DOD's High-Risk Areas
Successful Business Transformation Requires Sound Strategic Planning and Sustained Leadership Gao ID: GAO-05-520T April 13, 2005In January 2005, GAO released its 2005 high-risk series update report for the 109th Congress. GAO's high-risk series has increasingly focused on major government programs and operations that need urgent attention and transformation to ensure that the U.S. government functions in the most economical, efficient, and effective manner possible. GAO also emphasizes those federal programs and operations that are at high risk because of their greater vulnerabilities to fraud, waste, abuse, and mismanagement. Of the 25 areas on GAO's 2005 high-risk list, 8 are Department of Defense (DOD) programs or operations and 6 are governmentwide high-risk areas for which DOD shares some responsibility. These high-risk areas touch on all of DOD's major business operations. DOD's failure to effectively address these many high-risk areas results in billions of dollars of waste each year and inadequate accountability to Congress and the American people. Congress asked GAO to provide its views on (1) DOD's high-risk areas, including those it shares responsibility for with other federal agencies; (2) an emerging challenge for DOD that merits close attention, involving DOD's approach to risk management; and (3) key elements, such as a chief management official, to successfully address these high-risk areas and achieve business transformation reform.
GAO has reported on inefficiencies and inadequate transparency and accountability across DOD's major business areas, resulting in billions of dollars of wasted resources annually. As shown in the following table, these problems have resulted in GAO's designation of eight DOD areas as high-risk, two of which were newly added this year. Progress in addressing one of these new high-risk areas--DOD's overall approach to business transformation--is needed to confront the other seven areas. DOD also shares some responsibility for six other governmentwide high-risk areas, including strategic human capital management. Although DOD's senior leaders have shown commitment to business management reform, little tangible evidence of actual improvement has been seen to date. In addition to the specific high-risk areas, there are other broad-based challenges facing our government that merit continuing close attention. One emerging area of concern involves the need for DOD along with other agencies to develop and use a strategic risk-based approach for establishing goals, evaluating and setting priorities, and making difficult resource decisions across the department. Strategically managing risks and investment decisions is crucial for DOD as it faces growing questions about the affordability and sustainability of current defense spending. To move forward, there are three key elements that DOD must incorporate into its business management reform efforts to successfully address the systemic management problems related to its high-risk areas. First, any reform efforts must include a comprehensive, integrated strategic plan with results-oriented performance measures, including a well-defined blueprint (an enterprise architecture) to guide and constrain implementation of such a plan. Second, central control of system investments is crucial for successful transformation. Finally, a legislatively created Deputy Secretary of Defense for Management is essential for providing the strong and sustained executive leadership needed if reform efforts are to succeed.
GAO-05-520T, DOD's High-Risk Areas: Successful Business Transformation Requires Sound Strategic Planning and Sustained Leadership
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Testimony:
Before the Subcommittee on Readiness and Management Support, Committee
on Armed Services, U.S. Senate:
For Release on Delivery Expected at 10:00 a.m. EDT Wednesday, April 13,
2005:
DOD's High-Risk Areas:
Successful Business Transformation Requires Sound Strategic Planning
and Sustained Leadership:
Statement of David M. Walker, Comptroller General of the United States:
GAO-05-520T:
GAO Highlights:
Highlights of GAO-05-520T, a testimony before the Subcommittee on
Readiness and Management Support, Committee on Armed Services, U.S.
Senate:
Why GAO Did This Study:
In January 2005, GAO released its 2005 high-risk series update report
for the 109th Congress. GAO's high-risk series has increasingly focused
on major government programs and operations that need urgent attention
and transformation to ensure that the U.S. government functions in the
most economical, efficient, and effective manner possible. GAO also
emphasizes those federal programs and operations that are at high risk
because of their greater vulnerabilities to fraud, waste, abuse, and
mismanagement. Of the 25 areas on GAO's 2005 high-risk list, 8 are
Department of Defense (DOD) programs or operations and 6 are
governmentwide high-risk areas for which DOD shares some
responsibility. These high-risk areas touch on all of DOD's major
business operations. DOD's failure to effectively address these many
high-risk areas results in billions of dollars of waste each year and
inadequate accountability to Congress and the American people.
The Subcommittee asked GAO to provide its views on (1) DOD's high-risk
areas, including those it shares responsibility for with other federal
agencies; (2) an emerging challenge for DOD that merits close
attention, involving DOD's approach to risk management; and (3) key
elements, such as a chief management official, to successfully address
these high-risk areas and achieve business transformation reform.
What GAO Found:
GAO has reported on inefficiencies and inadequate transparency and
accountability across DOD's major business areas, resulting in billions
of dollars of wasted resources annually. As shown in the following
table, these problems have resulted in GAO's designation of eight DOD
areas as high-risk, two of which were newly added this year. Progress
in addressing one of these new high-risk areas--DOD's overall approach
to business transformation--is needed to confront the other seven
areas. DOD also shares some responsibility for six other governmentwide
high-risk areas, including strategic human capital management. Although
DOD's senior leaders have shown commitment to business management
reform, little tangible evidence of actual improvement has been seen to
date.
Years When Specific DOD Areas on GAO's 2005 High-Risk List Were First
Designated as High Risk:
Year designated as high risk.
Area: DOD approach to business transformation;
Year designated as high risk: 2005.
Area: DOD personnel security clearance program;
Year designated as high risk: 2005.
Area: DOD support infrastructure management;
Year designated as high risk: 1997.
Area: DOD business systems modernization;
Year designated as high risk: 1995.
Area: DOD financial management;
Year designated as high risk: 1995.
Area: DOD weapon systems acquisition;
Year designated as high risk: 1990.
Area: DOD contract management;
Year designated as high risk: 1992.
Area: DOD supply chain management[A];
Year designated as high risk: 1990.
Source: GAO.
[A] This area, formerly entitled DOD inventory management, was expanded
to include distribution and asset visibility.
[End of table]
In addition to the specific high-risk areas, there are other broad-
based challenges facing our government that merit continuing close
attention. One emerging area of concern involves the need for DOD along
with other agencies to develop and use a strategic risk-based approach
for establishing goals, evaluating and setting priorities, and making
difficult resource decisions across the department. Strategically
managing risks and investment decisions is crucial for DOD as it faces
growing questions about the affordability and sustainability of current
defense spending.
To move forward, there are three key elements that DOD must incorporate
into its business management reform efforts to successfully address the
systemic management problems related to its high-risk areas. First, any
reform efforts must include a comprehensive, integrated strategic plan
with results-oriented performance measures, including a well-defined
blueprint (an enterprise architecture) to guide and constrain
implementation of such a plan. Second, central control of system
investments is crucial for successful transformation. Finally, a
legislatively created Deputy Secretary of Defense for Management is
essential for providing the strong and sustained executive leadership
needed if reform efforts are to succeed.
www.gao.gov/cgi-bin/getrpt?GAO-05-520T.
To view the full product, click on the link above. For more
information, contact Sharon Pickup at (202) 512-9619 or pickups@gao.gov
or Gregory Kutz at (202) 512-9505 or kutzg@gao.gov.
[End of section]
Mr. Chairman and Members of the Subcommittee:
Thank you for the opportunity to discuss the Department of Defense's
(DOD) "high-risk" programs and operations summarized in GAO's 2005 high-
risk series update report.[Footnote 1] During my tenure as Comptroller
General, our high-risk series has increasingly focused on those major
government programs and operations that need urgent attention and
transformation to ensure that our national government functions in the
most economical, efficient, and effective manner possible. We also
emphasize those federal programs and operations that are at high risk
because of their greater vulnerabilities to fraud, waste, abuse, and
mismanagement. Some of these high-risk programs and operations are in
need of transformation, and several will require action by both the
executive branch and Congress for successful transformation to occur.
Given its size and mission, DOD is one of the largest and most complex
organizations to effectively manage in the world. While DOD maintains
military forces with significant capabilities, it continues to confront
pervasive, decades-old management problems related to its business
operations, including systems and processes, that support these forces.
Of the 25 areas on our 2005 high-risk list, 8 are DOD programs or
operations and 6 are governmentwide high-risk areas for which DOD
shares some responsibility. These high-risk areas touch on all of DOD's
major business operations. DOD's failure to effectively address these
high-risk areas results in billions of dollars of wasted resources each
year and inadequate accountability to Congress and the American people.
In some cases, such as DOD's financial management and weapon systems
acquisition areas, we have been highlighting high-risk challenges for a
decade or more. To its credit, the Office of Management and Budget
(OMB) has worked closely with a number of agencies that have high risk
issues, but to-date has been less involved with DOD. Recently, Clay
Johnson, OMB's Deputy Director for Management reaffirmed plans to
refocus on GAO's high risk list in order to make as much progress as
possible during the Bush Administration's second term. He also
committed to place additional emphasis on DOD's high-risk areas,
including working to help ensure that DOD has action plans for
addressing all new "high-risk" areas. Given the magnitude of DOD's
problems and the stakes involved, I believe it is critical that OMB
actively collaborate with the department to ensure it establishes the
action plans and milestones needed to address its high risk areas.
Continued oversight by Congress, such as this hearing, is key to
achieving change at DOD and, in the case of some areas, legislative
action will be needed.
Today, I will provide my perspectives on (1) DOD's high-risk areas,
including those for which it shares responsibility with other federal
agencies; (2) an emerging challenge that merits close attention,
involving the need for DOD and other federal agencies to develop
comprehensive approaches for risk management; and (3) three key
elements to successfully address these high-risk areas and achieve
needed reforms. In particular, I will emphasize two suggestions for
legislative consideration--the need for central control of systems
investment funding and a chief management official--that I have
previously testified about.[Footnote 2] Implementation of these two
suggestions would provide the sustained top-level leadership and
accountability needed by DOD to better permit the effective use of
transition plans, processes, systems, people, and tools and thereby
increase the likelihood of successful business transformation.
My statement is based on previous GAO reports and our work was
performed in accordance with generally accepted government auditing
standards.
Summary:
While DOD began the new millennium with military forces second to none,
it has not been effective in managing its business operations. At a
time when DOD is challenged to maintain a high level of operations
while competing for resources in an increasingly fiscally constrained
environment, weaknesses in DOD's business operations continue to result
in reduced efficiencies and effectiveness. The Secretary of Defense has
estimated that improving business operations could save 5 percent of
DOD's annual budget. This represents a savings of about $22 billion a
year, based on the fiscal year 2004 budget.
Continuing problems within DOD's business operations and transformation
initiatives have resulted in our designation of eight DOD-specific
programs and operations to our 2005 high-risk list, which includes two
new areas and the expansion of a third area. First, we added DOD's
overall approach to business transformation to the high-risk list
because of our concern over DOD's lack of adequate management
accountability and the absence of a strategic and integrated action
plan for the overall business transformation effort. Unless DOD makes
progress in its overall business transformation effort, we believe that
it will continue to have difficulties in confronting the other seven
DOD-specific high-risk areas in an integrated, departmentwide approach.
Second, we added DOD's personnel security clearance program to the list
because the increased delays and growing backlogs of security
clearances for DOD personnel, contractors, and others present a range
of risks in today's security environment. Finally, we expanded our
prior high-risk area of inventory management to include DOD's
management of certain key aspects of its supply chain, including
distribution, inventory management, and asset visibility, because of
issues related to supporting the warfighter during Operation Iraqi
Freedom. The remaining DOD-specific high-risk areas cover other major
business operations such as support infrastructure management, business
systems modernization, financial management, weapon systems
acquisition, and contract management. Although the Secretary of Defense
and senior leaders have shown commitment to business management
transformation, little tangible evidence of actual improvement has been
seen in DOD's business operations to date. In addition, DOD has not
taken the steps necessary to achieve and sustain business reform on a
broad, strategic, departmentwide, and integrated basis.
In addition to the DOD-specific high-risk areas, DOD shares
responsibility for six other high-risk areas that are governmentwide in
scope. A first and critical governmentwide high-risk area, strategic
human capital management, has remained high risk because some federal
human capital strategies are still not appropriately constituted to
meet current and emerging challenges or drive the transformations
necessary for agencies to meet these challenges. The National Defense
Authorization Act for Fiscal Year 2004[Footnote 3] has given DOD
significant authorities to address the way in which defense civilian
employees are hired, compensated, promoted, and disciplined, and
proposed regulations to implement these authorities have been jointly
released by the Secretary of Defense and the Acting Director of the
Office of Personnel Management (OPM). The remaining five governmentwide
high-risk areas include managing federal real property, protecting
federal information systems and the nation's critical infrastructure,
establishing appropriate and effective information-sharing mechanisms
to improve homeland security, modernizing federal disability programs,
and managing interagency contracting more effectively.
There are other important broad-based challenges facing our government
that we will be closely monitoring even though we have not yet
categorized them as high risk. One emerging area of concern involves
the need for DOD along with other agencies to develop and use a
strategic risk-based approach for establishing goals, evaluating and
setting priorities, and making difficult resource decisions.
Strategically managing risks and investment decisions across the
department is crucial for DOD as it faces growing questions about the
affordability and sustainability of the rate of growth in defense
spending and the shift in focus from conventional threats posed by the
Cold War era to more unconventional and asymmetric threats evidenced in
the events of September 11, 2001. To its credit, we understand that DOD
is attempting to implement a risk management framework for making
broad, strategic investment decisions across the department, and we are
monitoring this effort.
Regarding the way forward, there are three essential elements that DOD
must incorporate into its business transformation efforts if it is to
successfully address the systemic management problems related to its
high-risk areas. First, in our experience, a successful business
transformation effort must include a comprehensive, integrated business
transformation strategic and action plan with results-oriented
performance measures that link institutional, unit, and personnel
goals, measures, and expectations. Second, we propose that those
responsible for business systems modernization control the allocation
and execution of funds for DOD business systems. Finally, due to the
complexity and long-term nature of these efforts, strong and sustained
executive leadership is needed if they are to succeed. We believe one
way to ensure this strong and sustained leadership over DOD's business
management reform efforts would be to create a full-time, executive-
level II position for a Chief Management Official (CMO), who would
serve as the Deputy Secretary of Defense for Management. We believe
that the new CMO position should 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. Articulating the role and
responsibilities of the position in statute and establishing a term
that spans administrations underscores the importance of a
professional, nonpartisan approach to this business management-
oriented position. This position would elevate, integrate, and
institutionalize the attention essential for addressing key stewardship
responsibilities, such as strategic planning, enterprise architecture
development and implementation, information technology management, and
financial management, while facilitating the overall business
management transformation within DOD.
DOD's High-Risk Areas, Including Governmentwide High-Risk Areas:
Numerous systems problems, inefficiencies, and wasted resources
continue to trouble DOD's business operations, resulting in our
designation of 14 high-risk areas that are either DOD-specific programs
or governmentwide high-risk areas for which DOD shares some
responsibility. As shown in table 1, we have designated two new high-
risk areas for DOD this year. The first, DOD's approach to business
management transformation, represents an overarching high-risk area,
encompassing the other seven key DOD-specific business operations that
we have designated as individual high-risk areas. The second, DOD's
personnel security clearance program, was added to our 2005 high-risk
list because of delays in completing hundreds of thousands of
background investigations and adjudications (a review of investigative
information to determine eligibility for a security clearance). Many of
the remaining DOD-specific areas have been on the list for a decade or
more. In addition to the DOD-specific high-risk areas shown in table 1,
I will later discuss the six governmentwide areas, such as human
capital management, for which DOD shares responsibility with other
federal agencies.
Table 1: Years When Specific DOD Areas on GAO's 2005 High Risk List
Were First Designated as High Risk:
Area: DOD approach to business transformation;
Year designated high risk: 2005.
Area: * DOD personnel security clearance program;
Year designated high risk: 2005.
Area: * DOD support infrastructure management;
Year designated high risk: 1997.
Area: * DOD business systems modernization;
Year designated high risk: 1995.
Area: * DOD financial management;
Year designated high risk: 1995.
Area: * DOD weapon systems acquisition;
Year designated high risk: 1990.
Area: * DOD contract management;
Year designated high risk: 1992.
Area: * DOD supply chain management[A];
Year designated high risk: 1990[A].
Source: GAO.
[A] This area was formerly entitled DOD inventory management.
[End of table]
DOD's Approach to Business Transformation:
DOD's approach to business management transformation represents an
overarching high-risk area, encompassing several other key business
operations. Over the years, DOD has embarked on a series of efforts to
reform its business management operations, including modernizing
underlying information technology (business) systems. However, serious
inefficiencies remain. As a result, the areas of support infrastructure
management, business systems modernization, financial management,
weapon systems acquisition, contract management, and supply chain
management remain high-risk DOD business operations. We now consider
DOD's overall approach to business transformation to be a high-risk
area because (1) DOD's business improvement initiatives and control
over resources are fragmented; (2) DOD lacks a clear strategic and
integrated business transformation plan and investment strategy,
including a well-defined enterprise architecture to guide and constrain
implementation of such a plan; and (3) DOD has not designated a senior
management official responsible and accountable for overall business
transformation reform and related resources.
Unless DOD makes progress in overall business transformation, we
believe it will continue to have difficulties in confronting other
problems in its business operations. DOD spends billions of dollars to
sustain key business operations intended to support the warfighter,
including systems and processes related to support infrastructure,
[Footnote 4] finances, weapon systems acquisition, the management of
contracts, and the supply chain. We have previously testified on
inefficiencies in DOD's business operations, such as the lack of
sustained leadership, the lack of a comprehensive and integrated
business transformation strategic and action plan, and inadequate
incentives.[Footnote 5] Moreover, the lack of adequate transparency and
accountability across DOD's major business areas results in billions of
dollars of wasted resources annually at a time of increasing military
operations and growing fiscal constraints.
Business transformation requires long-term cultural change, business
process reengineering, and a commitment from both the executive and
legislative branches of government. Although sound strategic planning
is the foundation on which to build, DOD needs clear, capable,
sustained, and professional leadership to maintain the continuity
necessary for success. Such leadership would provide the attention
essential for addressing key stewardship responsibilities--such as
strategic planning, performance management, business information
management, and financial management--in an integrated manner, while
helping to facilitate the overall business transformation effort within
DOD.
Personnel Security Clearance Program:
The second high-risk area is DOD's personnel security clearance
program. Delays in completing hundreds of thousands of background
investigations and adjudications (a review of investigative information
to determine eligibility for a security clearance) have led us to add
the DOD personnel security clearance program to our 2005 high-risk
list. Personnel security clearances allow individuals to gain access to
classified information. In some cases, unauthorized disclosure of
classified information could reasonably be expected to cause
exceptionally grave damage to national defense or foreign relations.
DOD has approximately 2 million active clearances as a result of
worldwide deployments, contact with sensitive equipment, and other
security requirements. While our work on the clearance process has
focused on DOD, clearance delays in other federal agencies suggest that
similar impediments and their effects may extend beyond DOD.
Since at least the 1990s, we have documented problems with DOD's
personnel security clearance process, particularly problems related to
backlogs and the resulting delays in determining clearance
eligibility.[Footnote 6] Since fiscal year 2000, DOD has declared its
personnel security clearance investigations program to be a systemic
weakness[Footnote 7]--a weakness that affects more than one DOD
component and may jeopardize the department's operations. An October
2002 House Committee on Government Reform report also recommended
including DOD's adjudicative process as a material weakness.[Footnote
8] As of September 30, 2003 (the most recent data available), DOD could
not estimate the full size of its backlog, but we identified over
350,000 cases exceeding established time frames for determining
eligibility.[Footnote 9]
DOD has taken steps to address the backlog--such as hiring more
adjudicators and authorizing overtime for adjudicative staff--but a
significant shortage of trained federal and private-sector
investigative personnel presents a major obstacle to timely completion
of cases. Other impediments to eliminating the backlog include the
absence of an integrated, comprehensive management plan for addressing
a wide variety of problems identified by us and others. In addition to
matching adjudicative staff to workloads and working with OPM to
develop an overall management plan, DOD needs to develop and use new
methods for forecasting clearance needs and monitoring backlogs,
eliminate unnecessary limitations on reciprocity (the acceptance of a
clearance and access granted by another department, agency, or military
service), determine the feasibility of implementing initiatives that
could decrease the backlog and delays, and provide better oversight for
all aspects of its personnel security clearance process. The National
Defense Authorization Act for Fiscal Year 2004[Footnote 10] authorized
the transfer of DOD's personnel security investigative function and
over 1,800 investigative employees to OPM. This transfer took place in
February 2005. While the transfer eliminated DOD's responsibility for
conducting the investigations, it did not eliminate the shortage of
trained investigative personnel needed to address the backlog. Although
DOD retained the responsibility for adjudicating clearances, OPM is now
accountable for ensuring that investigations are completed in a timely
manner.
Support Infrastructure Management:
The third high-risk area is DOD's support infrastructure management,
which we first identified as being high risk in 1997. DOD has made
progress and expects to continue making improvements in its
infrastructure management, but much work remains to be done. DOD's
support infrastructure includes categories such as force installations,
central logistics, the defense health program, and central training.
DOD's infrastructure costs continue to consume a larger-than-necessary
portion of its budget than DOD believes is desirable, despite
reductions in the size of the military force following the end of the
Cold War. For several years, DOD also has been concerned about its
excess facilities infrastructure, which affects its ability to devote
more funding to weapon systems modernization and other critical needs.
DOD reported that many of its business processes and much of its
infrastructure are outdated and must be modernized. Left alone, the
current organizational arrangements, processes, and systems will
continue to drain scarce resources.
DOD officials recognize that they must achieve greater efficiencies in
managing their support operations. DOD has achieved some operating
efficiencies and reductions from such efforts as base realignments and
closures, consolidations, organizational and business process
reengineering, and competitive sourcing. It also has achieved
efficiencies by eliminating unneeded facilities through such means as
demolishing unneeded buildings and privatizing housing at military
facilities. In addition, DOD and the services are currently gathering
and analyzing data to support a new round of base realignments and
closures in 2005 and facilitating other changes as a result of DOD's
overseas basing study.
Despite this progress, much work remains for DOD to transform its
support infrastructure to improve operations, achieve efficiencies, and
allow it to concentrate resources on the most critical needs.
Organizations throughout DOD need to continue reengineering their
business processes and striving for greater operational effectiveness
and efficiency. DOD needs to develop a plan to better integrate, guide,
and sustain the implementation of its diverse business transformation
initiatives in an integrated fashion. DOD also needs to strengthen its
recent efforts to develop and refine its comprehensive long-range plan
for its facilities infrastructure to ensure adequate funding to support
facility sustainment, modernization, recapitalization, and base
operating support needs. DOD generally concurs with our prior
recommendations in this area and indicates it is taking actions to
address them. A key to any successful approach to resolving DOD's
support infrastructure management issues will be addressing this area
as part of a comprehensive, integrated business transformation effort.
Business Systems Modernization:
The fourth high-risk area is DOD's business systems modernization
program, which we first designated as high risk in 1995. We continue to
categorize DOD's business systems modernization program as a high-risk
area because of a lack of an enterprise architecture to guide and
constrain system investments and ineffective management oversight,
system acquisition, and investment management practices. As a result,
DOD's current operating practices and over 4,000 systems function in a
stovepiped, duplicative, and nonintegrated environment that contributes
to DOD's operational problems. For years, DOD has attempted to
modernize these systems, and we have provided numerous recommendations
to help guide its efforts. For example, in 2001 we provided DOD with a
set of recommendations to help it develop and implement an enterprise
architecture (or modernization blueprint) and establish effective
investment management controls.[Footnote 11] Such an enterprise
architecture is essential for DOD to guide and constrain how it spends
billions of dollars annually on information technology systems. We also
made numerous project-specific and DOD-wide recommendations aimed at
getting DOD to follow proven best practices when it acquired system
solutions.[Footnote 12] While DOD agreed with most of these
recommendations, to date the department has made limited progress in
addressing them.
In May 2004, we reported that after 3 years and over $203 million in
obligations, DOD had not yet developed a business enterprise
architecture containing sufficient scope and detail to guide and
constrain its departmentwide systems modernization and business
transformation.[Footnote 13] One reason for this limited progress is
DOD's failure to adopt key architecture management best practices that
we recommended,[Footnote 14] such as developing plans for creating the
architecture; assigning accountability and responsibility for
directing, overseeing, and approving the architecture; and defining
performance metrics for evaluating the architecture. Under a provision
in the Ronald W. Reagan National Defense Authorization Act for Fiscal
Year 2005,[Footnote 15] DOD must develop an enterprise architecture to
cover all defense business systems and related business functions and
activities that is sufficiently defined to effectively guide,
constrain, and permit implementation of a corporatewide solution and is
consistent with the policies and procedures established by the Office
of Management and Budget (OMB). Additionally, the act requires the
development of a transition plan that includes an acquisition strategy
for new systems and a listing of the termination dates of current
legacy systems that will not be part of the corporatewide solution, as
well as a listing of legacy systems that will be modified to become
part of the corporatewide solution for addressing DOD's business
management deficiencies.
In May 2004, we also reported that the department's approach to
investing billions of dollars annually in existing systems had not
changed significantly.[Footnote 16] As a result, DOD lacked an
effective investment management process for selecting and controlling
ongoing and planned business systems investments. While DOD issued a
policy that assigns investment management responsibilities for business
systems, in May 2004 we reported[Footnote 17] that DOD had not yet
defined the detailed procedures necessary for implementing the policy,
clearly defined the roles and responsibilities of the business domain
owners (now referred to as core business mission areas), established
common investment criteria, or ensured that its business systems are
consistent with the architecture.
To address certain provisions and requirements of the Ronald W. Reagan
National Defense Authorization Act for Fiscal Year 2005,[Footnote 18]
on March 24, 2005, the Deputy Secretary of Defense directed the
transfer of program management, oversight, and support responsibilities
regarding DOD business transformation efforts from the Office of the
Under Secretary of Defense, Comptroller, to the Office of the Under
Secretary of Defense for Acquisition, Technology, and Logistics
(OUSD(AT&L)). According to the directive, this transfer of functions
and responsibilities will allow the OUSD(AT&L) to establish the level
of activity necessary to support and coordinate activities of the newly
established Defense Business Systems Management Committee (DBSMC). As
required by the Act, the DBSMC, with representation including the
Deputy Secretary of Defense, the designated approval
authorities,[Footnote 19] and secretaries of the military services and
heads of the defense agencies, is the highest ranking governance body
responsible for overseeing DOD business systems modernization efforts.
While this committee may serve as a useful planning and coordination
forum, it is important to remember that committees and task forces do
not lead, people do. In addition, DOD still needs to designate a person
to have overall responsibility and accountability for this effort for a
sustained period of time. This person must have the background and
authority needed to successfully achieve the related objectives for
business systems modernization efforts.
On March 19, 2005, the Deputy Secretary of Defense delegated the
authority for the review, approval, and oversight of the planning,
design, acquisition, development, operation, maintenance, and
modernization of defense business systems to the designated approval
authority for each business area.[Footnote 20] However, according to
DOD's annual report to congressional defense committees on the status
of the department's business management modernization program, DOD has
not yet established investment review boards below the DBSMC for each
core business mission. The statutory requirements enacted as part of
the Ronald W. Reagan National Defense Authorization Act for Fiscal Year
2005[Footnote 21] further require that the DBSMC must agree with the
designated approval authorities' certification of funds exceeding $1
million for the modernization of business systems before funds can be
obligated. More importantly, the obligation of these funds without the
requisite approval by the DBSMC is deemed a violation of the Anti-
Deficiency Act.[Footnote 22]
As DOD develops a comprehensive, integrated business transformation
plan, such a plan must include an approach to resolve the business
systems modernization problems. We were recently briefed on the
department's conceptual framework for business system modernization.
While the framework has merit and is a good first step, the department
will need to translate its framework into a comprehensive and
integrated plan of action. This plan should include priorities, key
stakeholders, timeframes, and accountability and it should be linked to
institutional, unit, and individual reward systems. To this end, it is
critical that DOD provide the implementation of our many business
systems modernization-related recommendations in this plan.
Financial Management:
The fifth high-risk area is DOD's financial management program, which
we first designated as high risk in 1995. As I testified before the
House Committee on Government Reform in February 2005,[Footnote 23] and
as discussed in our report on the U.S. government's consolidated
financial statements for fiscal year 2004,[Footnote 24] DOD's financial
management deficiencies, taken together, represent a major impediment
to achieving an unqualified opinion on the U.S. government's
consolidated financial statements. DOD continues to face financial
management problems that are pervasive, complex, long-standing, and
deeply rooted in virtually all of its business operations. DOD's
financial management deficiencies adversely affect the department's
ability to control costs, ensure basic accountability, anticipate
future costs and claims on the budget, measure performance, maintain
funds control, prevent fraud, and address pressing management issues.
Our recent reports and testimonies on Army reserve and national guard
pay issues clearly illustrate the impact deficiencies in DOD's
financial management have had on the very men and women our country is
depending on to perform our military operations. For example, in
February 2005, we reported that the Army's process for extending active
duty orders for injured soldiers lacks an adequate control environment
and management controls[Footnote 25]--including (1) clear and
comprehensive guidance, (2) a system to provide visibility over injured
soldiers, and (3) adequate training and education programs. The Army
also has not established user-friendly processes--including clear
approval criteria and adequate infrastructure and support services.
Poorly defined processes for extending active duty orders for injured
and ill reserve component soldiers have caused soldiers to be
inappropriately dropped from their active duty orders. For some, this
has led to significant gaps in pay and health insurance, which has
created financial hardships for these soldiers and their families.
Based on our analysis of Army manpower data during the period from
February 2004 through April 7, 2004, almost 34 percent of the 867
soldiers who applied for extension of active duty orders--because of
injuries or illness--lost their active duty status before their
extension requests were granted. For many soldiers, this resulted in
being removed from active duty status in the automated systems that
control pay and access to benefits such as medical care and access to a
commissary or post exchange that allows soldiers and their families to
purchase groceries and other goods at a discount. Many Army locations
have used ad hoc procedures to keep soldiers in pay status; however,
these procedures often circumvent key internal controls and put the
Army at risk of making improper and potentially fraudulent payments.
Finally, the Army's nonintegrated systems, which require extensive
error-prone manual data entry, further delay access to pay and
benefits.
The Army recently implemented the Medical Retention Processing (MRP)
program, which takes the place of the previously existing process in
most cases. The MRP program, which authorizes an automatic 179 days of
pay and benefits, may resolve the timeliness of the front-end approval
process. However, the MRP program has some of the same problems as the
existing process and may also result in overpayments to soldiers who
are released early from their MRP orders.
DOD's senior civilian and military leaders have taken positive steps to
begin reforming the department's financial management operations.
However, to date, tangible evidence of improvement has been seen in
only a few specific areas, such as internal controls related to DOD's
purchase card and individually billed travel card programs. Further, we
reported in September 2004[Footnote 26] that while DOD had established
a goal of obtaining a clean opinion on its financial statements by
2007, it lacked a written and realistic plan to make that goal a
reality. DOD's continuing, substantial financial management weaknesses
adversely affect its ability to produce auditable financial information
as well as provide accurate and timely information for management and
Congress to use in making informed decisions.
Overhauling the financial management and related business operations of
one of the largest and most complex organizations in the world
represents a daunting challenge. Such an overhaul of DOD's financial
management operations goes far beyond financial accounting to the very
fiber of the department's wide-ranging business operations and its
management culture. It will require (1) sustained leadership and
resource control, (2) clear lines of responsibility and accountability,
(3) plans and related results-oriented performance measures, and (4)
appropriate individual and organizational incentives and consequences.
DOD is still in the very early stages of a departmentwide overhaul that
will take years to accomplish. DOD has not yet established a framework
to integrate improvement efforts in this area with related broad-based
DOD initiatives, such as human capital reform. However, successful,
lasting reform in this area will only be possible if implemented as
part of a comprehensive and integrated approach to transforming all of
DOD's business operations.
Weapon Systems Acquisition:
The sixth high-risk area is DOD's acquisition of weapon systems. We
designated this as a high-risk area in 1990, and it remains so today.
While DOD's acquisition process has produced the best weapons in the
world, it also consistently yields undesirable consequences--such as
cost increases, late deliveries to the warfighter, and performance
shortfalls. Such problems were highlighted, for example, in our reviews
of DOD's F/A-22 Raptor, Space-Based Infrared System, Airborne Laser,
and other programs. Problems occur because DOD's weapon programs do not
capture early on the requisite knowledge that is needed to efficiently
and effectively manage program risks. For example, programs move
forward with unrealistic program cost and schedule estimates, lack
clearly defined and stable requirements, use immature technologies in
launching product development, and fail to solidify design and
manufacturing processes at appropriate junctures in development.
When programs require more resources than planned, the buying power of
the defense dollar is reduced and funds are not available for other
competing needs. It is not unusual for estimates of time and money to
be off by 20 to 50 percent. When costs and schedules increase,
quantities are cut and the value for the warfighter--as well as the
value of the investment dollar--is reduced. In these times of
asymmetric threats and netcentricity, individual weapon system
investments are getting larger and more complex. Just 4 years ago, the
top five weapon systems cost about $281 billion; today, in the same
base year dollars, the five weapon systems cost about $521 billion. If
these megasystems are managed with traditional margins of error, the
financial consequences--particularly the ripple effects on other
programs--can be dire.
While weapon systems acquisition continues to remain on our high-risk
list, DOD has undertaken a number of acquisition reforms over the past
5 years. Specifically, DOD has restructured its acquisition policy to
incorporate attributes of a knowledge-based acquisition model and has
reemphasized the discipline of systems engineering. In addition, DOD
recently introduced new policies to strengthen its budgeting and
requirements determination processes in order to plan and manage weapon
systems based on joint warfighting capabilities. While these policy
changes are positive steps, implementation in individual programs will
continue to be a challenge because of inherent funding, management, and
cultural factors that lead managers to develop business cases for new
programs that over-promise on cost, delivery, and performance of weapon
systems.
It is imperative that needs be distinguished from wants and that DOD's
limited resources be allocated to the most appropriate weapon system
investments. Once the best investments that can be afforded are
identified, then DOD must follow its own policy to employ the knowledge-
based strategies essential for delivering the investments within
projected resources. Making practice follow policy is not a simple
matter. It is a complex challenge involving many factors. One of the
most important factors is putting the right managers in their positions
long enough so that they can be both effective and accountable for
getting results.
Contract Management:
The seventh high-risk area is DOD's contract management program, which
we designated as a high-risk area in 1992. DOD, the government's
largest purchaser at over $200 billion in fiscal year 2003, is unable
to assure that it is using sound business practices to acquire the
goods and services needed to meet the warfighter's needs. For example,
over the past decade DOD has significantly increased its spending on
contractor-provided information technology and management support
services, but it has not yet fully implemented a strategic approach to
acquiring these services. In 2002, DOD and the military departments
established a structure to review individual service acquisitions
valued at $500 million or more, and in 2003 they launched a pilot
program to help identify strategic sourcing opportunities. To further
promote a strategic orientation, however, DOD needs to establish a
departmentwide concept of operations; set performance goals, including
savings targets; and ensure accountability for achieving them. In March
2004, we reported that if greater management focus were given to
opportunities to capture savings through the purchase card program, DOD
could potentially save tens of millions of dollars without sacrificing
the ability to acquire items quickly or compromising other
goals.[Footnote 27]
DOD also needs to have the right skills and capabilities in its
acquisition workforce to effectively implement best practices and
properly manage the goods and services it buys. However, DOD reduced
its civilian workforce by about 38 percent between fiscal years 1989
and 2002 without ensuring that it had the specific skills and
competencies needed to accomplish current and future DOD missions, and
more than half of its current workforce will be eligible for early or
regular retirement in the next 5 years. We found that inadequate
staffing and the lack of clearly defined roles and responsibilities
contributed to contract administration challenges encountered in
Operation Iraqi Freedom (OIF).[Footnote 28] Further, we have reported
that DOD's extensive use of military logistical support contracts in
OIF and elsewhere required strengthened oversight.[Footnote 29] Just
recently, we identified surveillance issues in almost a third of the
contracts we reviewed. We also noted that some personnel performing
surveillance had not received required training, while others felt that
they did not have sufficient time in a normal workday to perform their
surveillance duties.[Footnote 30] DOD has made progress in laying a
foundation for reshaping its acquisition workforce by initiating a long-
term strategic planning effort, but as of June 2004 it did not yet have
the comprehensive strategic workforce plan needed to guide its efforts.
DOD uses various techniques--such as performance-based service
contracting, multiple-award task order contracts, and purchase cards--
to acquire the goods and services it needs. We have found, however,
that DOD personnel did not always make sound use of these tools. For
example, in June 2004, we reported that more than half of the task
orders to support Iraq reconstruction efforts we reviewed were, in
whole or in part, outside the scope of the underlying
contract.[Footnote 31] In July 2004, we found that DOD personnel waived
competition requirements for nearly half of the task orders
reviewed.[Footnote 32] As a result of the frequent use of waivers, DOD
had fewer opportunities to obtain the potential benefits of
competition--improved levels of service, market-tested prices, and the
best overall value. We also found that DOD lacked safeguards to ensure
that waivers were granted only under appropriate circumstances.
Our work has shown that DOD would benefit by making use of commercial
best practices, such as taking a strategic approach to acquiring
services; building on initial efforts to develop a strategic human
capital plan for its civilian workforce; and improving safeguards,
issuing additional guidance, and providing training to its workforce on
the appropriate use of contracting techniques and approaches.[Footnote
33] DOD is undertaking corrective actions, but because most efforts are
in their early stages, it is uncertain whether they can be fully and
successfully implemented in the near term. A key to resolving DOD's
contract management issues will be addressing them as part of a
comprehensive and integrated business transformation plan.
Supply Chain Management:
The eighth high-risk area is DOD's supply chain management program. In
1990, we identified DOD's inventory management as a high-risk area
because inventory levels were too high and the supply system was not
responsive to the needs of the warfighter. We have since expanded the
inventory management high-risk area to include DOD's management of
certain key aspects of its supply chain, including distribution,
inventory management, and asset visibility, because of significant
weaknesses we have uncovered since our 2003 high-risk series was
published. For example, during OIF, the supply chain encountered many
problems, including backlogs of hundreds of pallets and containers at
distribution points, a $1.2 billion discrepancy in the amount of
material shipped to--and received by--Army activities, cannibalized
equipment because of a lack of spare parts, and millions of dollars
spent in late fees to lease or replace storage containers because of
distribution backlogs and losses. Moreover, we identified shortages of
items such as tires, vehicle track shoes, body armor, and batteries for
critical communication and electronic equipment. These problems were
the result of systemic deficiencies in DOD's supply chain, including
inaccurate requirements, funding delays, acquisition delays, and
ineffective theater distribution.
While DOD reports show that the department currently owns about $67
billion worth of inventory, shortages of certain critical spare parts
are adversely affecting equipment readiness and contributing to
maintenance delays. The Defense Logistics Agency (DLA) and each of the
military services have experienced significant shortages of critical
spare parts, even though more than half of DOD's reported inventory--
about $35 billion--exceeded current operating requirements. In many
cases, these shortages contributed directly to equipment downtime,
maintenance problems, and the services' failure to meet their supply
availability goals. DOD, DLA, and the military services each lack
strategic approaches and detailed plans that could help mitigate these
critical spare parts shortages and guide their many initiatives aimed
at improving inventory management.
DOD's continued supply chain problems also resulted in shortages of
items in Iraq. In an April 8, 2005, report, we reported that demands
for items like vehicle track shoes, batteries, and tires exceeded their
availability because the department did not have accurate or adequately
funded Army war reserve requirements and had inaccurate forecasts of
supply demands for the operation.[Footnote 34] Furthermore, the Army's
funding approval process delayed the flow of funds to buy them.
Meanwhile, rapid acquisition of other items faced obstacles. Body armor
production was limited by the availability of Kevlar and other critical
materials, whereas the delivery of up-armored High Mobility Multi-
Purpose Wheeled Vehicles and armor kits was slowed by DOD's decisions
to pace production. In addition, numerous problems, such as
insufficient transportation, personnel, and equipment, as well as
inadequate information systems, hindered DOD's ability to deliver the
right items to the right place at the right time for the warfighter.
Among the items the department had problems delivering were generators
for Assault Amphibian Vehicles, tires, and Meals Ready-to-Eat.
In addition to supply shortages, DOD also lacks visibility and control
over the supplies and spare parts it owns. Therefore, it cannot monitor
the responsiveness and effectiveness of the supply system to identify
and eliminate choke points.[Footnote 35] Currently, DOD does not have
the ability to provide timely or accurate information on the location,
movement, status, or identity of its supplies. Although total asset
visibility has been a departmentwide goal for over 30 years, DOD
estimates that it will not achieve this visibility until the year 2010.
DOD may not meet this goal by 2010, however, unless it overcomes three
significant impediments: developing a comprehensive plan for achieving
visibility, building the necessary integration among its many inventory
management information systems, and correcting long-standing data
accuracy and reliability problems within existing inventory management
systems.
DOD, DLA, and the services have undertaken a number of initiatives to
improve and transform DOD's supply chain. Many of these initiatives
were developed in response to the logistics problems reported during
OIF. While these initiatives represent a step in the right direction,
the lack of a comprehensive, departmentwide logistics reengineering
strategy to guide their implementation may limit their overall
effectiveness. A key to successful implementation of a comprehensive
logistics strategy will be addressing these initiatives as part of a
comprehensive, integrated business transformation.
DOD Management Weaknesses Contribute to Governmentwide High-Risk Areas:
I would now like to spend a few minutes discussing the six
governmentwide high-risk areas where DOD shares responsibility with
other federal agencies. First, I would like to provide our preliminary
observations on DOD's attempt to address a critically important
governmentwide high-risk area--strategic human capital management--
through its new human resources management system, the National
Security Personnel System (NSPS). I also will briefly discuss DOD's
need to address five additional governmentwide high-risk challenges as
part of the transformation of its business management practices.
Strategic Human Capital Management:
Successful implementation of NSPS is essential for DOD as it attempts
to transform its military forces and defense business practices in
response to 21st century challenges. In addition, this new human
resource management system, if properly designed and effectively
implemented, could serve as a model for governmentwide human capital
transformation. DOD is one of several federal agencies that has been
granted the authority by Congress to design a new human capital system
as a way to address the first governmentwide high-risk area, strategic
human capital management. This effort represents a huge undertaking for
DOD, given its massive size and geographically and culturally diverse
workforce. As I recently testified on DOD's proposed NSPS
regulations,[Footnote 36] our ongoing work continues to raise questions
about DOD's chances of success in its efforts to effect fundamental
business management reform, such as NSPS. I would like to acknowledge,
however, that DOD's NSPS regulations take a valuable step toward a
modern performance management system as well as a more market-based and
results-oriented compensation system.
On February 14, 2005, the Secretary of Defense and the Acting Director
of OPM released the proposed NSPS regulations for public comment. Many
of the principles underlying those regulations are generally consistent
with proven approaches to strategic human capital management. For
instance, the proposed regulations provide for (1) elements of a
flexible and contemporary human resources management system, such as
pay bands and pay for performance; (2) rightsizing of DOD's workforce
when implementing reduction-in-force orders by giving greater priority
to employee performance in its retention decisions; and (3) continuing
collaboration with employee representatives. (It should be noted,
however, that 10 federal labor unions have filed suit alleging that DOD
failed to abide by the statutory requirements to include employee
representatives in the development of DOD's new labor relations system
authorized as part of NSPS.)
Despite this progress, we have three primary areas of concern about the
proposed NSPS regulations. DOD's proposed regulations do not (1) define
the details of the implementation of the system, including such issues
as adequate safeguards to help ensure fairness and guard against abuse;
(2) require, as we believe they should, the use of core competencies to
communicate to employees what is expected of them on the job; and (3)
identify a process for the continuing involvement of employees in the
planning, development, and implementation of NSPS.
DOD also faces multiple implementation challenges once it issues its
final NSPS regulations. Given the huge undertaking NSPS represents,
another challenge is to elevate, integrate, and institutionalize
leadership responsibility for this large-scale organizational change
initiative to ensure its success. A chief management official or
similar position can effectively provide the continuing, focused
leadership essential to successfully completing these multiyear
transformations. Additionally, DOD could benefit if it develops a
comprehensive communications strategy that provides for ongoing,
meaningful two-way communication to create shared expectations among
employees, employee representatives, managers, customers, and
stakeholders. Finally, appropriate institutional infrastructure could
enable DOD to make effective use of its new authorities. At a minimum,
this infrastructure includes a human capital planning process that
integrates DOD's human capital policies, strategies, and programs with
its program goals, mission, and desired outcomes; the capabilities to
effectively develop and implement a new human capital system; and a set
of adequate safeguards--including reasonable transparency and
appropriate accountability mechanisms--to help ensure the fair,
effective, and credible implementation and application of a new system.
We strongly support the need for government transformation and the
concept of modernizing federal human capital policies within both DOD
and the federal government at large. There is general recognition that
the federal government needs a framework to guide human capital reform.
Such a framework would consist of a set of values, principles,
processes, and safeguards that would provide consistency across the
federal government but be adaptable to agencies' diverse missions,
cultures, and workforces.
Other Related Governmentwide High-Risk Areas:
In addition to the governmentwide human capital high-risk area, DOD
shares responsibility for five other high-risk areas. These areas are
managing federal real property, protecting federal information systems
and the nation's critical infrastructure, establishing appropriate and
effective information-sharing mechanisms to improve homeland security,
modernizing federal disability programs, and managing interagency
contracting more effectively.
* Managing federal real property: In January 2003, we designated
federal real property as a high-risk area due to long-standing problems
with excess and underutilized property, deteriorating facilities,
unreliable real property data, and costly space challenges. To better
manage federal real property, DOD is preparing for a round of base
realignments and closures (BRAC) in 2005 to eliminate excess physical
capacity and rationalize its infrastructure with the defense strategy.
For BRAC 2005, we will continue to serve as an independent and
objective observer of the process and will assess and report on DOD's
decision-making processes leading up to the proposed realignment and
closure recommendations. From our vantage point, we will determine to
what extent DOD follows a clear, transparent, consistently applied
process--one where we can see a logical flow between DOD's analysis and
its decision making. Although we do not attend or participate in
deliberative meetings involving BRAC, we are permitted access to the
minutes of these meetings and to officials involved in the process.
* Protecting federal information systems and the nation's critical
infrastructure: Although DOD has made some improvements, significant
information security weaknesses at DOD as well as other federal
agencies continue to place a broad array of federal operations and
assets at risk of fraud, misuse, and disruption. In November 2002, for
example, a British computer administrator was indicted on charges that
he accessed and damaged 98 computers in 14 states from March 2001
through March 2002, causing some $900,000 in damage to the computers.
The attacks rendered the networks of the Earle Naval Weapons Station in
New Jersey and the Military District of Washington inoperable. We
reported in 2003 that DOD had undertaken a defensewide information
assurance program to promote integrated, comprehensive, and consistent
practices across the department to prevent similar attacks on its
information systems and had recently issued policy guidance and
implementation instructions.[Footnote 37] However, we found that DOD
did not have mechanisms in place for comprehensively measuring
compliance with federal and department information security policies
and ensuring that those policies are consistently practiced throughout
DOD. In fact, DOD reported several material control weaknesses, which
included needing to decrease the time necessary for correcting reported
weaknesses and ensuring that computer security policies were enforced
and security capabilities were tested regularly.
* Establishing appropriate and effective information sharing mechanisms
to improve homeland security: Recent events and changes in the overall
security environment have served to reinforce the importance of having
appropriate and effective information and knowledge-sharing mechanisms
in place that cross organizational, geographic, and sectoral
boundaries. Progress has been made since the tragic events of September
11, 2001, but much remains to be done. Achieving success in this area
will involve the combined efforts of many agencies, including DOD, as
well as a range of other key players.
* Modernizing federal disability programs: Our work examining federal
disability programs has found that these programs are neither well
aligned with 21st century realities nor positioned to provide
meaningful and timely support for Americans with disabilities. Since
GAO designated this area as high risk in 2003, the Department of
Veterans Affairs (VA) and the Social Security Administration (SSA) have
made some progress toward improving their disability programs. However,
both VA and SSA still have difficulties managing their disability
programs. They experience lengthy processing times for disability
claims and lack a clear understanding of the extent of possible
inconsistencies in their disability decisions. Furthermore, these
programs remain grounded in outmoded concepts of disability that have
not been updated to reflect the current state of science, medicine,
technology, and labor market conditions. The U.S. government is faced
with the return of more than 10,000 servicemembers who have sustained
combat-related injuries in the current conflicts in Afghanistan and
Iraq. Reassessing the impact of disabilities on their work capacity is
especially important in light of recent advances in medicine and
improved prosthetics, which have enabled some service members to return
to active duty. This example illustrates the potential for better
aligning federal disability programs with social changes that focus on
supporting the work capacities of all people with disabilities. In
light of the projected shrinkage of the workforce, focusing on work
capacity is becoming increasingly important for the U.S. economy. The
last two National Defense Authorization Acts afford us an opportunity
to develop information and analysis that could be used to reassess the
basis for current federal disability policies. The National Defense
Authorization Act for Fiscal Year 2004 established the Veterans'
Disability Benefits Commission.[Footnote 38] This commission is charged
with studying the benefits provided to compensate and assist veterans
who suffer disabilities attributable to military service, and their
survivors.[Footnote 39] The law requires the commission to study, among
other things, the appropriateness of such benefits, the appropriate
standard for determining whether a veteran's disability should be
compensated, and the appropriateness of a schedule for rating
disabilities based on average impairment of earning capacity. The
Ronald W. Reagan National Defense Authorization Act for Fiscal Year
2005 mandated a GAO study of the disability benefits that are payable
under federal, state, and local laws to federal, state, and local
government employees.[Footnote 40] To the extent feasible, the study is
to focus on benefits for disabilities incurred in the performance of
jobs in which employees perform tasks with risks that are analogous to
the risks associated with the performance of military tasks by members
of the armed forces. In addition, DOD is mandated to study the adequacy
of current and projected disability benefits that are available to
disabled members and former members of the armed forces for service-
connected disabilities,[Footnote 41] including a comparison of the
disability benefits for members of the armed forces with commercial and
other private sector disability benefits. We believe these studies
should provide important information and analysis for deliberations on
more fundamental reform of the design, cost, and feasibility of federal
disability programs.
* Managing interagency contracting: In recent years, federal agencies
have been making a major shift in the way they procure many goods and
services. Rather than spending a great deal of time and resources
contracting for goods and services themselves, they are making greater
use of existing contracts already awarded by other agencies, in
particular for buying services. These contracts are designed to
leverage the government's aggregate buying power and provide a much-
needed simplified method for procuring commonly used goods and
services. These contract vehicles offer the benefits of improved
efficiency and timeliness; however, they need to be effectively
managed. Our work and that of some agency inspectors general has
revealed instances of improper use of interagency contracts. For
example, we recently reviewed selected DOD contracts and task orders
for Iraq reconstruction and found some task orders under the General
Services Administration (GSA) schedules program that did not satisfy
legal requirements for competition because the work was not within the
scope of the underlying contracts.[Footnote 42] More broadly, the GSA
Inspector General conducted a comprehensive review of the contracting
activities of GSA's Federal Technology Service, an entity that provides
contracting services for agencies across the government, and reported
that millions of dollars in fiscal year 2003 awards did not comply with
laws and regulations. Administration officials have acknowledged that
the management of interagency contracting needs to be improved. As the
largest customer for interagency contracts, it is particularly
important that DOD successfully tackle the challenge of better managing
its use of interagency contracts. We have reported on challenges DOD
has faced in using interagency contracts. For example, we found that
DOD waived competition requirements for a significant percentage of
supply schedule orders we reviewed, frequently based on an expressed
preference to retain the services of incumbent contractors.[Footnote
43] DOD concurred with our recommendations to develop guidance for the
conditions under which waivers of competition may be used, require
documentation to support waivers, and establish approval authority
based on the value of the orders. In conjunction with the OMB and GSA,
DOD is taking a number of steps--including developing new skills
assessments, setting standards for the acquisition workforce, and
coordinating training programs aimed at improving the capacity of the
federal acquisition workforce--to properly handle the growing and more
complex workload of service acquisitions. DOD also has recently issued
a new policy designed to improve oversight of its use of other
agencies' contracts.
Need for Risk Management Approaches Is an Emerging Concern:
In addition to specific areas that we have designated as high risk,
there are other important broad-based challenges facing our government
that are serious and merit continuing close attention. One emerging
area of concern involves the need for instilling a disciplined approach
within DOD, as well as other agencies, for identifying and managing
risk across a wide range of programs, operations, and functions. As a
framework for decision making, we have advocated a comprehensive threat
and risk management approach that fully links strategic goals to plans
and budgets, assesses the values and risks of various courses of action
as a tool for setting priorities and allocating resources, and provides
for the use of performance measures to assess outcomes.
Emerging requirements from the changing security environment, coupled
with increasingly limited fiscal resources across the federal
government, emphasize the need for DOD to develop and use a risk-based
strategic framework for establishing realistic goals, evaluating and
setting priorities, and making difficult resource decisions.
In its strategic plan, the September 2001 Quadrennial Defense Review,
DOD outlined a new risk management framework consisting of four
dimensions of risk--force management, operational, future challenges,
and institutional--to use in considering trade-offs among defense
objectives and resource constraints. According to DOD, these risk areas
are to form the basis for DOD's annual performance goals. They are to
be used to track performance results and link to planning and resource
decisions. We recognize what a large undertaking developing a
departmentwide risk management framework will be and understand that
DOD is still in the process of implementing this approach. However, it
remains unclear how DOD will use this risk management framework to
measure progress in achieving business and force transformation. It
also remains unclear how the framework will be used to correct
limitations we have previously identified in DOD's strategic planning
and budgeting, including the use of overly optimistic assumptions in
estimating funding needs, which often result in a mismatch between
programs and budgets. We are currently monitoring DOD's efforts to
implement its risk management framework.
Sound Strategic Planning, Centralized Control over Business Systems
Investments, and Sustained Leadership Are Key to Successfully
Addressing DOD's High-Risk Areas:
Although DOD has a number of initiatives to address its high-risk
areas, we believe that DOD must fundamentally change its approach to
the overall business transformation effort before it is likely to
succeed. We believe there are three critical elements of successful
transformation--developing and implementing an integrated strategic and
action plan along with an enterprise architecture to guide and
constrain implementation of such a plan, establishing central control
over systems investment funds, and providing sustained leadership. To
ensure these elements are incorporated into the department's overall
business management, we believe Congress should legislatively create a
full-time, high-level executive with long-term "good government"
responsibilities that are professional and nonpartisan in nature. This
executive should have appropriate authority over all of DOD's business
operations, as well as central control of all business transformation-
related funding with the designated approval authorities assigned
responsibility for transformation activities within their specific
business process areas.
Reform Efforts Must Include an Integrated, Comprehensive Strategic
Plan:
Our prior work indicates that agencies that are successful in achieving
business management transformation undertake strategic planning and
strive to establish goals and measures that align at all levels of the
agency.[Footnote 44] The lack of a comprehensive and integrated
strategic and action plan linked with performance goals, objectives,
and rewards has been a continuing weakness in DOD's business management
transformation. Since 1999, for example, we have recommended that a
comprehensive and integrated strategy and action plan be developed for
reforming DOD's major business operations and support
activities.[Footnote 45] In 2004, we suggested that DOD clearly
establish management accountability for business reform.[Footnote 46]
While DOD has been attempting to develop an enterprise architecture for
modernizing its business processes and supporting information
technology assets for the last 4 years, it has not developed a
comprehensive and integrated strategy or action plan for managing its
many business improvement initiatives. Nor has DOD assigned overall
management responsibility and accountability for such an effort. Unless
these initiatives are addressed in a unified and timely fashion, DOD
will continue to see billions of dollars, which could be directed to
other higher priorities, wasted annually to support inefficiencies in
its business functions.
At a programmatic level, the lack of clear, comprehensive, and
integrated performance goals and measures has handicapped DOD's past
reform efforts. For example, we reported in May 2004[Footnote 47] that
the lack of performance measures for DOD's business management
transformation initiative--encompassing defense policies, processes,
people, and systems--made it difficult to evaluate and track specific
program progress, outcomes, and results. As a result, DOD managers
lacked straightforward road maps showing how their work contributed to
attaining the department's strategic goals, and they risked operating
autonomously rather than collectively.
Finally, DOD has not established a clear linkage among institutional,
unit, and individual results-oriented goals, performance measures, and
reward mechanisms for undertaking large-scale organizational change
initiatives that are needed for successful business management reform.
Traditionally, DOD has justified its need for more funding on the basis
of the quantity of programs it has pursued 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 behavioral changes have been minimal or
nonexistent. The establishment of an integrated, comprehensive
strategic plan could help DOD address these systemic management
problems.
Central Control over Business Systems Investment Funds Is Crucial:
DOD's current business systems investment process, in which system
funding is controlled by DOD components, has contributed to the
evolution of an overly complex and error-prone information technology
environment containing duplicative, nonintegrated, and stovepiped
systems. We have made numerous recommendations to DOD to improve the
management oversight and control of its business systems modernization
investments. However, as previously discussed, a provision of the
Ronald W. Reagan National Defense Authorization Act for Fiscal Year
2005,[Footnote 48] consistent with the suggestion I have made in prior
testimonies,[Footnote 49] established specific management oversight and
accountability with the "owners" of the various core business mission
areas. This legislation defined the scope of the various business areas
(e.g., acquisition, logistics, finance, and accounting), and
established functional approval authority and responsibility for
management of the portfolio of business systems with the relevant under
secretary of defense for the departmental core business mission areas
and the Assistant Secretary of Defense for Networks and Information
Integration (information technology infrastructure). For example, the
Under Secretary of Defense for Acquisition, Technology, and Logistics
is now responsible and accountable for any defense business system
intended to support acquisition activities, logistics activities, or
installations and environment activities for DOD.
This legislation also requires that the responsible approval
authorities establish a hierarchy of investment review boards, the
highest level being the DBSMC, with DOD-wide representation, including
the military services and defense agencies. The boards are responsible
for reviewing and approving investments to develop, operate, maintain,
and modernize business systems for their business-area portfolio,
including ensuring that investments are consistent with DOD's business
enterprise architecture. However, as I pointed out earlier, DOD has not
yet established the lower-level investment review boards as required by
the legislation.
Although this recently enacted legislation clearly defines the roles
and responsibilities of business systems investment approval
authorities, control over the budgeting for and execution of funding
for systems investment activities remains at the DOD component level.
As a result, DOD continues to have little or no assurance that its
business systems modernization investment money is being spent in an
economical, efficient, and effective manner. Given that DOD spends
billions on business systems and related infrastructure each year, we
believe it is critical that those responsible for business systems
improvements control the allocation and execution of funds for DOD
business systems. However, implementation may require review of the
various statutory authorities for the military services and other DOD
components. Control over business systems investment funds would
improve the capacity of DOD's designated approval authorities to
fulfill their responsibilities and gain transparency over DOD
investments, and minimize the parochial approach to systems development
that exists today. In addition, to improve coordination and integration
activities, we suggest that all approval authorities coordinate their
business systems modernization efforts with a chief management official
(CMO) who would chair the DBSMC. Cognizant business area approval
authorities would also be required to report to Congress through a CMO
and the Secretary of Defense on applicable business systems that are
not compliant with review requirements and to include a summary
justification for noncompliance.
Chief Management Official Is Essential for Sustained Leadership of
Business Management Reform:
As DOD embarks on large-scale organizational change initiatives, such
as business management transformation, the complexity and long-term
nature of these initiatives requires the development of an executive
position capable of providing strong and sustained leadership--over a
number of years and various administrations. 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 CMO, who
would serve as the Deputy Secretary of Defense for Management. This
position would elevate, integrate, and institutionalize the attention
essential for addressing key stewardship responsibilities, such as
strategic planning, human capital management, performance and financial
management, acquisition and contract management, and business systems
modernization, while facilitating the overall business management
reforms within DOD.
The day-to-day demands placed on the Secretary of Defense, 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 and their
overall level within the department preclude the under secretaries,
such as the DOD Comptroller, from asserting the necessary authority
over selected players and business areas while continuing to fulfill
their other responsibilities. A CMO could provide the sustained and
focused leadership that these other top officials are unable to
provide.
If created, the new CMO 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. Articulating the roles
and responsibilities of the position in statute would help to create
unambiguous expectations and underscore Congress's desire to follow a
professional, nonpartisan approach to the position. In that regard, an
individual appointed to the CMO position 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 DOD and serve as an integrator for DOD's
needed business transformation efforts. Further, to improve
coordination and integration activities, we suggest that all business
systems modernization approval authorities designated in the Ronald W.
Reagan National Defense Act of 2005[Footnote 50] coordinate their
efforts with the CMO, who would chair the Defense Business Systems
Management Committee that DOD recently established to comply with the
act. Cognizant business area approval authorities would also be
required to report to Congress through the CMO and the Secretary of
Defense on applicable business systems that are not compliant with
review requirements and include a summary justification for
noncompliance. In addition, the CMO 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 business transformation efforts. Measurable
progress toward achieving agreed-upon goals would be a basis for
determining the level of compensation earned, including any related
bonus. In addition, the CMO's achievements and compensation would be
reported to Congress each year.
Mr. Chairman and Members of the Subcommittee, this concludes my
prepared statement. I would be happy to answer any questions you may
have at this time.
(350689):
FOOTNOTES
[1] GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.:
January 2005), issued for the 109TH Congress.
[2] GAO, Department of Defense: Further Actions Are Needed to
Effectively Address Business Management Problems and Overcome Key
Business Transformation Challenges, GAO-05-140T (Washington, D.C.: Nov.
18, 2004).
[3] Pub. L. No. 108-136, § 1101, 117 Stat. 1392, 1621 (Nov. 24, 2003)
(amending subpart I of part III of title 5, United States Code).
[4] Support infrastructure includes categories such as force
installations, central logistics, the defense health program, and
central training.
[5] GAO-05-140T; GAO, Department of Defense: Long-standing Problems
Continue to Impede Financial and Business Management Transformation,
GAO-04-907T (Washington, D.C.: July 7, 2004), and DOD Business Systems
Modernization: Billions Continue to Be Invested with Inadequate
Management Oversight and Accountability, GAO-04-615 (Washington, D.C.:
May 27, 2004).
[6] GAO, DOD Personnel: Inadequate Personnel Security Investigations
Pose National Security Risks, GAO/NSIAD-00-12 (Washington, D.C.: Oct.
27, 1999).
[7] Department of Defense Annual Statement of Assurance, Fiscal Year
2000 and Fiscal Year 2001; Department of Defense Performance and
Accountability Report, Fiscal Year 2002 (Jan. 31, 2003) and Fiscal Year
2003 (Dec. 23, 2003).
[8] Committee on Government Reform, Defense Security Service: The
Personnel Security Investigations (PSI) Backlog Poses a Threat to
National Security, H.R. Rep. No. 107-767 (Washington, D.C.: Oct. 24,
2002).
[9] GAO, DOD Personnel Clearances: DOD Needs to Overcome Impediments to
Eliminating Backlog and Determining Its Size, GAO-04-344 (Washington,
D.C.: Feb. 9, 2004).
[10] Pub. L. No. 108-136 § 906 (Nov. 24, 2003).
[11] GAO, Information Technology: Architecture Needed to Guide
Modernization of DOD's Financial Operations, GAO-01-525 (Washington,
D.C.: May 17, 2001).
[12] GAO-04-615 and Department of Defense: Further Actions Needed to
Establish and Implement a Framework for Successful Financial and
Business Management Transformation, GAO-04-551T (Washington, D.C.: Mar.
23, 2004); 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); DOD Financial Management:
Integrated Approach, Accountability, Transparency, and Incentives Are
Keys to Effective Reform, GAO-02-497T (Washington, D.C.: Mar. 6, 2002);
Defense Management: New Management Reform Program Still Evolving, GAO-
03-58 (Washington, D.C.: Dec. 12, 2002); Information Technology:
Architecture Needed to Guide Modernization of DOD's Financial
Operations, GAO-01-525 (Washington, D.C.: May 17, 2001); and DOD
Financial Management: Integrated Approach, Accountability, and
Incentives Are Keys to Effective Reform, GAO-01-681T (Washington, D.C.:
May 8, 2001).
[13] GAO, DOD Business Systems Modernization: Limited Progress in
Development of Business Enterprise Architecture and Oversight of
Information Technology Investments, GAO-04-731R (Washington, D.C.: May
17, 2004).
[14] GAO-01-525.
[15] Ronald W. Reagan National Defense Authorization Act for Fiscal
Year 2005, Pub. L. No. 108-375, §332, 118 Stat. 1811, 1851 (Oct. 28,
2004) (codified, in part, at 10 U.S.C. §§186, 2222).
[16] GAO-04-731R.
[17] GAO-04-731R.
[18] 10 U.S.C. §2222.
[19] The designated approval authorities are the Under Secretary of
Defense for Acquisition, Technology, and Logistics for business systems
related to acquisition, logistics and installations and environment;
the Under Secretary of Defense (Comptroller)for business systems
related to financial management and strategic planning and budgeting;
the Under Secretary of Defense for Personnel and Readiness for business
systems related to human resource management; and the Assistant
Secretary of Defense for Networks and Information Integration/Chief
Information Officer of the Department of Defense for business systems
related to information technology infrastructure or information
assurance.
[20] Approval authorities include the Under Secretary of Defense for
Acquisition, Technology, and Logistics; the Under Secretary of Defense
(Comptroller); the Under Secretary of Defense for Personnel and
Readiness; and the Assistant Secretary of Defense for Networks and
Information Integration/Chief Information Officer of the Department of
Defense. These approval authorities are responsible for the review,
approval, and oversight of business systems and must establish
investment review processes for systems under their cognizance.
[21] Pub. L. No. 108-875, § 332, 118 Stat. 1811, 1854 (Oct. 28, 2004)
(codified at 10 U.S.C. § 2222 (a)(2)).
[22] 31 U.S.C. §1341(a)(1)(A); see 10 U.S.C. § 2222(b).
[23] GAO, Fiscal Year 2004 U.S. Government Financial Statements:
Sustained Improvement in Federal Financial Management Is Crucial to
Addressing Our Nation's Future Fiscal Challenges, GAO-05-284T
(Washington, D.C.: Feb. 9, 2005).
[24] For our report on the U.S. government's consolidated financial
statements for fiscal year 2004, see U.S. Department of the Treasury,
Financial Report on the United States Government (Washington, D.C.:
December 2004), 33-53, which can be found on GAO's Web site at
www.gao.gov.
[25] GAO, Military Pay: Gaps in Pay and Benefits Create Financial
Hardships for Injured Army National Guard and Reserve Soldiers, GAO-05-
125 (Washington, D.C.: Feb. 17, 2005).
[26] GAO, Financial Management: Further Actions Are Needed to Establish
Framework to Guide Audit Opinion and Business Management Improvement
Efforts at DOD, GAO-04-910R (Washington, D.C.: Sept. 20, 2004).
[27] GAO, Contract Management: Agencies Can Achieve Significant Savings
on Purchase Card Buys, GAO-04-430 (Washington, D.C., Mar. 12, 2004).
[28] GAO, Rebuilding Iraq: Fiscal Year 2003 Contract Award Procedures
and Management Challenges, GAO-04-605 (Washington, D.C.: June 1, 2004).
[29] GAO, Military Operations: DOD's Extensive Use of Logistics Support
Contracts Requires Strengthened Oversight, GAO-04-854 (Washington,
D.C.: July 19, 2004); and Defense Logistics: High-Level DOD
Coordination Is Needed to Further Improve the Management of the Army's
LOGCAP Contract, GAO-05-328 (Washington, D.C.: Mar. 21, 2005).
[30] GAO, Contract Management: Opportunities to Improve Surveillance on
Department of Defense Service Contracts, GAO-05-274 (Washington, D.C.
Mar. 17, 2005).
[31] GAO-04-605.
[32] GAO, Contract Management: Guidance Needed to Promote Competition
for Defense Task Orders, GAO-04-874 (Washington, D.C.: July 30, 2004).
[33] GAO, Best Practices: Improved Knowledge of DOD Service Contracts
Could Reveal Significant Savings, GAO-03-661 (Washington, D.C.: June 9,
2003); and Best Practices: Taking a Strategic Approach Could Improve
DOD's Acquisition of Services, GAO-02-230 (Washington, D.C.: Jan. 18,
2002).
[34] GAO, Defense Logistics: Actions Needed to Improve the Availability
of Critical Items during Current and Future Operations, GAO-05-275
(Washington, D.C.: Apr. 8, 2005).
[35] GAO, Defense Inventory: Improvements Needed in DOD's
Implementation of Its Long-Term Strategy for Total Asset Visibility of
Its Inventory, GAO-05-15 (Washington, D.C.: Dec. 6, 2004).
[36] GAO, Human Capital: Preliminary Observations on Proposed DOD
National Security Personnel System Regulations, GAO-05-432T
(Washington, D.C.: Mar. 15, 2005).
[37] GAO, Information Security: Further Efforts Needed to Fully
Implement Statutory Requirements in DOD, GAO-03-1037T (Washington,
D.C.: July 24, 2003).
[38] Pub. L. No. 108-136, § 1501, 117 Stat. 1392, 1677 (Nov. 24, 2003).
[39] § 1502.
[40] Pub. L. No. 108-375, § 666(d).
[41] § 666(a).
[42] GAO-04-605.
[43] GAO-04-874.
[44] GAO, Defense Management: Tools for Measuring and Managing Defense
Agency Performance Could Be Strengthened, GAO-04-919 (Washington, D.C.:
Sept. 13, 2004).
[45] GAO, Defense Reform Initiative: Organization, Status, and
Challenges, GAO/NSIAD-99-87 (Washington, D.C.: Apr. 21, 1999).
[46] GAO-04-551T.
[47] GAO-04-731R.
[48] Pub. L. No. 108-375, §332.
[49] GAO-04-551T; and GAO, Department of Defense: Further Actions
Needed to Establish and Implement a Framework for Successful Business
Transformation, GAO-04-626T (Washington, D.C.: Mar. 31, 2004).
[50] 10 U.S.C. § 222(f).
