats and
Capabilities, Committee on Armed Services, U.S. House of
Representatives:
United States General Accounting Office:
GAO:
For Release on Delivery Expected at 1:30 p.m. EST:
Wednesday, March 31, 2004:
Department of Defense:
Further Actions Needed to Establish and Implement a Framework for
Successful Business Transformation:
Statement of Gregory D. Kutz:
Director, Financial Management and Assurance:
Randolph C. Hite:
Director, Information Technology Architecture and Systems:
GAO-04-626T:
GAO Highlights:
Highlights of GAO-04-626T, a testimony before the Subcommittee on
Terrorism, Unconventional Threats and Capabilities, Committee on Armed
Services, U.S. House of Representatives
Why GAO Did This Study:
GAO has issued several reports pertaining to the Department of
Defense‘s (DOD) architecture and systems modernization efforts which
revealed that many of the underlying conditions that contributed to
the failure of prior DOD efforts to improve its business systems
remain fundamentally unchanged. The Subcommittee asked GAO to provide
its perspectives on (1) the impact long-standing financial and related
business weaknesses continue to have on DOD, (2) the underlying causes
of DOD business transformation challenges, and (3) DOD business
transformation efforts. In addition, GAO reiterates the key elements
to successful reform: (1) an integrated business transformation
strategy, (2) sustained leadership and resource control, (3) clear
lines of responsibility and accountability, (4) results-oriented
performance, (5) appropriate incentives and consequences, (6) an
enterprise architecture to guide reform efforts, and (7) effective
monitoring and oversight. GAO also offers two suggestions for
legislative consideration that are intended to improve the likelihood
of meaningful, broad-based financial management and related business
reform at DOD.
What GAO Found:
DOD‘s senior civilian and military leaders are committed to
transforming the department and improving its business operations and
have taken positive steps to begin this effort. However, overhauling
the financial management and related business operations of one of the
largest and most complex organizations in the world represents a huge
management challenge. Six DOD program areas are on GAO‘s ’high risk“
list, and the department shares responsibility for three other
governmentwide high-risk areas. DOD‘s substantial financial and
business management weaknesses adversely affect not only its ability
to produce auditable financial information, but also to provide
timely, reliable information for management and Congress to use in
making informed decisions. Further, the lack of adequate transparency
and appropriate accountability across all of DOD‘s major business
areas results in billions of dollars in annual wasted resources in a
time of increasing fiscal constraint.
Four underlying causes impede reform: (1) lack of sustained
leadership, (2) cultural resistance to change, (3) lack of meaningful
metrics and ongoing monitoring, and (4) inadequate incentives and
accountability mechanisms. To address these issues, GAO reiterates the
keys to successful business transformation and offers two suggestions
for legislative action. First GAO suggests that a senior management
position be established to spearhead DOD-wide business transformation
efforts. Second, GAO proposes that the leaders of DOD‘s functional
areas, referred to as departmentwide domains, receive and control the
funding for system investments, as opposed to the military services.
Domain leaders would be responsible for managing business system and
process reform efforts within their business areas and would be
accountable to the new senior management official for ensuring their
efforts comply with DOD‘s business enterprise architecture.
www.gao.gov/cgi-bin/getrpt?GAO-04-626T.
To view the full product, including the scope and methodology, click
on the link above. For more information, contact Gregory Kutz at (202)
512-9095 or (kutzg@gao.gov) or Randolph Hite, (202) 512-3439
(hiter@gao.gov)
[End of section]
Mr. Chairman and Members of the Subcommittee:
It is a pleasure to be here to discuss key aspects of business
transformation efforts at the Department of Defense (DOD). At the
outset, we would like to thank the Subcommittee for having this hearing
and acknowledge the important role hearings such as this one serve. The
involvement of this Subcommittee is critical to ultimately assuring
public confidence in DOD as a steward that is accountable for its
finances. DOD's substantial long-standing business management systems
and related problems adversely affect the economy, effectiveness, and
efficiency of its operations, and have resulted in a lack of adequate
transparency and appropriate accountability across all major business
areas. As a result, DOD does not have timely, reliable information for
management to use in making informed decisions. Further, as our reports
continue to show, these problems result in significant fraud, waste,
and abuse and hinder DOD's attempts to develop world-class operations
and activities to support its forces. Of the 25 areas on GAO's
governmentwide "high risk" list, 6 are DOD program areas, and the
department shares responsibility for 3 other high-risk areas that are
governmentwide in scope.[Footnote 1] The problems we continue to
identify relate to human capital challenges, ineffective internal
control and processes, and duplicative and stovepiped business systems.
The seriousness of DOD's business management weaknesses underscores the
importance of no longer condoning "status quo" business operations at
DOD.
Over the last 3 years, DOD has taken action to begin addressing a
number of these challenges as part of its business transformation
effort. Business transformation has been a priority of Secretary
Rumsfeld. For example, DOD has been granted additional human capital
flexibilities and is in the process of developing a new personnel
management system for its civilian employees. In addition, through its
Business Management Modernization Program (BMMP), DOD is continuing its
efforts to develop and implement a business enterprise architecture and
establish effective management and control over its business system
modernization investments. To date, however, the underlying operational
conditions remain fundamentally unchanged and tangible evidence of
improvements in DOD business operations remains limited to specific
business process areas, such as DOD's purchase card program, where
improvements have generally resulted from increased management focus
and better internal control rather than from major modifications to
automated systems. It is important to note that some of the key
elements we highlight in this testimony as necessary for successful
business transformation were critical to the success of several of the
interim initiatives that we will discuss today.
Because DOD is one of the largest and most complex organizations in the
world, overhauling its business operations represents a huge management
challenge. In fiscal year 2003, DOD reported that its operations
involved over $1 trillion in assets, nearly $1.6 trillion in
liabilities, approximately 3.3 million military and civilian personnel,
and disbursements of over $416 billion. Moreover, execution of DOD
operations spans a wide range of defense organizations, including the
military services and their respective major commands and functional
activities, numerous large defense agencies and field activities, and
various combatant and joint operational commands that are responsible
for military operations for specific geographic regions or theaters of
operations. To execute these military operations, the department
performs an assortment of interrelated and interdependent business
process areas, including logistics management, procurement, healthcare
management, and financial management. Secretary Rumsfeld has estimated
that successful improvements to DOD's business operations could save
the department 5 percent of its budget a year. Using DOD's reported
fiscal year 2004 budget authority amounts, this percentage would equate
to approximately $22 billion a year in savings.
Over the last 3 years, we have made a series of recommendations to DOD
and suggestions for legislative changes that provide a framework for
effectively addressing the challenges DOD faces in transforming its
financial management and related business operations and systems and
offered several key elements necessary for reform to succeed.[Footnote
2] This framework recognizes the complexity of the challenge and the
long-term nature of overcoming it. Moreover, it recognizes the
underlying causes of the challenge, such as lack of sustained
leadership, cultural resistance to change, parochialism, and stovepiped
operations, that impeded the success of previous administrations in
addressing DOD's problems that continue today. DOD has agreed with our
recommendations and launched efforts intended to implement them, but
progress has been slow. If DOD is unable to address these underlying
causes that have resulted in the failure of previous broad-based reform
efforts, improvements will remain marginal, confined to narrowly
defined business process areas and incremental improvements in human
capital policies, business processes, internal control systems, and
information technologies.
Today, we will provide our perspectives on (1) the impact that long-
standing financial management and related business process weaknesses
continue to have on DOD, (2) underlying causes that have impeded the
success of prior efforts, (3) keys to successful reform, and (4) DOD's
business transformation efforts. In addition, we will offer two
suggestions for legislative consideration, which we believe will
provide the sustained top-level leadership and accountability necessary
for the business transformation effort to succeed. Our statement is
based on previous GAO reports as well as on our review of the work of
other DOD auditors and recent DOD reports and studies.
Impact of Financial Management and Related Business Process Weaknesses:
For several years we have reported that DOD faces a range of financial
management and related business process challenges that are complex,
long-standing, pervasive, and deeply rooted in virtually all business
operations throughout the department. As the Comptroller General
recently testified and as discussed in our latest financial audit
report,[Footnote 3] DOD's financial management deficiencies, taken
together, continue to represent the single largest obstacle to
achieving an unqualified opinion on the U.S. government's consolidated
financial statements. To date, none of the military services has passed
the test of an independent financial audit because of pervasive
weaknesses in internal control and processes and fundamentally flawed
business systems.
In identifying improved financial performance as one of its five
governmentwide initiatives, the President's Management Agenda
recognized that obtaining a clean (unqualified) financial audit opinion
is a basic prescription for any well-managed organization. At the same
time, it recognized that without sound internal control and accurate
and timely financial and performance information, it is not possible to
accomplish the President's agenda and secure the best performance and
highest measure of accountability for the American people. The Joint
Financial Management Improvement Program (JFMIP)[Footnote 4]
principals have defined certain measures, in addition to receiving an
unqualified financial statement audit opinion, for achieving financial
management success. These additional measures include (1) being able to
routinely provide timely, accurate, and useful financial and
performance information, (2) having no material internal control
weaknesses or material noncompliance with laws and regulations, and (3)
meeting the requirements of the Federal Financial Management
Improvement Act of 1996 (FFMIA).[Footnote 5] Unfortunately, DOD does
not meet any of these conditions. For example, for fiscal year 2003,
the DOD Inspector General (DOD IG) issued a disclaimer of opinion on
DOD's financial statements, citing 11 material weaknesses in internal
control and noncompliance with FFMIA requirements.
Recent audits and investigations by GAO and DOD auditors continue to
confirm the existence of pervasive weaknesses in DOD's financial
management and related business processes and systems. These problems
have (1) resulted in a lack of reliable information needed to make
sound decisions and report on the status of DOD activities, including
accountability of assets, through financial and other reports to
Congress and DOD decision makers, (2) hindered its operational
efficiency, (3) adversely affected mission performance, and (4) left
the department vulnerable to fraud, waste, and abuse, as the following
examples illustrate.
* Four hundred and fifty of the 481 mobilized Army National Guard
soldiers from six GAO case study Special Forces and Military Police
units[Footnote 6] had at least one pay problem associated with their
mobilization. DOD's inability to provide timely and accurate payments
to these soldiers, many of whom risked their lives in recent Iraq or
Afghanistan missions, distracted them from their missions, imposed
financial hardships on the soldiers and their families, and has had a
negative impact on retention. (GAO-04-89, Nov. 13, 2003):
* DOD incurred substantial logistical support problems as a result of
weak distribution and accountability processes and controls over
supplies and equipment shipments in support of Operation Iraqi Freedom
activities, similar to those encountered during the prior gulf war.
These weaknesses resulted in (1) supply shortages, (2) backlogs of
materials delivered in theater but not delivered to the requesting
activity, (3) a discrepancy of $1.2 billion between the amount of
materiel shipped and that acknowledged by the activity as received, (4)
cannibalization of vehicles, and (5) duplicate supply requisitions.
(GAO-04-305R, Dec. 18, 2003):
* Inadequate asset visibility and accountability resulted in DOD
selling new Joint Service Lightweight Integrated Suit Technology
(JSLIST)--the current chemical and biological protective garment used
by our military forces--on the internet for $3 each (coat and trousers)
while at the same time buying them for over $200 each. DOD has
acknowledged that these garments should have been restricted to DOD use
only and therefore should not have been available to the public. (GAO-
02-873T, June 25, 2002):
* Inadequate asset accountability also resulted in DOD's inability to
locate and remove over 250,000 defective Battle Dress Overgarments
(BDOs)--the predecessor of JSLIST--from its inventory. Subsequently, we
found that DOD had sold many of these defective suits to the public,
including 379 that we purchased in an undercover operation. In
addition, DOD may have issued over 4,700 of the defective BDO suits to
local law enforcement agencies. Although local law enforcement agencies
are most likely to be the first responders to a terrorist attack, DOD
failed to inform these agencies that using these BDO suits could result
in death or serious injury. (GAO-04-15NI, Nov. 19, 2003):
* Tens of millions of dollars are not being collected each year by
military treatment facilities from third-party insurers because key
information required to effectively bill and collect from third-party
insurers is often not properly collected, recorded, or used by the
military treatment facilities. (GAO-04-322R, Feb. 20, 2004):
* Our analysis of data on more than 50,000 maintenance work orders
opened during the deployments of six battle groups indicated that about
29,000 orders (58 percent) could not be completed because the needed
repair parts were not available on board ship. This condition was a
result of inaccurate ship configuration records and incomplete,
outdated, or erroneous historical parts demand data. Such problems not
only have a detrimental impact on mission readiness, they may also
increase operational costs due to delays in repairing equipment and
holding unneeded spare parts inventory. (GAO-03-887, Aug. 29, 2003):
* DOD sold excess biological laboratory equipment, including a
biological safety cabinet, a bacteriological incubator, a centrifuge,
and other items that could be used to produce biological warfare
agents. Using a fictitious company and fictitious individual
identities, we were able to purchase a large number of new and usable
equipment items over the Internet from DOD. Although the production of
biological warfare agents requires a high degree of expertise, the ease
with which these items were obtained through public sales increases the
risk that terrorists could obtain and use them to produce biological
agents that could be used against the United States. (GAO-04-81TNI,
Oct. 7, 2003):
* Based on statistical sampling, we estimated that 72 percent of the
over 68,000 premium class airline tickets DOD purchased for fiscal
years 2001 and 2002 was not properly authorized and that 73 percent was
not properly justified. During fiscal years 2001 and 2002, DOD spent
almost $124 million on premium class tickets that included at least one
leg in premium class--usually business class. Because each premium
class ticket cost the government up to thousands of dollars more than a
coach class ticket, unauthorized premium class travel resulted in
millions of dollars of unnecessary costs being incurred annually. (GAO-
04-229T, Nov. 6, 2003):
* Some DOD contractors have been abusing the federal tax system with
little or no consequence, and DOD is not collecting as much in unpaid
taxes as it could. Under the Debt Collection Improvement Act of 1996,
DOD is responsible--working with the Treasury Department--for
offsetting payments made to contractors to collect funds owed, such as
unpaid federal taxes. However, we found that DOD had collected only
$687,000 of unpaid taxes as of September 2003. We estimated that at
least $100 million could be collected annually from DOD contractors
through effective implementation of levy and debt collection programs.
(GAO-04-95, Feb. 12, 2004):
* Our review of fiscal year 2002 data revealed that about $1 of every
$4 in contract payment transactions in DOD's Mechanization of Contract
Administration Services (MOCAS) system was for adjustments to
previously recorded payments--$49 billion of adjustments out of $198
billion in disbursement, collection, and adjustment transactions.
According to DOD, the cost of researching and making adjustments to
accounting records was about $34 million in fiscal year 2002, primarily
to pay hundreds of DOD and contractor staff. (GAO-03-727, Aug. 8,
2003):
* DOD's information technology (IT) budget submission to Congress for
fiscal year 2004 contained material inconsistencies, inaccuracies, or
omissions that limited its reliability. For example, we identified
discrepancies totaling about $1.6 billion between two primary parts of
the submission--the IT budget summary report and the detailed Capital
Investments Reports on each IT initiative. These problems were largely
attributable to insufficient management attention and limitations in
departmental policies and procedures, such as guidance in DOD's
Financial Management Regulation, and to shortcomings in systems that
support budget-related activities. (GAO-04-115, Dec. 19, 2003):
* Since the mid 1980s, we have reported that DOD uses overly optimistic
planning assumptions to estimate its annual budget request. These same
assumptions are reflected in its Future Years Defense Program, which
reports projected spending for the current budget year and at least 4
succeeding years. In addition, in February 2004 the Congressional
Budget Office projected that DOD's demand for resources could grow to
about $490 billion in fiscal year 2009. DOD's own estimate for that
same year was only $439 billion.[Footnote 7] As a result of DOD's
continuing use of optimistic assumptions, DOD has too many programs for
the available dollars, which often leads to program instability, costly
program stretch-outs, and program termination. Over the past few years,
the mismatch between programs and budgets has continued, particularly
in the area of weapons systems acquisition. For example, in January
2003, we reported that the estimated costs of developing eight major
weapons systems had increased from about $47 billion in fiscal year
1998 to about $72 billion by fiscal year 2003.[Footnote 8] (GAO-03-98,
January 2003):
These examples clearly demonstrate not only the severity of DOD's
current problems, but also the importance of business systems
modernization as a critical element in the department's transformation
efforts to improve the economy, efficiency, and effectiveness of it's
operations, and to provide for transparency and accountability to
Congress and American taxpayers.
Underlying Causes of Financial and Related Business Process
Transformation Challenges:
Since May 1997,[Footnote 9] we have highlighted in various testimonies
and reports what we believe are the underlying causes of the
department's inability to resolve its long-standing financial
management and related business management weaknesses and fundamentally
reform its business operations. We found that one or more of these
causes were contributing factors to the financial management and
related business process weaknesses we just described. Over the years,
the department has undertaken many initiatives intended to transform
its business operations departmentwide and improve the reliability of
information for decision making and reporting but has not had much
success because it has not addressed the following four underlying
causes:
* a lack of sustained top-level leadership and management
accountability for correcting problems;
* deeply embedded cultural resistance to change, including military
service parochialism and stovepiped operations;
* a lack of results-oriented goals and performance measures and
monitoring; and:
* inadequate incentives and accountability mechanisms relating to
business transformation efforts.
If not properly addressed, these root causes will likely result in the
failure of current DOD initiatives.
Lack of Sustained Leadership and Adequate Accountability:
DOD has not routinely assigned accountability for performance to
specific organizations or individuals who have sufficient authority to
accomplish desired goals. For example, under the Chief Financial
Officers Act of 1990,[Footnote 10] it is the responsibility of the
agency Chief Financial Officer (CFO) to establish the mission and
vision for the agency's future financial management and to direct,
manage, and provide oversight of financial management operations.
However, at DOD, the Comptroller--who is by statute the department's
CFO--has direct responsibility for only an estimated 20 percent of the
data relied on to carry out the department's financial management
operations. The other 80 percent comes from DOD's other business
operations and is under the control and authority of other DOD
officials.
In addition, DOD's past experience has suggested that top management
has not had a proactive, consistent, and continuing role in integrating
daily operations for achieving business transformation related
performance goals. It is imperative that major improvement initiatives
have the direct, active support and involvement of the Secretary and
Deputy Secretary of Defense to ensure that daily activities throughout
the department remain focused on achieving shared, agencywide outcomes
and success. While the current DOD leadership, such as the Secretary,
Deputy Secretary, and Comptroller, have certainly demonstrated their
commitment to reforming the department, the magnitude and nature of
day-to-day demands placed on these leaders following the events of
September 11, 2001, clearly affect the level of oversight and
involvement in business transformation efforts that these leaders can
sustain. Given the importance of DOD's business transformation effort,
it is imperative that it receive the sustained leadership needed to
improve the economy, efficiency, and effectiveness of DOD's business
operations. Based on our surveys of best practices of world-class
organizations,[Footnote 11] strong executive CFO and Chief Information
Officer (CIO) leadership and centralized control over systems
investments are essential to (1) making financial management an
entitywide priority, (2) providing meaningful information to decision
makers, (3) building a team of people that delivers results, and (4)
effectively leveraging technology to achieve stated goals and
objectives.
Cultural Resistance and Parochialism:
Cultural resistance to change, military service parochialism, and
stovepiped operations have all contributed significantly to the failure
of previous attempts to implement broad-based management reforms at
DOD. The department has acknowledged that it confronts decades-old
problems deeply grounded in the bureaucratic history and operating
practices of a complex, multifaceted organization. Recent audits reveal
that DOD has made only small inroads in addressing these challenges.
For example, the Bob Stump National Defense Authorization Act for
Fiscal Year 2003[Footnote 12] requires the DOD Comptroller to determine
that each financial system improvement meets the specific conditions
called for in the act before DOD obligates funds in amounts exceeding
$1 million. However, we found that most system improvement efforts
involving obligations over $1 million were not reviewed by the DOD
Comptroller for the purpose of making that determination and that DOD
continued to lack a mechanism for proactively identifying system
improvement initiatives. We asked for, but DOD did not provide,
comprehensive data for obligations in excess of $1 million for business
system modernization. Based on a comparison of the limited information
available for fiscal years 2003 and 2004, we identified $479 million in
reported obligations by the military services that were not submitted
to the DOD Comptroller for review.
In addition, in September 2003,[Footnote 13] we reported that DOD
continued to use a stovepiped approach to develop and fund its business
system investments. Specifically, we found that DOD components receive
and control funding for business systems investments without being
subject to the scrutiny of the DOD Comptroller. DOD's ability to
address its current "business-as-usual" approach to business system
investments is further hampered by its lack of (1) a complete inventory
of business systems (a condition we first highlighted in 1998), (2) a
standard definition of what constitutes a business system, (3) a well-
defined enterprise architecture, and (4) an effective approach for the
control and accountability over business system investments. Until DOD
develops and implements an effective strategy for overcoming
resistance, parochialism, and stovepiped operations, its
transformation efforts will not be successful.
Lack of Results-Oriented Goals and Performance Measures:
A key element of any major program is its ability to establish clearly
defined goals and performance measures to monitor and report its
progress to management. However, DOD has not yet established
measurable, results-oriented goals to evaluate BMMP's cost, schedule
and performance outcomes and results, or explicitly defined performance
measures to evaluate the architecture quality, content, and utility of
subsequent major updates to its initial business enterprise
architecture (BEA). For example, in our September 2003 report,[Footnote
14] we stated that DOD had not defined specific plans outlining how it
intends to extend and evolve the initial BEA to include the missing
scope and details that we identified. Instead, DOD's primary BEA goal
was to complete as much of the architecture as it could within a set
period of time. According to DOD, it intends to refine the initial BEA
through at least six different major updates of its architecture
between February 2004 and the second quarter of 2005. However, it
remains unclear what these major updates will individually or
collectively provide and how they contribute to achieving DOD's goals.
DOD recognizes that it needs to define measurable goals and performance
measures:
In its March 15, 2004, progress report to defense congressional
committees on the status of BMMP's business transformation efforts, DOD
reported that it plans to establish an initial approved program
baseline to evaluate the cost, schedule, and performance of the BMMP.
Given that DOD has reported disbursements of $111 million since
development efforts began in fiscal year 2002, it is critical that it
establish meaningful, tangible, and measurable program goals and
objectives--short-term and long-term.
Until DOD develops and implements clearly defined results-oriented
goals for the overall program, including the architecture content of
each major update of its architecture, the department will continue to
lack a clear measure of the BMMP's progress in transforming the
department's business operations and in providing the Congress
reasonable assurance that funds are being directed towards resolving
the department's long-standing business operational problems.
Lack of Incentives for Change:
The final underlying cause of the department's long-standing inability
to carry out needed fundamental reform has been the lack of incentives
for making more than incremental change to existing "business-as-usual"
operations, systems, and organizational structures. Traditionally, DOD
has focused on justifying its need for more funding rather than on the
outcomes its programs have produced. DOD has historically measured its
performance by resource components such as the amount of money spent,
people employed, or number of tasks completed. Incentives for its
decision makers to implement changed behavior have been minimal or
nonexistent.
The lack of incentive to change is evident in the business systems
modernization area. Despite DOD's acknowledgement that many of its
systems are error prone, duplicative, and stovepiped, DOD continues to
allow its component organizations to make their own investments
independently of one another and implement different system solutions
to solve the same business problems. These stovepiped decision-making
processes have contributed to the department's current complex, error-
prone environment. The DOD Comptroller recently testified that DOD's
actual systems inventory could be twice as many as the number of
systems the department currently recognizes as its systems inventory.
In March 2003, we reported that ineffective program management and
oversight, as well as a lack of accountability, resulted in DOD
continuing to invest hundreds of millions of dollars in system
modernization efforts without any assurance that the projects will
produce operational improvements commensurate with the amount
invested.[Footnote 15]
For example, the estimated cost of one of the business system
investment projects that we reviewed increased by as much as $274
million, while its schedule slipped by almost 4 years. After spending
$126 million, DOD terminated that project in December 2002, citing poor
performance and increasing costs. GAO and the DOD IG have identified
numerous business system modernization efforts that are not
economically justified on the basis of cost, benefits and risk; take
years longer than planned; and fall short of delivering planned or
needed capabilities. Despite this track record, DOD continues to
increase spending on business systems while at the same time it lacks
the effective management and oversight needed to achieve real results.
Without appropriate incentives to improve their project management,
ongoing oversight, and adequate accountability mechanisms, DOD
components will continue to develop duplicative and nonintegrated
systems that are inconsistent with the Secretary's vision for reform.
To effect real change, actions are needed to (1) break down
parochialism and reward behaviors that meet DOD-wide goals, (2) develop
incentives that motivate decision makers to initiate and implement
efforts that are consistent with better program outcomes, including
saying "no" or pulling the plug early on a system or program that is
failing, and (3) facilitate a congressional focus on results-oriented
management, particularly with respect to resource allocation decisions.
Keys to Successful Reform:
As we have previously reported,[Footnote 16] and the success of the
more narrowly defined DOD initiatives we will discuss later illustrate,
the following key elements collectively will enable the department to
effectively address the underlying causes of its inability to resolve
its long-standing financial and business management problems. These
elements are:
* addressing the department's financial management and related business
operational challenges as part of a comprehensive, integrated, DOD-wide
strategic plan for business reform;
* providing for sustained and committed leadership by top management,
including but not limited to the Secretary of Defense;
* establishing resource control over business systems investments;
* establishing clear lines of responsibility, authority, and
accountability;
* incorporating results-oriented performance measures and monitoring
progress tied to key financial and business transformation objectives;
* providing appropriate incentives or consequences for action or
inaction;
* establishing an enterprise architecture to guide and direct business
systems modernization investments; and:
* ensuring effective oversight and monitoring.
These elements, which should not be viewed as independent actions but
rather as a set of interrelated and interdependent actions, are
reflected in the recommendations we have made to DOD and are consistent
with those actions discussed in the department's April 2001 financial
management transformation report.[Footnote 17] The degree to which DOD
incorporates them into its current reform efforts--both long and short
term--will be a deciding factor in whether these efforts are
successful. Thus far, the department's progress in implementing our
recommendations has been slow.
DOD Business Transformation Efforts:
Over the years, we have given DOD credit for beginning numerous
initiatives intended to improve its business operations. Unfortunately,
most of these initiatives failed to achieve their intended objective in
part, we believe, because they failed to incorporate key elements that
in our experience are critical to successful reform. Today, we would
like to discuss one very important broad-based initiative, the BMMP,
DOD currently has underway that, if properly developed and implemented,
will result in significant improvements in DOD's business operations.
Within the next few months we intend to issue a report on the status of
DOD's efforts to refine and implement its enterprise architecture and
the results of our review of two on going DOD system initiatives. In
addition to the BMMP, DOD has undertaken several interim initiatives in
recent years that have resulted in tangible, although limited,
improvements. We believe that these tangible improvements were possible
because DOD has accepted our recommendations and incorporated many of
the key elements critical for reform. Furthermore, we would like to
offer two suggestions for legislative consideration that we believe
could significantly increase the likelihood of a successful business
transformation effort at DOD.
Business Management Modernization Program:
The BMMP, which the department established in July 2001 following our
recommendation that DOD develop and implement an enterprise
architecture, is vital to the department's efforts to transform its
business operations.[Footnote 18] The purpose of the BMMP is to oversee
development and implementation of a departmentwide BEA, transition
plan, and related efforts to ensure that DOD business system
investments are consistent with the architecture. A well-defined and
properly implemented BEA can provide assurance that the department
invests in integrated enterprisewide business solutions and,
conversely, can help move resources away from nonintegrated business
system development efforts. As we reported in July 2003,[Footnote 19]
DOD had developed an initial version of its departmentwide architecture
for modernizing its current financial and business operations and
systems and had expended tremendous effort and resources in doing so.
However, substantial work remains before the architecture will be
sufficiently detailed and the means for implementing it will be
adequately established to begin to have a tangible impact on improving
DOD's overall business operations. We cannot overemphasize the degree
of difficulty DOD faces in developing and implementing a well-defined
architecture to provide the foundation that will guide its overall
business transformation effort.
On the positive side, during its initial efforts to develop the
architecture, the department established some of the architecture
management capabilities advocated by best practices and federal
guidance,[Footnote 20] such as establishing a program office,
designating a chief architect, and using an architecture development
methodology and automated tool. Further, DOD's initial version of its
business enterprise architecture provided a foundation on which to
build and ultimately produce a well-defined business enterprise
architecture. For example, in September 2003,[Footnote 21] we reported
that the "To Be" descriptions address, to at least some degree, how DOD
intends to operate in the future, what information will be needed to
support these future operations, and what technology standards should
govern the design of future systems.
While some progress has been made, DOD has not yet taken important
steps that are critical to its ability to successfully use the
enterprise architecture to drive reform throughout the department's
overall business operations. For example, DOD has not yet defined and
implemented the following.
* Detailed plans to extend and evolve its initial architecture to
include the missing scope and detail required by the Bob Stump National
Defense Authorization Act for Fiscal Year 2003 and other relevant
architectural requirements. Specifically, (1) the initial version of
the BEA excluded some relevant external requirements, such as
requirements for recording revenue, and lacked or provided little
descriptive content pertaining to its "As Is" and "To Be" environments
and (2) DOD had not yet developed the transition plan needed to provide
a temporal road map for moving from the "As Is" to the "To Be"
environment.
* An effective approach to select and control business system
investments[Footnote 22] for obligations exceeding $1 million. As we
previously stated, and it bears repeating here, DOD components
currently receive direct funding for their business systems and
continue to make their own parochial decisions regarding those
investments without having received the scrutiny of the DOD Comptroller
as required by the Bob Stump National Defense Authorization Act for
Fiscal Year of 2003. Later, we will offer a suggestion for improving
the management and oversight of the billions of dollars DOD invests
annually in business systems.
DOD invests billions of dollars annually to operate, maintain, and
modernize its business systems. For fiscal year 2004, the department
requested approximately $28 billion in IT funding to support a wide
range of military operations as well as DOD business systems
operations, of which approximately $18.8 billion[Footnote 23]--$5.8
billion for business systems and $13 billion for business systems
infrastructure--relates to the operation, maintenance, and
modernization of the department's reported thousands of business
systems. The $18.8 billion is spread across the military services and
defense agencies, with each receiving its own funding for IT
investments.
However, as we reported,[Footnote 24] DOD lacked an efficient and
effective process for managing, developing, and implementing its
business systems. These long-standing problems continue despite the
significant investments in business systems by DOD components each
year. For example, in March 2003 we reported that DOD's oversight of
four DFAS projects we reviewed had been ineffective.[Footnote 25]
Investment management responsibility for the four projects rested with
the Defense Finance and Accounting Service (DFAS), the DOD Comptroller,
and the DOD CIO. In discharging this responsibility, each had allowed
project investments to continue year after year, even through the
projects had been marked by cost increases, schedule slippages, and
capability changes. As a result DOD had invested approximately $316
million in four DFAS system modernization projects without
demonstrating that this substantial investment would markedly improve
DOD financial management information for decision making and financial
reporting purposes.
Specifically, we found that four DFAS projects reviewed lacked an
approved economic analysis that reflected the fact that expected
project costs had increased, while in some cases the benefits had
decreased. For instance as we previously stated, the estimated cost of
one project--referred to as the Defense Procurement Payment System
(DPPS)--had increased by as much as $274 million, while its schedule
slipped by almost 4 years. Such project analyses provide the requisite
justification for decision makers to use in determining whether to
invest additional resources in anticipation of receiving commensurate
benefits and mission value. For each of the four projects we reviewed
we found that DOD oversight entities--DFAS, the DOD Comptroller, and
the DOD CIO--did not question the impact of the cost increases and
schedule delays, and allowed the projects to proceed in the absence of
the requisite analytical justification. Furthermore, in one case, they
allowed a project estimated to cost $270 million, referred to as the
DFAS Corporate Database/DFAS Corporate Warehouse (DCD/DCW), to proceed
without an economic analysis. In another case, they allowed DPPS to
continue despite known concerns about the validity of the project's
economic analysis.
DOD subsequently terminated two--DPPS and the Defense Standard
Disbursing System (DSDS)--of the four DFAS system modernization
projects reviewed. As we previous mentioned, DPPS was terminated due to
poor program performance and increasing costs after 7 years of effort
and an investment of over $126 million. DFAS terminated DSDS after
approximately 7 years of effort and an investment of about $53 million,
noting that a valid business case for continuing the effort could not
be made. These two terminated projects were planned to provide DOD the
capability to address some of DOD's long-standing contract and vendor
payment problems.
In addition to project management issues that continue to result in
systems that do not perform as expected and cost more than planned, we
found that DOD continues to lack a complete and reliable inventory of
its current systems. In September 2003, we reported that DOD had
created a repository of information about its existing systems
inventory of approximately 2,300 business systems (up from 1,731 in
October 2002) as part of its ongoing business systems modernization
program, and consistent with our past recommendation.[Footnote 26] Due
to its lack of visibility over systems departmentwide, DOD had to rely
upon data calls to obtain its information. Unfortunately, due to its
lack of an effective methodology and process for identifying business
systems, including a clear definition of what constitutes a business
system, DOD continues to lack assurance that its systems inventory is
reliable and complete. In fact, the DOD Comptroller testified last week
before the Senate Armed Services Subcommittee on Readiness and
Management Support that the size of DOD's actual systems inventory
could be twice the size currently reported. This lack of visibility
over current business systems in use throughout the department hinders
DOD's ability to identify and eliminate duplicate and nonintegrated
systems and transition to its planned systems environment in an
efficient and effective manner.
Of the 2,274 business systems recorded in DOD's systems inventory
repository, the department reportedly has 665 systems to support human
resource management, 565 systems to support logistical functions, 542
systems to perform finance and accounting functions, and 210 systems to
support strategic planning and budget formulation. Table 1, which
presents the composition of DOD business systems by functional area,
reveals the numerous and redundant systems operating in the department
today.
Table 1: Reported DOD Business Systems by Domain and Functional Area:
Domain: Acquisition;
Air Force: 27;
Army: 31;
Navy/ Marine Corps: 61;
DFAS: 3;
Other: 21;
Total: 143.
Domain: Accounting and finance;
Air Force: 43;
Army: 88;
Navy/ Marine Corps: 195;
DFAS: 165;
Other: 51;
Total: 542.
Domain: Human resource management;
Air Force: 71;
Army: 387;
Navy/ Marine Corps: 86;
DFAS: 33;
Other: 88;
Total: 665.
Domain: Installations and environment;
Air Force: 12;
Army: 98;
Navy/ Marine Corps: 9;
DFAS: 1;
Other: 8;
Total: 128.
Domain: Logistics;
Air Force: 180;
Army: 191;
Navy/ Marine Corps: 104;
DFAS: 11;
Other: 79;
Total: 565.
Domain: Strategic planning and budgeting;
Air Force: 23;
Army: 63;
Navy/ Marine Corps: 98;
DFAS: 15;
Other: 11;
Total: 210.
Domain: Enterprise information environment;
Air Force: 1;
Army: 5;
Navy/ Marine Corps: 2;
DFAS: 3;
Other: 10;
Total: 21.
Domain: Total;
Air Force: 357;
Army: 863;
Navy/ Marine Corps: 555;
DFAS: 231;
Other: 268;
Total: 2,274.
Source: GAO analysis of BMMP data.
[End of table]
As we have previously reported,[Footnote 27] these numerous systems
have evolved into the overly complex and error-prone operation that
exists today, including (1) little standardization across DOD
components, (2) multiple systems performing the same tasks, (3) the
same data stored in multiple systems, (4) manual data entry into
multiple systems, and (5) a large number of data translations and
interfaces that combine to exacerbate problems with data integrity. The
department has recognized the uncontrolled proliferation of systems and
the need to eliminate as many systems as possible and integrate and
standardize those that remain. In fact, the two terminated DFAS
projects were intended to reduce the number of systems or eliminate a
portion of different systems that perform the same function. For
example, DPPS was intended to consolidate eight contract and vendor pay
systems and DSDS was intended to eliminate four different disbursing
systems.
Until DOD completes its efforts to refine and implement its enterprise
architecture and transition plan, and develop and implement an
effective approach for selecting and controlling business system
investments, DOD will continue to lack (1) a comprehensive and
integrated strategy to guide its business process and system changes,
and (2) results-oriented measures to monitor and measure progress,
including whether system development and modernization investment
projects adequately incorporate leading practices used by the private
sector and federal requirements and achieve performance and efficiency
commensurate with the cost. These elements are critical to the success
of DOD's BMMP.
Developing and implementing a BEA for an organization as large and
complex as DOD is a formidable challenge, but it is critical to
effecting the change required to achieve the Secretary's vision of
relevant, reliable, and timely financial and other management
information to support the department's vast operations. As mandated,
we plan to continue to report on DOD's progress in developing the next
version of its architecture, developing its transition plan, validating
its "As Is" systems inventory, and controlling its system investments.
Interim Initiatives:
Since DOD's overall business process transformation is a long-term
effort, in the interim it is important for the department to focus on
improvements that can be made using, or requiring only minor changes
to, existing automated systems and processes. As demonstrated by the
examples we will highlight in this testimony, leadership, real
incentives, accountability, and oversight and monitoring--key elements
to successful reform--have brought about improvements in some DOD
operations, such as more timely commercial payments, reduced payment
recording errors, and significant reductions in individually billed
travel card delinquency rates.
To help achieve the department's goal of improved financial
information, the DOD Comptroller has developed a Financial Management
Balanced Scorecard that is intended to align the financial community's
strategy, goals, objectives, and related performance measures with the
departmentwide risk management framework established as part of DOD's
Quadrennial Defense Review, and with the President's Management Agenda.
To effectively implement the balanced scorecard, the Comptroller is
planning to cascade the performance measures down to the military
services and defense agency financial communities, along with certain
specific reporting requirements. DOD has also developed a Web site
where implementation information and monthly indicator updates will be
made available for the financial communities' review. At the
departmentwide level, certain financial metrics will be selected,
consolidated, and reported to the top levels of DOD management for
evaluation and comparison. These "dashboard" metrics are intended to
provide key decision makers, including Congress, with critical
performance information at a glance, in a consistent and easily
understandable format.
DFAS has been reporting the metrics cited below for several years,
which, under the leadership of DFAS' Director and DOD's Comptroller,
have reported improvements, including the following.
* From April 2001 to January 2004, DOD reduced its commercial pay
backlogs (payment delinquencies) by 55 percent.
* From March 2001 to December 2003, DOD reduced its payment recording
errors by 33 percent.
* The delinquency rate for individually billed travel cards dropped
from 18.4 percent in January 2001 to 10.7 percent in January 2004.
Using DFAS' metrics, management can quickly see when and where problems
are arising and can focus additional attention on those areas. While
these metrics show significant improvements from 2001 to today,
statistics for the last few months show that progress has slowed or
even taken a few steps backward for payment recording errors and
commercial pay backlogs. Our report last year on DOD's metrics
program[Footnote 28] included a caution that, without modern integrated
systems and the streamlined processes they engender, reported progress
may not be sustainable if workload is increased.
Since we reported problems with DOD's purchase card program, DOD and
the military services have taken actions to address all of our 109
recommendations. In addition, we found that DOD and the military
services took action to improve the purchase card program consistent
with the requirements of the Bob Stump National Defense Authorization
Act for Fiscal Year 2003 and the DOD Appropriations Act for Fiscal Year
2003.[Footnote 29] Specifically, we found that DOD and the military
services had done the following.
* Substantially reduced the number of purchase cards issued. According
to GSA records, DOD had reduced the total number of purchase cards from
about 239,000 in March 2001 to about 134,609 in January 2004. These
reductions have the potential to significantly improve the management
of this program.
* Issued policy guidance to field activities to (1) perform periodic
reviews of all purchase card accounts to reestablish a continuing bona
fide need for each card account, (2) cancel accounts that were no
longer needed, and (3) devise additional controls over infrequently
used accounts to protect the government from potential cardholder or
outside fraudulent use.
* Issued disciplinary guidelines, separately, for civilian and military
employees who engage in improper, fraudulent, abusive, or negligent use
of a government charge card.
In addition, to monitor the purchase card program, the DOD IG and the
Navy have prototyped and are now expanding a data-mining capability to
screen for and identify high-risk transactions (such as potentially
fraudulent, improper, and abusive use of purchase cards) for subsequent
investigation. On June 27, 2003, the DOD IG issued a report[Footnote
30]summarizing the results of an in-depth review of purchase card
transactions made by 1,357 purchase cardholders. The report identified
182 cardholders who potentially used their purchase cards
inappropriately or fraudulently.
We believe that consistent oversight played a major role in bringing
about these improvements in DOD's purchase and travel card programs.
During 2001, 2002, and 2003, seven separate congressional hearings were
held on the Army and Navy purchase and individually billed travel card
programs. Numerous legislative initiatives aimed at improving DOD's
management and oversight of these programs also had a positive impact.
Another important initiative underway at the department pertains to
financial reporting. Under the leadership of DOD Comptroller, the
department is working to instill discipline into its financial
reporting processes to improve the reliability of the department's
financial data. Resolution of serious financial management and related
business management weaknesses is essential to achieving any opinion on
the DOD consolidated financial statements. Pursuant to the requirements
in section 1008 of the National Defense Authorization Act for Fiscal
Year 2002,[Footnote 31] DOD has reported for the past 3 years on the
reliability of the department's financial statements, concluding that
the department is not able to provide adequate evidence supporting
material amounts in its financial statements. Specifically, DOD stated
that it was unable to comply with applicable financial reporting
requirements for (1) property, plant, and equipment, (2) inventory and
operating materials and supplies, (3) environmental liabilities, (4)
intragovernmental eliminations and related accounting entries, (5)
disbursement activity, and (6) cost accounting by responsibility
segment. Although DOD represented that the military retirement health
care liability data had improved for fiscal year 2003, the cost of
direct health care provided by DOD-managed military treatment
facilities was a significant amount of DOD's total recorded health care
liability and was based on estimates for which adequate support was not
available. DOD has indicated that by acknowledging its inability to
produce reliable financial statements, as required by the act, the
department saves approximately $23 million a year through reduction in
the level of resources needed to prepare and audit financial
statements. However, DOD has set the goal of obtaining a favorable
opinion on its fiscal year 2007 departmentwide financial statements. To
this end, DOD components and agencies have been tasked with addressing
material line item deficiencies in conjunction with the BMMP. This is
an ambitious goal and we have been requested by Congress to review the
feasibility and cost effectiveness of DOD's plans for obtaining such an
opinion within the stated time frame.
To instill discipline in its financial reporting process, the DOD
Comptroller requires DOD's major components to prepare quarterly
financial statements along with extensive footnotes that explain any
improper balances or significant variances from previous year quarterly
statements. All of the statements and footnotes are analyzed by
Comptroller office staff and reviewed by the Comptroller. In addition,
the midyear and end-of-year financial statements must be briefed to the
DOD Comptroller by the military service Assistant Secretary for
Financial Management or the head of the defense agency. We have
observed several of these briefings and have noted that the practice of
preparing and explaining interim financial statements has led to the
discovery and correction of numerous recording and reporting errors.
If DOD continues to provide for active leadership, along with
appropriate incentives and accountability mechanisms, improvements
will continue to occur in its programs and initiatives.
Suggestions for Legislative Consideration:
We would like to offer two suggestions for legislative consideration
that we believe could contribute significantly to the department's
ability to not only address the impediments to DOD success but also to
incorporate needed key elements to successful reform. These suggestions
would include the creation of a chief management official and the
centralization of responsibility and authority for business system
investment decisions with the domain[Footnote 32] leaders responsible
for the department's various business areas, such as logistics and
human resource management.
Chief Management Official:
Previous failed attempts to improve DOD's business operations
illustrate the need for sustained involvement of DOD leadership in
helping to assure that the DOD's financial and overall business process
transformation efforts remain a priority. While the Secretary and other
key DOD leaders have certainly demonstrated their commitment to the
current business transformation efforts, the long-term nature of these
efforts requires the development of an executive position capable of
providing strong and sustained executive leadership over a number of
years and various administrations. The day-to-day demands placed on the
Secretary, the Deputy Secretary, and others make it difficult for these
leaders to maintain the oversight, focus, and momentum needed to
resolve the weaknesses in DOD's overall business operations. This is
particularly evident given the demands that the Iraq and Afghanistan
postwar reconstruction activities and the continuing war on terrorism
have placed on current leaders. Likewise, the breadth and complexity of
the problems preclude the Under Secretaries, such as the DOD
Comptroller, from asserting the necessary authority over selected
players and business areas.
While sound strategic planning is the foundation upon which to build,
sustained leadership is needed to maintain the continuity needed for
success. One way to ensure sustained leadership over DOD's business
transformation efforts would be to create a full-time executive level
II position for a chief management official who would serve as the
Principal Under Secretary of Defense for Management.[Footnote 33] This
position would provide the sustained attention essential for addressing
key stewardship responsibilities such as strategic planning,
performance and financial management, and business systems
modernization in an integrated manner, while also facilitating the
overall business transformation operations within DOD. This position
could be filled by an individual, appointed by the President and
confirmed by the Senate, for a set term of 7 years with the potential
for reappointment. Such an individual should have a proven track record
as a business process change agent in large, complex, and diverse
organizations--experience necessary to spearhead business process
transformation across the department, and potentially administrations,
and serve as an integrator for the needed business transformation
efforts. In addition, this individual would enter into an annual
performance agreement with the Secretary that sets forth measurable
individual goals linked to overall organizational goals in connection
with the department's overall business transformation efforts.
Measurable progress towards achieving agreed upon goals would be a
basis for determining the level of compensation earned, including any
related bonus. In addition, this individual's achievements and
compensation would be reported to Congress each year.
Central Control Over System Investments:
We have made numerous recommendations to DOD intended to improve the
management oversight and control of its business systems investments.
However, as previously mentioned, progress in achieving this control
has been slow and, as a result, DOD has little or no assurance that
current business systems investments are being spent in an economically
efficient and effective manner. DOD's current systems funding process
has contributed to the evolution of an overly complex and error-prone
information technology environment containing duplicative,
nonintegrated, and stovepiped systems. Given that DOD plans to spend
approximately $19 billion on business systems and related
infrastructure for fiscal year 2004--including an estimated $5 billion
in modernization money--it is critical that actions be taken to gain
more effective control over such business systems funding.
The second suggestion we have for legislative action to address this
issue, consistent with our open recommendations to DOD, is to establish
specific management oversight, accountability, and control of funding
with the "owners" of the various functional areas or domains. This
legislation would define the scope of the various business areas (e.g.,
acquisition, logistics, finance and accounting) and establish
functional responsibility for management of the portfolio of business
systems in that area with the relevant Under Secretary of Defense for
the six departmental domains and the CIO for the Enterprise Information
Environment Mission (information technology infrastructure). For
example, planning, development, acquisition, and oversight of DOD's
portfolio of logistics business systems would be vested in the Under
Secretary of Defense for Acquisition, Technology, and Logistics.
We believe it is critical that funds for DOD business systems be
appropriated to the domain owners in order to provide for
accountability, transparency, and the ability to prevent the continued
parochial approach to systems investment that exists today. The domains
would establish a hierarchy of investment review boards with DOD-wide
representation, including the military services and Defense agencies.
These boards would be responsible for reviewing and approving
investments to develop, operate, maintain, and modernize business
systems for the domain portfolio, including ensuring that investments
were consistent with DOD's BEA. All domain owners would be responsible
for coordinating their business systems investments with the chief
management official who would chair the Defense Business Systems
Modernization Executive Committee and provide a cross-domain
perspective. Domain leaders would also be required to report to
Congress through the chief management official and the Secretary of
Defense on applicable business systems that are not compliant with
review requirements and to include a summary justification for
noncompliance.
Conclusion:
As seen again in Iraq, the excellence of our military forces is
unparalleled. However, that excellence is often achieved in the face of
enormous challenges in DOD's financial management and other business
areas, which have serious and far-reaching implications related to the
department's operations and critical national defense mission. Our
recent work has shown that DOD's long-standing financial management and
business problems have resulted in fundamental operational problems,
such as failure to properly pay mobilized Army Guard soldiers and the
inability to provide adequate accountability and control over supplies
and equipment shipments in support of Operation Iraqi Freedom. Further,
the lack of adequate transparency and appropriate accountability across
all business areas has resulted in certain fraud, waste, and abuse and
hinders DOD's attempts to develop world-class operations and activities
to support its forces. As our nation continues to be challenged with
growing budget deficits and increasing pressure to reduce spending
levels, every dollar that DOD can save through improved economy and
efficiency of its operations is important.
DOD's senior leaders have demonstrated a commitment to transforming the
department and improving its business operations and have taken
positive steps to begin this effort. We believe that implementation of
our open recommendations and our suggested legislative initiatives
would greatly improve the likelihood of meaningful, broad-based reform
at DOD. The continued involvement and monitoring by congressional
committees will also be critical to ensure that DOD's initial
transformation actions are sustained and extended and that the
department achieves its goal of securing the best performance and
highest measure of accountability for the American people. We commend
the Subcommittee for holding this hearing and we encourage you to use
this vehicle, on at least an annual basis, as a catalyst for long
overdue business transformation at DOD.
Mr. Chairman, this concludes our statement. We would be pleased to
answer any questions you or other members of the Subcommittee may have
at this time.
Contacts and Acknowledgments:
For further information about this testimony, please contact Gregory D.
Kutz at (202) 512-9095 or kutzg@gao.gov, Randolph Hite at (202) 512-
3439 or hiter@gao.gov, or Evelyn Logue at 202-512-3881. Other key
contributors to this testimony include Bea Alff, Meg Best, Molly Boyle,
Art Brouk, Cherry Clipper, Mary Ellen Chervenic, Francine Delvecchio,
Abe Dymond, Eric Essig, Gayle Fischer, Geoff Frank, John Kelly,
Patricia Lentini, Elizabeth Mead, Mai Nguyen, Greg Pugnetti, Cary
Russell, John Ryan, Darby Smith, Carolyn Voltz, Marilyn Wasleski, and
Jenniffer Wilson.
FOOTNOTES
[1] U.S. General Accounting Office, High-Risk Series: An Update,
GAO-03-119 (Washington, D.C.: January 2003). The nine interrelated
high-risk areas that represent the greatest challenge to DOD's
development of world-class business operations to support its forces
are: contract management, financial management, human capital
management, information security, support infrastructure management,
inventory management, real property, systems modernization, and weapon
systems acquisition.
[2] U.S. General Accounting Office, DOD Financial Management:
Integrated Approach, Accountability, Transparency, and Incentives Are
Keys to Effective Reform, GAO-02-497T (Washington, D.C.: Mar. 6,
2002), Information Technology: Architecture Needed to Guide
Modernization of DOD's Financial Operations, GAO-01-525 (Washington,
D.C.: May 17, 2001), DOD Business Systems Modernization: Improvements
to Enterprise Architecture Development and Implementation Efforts
Needed, GAO-03-458 (Washington, D.C.: Feb. 28, 2003), DOD Business
Systems Modernization: Continued Investment in Key Accounting Systems
Needs to be Justified, GAO-03-465 (Washington, D.C.: March 28, 2003),
DOD Business Systems Modernization: Long-standing Management and
Oversight Weaknesses Continue to Put Investments at Risk, GAO-03-553T
(Washington, D.C.: Mar. 31, 2003), Business Systems Modernization:
Summary of GAO's Assessment of the Department of Defense's Initial
Business Enterprise Architecture, GAO-03-877R (Washington, D.C.: July
7, 2003), and DOD Business Systems Modernization: Important Progress
Made to Develop Business Enterprise Architecture, but Much Work
Remains, GAO-03-1018 (Washington, D.C.: Sept. 19, 2003).
[3] U.S. General Accounting Office, Fiscal Year 2003 U.S. Government
Financial Statements: Sustained Improvement in Federal Financial
Management Is Crucial to Addressing Our Nation's Future Fiscal
Challenges, GAO-04-477T (Washington, D.C.: Mar. 3, 2004) and our report
contained in the U.S. Department of the Treasury, Financial Report of
the United States Government (Washington, D.C.: Feb. 27, 2004).
[4] JFMIP is a joint undertaking of the Office of Management and
Budget, GAO, the Department of Treasury, and the Office of Personnel
Management, working in cooperation with each other and with operating
agencies to improve financial management practices throughout the
government.
[5] FFMIA, Pub. L. No. 104-208, Div. A., title VIII, 110 Stat. 3009-
389--3009-393, Sept. 30, 1996, requires the 23 major departments and
agencies covered by the Chief Financial Officers Act of 1990, Pub. L.
No. 101-576, 104 Stat. 2838, Nov. 15, 1990 (as amended), to implement
and maintain financial management systems that comply substantially
with (1) federal financial management systems requirements, (2)
applicable federal accounting standards, and (3) U.S. Standard General
Ledger (SGL) at the transaction level.
[6] The six case study units reviewed include the Colorado B Company,
Virginia B Company, West Virginia C Company, Mississippi 114th Military
Police Company, California 49th Military Police Headquarters and
Headquarters Detachment, and the Maryland 200th Military Police
Company. In addition, our limited review of pay experiences of soldiers
in the Colorado Army Guard's 220th Military Police Company, who
recently returned from Iraq, indicated that some of the same types of
pay problems that we found in our case studies had also affected them.
[7] Congressional Budget Office, The Long-Term Implications of Current
Defense Plans: Detailed Update for Fiscal Year 2004 (
HtmlResAnchor www.cbo.gov, February 2004). Figures from this report are
in constant fiscal year 2004 dollars.
[8] U.S. General Accounting Office, Major Management Challenges and
Program Risks: Department of Defense, GAO-03-98 (Washington, D.C.:
January 2003). Figures from this report are in constant fiscal year
2003 dollars.
[9] U.S. General Accounting Office, DOD High-Risk Areas: Eliminating
Underlying Causes Will Avoid Billions of Dollars in Waste, GAO/T-NSIAD/
AIMD-97-143 (Washington, D.C.: May 1, 1997).
[10] Chief Financial Officers Act of 1990, Pub. L. No. 101-576, 104
Stat. 2842, Nov. 15, 1990 (codified, as amended in scattered sections
of title 31, United States Code).
[11] U.S. General Accounting Office, Executive Guide: Creating Value
Through World-class Financial Management, GAO/AIMD-00-134 (Washington,
D.C.: April 2000) and U.S. General Accounting Office, Executive Guide:
Maximizing the Success of Chief Information Officers: Learning From
Leading Organizations, GAO-01-376G (Washington, D.C.: February 2001).
[12] Bob Stump National Defense Authorization Act for Fiscal Year 2003,
Pub. L. No. 107-314, § 1004 (d), 116 Stat. 2458, 2629, Dec. 2, 2002.
[13] U.S. General Accounting Office, DOD Business Systems
Modernization: Important Progress Made to Develop Business Enterprise
Architecture, but Much Work Remains, GAO-03-1018 (Washington, D.C.:
Sept. 19, 2003).
[14] GAO-03-1018.
[15] GAO-03-465.
[16] GAO-02-497T.
[17] Department of Defense, Transforming Department of Defense
Financial Management: A Strategy for Change (Washington, D.C.: Apr. 13,
2001).
[18] GAO-01-525.
[19] GAO-03-877R.
[20] U.S. General Accounting Office, Information Technology: A
Framework for Assessing and Improving Enterprise Architecture
Management (Version 1.1), GAO-03-584G (Washington, D.C.: April 2003).
[21] GAO-03-1018.
[22] Business systems include financial and nonfinancial systems, such
as civilian personnel, finance, health, logistics, military personnel,
procurement, and transportation, with the common element being the
generation or use of financial data to support DOD's business
operations.
[23] The remaining $9 billion is for National Security Systems. These
systems are intelligence systems, cryptologic activities related to
national security, military command and control systems, and equipment
that is an integral part of a weapon or weapons system or is critical
to the direct fulfillment of military or intelligence mission.
[24] GAO-03-465 and GAO-03-553T.
[25] GAO-03-465.
[26] U.S. General Accounting Office, Financial Management: DOD
Improvement Plan Needs Strategic Focus, GAO-01-764 (Washington, D.C.:
Aug. 17, 2001).
[27] U.S. General Accounting Office, DOD Financial Management:
Important Steps Underway But Reform Will Require a Long-term
Commitment, GAO-02-784T (Washington, D.C.: June 4, 2002).
[28] U.S. General Accounting Office, Financial Management: DOD's
Metrics Program Provides Focus for Improving Performance, GAO-03-457
(Washington, D.C.: Mar. 28, 2003).
[29] The Department of Defense Appropriations Act for Fiscal Year 2003,
Pub. L. No. 107-248, § 8149, 116 Stat. 1519, 1572, Oct. 23, 2002.
[30] Department of Defense, Office of the Inspector General, Summary
Report on Joint Review of Selected DOD Purchase Card Transactions,
D2003-109 (Washington, D.C.: June 27, 2003).
[31] National Defense Authorization Act for Fiscal Year 2003, Pub. L.
No. 107-107, §1008, 115 Stat. 1012, 1204, Dec. 28, 2001.
[32] DOD has one Enterprise Information Environment Mission, and six
departmental domains including (1) acquisition/ procurement, (2)
finance, accounting, and financial management, (3) human resource
management, (4) logistics, (5) strategic planning and budgeting, and 6)
installations and environment.
[33] On September 9, 2002, GAO convened a roundtable of executive
branch leaders and management experts to discuss the Chief Operating
Officer concept. For more information see U.S. General Accounting
Office, Highlights of a GAO Roundtable: The Chief Operating Officer
Concept: A Potential Strategy to Address Federal Governance Challenges,
GAO-03-192SP (Washington, D.C.: Oct. 4, 2002).