Defense Business Transformation
A Comprehensive Plan, Integrated Efforts, and Sustained Leadership Are Needed to Assure Success Gao ID: GAO-07-229T November 16, 2006Of the 26 areas on GAO's high-risk list of federal programs or activities that are at risk for waste, fraud, abuse, or mismanagement, 8 are Department of Defense (DOD) programs or operations and another 6 are governmentwide high-risk areas that also apply to DOD. These high-risk areas relate to most of DOD's major business operations. DOD's failure to effectively resolve these high-risk areas has resulted in billions of dollars of waste each year, ineffective performance, and inadequate accountability. At a time when DOD is competing for resources in an increasingly fiscally constrained environment, it is critically important that DOD get the most from every defense dollar. DOD has taken several positive steps and devoted substantial resources toward establishing key management structures and processes to successfully transform its business operations and address its high-risk areas, but overall progress by area varies widely and huge challenges remain. This testimony addresses DOD's efforts to (1) develop a comprehensive, integrated, enterprisewide business transformation plan and its related leadership approach and (2) comply with legislation that addresses business systems modernization and improving financial management accountability. The testimony also addresses two sections included in recent legislation and other DOD high-risk areas.
In the past year, DOD has made progress in transforming its business operations, but continues to lack a comprehensive, enterprisewide approach to its overall business transformation effort. Within DOD, business transformation is broad, encompassing people, planning, management, structures, technology, and processes in many key business areas. While DOD's planning and management continues to evolve, it has yet to develop a comprehensive, integrated, and enterprisewide plan that covers all key business functions, and contains results-oriented goals, measures and expectations that link organizational, unit, and individual performance goals, while also being clearly linked to DOD's overall investment plans. Because of the complexity and long-term nature of business transformation, DOD also continues to need a chief management official (CMO) with significant authority, experience, and tenure to provide sustained leadership and integrate DOD's overall business transformation effort. Without formally designating responsibility and accountability for results, reconciling competing priorities in investments will be difficult and could impede DOD's progress in its transformation efforts. DOD is taking steps to comply with legislative requirements aimed at improving its business systems modernization and financial management; however, much remains to be accomplished. In particular, DOD recently issued updates to both the business enterprise architecture and the transition plan, which are still not sufficiently complete to effectively and efficiently guide and constrain business system investments across the department. Most notably, the architecture is not adequately linked to DOD component architectures, and the plan does not include business system information for all major DOD components. To address these shortfalls, DOD issued a strategy for "federating" or extending its architecture to the defense components. But much remains to be accomplished before a well-defined federated architecture is in place, given that GAO recently reported that select components' architecture programs are not mature. However, DOD components continue to invest billions of dollars in thousands of new and existing business system programs. The risks associated with investing in systems ahead of having a well-defined architecture and transition plan are profound and must be managed carefully, as must the wide assortment of other risks that GAO's work has shown to exist on specific DOD business system investments. While not a guarantee, GAO's work and research has shown that establishing effective system modernization management controls, such as an architecture-centric approach to investment decision making, can increase the chances of delivering cost-effective business capabilities on time and within budget. Further, with regard to legislation pertaining to financial management improvement, DOD issued and updated its Financial Improvement and Audit Readiness Plan in fiscal year 2006 to provide components with a construct for resolving problems affecting the accuracy and timeliness of financial information and an improved audit strategy for obtaining financial statement audit opinions.
GAO-07-229T, Defense Business Transformation: A Comprehensive Plan, Integrated Efforts, and Sustained Leadership Are Needed to Assure Success
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Testimony:
Before the Subcommittee on Readiness and Management Support, Committee
on Armed Services, U.S. Senate:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 9:30 a.m. EST:
Thursday, November 16, 2006:
Defense Business Transformation:
A Comprehensive Plan, Integrated Efforts, and Sustained Leadership Are
Needed to Assure Success:
Statement of David M. Walker Comptroller General of the United States:
GAO-07-229T:
GAO Highlights:
Highlights of GAO-07-229T, a testimony to the Subcommittee on Readiness
and Management Support, Committee on Armed Services, U.S. Senate
Why GAO Did This Study:
Of the 26 areas on GAO‘s high-risk list of federal programs or
activities that are at risk for waste, fraud, abuse, or mismanagement,
8 are Department of Defense (DOD) programs or operations and another 6
are governmentwide high-risk areas that also apply to DOD. These high-
risk areas relate to most of DOD‘s major business operations. DOD‘s
failure to effectively resolve these high-risk areas has resulted in
billions of dollars of waste each year, ineffective performance, and
inadequate accountability. At a time when DOD is competing for
resources in an increasingly fiscally constrained environment, it is
critically important that DOD get the most from every defense dollar.
DOD has taken several positive steps and devoted substantial resources
toward establishing key management structures and processes to
successfully transform its business operations and address its high-
risk areas, but overall progress by area varies widely and huge
challenges remain.
This testimony addresses DOD‘s efforts to (1) develop a comprehensive,
integrated, enterprisewide business transformation plan and its related
leadership approach and (2) comply with legislation that addresses
business systems modernization and improving financial management
accountability. The testimony also addresses two sections included in
recent legislation and other DOD high-risk areas.
What GAO Found:
In the past year, DOD has made progress in transforming its business
operations, but continues to lack a comprehensive, enterprisewide
approach to its overall business transformation effort. Within DOD,
business transformation is broad, encompassing people, planning,
management, structures, technology, and processes in many key business
areas. While DOD‘s planning and management continues to evolve, it has
yet to develop a comprehensive, integrated, and enterprisewide plan
that covers all key business functions, and contains results-oriented
goals, measures and expectations that link organizational, unit, and
individual performance goals, while also being clearly linked to DOD‘s
overall investment plans. Because of the complexity and long-term
nature of business transformation, DOD also continues to need a chief
management official (CMO) with significant authority, experience, and
tenure to provide sustained leadership and integrate DOD‘s overall
business transformation effort. Without formally designating
responsibility and accountability for results, reconciling competing
priorities in investments will be difficult and could impede DOD‘s
progress in its transformation efforts.
DOD is taking steps to comply with legislative requirements aimed at
improving its business systems modernization and financial management;
however, much remains to be accomplished. In particular, DOD recently
issued updates to both the business enterprise architecture and the
transition plan, which are still not sufficiently complete to
effectively and efficiently guide and constrain business system
investments across the department. Most notably, the architecture is
not adequately linked to DOD component architectures, and the plan does
not include business system information for all major DOD components.
To address these shortfalls, DOD issued a strategy for ’federating“ or
extending its architecture to the defense components. But much remains
to be accomplished before a well-defined federated architecture is in
place, given that GAO recently reported that select components‘
architecture programs are not mature. However, DOD components continue
to invest billions of dollars in thousands of new and existing business
system programs. The risks associated with investing in systems ahead
of having a well-defined architecture and transition plan are profound
and must be managed carefully, as must the wide assortment of other
risks that GAO‘s work has shown to exist on specific DOD business
system investments. While not a guarantee, GAO‘s work and research has
shown that establishing effective system modernization management
controls, such as an architecture-centric approach to investment
decision making, can increase the chances of delivering cost-effective
business capabilities on time and within budget. Further, with regard
to legislation pertaining to financial management improvement, DOD
issued and updated its Financial Improvement and Audit Readiness Plan
in fiscal year 2006 to provide components with a construct for
resolving problems affecting the accuracy and timeliness of financial
information and an improved audit strategy for obtaining financial
statement audit opinions.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-229T].
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 Randy Hite at (202) 512-6256 or hiter@gao.gov.
[End of Section]
Mr. Chairman and Members of the Subcommittee:
It is a pleasure to be back before this Subcommittee to discuss the
progress and challenges associated with the Department of Defense's
(DOD) efforts to transform its business operations. Since the first
financial statement audit of a major DOD component was attempted almost
20 years ago, we have reported that weaknesses in business operations
not only adversely affect the reliability of reported financial data,
but also the economy, efficiency, and effectiveness of DOD's
operations. In fact, DOD currently bears responsibility, in whole or in
part, for 14 of our 26 high-risk areas. Eight of these are specific to
DOD and include DOD's overall approach to business transformation,
business systems modernization, financial management, the personnel
security clearance process, supply chain management, support
infrastructure management, weapon systems acquisition, and contract
management. In addition, DOD shares responsibility for six
governmentwide high-risk areas.[Footnote 1] Collectively, these high-
risk areas relate to most of DOD's major business operations which
directly support the warfighter, including how they get paid, the
benefits provided to their families, and the availability and condition
of the equipment they use both on and off the battlefield.
DOD's business area weaknesses result in reduced efficiencies,
ineffective performance, and inadequate accountability to Congress and
the American people, wasting billions of dollars each year at a time
when DOD is competing for resources in an increasingly fiscally
constrained environment. As a result, it is important that DOD get the
most from every dollar it invests. Our nation is not only threatened by
external security threats, but also from within by growing fiscal
imbalances due primarily to our aging population and rising health care
costs. These trends are compounded by the near-term deficits arising
from new discretionary and mandatory spending as well as lower revenues
as a share of the economy. If left unchecked, these fiscal imbalances
will ultimately impede economic growth, have an adverse effect on our
future standard of living, and in due course affect our ability to
address key national and homeland security needs. These factors create
the need to make choices that will only become more difficult and
potentially disruptive the longer they are postponed. Among these
difficult choices will be decisions about the affordability and
sustainability of the continued growth in defense spending.
Furthermore, irrespective of the size of the defense budget, the
taxpayers and warfighters deserve more effective management of DOD's
overall resources.
I continue to believe that DOD's senior leadership is committed to
transforming the department and DOD has taken a number of positive
steps to begin this effort. In fact, because of the impact of the
department's business operations on its warfighters, DOD recognizes
now, more than ever, the need to transform its business operations and
provide transparency in this process. Indeed, Secretary Rumsfeld was
very clear in his speech on September 10, 2001, when he identified
business transformation as a top priority. However, DOD's ability to
focus on this priority was overshadowed by the events of September 11,
2001, and the ensuing Global War on Terrorism, including military
operations in Iraq and Afghanistan. Clearly, these events have required
considerable emphasis and have become the department's primary focus.
As a result, progress on the full range of DOD's business
transformation challenges has been inconsistent, focusing thus far on
enterprisewide transformation, with many challenges remaining
concerning the transformation of the various military services and
defense agencies.
Congress, in part through the leadership of this Subcommittee, passed
legislation that codified many of our prior recommendations related to
DOD business systems modernization.[Footnote 2] Since then, DOD has
devoted substantial resources and made important progress toward
establishing key management structures and processes to guide business
systems investment activities, particularly at the enterprise, or
departmentwide, level. DOD's current approach is clearly superior to
its prior approach; however, a number of formidable challenges remain.
Last year when we testified before this Subcommittee, we highlighted
several of these formidable challenges.[Footnote 3] Today, I would like
to provide my perspectives on actions DOD has taken to address these
challenges and achieve business transformation through all levels of
the department over the past year. Specifically, I will discuss DOD's
efforts to (1) develop a comprehensive, integrated, enterprisewide
business transformation plan and its related leadership approach and
(2) comply with legislation that addresses business systems
modernization and improving financial management accountability. I will
also discuss two sections of the recently enacted John Warner National
Defense Authorization Act for Fiscal Year 2007[Footnote 4] that address
financial improvement and acquisition of all major automated
information systems, and selected additional DOD high-risk areas that
highlight the need for continued attention.
My statement is based in large part on our previous reports and some of
our current, ongoing efforts. Our work was performed in accordance with
generally accepted government auditing standards.
Summary:
I have stated on many occasions that transforming DOD's business
operations is an absolute necessity given our nation's current deficits
and long-term fiscal outlook. In the past year, DOD has made progress
in transforming its business operations, but continues to lack a
comprehensive, enterprisewide approach to planning and decision making
needed to ensure successful transformation and address systemic
business challenges. Within DOD, business transformation is broad,
encompassing people, planning, management, structures, technology, and
processes in several key business areas. While DOD's planning and
management continues to evolve, it has yet to develop a comprehensive,
integrated, enterprisewide plan that covers all key business functions,
and contains results-oriented goals, measures and expectations that
link organizational and individual performance goals, while also being
clearly linked to DOD's overall investment plans. Because of the
complexity and long-term nature of business transformation, DOD also
continues to need a chief management official (CMO) with significant
authority, experience, and tenure to provide sustained leadership and
integrate DOD's overall business transformation efforts. Without
formally designating responsibility and accountability for results,
reconciling competing priorities and prioritizing investments will be
difficult and could impede DOD's progress in its transformation
efforts.
DOD continues to take steps to comply with legislative requirements
aimed at improving its business systems modernization and financial
management; however, much remains to be accomplished before the full
intent of this legislation is achieved. In particular, DOD recently
issued updates to both the business enterprise architecture and the
transition plan, which while addressing several issues previously
reported by us, are still not sufficiently complete to effectively and
efficiently guide and constrain business system investments across all
levels of the department. Most notably, the architecture does not
include DOD component architectures, and the plan does not include most
component business system investments. To address these shortfalls, DOD
recently issued a strategy for "federating" or extending its
architecture to the military services and defense agencies. In our
view, much remains to be accomplished before a well-defined federated
architecture is in place, particularly given that we recently reported
that the respective military service architecture programs are not
mature. Nevertheless, DOD components are continuing to invest billions
of dollars in thousands of new and existing business system programs.
As we previously stated, the risks associated with investing in systems
ahead of having a well-defined architecture and accompanying transition
plan are profound and must be managed carefully, as must the wide
assortment of other risks that our work has shown to exist on specific
DOD business system investments. While not a guarantee, our work and
research has shown that establishing effective system modernization
management controls, such as an architecture-centric approach to
investment decision making, can increase the chances of delivering cost-
effective business capabilities on time and within budget. Further,
with regard to legislation pertaining to its financial management
improvement, DOD issued its Financial Improvement and Audit Readiness
Plan and two updates in fiscal year 2006 to provide components with a
construct for resolving problems affecting the accuracy and timeliness
of financial information and an improved audit strategy for obtaining
financial statement audit opinions.
In addition, you asked for my comments on two sections of the recently
enacted John Warner National Defense Authorization Act for Fiscal Year
2007.[Footnote 5] The first provision, section 321, seeks to ensure
that the department pursues financial management improvement activities
only in accordance with a comprehensive financial management
improvement plan that coordinates these activities with improvements in
its systems and controls. I fully support the intent of this
legislation, which is aimed at directing DOD's corrective actions
toward achieving sustained improvements in its ability to provide
timely, reliable, complete, and useful information. This is important
not only for financial reporting purposes, but also, more importantly,
for informed decision making and oversight. Section 321 is consistent
with existing legislation, as well as recent actions taken by the
department. The second provision, section 816, establishes certain
reporting and oversight requirements for the acquisition of all major
automated information systems (MAIS),[Footnote 6] which if properly
implemented could strengthen oversight of and accountability for
business system acquisitions that fail to meet cost, schedule, or
performance criteria. Therefore, I also support the purpose of this
legislation.
Ensuring effective transformation of other areas within DOD that we
have identified as high risk will require continued attention and
sustained leadership over a number of years to be successful. These
other high-risk areas include DOD's weapon systems acquisition,
contract management, supply chain management, personnel security
clearance program, and support infrastructure management. In the area
of weapon systems acquisition, recurring problems with cost overruns
and schedule delays have resulted in a reduction of buying power of the
defense dollar at a time when the nation is struggling with a large and
growing structural deficit. While DOD has made some progress in
addressing its supply chain management problems, the department faces
challenges in successfully implementing its changes and measuring
progress. While positive steps have been taken to address the financial
costs, delays, and other risks associated with DOD's personnel security
clearance program, problems with this program continue. Finally, much
work remains for DOD to transform its support infrastructure to
adequately fund and improve operations and achieve efficiencies while
ensuring that infrastructure costs no longer consume a larger than
necessary portion of DOD's budget.
Background:
DOD is one of the largest and most complex organizations in the world.
Overhauling its business operations will take many years to accomplish
and represents a huge management challenge. Execution of DOD's
operations spans a wide range of defense organizations, including the
military services and their respective major commands and functional
activities, numerous large defense agencies and field activities, and
various combatant and joint operational commands that are responsible
for military operations for specific geographic regions or theaters of
operation. To support DOD's operations, the department performs an
assortment of interrelated and interdependent business functions--
using more than 3,700 business systems--related to major business areas
such as weapon systems management, supply chain management,
procurement, health care management, and financial management. The
ability of these systems to operate as intended affects the lives of
our warfighters both on and off the battlefield. For fiscal year 2006,
Congress appropriated approximately $15.5 billion to DOD, and for
fiscal year 2007, DOD has requested another $16 billion in appropriated
funds to operate, maintain, and modernize these business systems and
associated infrastructure.
Until DOD can successfully transform its operations, it will continue
to confront the pervasive, decades-old management problems that cut
across all of DOD's major business areas. Since our report on the
financial statement audit of a major DOD component over 16 years
ago,[Footnote 7] we have repeatedly reported that weaknesses in
business management systems, processes, and internal controls not only
adversely affect the reliability of reported financial data, but also
the management of DOD operations. In March 2006,[Footnote 8] I
testified that DOD's financial management deficiencies, taken together,
continue to represent the single largest obstacle to achieving an
unqualified opinion on the U.S. government's consolidated financial
statements. These issues were also discussed in the latest consolidated
financial audit report.[Footnote 9] To date, none of the military
services or major DOD components has passed the test of an independent
financial audit because of pervasive weaknesses in internal control and
processes and fundamentally flawed business systems.[Footnote 10]
DOD's financial management problems are pervasive, complex, long-
standing, deeply rooted in virtually all of its business operations,
and challenging to resolve. The nature and severity of DOD's financial
management business operations and system deficiencies not only affect
financial reporting, but also impede the ability of DOD managers to
receive the full range of information needed to effectively manage day-
to-day operations. Such weaknesses have adversely affected the ability
of DOD 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,
including supporting warfighters and their families.
Transformation of DOD's business systems and operations is key to
improving the department's ability to provide DOD management and
Congress with accurate, timely, reliable, and useful information for
analysis, oversight, and decision making. This effort is an essential
part of the Secretary of Defense's broad initiative to "transform the
way the department works and what it works on." The savings resulting
from an effective business transformation effort could be significant.
DOD Lacks a Fully Developed, Comprehensive, Integrated, and
Enterprisewide Approach to Decision Making and Sustained Leadership:
I would like to take a few minutes to briefly discuss two critical
elements that are still needed at DOD to ensure successful and
sustainable business transformation before turning to DOD's business
modernization and financial management accountability improvement
efforts. First, DOD needs a comprehensive, integrated, and
enterprisewide plan to guide its overall business transformation
efforts. Second, a chief management official with the right skills and
at the right level of the department is essential for providing the
leadership continuity needed to sustain the momentum for business
transformation efforts across administrations and ensure successful
implementation.
Comprehensive, Integrated, and Enterprisewide Business Transformation
Plan Not Fully Developed:
DOD has not fully developed a comprehensive, integrated, and
enterprisewide strategy or action plan for managing its overall
business transformation effort. The lack of a comprehensive,
integrated, and enterprisewide action plan linked with performance
goals, objectives, and rewards has been a continuing weakness in DOD's
overall business transformation efforts that I have been testifying on
for years.[Footnote 11] I recognize that DOD's efforts to plan and
organize itself to achieve business transformation are continuing to
evolve. However, I cannot emphasize enough how critical to the success
of these efforts are top management attention and structures that focus
on transformation from a broad perspective and a clear, comprehensive,
integrated, and enterprisewide plan that, at a summary level, addresses
all of the department's major business operations. This plan should
cover all of DOD's key business functions; contain results-oriented
goals, measures, and expectations that link institutional, unit, and
individual performance goals and expectations to promote
accountability; identify people with needed skills, knowledge,
experience, responsibility, and authority to implement the plan; and
establish an effective process and related tools for implementation and
oversight. Such an integrated business transformation plan would be
instrumental in establishing investment priorities and guiding the
department's key resource decisions.
While DOD has developed plans that address aspects of business
transformation at different organizational levels, these plans have not
been clearly aligned into a comprehensive, integrated, and
enterprisewide approach to business transformation. As I will shortly
discuss in more detail, DOD recently issued an enterprise transition
plan (ETP) that is to serve as a road map and management tool for
sequencing business system investments in the areas of personnel,
logistics, real property, acquisition, purchasing, and financial
management. As Business Transformation Agency (BTA) officials
acknowledge, the ETP does not contain all of the components of a
comprehensive and integrated enterprisewide transformation plan as we
envision. BTA officials stated that, while the ETP is integrated with
the Financial Improvement and Audit Readiness Plan,[Footnote 12] the
ETP is not as integrated with other enterprisewide, high-risk area
improvement plans, such as the Supply Chain Plan.[Footnote 13] However,
BTA officials consider the ETP to be an evolving plan and are currently
analyzing other enterprisewide plans aimed at improving and
transforming DOD's business operations in order to improve the degree
of alignment between those plans and the ETP. Finally, BTA officials
indicate that the department is moving toward a family of linked plans
that could be used to guide and monitor business transformation, rather
than one comprehensive plan that addresses all aspects of DOD's
business operations.
To develop a family of linked plans, the enterprise transition plan
would also need to be aligned with the high-level Quadrennial Defense
Review (QDR) strategic plan and its initiatives, which so far is not
the case. For example, the QDR highlights the need for transforming the
way the department works and what it works on, but it does not contain
supporting details such as key metrics, milestones, and mechanisms to
guide and direct the business transformation effort. Moreover, the
QDR's business transformation initiative, the Institutional Reform and
Governance project, is not clearly aligned with the ETP. This
initiative is intended to (1) establish a common and authoritative
analytical framework to link strategic decisions to execution, (2)
integrate core decision processes, (3) and align and focus the
department's governance and management functions under an integrated
enterprise model. Finally, the QDR and other DOD planning documents do
not address the ongoing gap between wants, needs, affordability, and
sustainability in what is likely to be a resource-constrained
environment.
Sustained Leadership Is Needed:
While DOD has established leadership and oversight mechanisms to
address transformation, DOD lacks the sustained leadership at the right
level needed to achieve successful and lasting transformation. Due to
the complexity and long-term nature of DOD's business transformation
efforts, we continue to believe DOD needs a chief management officer
(CMO) to provide sustained leadership and maintain momentum. Without
formally designating responsibility and accountability for results,
choosing among competing demands for scarce resources and resolving
differences in priorities among various DOD organizations will be
difficult and could impede DOD's ability to transform in an efficient,
effective, and reasonably timely manner. In addition, it may be
particularly difficult for DOD to sustain transformation progress when
key personnel changes occur. 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 effort within DOD.
I would also like to articulate what this position would not do. The
CMO would not be another layer in DOD's day-to-day management
structure. Specifically, the CMO would not assume the responsibilities
of the undersecretaries of defense, the service secretaries, or other
DOD officials for the day-to-day management of the department, nor
would the CMO supervise those officials in connection with their
ongoing responsibilities. Instead, the CMO would be responsible and
accountable for planning, integrating, and executing the overall
business transformation effort. The CMO also would develop and
implement a strategic plan for the overall business transformation
effort. As required by Congress, DOD is studying the feasibility and
advisability of establishing a CMO to oversee the department's business
transformation process. As part of this effort, the Defense Business
Board, an advisory panel, examined various options and, in May 2006,
endorsed this concept. The Institute for Defense Analysis is scheduled
to issue a report on this issue before the end of this year. In
addition, McKinsey and Company recently endorsed the CMO concept.
The Secretary of Defense, Deputy Secretary of Defense, and other senior
leaders have clearly shown a commitment to business transformation and
addressing deficiencies in the department's business operations. During
the past year, DOD has taken additional steps to address certain
provisions and requirements of the Ronald W. Reagan National Defense
Authorization Act for Fiscal Year 2005, including establishing the
Defense Business Systems Management Committee (DBSMC), which is
intended to be DOD's primary transformation leadership and oversight
mechanism, and creating the BTA to support the DBSMC, a decision-making
body. However, these organizations do not provide the sustained
leadership needed to successfully achieve the needed overall business
transformation. The DBSMC's representatives consist of political
appointees whose terms expire when administrations change. Furthermore,
it is important to remember that committees do not lead, people do.
Thus, DOD still needs to designate a person to provide sustained
leadership and have overall responsibility and accountability for this
effort.
In addition, we testified in November 2005[Footnote 14] that DOD's BTA
offers potential benefits relative to the department's business systems
modernization efforts if the agency can be properly organized, given
resources, and empowered to effectively execute its roles and
responsibilities and is held accountable for doing so. However, the
department has faced challenges in making the BTA operational. For
example, we previously testified that there are numerous key
acquisition functions that would need to be established and made
operational for the BTA to effectively assume responsibility for 21 DOD-
wide projects, programs, systems, and initiatives, and our experience
across the government shows that these functions can take considerable
time to establish.[Footnote 15]
To assist the department, the Fiscal Year 2004 National Defense
Authorization Act gives DOD the authority to hire up to 2,500 highly
qualified experts from outside the civil service and uniformed services
without going through the normal civil service hiring system.[Footnote
16] Earlier this year, the BTA had yet to take advantage of this
authority because of certain departmental obstacles concerning, for
example, the roles that these experts could perform. However, it is our
understanding that this is no longer the case, and to date the BTA has
hired 9 of these individuals. Moreover, we were told that the BTA has
also obtained direct hiring authority from the Office of Personnel
Management. The BTA's total projected end strength is 235 personnel. As
of November 2006, the BTA had hired 128 personnel; agency officials
anticipate hiring the remaining 107 personnel, including 16 additional
highly qualified subject experts by September 30, 2007.
While achieving the BTA's initial staffing goals would represent a
major accomplishment and is extremely important to its ability to
perform its business transformation and business systems modernization
roles and responsibilities, BTA human capital management is not a one-
time event but rather an essential BTA function that needs to be
managed strategically. Our research shows that to be successful,
organizations need to treat human capital as strategic assets--
continuously working to understand gaps between future needs and on-
board capabilities and establish plans for filling gaps through a
combination of, for example, training, retention incentives, hiring,
and performance-related rewards. By employing such an approach, the BTA
can be better positioned to make sure that it has the right people,
with the right skills, when it needs them not only today but in the
future. The Deputy Undersecretary of Defense for Financial Management
stated that the BTA is currently developing a human capital strategy
that is expected to be completed by January 2007. It will to (1)
provide for rotating staff between BTA and the DOD components to infuse
talent into the BTA and to develop a change-oriented culture, (2) align
individual and team performance to already established organizational
mission outcomes, and (3) employ OPM's Human Capital Assessment and
Accountability Framework and the DOD Human Capital Strategy.
DOD Has Made Progress in Complying with Business Systems Modernization
and Financial Management Accountability Legislation, but Much Work
Remains:
The department has made important progress in complying with
legislation pertaining to its financial management improvement and
business systems modernization efforts. However, formidable challenges
remain relative to extending the architecture and implementing its
tiered accountability investment approach across the military services
and defense agencies, and ensuring that the department's thousands of
business system investments are implemented on time and within budget
and provide promised capabilities and benefits. The Fiscal Year 2005
National Defense Authorization Act contained provisions aimed at
establishing some of the tools needed to accomplish this. As our
evaluations of federal information technology (IT) management and our
research of successful organizations show, other tools necessary for
successfully modernizing systems will also be needed.
As we reported earlier this year,[Footnote 17] DOD also made important
progress in complying with the Fiscal Year 2005 National Defense
Authorization Act pertaining to its business systems modernization. For
example, on March 15, 2006, DOD released updates to its business
enterprise architecture (Version 3.1) and its ETP. These updates added
previously missing content to the architecture and transition plan,
such as identifying an enterprisewide data standard to support
financial management and reporting requirements. Other business system
modernization management improvements were also apparent, such as
increased budgetary reporting of business system investments and
additional investment review controls.
More recently, DOD issued Version 4.0 of its business enterprise
architecture and ETP. These latest versions provide additional content
and clarity. For example, the transition plan now includes the results
of ongoing analyses of gaps between existing business capabilities and
needed capabilities. However, enormous challenges, such as extending
the architecture across the military services and defense agencies,
remain. To this end, the department defined a conceptual strategy in
September 2006, for federating the architecture[Footnote 18] and
adopting a shared services orientation.[Footnote 19] While we believe
that the concepts have merit and are applicable to DOD, much remains to
be decided and accomplished before they can be implemented in a way to
produce architectures and transition plans for each DOD component that
are aligned with the department's corporate view and that can guide and
constrain component-specific investments.
At the same time, DOD components continue to invest billions of dollars
in new and existing business systems each year. This means that the
risks of investing in these programs ahead of the federated
architecture need to be part of investment approval decisions. As we
have previously reported,[Footnote 20] investment decision making based
on architecture alignment is but one of many keys to success of any
business system modernization. Other keys to the success in delivering
promised system capabilities and benefits on time and within budget
include having the right human capital team in place and following a
range of essential program management and system and software
acquisition disciplines. As I will discuss later, our experience in
reviewing several DOD business system programs shows that these keys to
success are not consistently practiced. While not a guarantee, our
research of leading program management and system acquisition practices
and evaluations of federal agencies shows that institutionalization of
a family of well-defined management controls can go a long way in
minimizing business system modernization risks.
DOD Continues to Evolve Its Business Enterprise Architecture, but Much
Remains to Be Accomplished:
In May 2006,[Footnote 21] we reported on DOD's efforts to address a
number of provisions in the Fiscal Year 2005 National Defense
Authorization Act.[Footnote 22] Among other things, we stated that the
department had adopted an incremental strategy for developing and
implementing its architecture, which was consistent with our prior
recommendation and a best practice. We further stated that DOD had
addressed a number of the limitations in prior versions of its
architecture. For example, we reported that Version 3.1 of the
architecture had much of the information needed, if properly
implemented, to achieve compliance with the Department of the
Treasury's United States Standard General Ledger,[Footnote 23] such as
the data elements or attributes that are needed to facilitate
information sharing and reconciliation with the Treasury. In addition,
we stated that the architecture continued to specify DOD's Standard
Financial Information Structure (SFIS)[Footnote 24] as an
enterprisewide data standard for categorizing financial information to
support financial management and reporting functions.
Despite this progress, we also reported[Footnote 25] that this version
of the architecture did not comply with all of the legislative
requirements[Footnote 26] and related best practices. For example,
while program officials stated that analyses of the current
architectural environment for several of the enterprise-level systems
had occurred, the architecture did not contain a description of, or a
reference to, the results of these analyses. The architecture also did
not include a systems standards profile to support implementation of
data sharing among departmentwide business systems and interoperability
with departmentwide IT infrastructure. Program officials acknowledged
that the architecture did not include this profile and stated that they
were working with the Assistant Secretary of Defense (Networks and
Information Integration) and Chief Information Officer to address this
in future versions. We also reported that the architecture was not, for
example, adequately linked to the military service and defense agency
component architectures and transition plans, which we said was
particularly important given the department's stated intention to adopt
a federated approach to developing and implementing the architecture.
In September 2006, DOD released Version 4.0 of its architecture, which
according to the department, resolves several of the architecture gaps
that were identified with the prior version. One example of a gap that
DOD reports Version 4.0 is beginning to fill is the definition of a key
business process area missing from prior versions--the planning,
programming, and budgeting process area. In this regard, according to
DOD, the architecture now includes departmental and other federal
planning, programming, and budgeting guidance (e.g., OMB Circular A-11)
and some high-level activities associated with this process area. In
addition, DOD reports that Version 4.0 has restructured the business
process models to reduce data redundancy and ensure adherence to
process modeling standards (e.g., eliminated numerous process modeling
standards violations and stand-alone process steps with no linkages).
Despite these improvements, this version is still missing, for example,
a depiction of the current environment (i.e., baseline of its current
assets and current capabilities) that was analyzed against its target
environment to identify capability gaps that the ETP is to address.
Further, it does not include DOD component architectures (e.g.,
services and various DOD agencies) as distinct yet coherent members of
a federated DOD business enterprise architecture.
DOD Plans to Federate Its Business Enterprise Architecture to the
Components:
Recognizing the need to address component architectures, DOD released
its business mission area federation strategy and road map in September
2006, which is intended to define how DOD will extend its business
enterprise architecture across the military services and defense
agencies. According to DOD, the strategy will provide for
standardization across the federation of architectures by, for example,
introducing a consistent set of standards for determining the status
and quality of the member (component and program) architectures, a
standard methodology for linking member architectures to the
overarching corporate architecture, the capability to search member
architectures, and a common method to reuse capabilities described by
these architectures.
In the end, the strategy is intended to link related business mission
area services or capabilities in the various architectures by
establishing a set of configuration standards for architecture
repositories. Further, the strategy is also intended to support the
development of the interoperable execution of enterprise and component
systems by defining and disclosing common services that can be shared
and reused by these systems. (See fig. 1 for a simplified and
illustrative conceptual depiction of DOD's federated business
enterprise architecture.)
Figure 1: Simplified and Illustrative Diagram of DOD's Federated
Business Enterprise Architecture:
[See PDF for image]
Source: Business Transformation Agency.
[End of figure]
The importance of extending the DOD business enterprise architecture to
the military services is underscored by our recent findings about the
military services' management of their respective enterprise
architecture programs.[Footnote 27] Specifically, in August 2006, we
released an assessment of federal agency enterprise architecture
programs' satisfaction of the elements in our Enterprise Architecture
Management Maturity Framework (EAMMF).[Footnote 28] Our EAMMF is a five-
stage architecture framework for managing the development, maintenance,
and implementation of an architecture and understanding the extent to
which effective architecture management practices are being performed
and where an organization is in its progression toward having a well-
managed architecture program. In short, the framework consists of 31
core elements that relate to architecture governance, content, use, and
measurement.[Footnote 29] These elements reflect research by us and
others showing that architecture programs should be founded upon
institutional architecture commitment and capabilities, and measured
and verified products and results.
With respect to the maturity of the military services' respective
enterprise architecture programs, we found that the departments of the
Air Force, the Army, and the Navy had not satisfied about 29, 55, and
29 percent of the core elements in our framework, respectively. In
addition, the Army had only fully satisfied 1 of the 31 core elements
(3 percent). (See table 1 for the number and percentage of elements
fully, partially, and not satisfied by each of the military services).
Table 1: Number and Percentage of Framework Elements Fully, Partially,
and Not Satisfied by the Military Services:
Military services: Air Force;
Fully satisfied: 14 (45%);
Partially satisfied: 8 (26%);
Not satisfied: 9 (29%).
Military services: Army;
Fully satisfied: 1 (03%);
Partially satisfied: 13 (42%);
Not satisfied: 17 (55%).
Military services: Navy;
Fully satisfied: 10 (32%);
Partially satisfied: 12 (39%);
Not satisfied: 9 (29%).
Source: GAO.
[End of table]
By comparison, the other major federal departments and agencies that we
reviewed had as a whole fully satisfied about 67 percent of the
framework's core elements. Among the key elements that all three
services had not fully satisfied were developing architecture products
that describe their respective target architectural environments and
developing transition plans for migrating to a target environment, in
addition to the following.
* The Air Force, for example, had not yet placed its architecture
products under configuration management to ensure the integrity and
consistency of these products and was not measuring and reporting on
the quality of these products.
* The Army, for example, had yet to develop effective architecture
development plans and had not developed architecture products that
fully described its current architectural environment.
* The Navy, for example, had yet to describe its current architectural
environment in terms of performance and had not explicitly addressed
security in its architecture descriptions.
Further, while the services had partially satisfied between 8 and 13
core elements in our framework, it is important to note that even
though certain core elements are partially satisfied, fully satisfying
some of them will not be accomplished quickly and easily. It is also
important to note the importance of fully, rather than partially,
satisfying certain elements, such as those that address architecture
content, which can have important implications for the quality of an
architecture and thus its usability and results.
To assist the military services in addressing enterprise architecture
challenges and managing their architecture programs, we recommended
that the services develop and implement plans for fully satisfying each
of the conditions in our framework. The department generally agreed
with our findings and recommendations and stated that it plans to use
our framework as one of the benchmark best practices as DOD components
continuously work to improve enterprise architecture management
maturity.
Clearly, much remains to be accomplished to implement the federated
strategy and create DOD's federated business enterprise architecture.
One key to making this happen, which we have previously
recommended,[Footnote 30] is having a business enterprise architecture
development management plan that defines what will be done, when, by
whom, and how it will done to fully develop the architecture. Having
and using such a plan is provided for in our EAMMF. Without one, the
department is less likely to effectively accomplish its intended
architecture evolution, extension, and improvement efforts. According
to BTA officials, they are in the process of addressing this
recommendation. We currently have ongoing work for this committee and
others looking at, among other things, how the department plans to
implement the federated strategy and the challenges that it faces in
doing so.
DOD Continues to Improve Its Enterprise Transition Plan, but Needed
Improvements Remain:
DOD has taken a number of steps to improve its ETP and address some of
the missing elements that we previously identified[Footnote 31]
relative to the Fiscal Year 2005 National Defense Authorization Act's
requirements and related transition planning guidance. For example, in
May 2006, we reported that the transition plan included an initiative
aimed at identifying capability gaps between the current and target
architectural environments, and provided information on progress on
major investments--including key accomplishments and milestones
attained, and more information about the termination of legacy systems.
However, we reported that it still did not identify, among other
things, all legacy systems that will not be part of the target
architecture, and it did not include system investment information for
all the military services, defense agencies, and combatant commands.
In September 2006, DOD released an updated revision to its ETP, which
continues to include major investments--such as key accomplishments and
milestones attained, as well as new information on near-term activities
(i.e., within the next 6 months) at both the enterprise and component
levels. For example, in an effort to improve visibility into personnel
activities, DOD reported that, for the Defense Civilian Personnel Data
System, it met the September 2006 milestone to implement enterprisewide
tools for use in advanced reporting and data warehousing, and that it
has set a September 2008 milestone for developing an implementation
strategy for integrating modules supporting functionality that is
currently provided by stand-alone applications. In addition, the
updated plan provides information on business priorities supported by
systems and initiatives and aligns these priorities with a set of
business value measures (e.g., on-time customer request, payroll
accuracy). Specifically, for each business enterprise priority, the
plan now identifies the business capability improvements (e.g., manage
personnel and pay) necessary to achieve the business enterprise
priority (e.g., personnel visibility) objectives and the metrics for
measuring progress towards achieving these objectives. In addition, the
plan now identifies the relationship between target systems, business
capabilities, operational activities, and the system functions they
provide and specific organizations that will or plan to use the system.
Further, the transition plan now includes the initial results of
ongoing analyses of gaps between its current and target environments
for most of the business enterprise priorities, in which capability and
performance shortfalls and their root causes are described and the
architecture solution component (such as business rules and
transformation initiatives and systems) that are to address these
shortfalls are identified.
However, the current transition plan is still missing important
elements. Specifically, the plan does not yet include system investment
information for all the defense agencies and combatant commands. In
addition, the planned investments in the transition plan are not
sequenced based on a range of activities that are critical to
developing an effective transition plan. As we have previously
reported,[Footnote 32] a transition or sequencing plan should provide a
temporal investment road map for moving between the current and target
environments, based on such considerations as technology opportunities,
marketplace trends, institutional system development and acquisition
capabilities, legacy and new system dependencies and life expectancies,
and the projected value of competing investments. According to a BTA
official responsible for the ETP, the transition plan investments have
not been sequenced based on these considerations. Rather, the ETP is
based on fiscal year budgetary constraints.
Program officials stated that the next version of the plan will enhance
performance metric tracking, improve the quality of system functional
scope and organizational span information, better integrate component
plans with enterprise plans, enhance federating plans for each business
capability, and possibly add other components to the enterprise
transition plan. As the transition plan evolves and all system
investments are validated against the architecture via capability gap
analyses, the department should be better positioned to sequentially
define and manage the migration and disposition of existing business
processes and systems--and the introduction of new ones.
DOD Has Established Business Systems Investment Decision-Making
Controls, but Full Implementation Remains Unclear:
To help improve the department's control and accountability over its
business systems investments, provisions in the Fiscal Year 2005
National Defense Authorization Act directed DOD to put in place a
specifically defined structure that is responsible and accountable for
controlling business systems investments to ensure compliance and
consistency with the business enterprise architecture. More
specifically, the act directs the Secretary of Defense to delegate
responsibility for review, approval, and oversight of the planning,
design, acquisition, deployment, operation, maintenance, and
modernization of defense business systems to designated approval
authorities or "owners" of certain business missions.[Footnote 33] DOD
has satisfied this requirement under the act. On March 19, 2005, the
Deputy Secretary of Defense issued a memorandum that delegated the
authority in accordance with the criteria specified in the act, as
described above. Our research and evaluation of agencies' investment
management practices have shown that clear assignment of senior
executive investment management responsibility and accountability is
crucial to having an effective institutional approach to IT investment
management.[Footnote 34]
The Fiscal Year 2005 National Defense National Authorization Act also
required DOD to establish investment review structures and processes,
including a hierarchy of investment review boards (IRB), each with
representation from across the department, and a standard set of
investment review and decision-making criteria for these boards to use
to ensure compliance and consistency with DOD's business enterprise
architecture. In this regard, the act required the establishment of the
DBSMC--which serves as the highest ranking governance body for business
system modernization activities within the department. As of April
2006, DOD identified 3,717 business systems and assigned responsibility
for these systems to IRBs. Table 2 shows the systems and the
responsible IRB and component.
Table 2: DOD Systems and Investment Review Board and Component:
Investment review board: Financial Management;
Air Force: 67;
Army: 161;
Navy: 148;
Defense Finance and Accounting Service: 72;
Other defense agencies: 35; Total: 483.
Investment review board: Human Resources Management;
Air Force: 164;
Army: 320;
Navy: 174;
Defense Finance and Accounting Service: 20;
Other defense agencies: 114; Total: 792.
Investment review board: Weapon System Life-Cycle Management and
Materiel Supply and Service Management;
Air Force: 780;
Army: 730;
Navy: 406;
Defense Finance and Accounting Service: 1;
Other defense agencies: 168; Total: 2,085.
Investment review board: Real Property and Installations Life-Cycle
Management;
Air Force: 71;
Army: 122;
Navy: 44;
Defense Finance and Accounting Service: 0;
Other defense agencies: 17; Total: 254.
Investment review board: Other;
Air Force: 65;
Army: 0;
Navy: 26;
Defense Finance and Accounting Service: 0;
Other defense agencies: 12; Total: 103.
Investment review board: Total;
Air Force: 1,147;
Army: 1,333;
Navy: 798;
Defense Finance and Accounting Service: 93;
Other defense agencies: 346; Total: 3,717.
Source: GAO analysis of DOD data.
[End of table]
A key element of the department's approach to reviewing and approving
business systems investments is the use of what it refers to as tiered
accountability. DOD's tiered accountability approach involves an
investment control process that begins at the component level and works
its way through a hierarchy of review and approval authorities,
depending on the size and significance of the investment. Military
service officials emphasized that the success of the process depends on
them performing a thorough analysis of each business system before it
is submitted for higher-level review and approval. Through this
process, the department reported in March 2006 that 226 business
systems, representing about $3.6 billion in modernization investment
funding, had been approved by the DBSMC--the department's highest-
ranking approval body for business systems. According to the
department's March 2006 report, this process also identified more than
290 systems for phase out or elimination and approximately 40 business
systems for which the requested funding was reduced and the funding
availability periods were shortened to fewer than the number of years
requested. For example, one business system investment that has been
eliminated is the Forward Compatible Payroll (FCP) system. In reviewing
the program status, the IRB determined that FCP would duplicate the
functionality contained in the Defense Integrated Military Human
Resources System, and it was unnecessary to continue investing in both
systems.[Footnote 35] A major reason the department has thousands of
business systems is that it has historically failed to consistently
employ the range of effective institutional investment management
controls, such as an architecture-centric approach to investment
decision making, that our work and research show are keys to successful
system modernization programs. Such controls help to identify and
eliminate duplicative systems and this helps to optimize mission
performance, accountability, and transformation. They also help to
ensure that promised system capabilities and benefits are delivered on
time and within budget.
Furthermore, the BTA reports that the tiered accountability approach
has reduced the level of funding and the number of years that funding
will be available for 14 Army business systems, 8 Air Force business
systems, and 8 Navy business systems. For example, the Army's Future
Combat Systems Advanced Collaborative Environment program requested
funding of $100 million for fiscal years 2006 through 2011, but the
amount approved was reduced to approximately $51 million for fiscal
years 2006 through 2008. Similarly, Navy's Military Sealift Command
Human Resources Management System requested funding of about $19
million for fiscal years 2006 through 2011, but the amount approved was
approximately $2 million for the first 6 months of fiscal year 2006.
According to Navy officials, this system initiative will be reviewed to
ascertain whether it has some of the same functionality as the Defense
Civilian Personnel Data System. Funding system initiatives for shorter
time periods can help reduce the financial risk by providing additional
opportunities for monitoring a project's progress against established
milestones and help ensure that the investment is properly aligned with
the architecture and the department's overall goals and objectives.
Besides limiting funding, the investment review and approval process
has resulted in conditions being placed on system investments. These
conditions identify specific actions to be taken and when the actions
must be completed. For example, in the case of the Army's Logistics
Modernization Program (LMP) initiative, one of the noted conditions was
that the Army had to address the issues discussed in our previous
reports.[Footnote 36] In our May 2004 report, we recommended that the
department establish a mechanism that provides for tracking all
business systems modernization conditional approvals to provide
reasonable assurance that all specific actions are completed on
time.[Footnote 37] In response, the department has begun to track
conditional approvals.
Despite the department's efforts to control its investments to acquire
new business systems or to enhance existing business systems,
formidable challenges remain. In particular, the reviews of those
business systems that have modernization funding of less than $1
million, which represent the majority of the department's reported
3,717 business systems, are only now being started on an annual basis,
and thus the extent to which the review structures and processes will
be applied to the department's 3,717 business systems is not clear.
Given the large number of systems involved, it is important that an
efficient system review and approval process be effectively implemented
for all systems. As indicated in table 2, there are numerous systems
across the department in the same functional area. Such large numbers
of systems indicate a real possibility for eliminating unnecessary
duplication and avoiding unnecessary spending on the department's
multiple business systems. In support of this Subcommittee, we have
work planned to address the extent to which these management controls
are actually being implemented for both the enterprise-level
investments and the thousands of other system investments that are
being managed at the component level.
Key DOD Systems Still Face Challenges:
As we have previously testified and reported,[Footnote 38] DOD has not
effectively managed a number of business system programs. Among other
things, our reviews of individual system investments have identified
weaknesses in such things as architectural alignment and informed
investment decision making, which are focus areas of the Fiscal Year
2005 National Defense Authorization Act provisions. Our reviews have
also identified weaknesses in other system acquisition and investment
management areas--such as requirements management, testing, and
performance management--where good management is crucial for the
successful implementation of any given DOD business system. I will
describe examples of the weaknesses that we have recently reported on
for five system investments. The system investments are the Defense
Integrated Military Human Resources System (DIMHRS), Defense Travel
System (DTS), the Army Logistics Modernization Program (LMP), the Navy
Tactical Command Support System (NTCSS), and the Transportation
Coordinators' Automated Information for Movements System II (TC-AIMS
II). The weaknesses that we have found raise questions as to the extent
to which the structures, processes, and controls that DOD has
established in response to the Fiscal Year 2005 National Defense
Authorization Act are actually being implemented, and illustrate the
range of system acquisition and investment management controls (beyond
those provided for in the act) that need to be effectively implemented
in order for a given investment to be successfully acquired and
deployed.
DIMHRS:
In 2005 we reported that DIMHRS--a planned DOD-wide military pay and
personnel system---was not being managed as a DOD-wide investment, to
include alignment with a DOD-wide architecture and governance by a DOD-
wide body.[Footnote 39] In addition, we reported that DIMHRS
requirements had not been adequately defined, and not all acquisition
best practices associated with commercial component-based systems were
being followed. Accordingly, we made a number of recommendations. In
response, DOD has elevated the system to an enterprise investment under
the BTA, and established a DIMHRS steering committee that is chartered
to include representation from the services. The BTA has also hired a
DIMHRS program manager, and the Army and the Air Force, while
continuing to evaluate their respective requirements, have determined
that the commercial software product selected for DIMHRS can be used
under certain conditions. The Army expects to deploy DIMHRS in April
2008 and the Air Force plans to begin deployment in May 2008. The Navy,
on the other hand, assessed both DIMHRS and the Marine Corps Total
Force System (MCTFS)[Footnote 40] and determined that MCTFS would
better meet its requirements. According to a Navy official, the DBSMC
has directed the Navy to research MCTFS and to fully evaluate the cost
implications of the MCTFS option, but has not granted the Navy
permission to deploy MCTFS. We plan to evaluate DOD's implementation of
our prior recommendations and the Navy's analysis of the merits of
pursuing the MCTFS option.
DTS:
In September 2006, we reported[Footnote 41] on limitations in the
economic justification underlying DOD's decision to invest in DTS,
which is intended to be the standard departmentwide travel system.
Specifically, we found that two key assumptions used to estimate cost
savings in the September 2003 DTS economic analysis were not based on
reliable information. Additionally, we reported that DOD did not have
quantitative metrics to measure the extent to which DTS is actually
being used. Moreover, we found that DOD had not adequately defined and
tested the system's requirements, an area of concern that was also
discussed in our January 2006 report.[Footnote 42] These system
acquisition management weaknesses introduce considerable risk to DOD's
ability to deliver promised DTS capabilities and benefits on time and
within budget. Although the September 2003 economic analysis was not
based on supportable data, the department's criteria do not require
that a new economic analysis be prepared. DTS has already completed all
of the major milestones related to a major automated system which
require that an economic analysis be prepared or at least updated to
reflect the current assumptions and the related costs and benefits.
However, the Fiscal Year 2005 National Defense Authorization
Act[Footnote 43] requires the periodic review, but not less than
annually, of every defense business system investment. Further, the
department's April 2006 guidance[Footnote 44] notes that the annual
review process "provides follow-up assurance that information
technology investments, which have been previously approved and
certified, are managed properly, and that promised capabilities are
delivered on time and within budget." If effectively implemented, this
annual review process provides an excellent opportunity for DOD
management to assess whether DTS is meeting its planned cost, schedule,
and functionality goals. Going forward, such a review could serve as a
useful management tool in making funding and other management decisions
related to DTS. We made recommendations to DOD aimed at improving the
management oversight of DTS, including periodic reports on DTS
utilization and resolution of inconsistencies in DTS's requirements.
DOD generally agreed with the recommendations and described its efforts
to address them.
LMP:
In 2004 and 2005,[Footnote 45] we reported that the Army faced
considerable challenges in developing and implementing LMP which is
intended to transform the Army Materiel Command's logistics operations.
In particular, we reported that LMP will not provide intended
capabilities and benefits because of inadequate requirements management
and system testing. These problems prevented the Tobyhanna Army Depot
from accurately reporting on its financial operations, which, in turn,
adversely impacts the depot's ability to accurately set prices. We
found that the Army has not put into place an effective management
process to help ensure that the problems with the system are resolved.
While the Army developed a process that identified the specific steps
that should be followed in addressing the problems identified, the
process was not followed. We recommended improvements in the
implementation of LMP as well as delaying implementation at the
remaining four depots until problems encountered have been resolved.
DOD concurred with all the recommendations. The Subcommittee has
requested that we undertake a series of audits directed at DOD's
efforts to resolve long-standing financial management problems over the
visibility of its assets. Our first such audit is evaluating the Army's
efforts in the area and will include follow-up work on LMP.
NTCSS:
In December 2005, [Footnote 46] we reported that DOD needed to reassess
its planned investment in the NTCSS--a system intended to help Navy
personnel effectively manage ships, submarines, and aircraft support
activities. Among other things, we reported that the Navy had not
economically justified its ongoing and planned investment in the NTCSS
and had not invested in the NTCSS within the context of a well-defined
DOD or Navy enterprise architecture. In addition, we reported that the
Navy had not effectively performed key measurement, reporting,
budgeting, and oversight activities, and had not adequately conducted
requirements management and testing activities. We conclude that
without this information, the Navy could not determine whether the
NTCSS as defined, and as being developed, is the right solution to meet
its strategic business and technological needs. Accordingly, we
recommended that DOD develop the analytical basis to determine if
continued investment in the NTCSS represents prudent use of limited
resources and we also made recommendations to strengthen management of
the program, conditional upon a decision to proceed with further
investment in the program. In response, DOD generally concurred with
the recommendations.
TC-AIMS II:
In December 2005,[Footnote 47] we reported that TC-AIMS II--a joint
services system with the goal of helping to manage the movement of
forces and equipment within the United States and abroad--had not been
defined and developed in the context of a DOD enterprise architecture.
Similar to DIMHRS and DTS, TC-AIMS II was intended to be an enterprise-
level system. However, the Army--DOD's acquisition agent for TC-AIMS
II--had pursued the system on the basis of an Army logistics-focused
architecture. This means that TC-AIMS II, which was intended to produce
a departmentwide military deployment management system, was based on a
service-specific architecture, thus increasing the risk that this
program, as defined, will not properly fit within the context of future
DOD enterprisewide business operations and IT environments. In
addition, the Army had not economically justified the program on the
basis of reliable estimates of life-cycle costs and benefits, and as a
result, the Army does not know if investment in TC-AIMS II, as planned,
is warranted or represents a prudent use of limited DOD resources.
Accordingly, we recommended that DOD, among other things, develop the
analytical basis needed to determine if continued investment in TC-AIMS
II, as planned, represents prudent use of limited defense resources. In
response, DOD generally concurred with our recommendations and
described efforts initiated or planned to bring the program into
compliance with applicable guidance.
DOD Issues Its Financial Improvement and Audit Readiness Plan:
A major component of DOD's business transformation effort is the
defense Financial Improvement and Audit Readiness Plan (FIAR),
initially issued in December 2005 and updated in June 2006 and
September 2006, pursuant to section 376 of the National Defense
Authorization Act for Fiscal Year 2006.[Footnote 48] Section 376
limited DOD's ability to obligate or expend funds for fiscal year 2006
on financial improvement activities until the department submitted a
comprehensive and integrated financial management improvement plan to
the congressional defense committees. Section 376 required the plan to
(1) describe specific actions to be taken to correct deficiencies that
impair the department's ability to prepare timely, reliable, and
complete financial management information and (2) systematically tie
these actions to process and control improvements and business systems
modernization efforts described in the business enterprise architecture
and transition plan. Further, section 376 required a written
determination that each financial management improvement activity
undertaken is consistent with the financial management improvement plan
and likely to improve internal controls or otherwise result in
sustained improvement in DOD's ability to produce timely, reliable, and
complete financial management information. DOD had to submit each
written determination to the congressional defense committees. Section
321 of the National Defense Authorization Act for Fiscal Year 2007
extended the written determination provision beyond fiscal year
2006.[Footnote 49]
DOD intends the FIAR Plan to provide DOD components with a framework
for resolving problems affecting the accuracy, reliability, and
timeliness of financial information, and obtaining clean financial
statement audit opinions. The FIAR Plan states that it prioritizes
DOD's improvement efforts based on the following criteria: (1) impact
on DOD financial statements, (2) ability to resolve long-standing
problems, (3) need for focused DOD leadership attention to resolve the
problem, (4) dependency on business transformation initiatives and
system solutions, and (5) availability of resources. The FIAR Plan
outlines the business rules and oversight structure DOD has established
to guide financial improvement activities and audit preparation
efforts. According to DOD, its June and September 2006 FIAR Plan
updates were intended to (1) begin identifying milestones that must be
met for assertions about the reliability of reported financial
statement information to occur on time, (2) develop greater consistency
among components regarding their corrective actions and milestones, and
(3) further describe how the FIAR Plan will be integrated with the
enterprise transition plan. In addition, the September 2006 update
outlines three key elements for achieving financial management
transformation: accountability, integration, and prioritization.
Although the FIAR Plan states that it is integrated with DOD component-
level financial improvement plans and the ETP, DOD officials have
acknowledged that the level of integration between the two efforts is
not complete and is still evolving.
The FIAR Plan is a high-level summary of DOD's plans and reported
actions to comply with financial management legislation and achieve
clean financial statement audit opinions. We have reviewed the FIAR
Plan and its updates and discussed the FIAR Plan with DOD and OMB. We
cannot comment on specific focus areas or milestones because we have
not seen any of the underlying component or other subordinate plans on
which the FIAR Plan is based. However, we believe the incremental line
item approach, integration plans, and oversight structure outlined in
the FIAR Plan for examining DOD's operations, diagnosing problems,
planning corrective actions, and preparing for audit represents a vast
improvement over prior financial improvement initiatives.
We continue to stress that the effectiveness of DOD's FIAR Plan will
ultimately be measured by the department's ability to provide timely,
reliable, and useful information for day-to-day management and decision
making. Nonetheless, I would like to see DOD place greater emphasis on
achieving auditability by 2012. If DOD is able to achieve this date,
and other impediments to an opinion on the consolidated financial
statements of the U.S. government are also addressed, an opinion for
the federal government may also be possible by 2012. We look forward to
working with DOD and the new DOD inspector general, when appointed, in
further developing DOD's audit strategy.
Legislation Enacted to Address DOD's Financial Management Weaknesses
and Strengthen Business Systems Accountability:
Lastly, you asked for my comments on two sections of the recently
enacted John Warner National Defense Authorization Act for Fiscal Year
2007.[Footnote 50] The first provision, section 321, seeks to ensure
that the department pursues financial management improvement activities
only in accordance with a comprehensive financial management
improvement plan that coordinates these activities with improvements in
its systems and controls. The second provision, section 816,
establishes certain reporting and oversight requirements for the
acquisition of all major automated information systems (MAIS).[Footnote
51]
Legislation Reiterates Need for Consistency between DOD's Financial and
Business Transformation Plans:
Section 321 of the John Warner National Defense Authorization Act for
Fiscal Year 2007 extends beyond fiscal year 2006 certain limitations
and requirements placed on DOD's financial management improvement and
audit initiatives in section 376 of the National Defense Authorization
Act for Fiscal Year 2006. Specifically, section 321 of the act limits
DOD's ability to obligate or expend any funds for the purpose of any
financial management improvement activity relating to the preparation,
processing, or auditing of financial statements until it has submitted
to the congressional defense committees a written determination that
each activity proposed to be funded is (1) consistent with the DOD
financial management improvement plan required by section 376 of the
National Defense Authorization Act for Fiscal Year 2006 and (2) is
likely to improve internal controls or otherwise result in sustained
improvements in the ability of the department to produce timely,
reliable, and complete financial management information.
I fully support the intent of legislation, such as section 321, which
is aimed at directing DOD's corrective actions towards the
implementation of sustained improvements in its ability to provide
timely, reliable, complete, and useful information. This is imperative
not only for financial reporting purposes, but more importantly for
daily decision making and oversight. Section 321 is consistent with and
builds on existing legislation, in addition to section 376 of the
National Defense Authorization Act for Fiscal Year 2006. For example,
section 1008 of the National Defense Authorization Act for Fiscal Year
2002[Footnote 52] currently requires DOD to limit resources used to
prepare and audit unreliable financial information, thereby saving the
taxpayers millions of dollars annually. In addition, the fiscal year
2002 act requires DOD to report to congressional committees and others
annually on the reliability of DOD's financial information and to
provide a summary of improvement activities, including priorities,
milestones, measures of success, and estimates of when each financial
statement will convey reliable information. In my opinion, Congress has
clearly articulated its expectation that DOD exercise prudence in its
use of taxpayer money and focus only on those activities that will
result in sustained improvements in its ability to produce timely and
reliable financial management information.
It is evident that DOD intends to use its FIAR Plan, which it plans to
update semiannually, as a tool for complying with legislative
requirements regarding its financial improvement efforts. However, as
is true with most large initiatives, a comprehensive and integrated
plan, sustained leadership, results-oriented performance measures, and
effective implementation will be key to successful reform.
Legislative Language Establishing Reporting Requirements for Major
Automated Information Systems Increases Oversight and Accountability:
The provisions in section 816 of the John Warner National Defense
Authorization Act for Fiscal Year 2007 provide for greater disclosure
and accountability of business system investment performance, and thus
facilitate greater oversight. More specifically, the legislation
establishes certain reporting and oversight requirements for the
acquisition of MAIS that fail to meet cost, schedule, or performance
criteria. In general, a MAIS is a major DOD IT program that is not
embedded in a weapon system (e.g., a business system investment). As
such, we believe that the provisions can increase oversight and
accountability. Therefore, I also support this legislation.
Specific High-risk Program Areas Highlight the Need for Continued
Attention to Ensure Effective Transformation:
I would like to discuss the five remaining high-risk areas within DOD.
These include weapon systems acquisitions and contract management;
supply chain management; personnel security clearance program; and
support infrastructure management.
DOD Weapon Systems Acquisitions and Contract Management:
Two interrelated areas are the management of DOD's major weapon systems
acquisitions and its contracts. While DOD eventually fields the best
weapon systems in the world, we have consistently reported that
typically the programs take significantly longer, cost significantly
more money, and deliver fewer capabilities than originally promised.
DOD's new weapon system programs are expected to be the most expensive
and complex ever and will consume an increasingly large share of DOD's
budget. These costly current and planned acquisitions are running head-
on into the nation's unsustainable fiscal path. In the past 5 years,
DOD has doubled its commitment to weapon systems from $700 billion to
$1.4 trillion, but this huge increase has not been accompanied by more
stability, better outcomes, or increased buying power for the
acquisition dollar. Rather than showing appreciable improvement,
programs are experiencing recurring problems with cost overruns, missed
deadlines, and performance shortfalls. A large number of the programs
included in our annual assessment of weapon systems are costing more
and taking longer to develop than estimated.[Footnote 53] It is not
unusual to see development cost increases between 30 percent and 40
percent and attendant schedule delays. These cost increases mean DOD
cannot produce as many weapons as intended nor can it be relied on to
deliver to the warfighter when promised. This causes DOD to either cut
back on planned quantities or capabilities, or to even scrap
multibillion dollar programs, after years of effort. If these systems
are managed with the traditional margins of error, the financial
consequences can be dire, especially in light of a constrained
discretionary budget.
It is within this context that we must engage in a comprehensive and
fundamental reexamination of new and ongoing investments in our
nation's weapon systems. Success for acquisitions means making sound
decisions to ensure that program investments are based on needs versus
wants and getting promised results. In the commercial world, successful
companies have no choice but to adopt processes and cultures that
emphasize basing decisions on knowledge, reducing risks prior to
undertaking new efforts, producing realistic cost and schedule
estimates, and building in quality to deliver products to customers at
the right price, time, and cost. However, this is not happening within
DOD. The department has tried to embrace best practices in its policies
and instill more discipline in setting requirements, among numerous
other actions, but it still has trouble distinguishing wants from true
needs. While DOD's acquisition policy supports a knowledge-based,
evolutionary approach to acquiring new weapons, its practice of making
decisions on individual programs often sacrifices knowledge and
executability in favor of revolutionary solutions. In an important
sense, success has come to mean starting and continuing programs even
when cost, schedule, and quantities must be sacrificed.
Our reviews have identified a number of causes behind the acquisition
problems just described, but I would like to focus on three. The first
I refer to as "big A," or acquisition with a capital "A." What I mean
by this is that DOD's funding, requirements, and acquisition processes
are not working synergistically. DOD does not clearly define and
stabilize requirements before programs are started. Our work has shown
that DOD's requirements process generates more demand for new programs
than fiscal resources can support. DOD compounds the problem by
approving many highly complex and interdependent programs. Moreover,
once a program is approved, requirements can be added along the way--
significantly stretching technology, creating design challenges,
exacerbating budget overruns, and enhancing accountability challenges.
For example, in the F-22A program, after the program was started, the
Air Force added a requirement for air-to-ground attack capability. In
its Global Hawk program, after the start of the program, the Air Force
added both signals intelligence and imagery intelligence requirements.
Both programs have experienced serious schedule delays and significant
unit cost increases. Customers often demand additional requirements
fearing there may not be another chance to get new capabilities because
programs can take a decade or longer to complete. Yet, perversely,
these strategies delay delivery to the warfighter, often by years.
The second cause I would refer to as "little a" or the acquisition
process itself. DOD commits to individual programs before it obtains
assurance that the capabilities it is pursuing can be achieved within
available resources and time constraints. In particular, DOD routinely
accepts high levels of technology risk at the start of major
acquisition programs. Funding processes encourage this approach, since
acquisition programs attract more dollars than efforts concentrating
solely on proving out technologies. However, without mature
technologies at the outset, a program will almost certainly incur cost
and schedule problems. Only 10 percent of the programs in our latest
annual assessment of weapon systems had demonstrated critical
technologies to best practice standards at the start of development;
and only 23 percent demonstrated them to DOD's standards.[Footnote 54]
The cost effect of proceeding without completing technology development
before starting an acquisition can be dramatic. For example, research,
development, test and evaluation costs for the programs included in our
review that met best practice standards at program start increased by a
modest average of 4.8 percent more than the first full estimate,
whereas the costs for the programs that did not meet these standards
increased by a much higher average of 34.9 percent more than the first
full estimate. The bottom line is that these consequences are
predictable and, thus, preventable.
The third cause has to do with the lack of accountability. DOD
officials are not always held accountable when programs go astray.
Likewise, contractors are not always held accountable when they fail to
achieve desired acquisition outcomes. In December 2005, we reported
that DOD gives its contractors the opportunity to collectively earn
billions of dollars through monetary incentives.[Footnote 55]
Unfortunately, we found DOD programs routinely engaged in practices
that failed to hold contractors accountable for achieving desired
outcomes and undermined efforts to motivate contractor performance,
such as:
* evaluating contractor performance on award-fee criteria that are not
directly related to key acquisition outcomes (e.g., meeting cost and
schedule goals and delivering desired capabilities to the warfighter);
* paying contractors a significant portion of the available fee for
what award-fee plans describe as "acceptable, average, expected, good,
or satisfactory" performance, which sometimes did not require meeting
the basic requirements of the contract; and:
* giving contractors at least a second opportunity to earn initially
unearned or deferred fees.
As a result, DOD has paid out an estimated $8 billion in award fees on
contracts in our study population, regardless of whether acquisition
outcomes fell short of, met, or exceeded DOD's expectations. For
example, we found that DOD paid its contractor for a satellite program-
-the Space-Based Infrared System High--74 percent of the award fee
available, $160 million, even though research and development costs
increased by more than 99 percent, and the program was delayed for many
years and was rebaselined three times. In another instance, DOD paid
its contractor for the F-22A aircraft more than $848 million, 91
percent of the available award fee, even though research and
development costs increased by more than 47 percent, and the program
had been delayed by more than 2 years and rebaselined 14 times. Despite
paying billions of dollars in award and incentive fees, DOD has not
compiled data or developed performance measures to validate its belief
that award and incentive fees improve contractor performance and
acquisition outcomes.
Similarly, DOD officials are rarely held accountable when programs go
astray. There are several reasons for this, but the primary ones
include the fact that DOD has never clearly specified who is
accountable for what, invested responsibility for execution in any
single individual, or even required program leaders to stay until the
job is done. Moreover, program managers are not empowered to make go or
no-go decisions, they have little control over funding, they cannot
veto new requirements, and they have little authority over staffing.
Because there is frequent turnover in their positions, program managers
also sometimes find themselves in the position of having to take on
efforts that are already significantly flawed.
There are many other factors that play a role in causing weapons
programs to go astray. They include workforce challenges, poor
contractor oversight, frequent turnover in key leadership, and a lack
of systems engineering, among others. Moreover, many of the business
processes that support weapons development--strategic planning and
budgeting, human capital management, infrastructure, financial
management, information technology, and contracting--are beset with
pervasive, decades-old management problems, including outdated
organizational structures, systems, and processes. In fact, all of
these areas--along with weapon systems acquisition--are on our high-
risk list of major government programs and operations.
Our work shows that acquisition problems will likely persist until DOD
provides a better foundation for buying the right things, the right
way. This involves making tough trade-off decisions as to which
programs should be pursued and, more importantly, not pursued, making
sure programs are executable, locking in requirements before programs
are started, and making it clear who is responsible for what and
holding people accountable when these responsibilities are not
fulfilled. These changes will not be easy to make. They require DOD to
reexamine the entirety of its acquisition process and to make deep-
seated changes to the setting, funding, and execution of program
requirements. In other words, DOD would need to revisit who sets
requirements and strategy, and who monitors performance, and what
factors to consider in selecting and rewarding contractors. It also
involves changing how DOD views success, and what is necessary to
achieve success. I am encouraged by DOD's recent efforts to improve the
collaboration and consultation between the requirements and acquisition
communities. The test of these efforts will be whether they produce
better decisions. If they do, it is important that they are sustained
by more than the force of personality.
Buying major systems is not the only area where DOD needs to improve
its acquisition practices. For example, DOD's management of its
contracts has been on our high-risk list since 1992. Our work has found
that DOD is unable to ensure that it is using sound business practices
to acquire the goods and services needed to meet the warfighter's
needs, creating unnecessary risks and paying higher prices than
justified. In this regard, in a March 2005 report, we concluded that
deficiencies in DOD's oversight of service contractors could place DOD
at risk of paying the contractors more than the value of the services
they performed.[Footnote 56] In June 2006, we reported that personnel
at the Defense Logistics Agency were not consistently reviewing prices
for commodities acquired under its Prime Vendor Program.[Footnote 57]
We noted that until DOD provides sufficient management oversight, the
program will remain vulnerable to the systemic pricing problems that
have plagued it in the past. Earlier this year, we reported that the
Army acquired security guard services under an authorized sole-source
basis, despite recognizing that it was paying about 25 percent more
than it had under contracts that had been previously awarded
competitively.[Footnote 58] We recommended that the Army reassess its
acquisition strategy to help make the best use of taxpayer dollars and
achieve its desired outcomes. In other reports, we identified numerous
issues in DOD's use of interagency contracting vehicles that
contributed to poor acquisition outcomes.
Until the department devotes sufficient management attention to address
these long-standing issues, DOD remains at risk of wasting billions of
dollars and failing to get the goods and services it needs to
accomplish its missions.
DOD Supply Chain Management:
Since the January 2005 update of the high-risk series, DOD has made
some progress toward addressing supply chain management problems. With
the encouragement of OMB, DOD has developed a plan to show progress
toward the long-term goal of resolving problems and removing supply
chain management from our list of high-risk areas within the
department. DOD issued the first iteration of the plan in July 2005
and, since then, has regularly updated it. Based on our initial review
of the plan, we believe it is a solid first step toward improving
supply chain management in support of the warfighter. For example,
DOD's plan identifies three key areas--requirements forecasting, asset
visibility, and materiel distribution--that we believe are critical to
DOD's efforts to improve supply chain management. The plan highlights
selected DOD supply chain initiatives, including key milestones in
their development. Within the last year, for example, DOD has made some
progress in streamlining the storage and distribution of defense
inventory items on a regional basis as part of its Joint Regional
Inventory Materiel Management initiative. DOD has completed a pilot for
this initiative in the San Diego region and, in January 2006, began a
similar transition for inventory items in Oahu, Hawaii. Notwithstanding
this positive first step, the department faces challenges and risks in
successfully implementing its proposed changes across the department
and measuring progress in resolving supply chain management problems.
It will be important for DOD to sustain top leadership commitment and
long-term institutional support for the plan; obtain necessary resource
commitments from the military services, the Defense Logistics Agency,
and other organizations; implement its proposed initiatives across the
department; identify performance metrics and valid data to use in
monitoring the initiatives; and demonstrate progress toward meeting
performance targets. We have been holding monthly meetings with DOD and
OMB officials to receive updates on the plan and gain a greater
understanding of the ongoing initiatives. In addition, we are
continuing to review the performance measures DOD is using to track the
plan's progress in resolving supply chain problems and DOD's efforts to
develop a comprehensive, integrated, and enterprisewide strategy to
guide logistics programs and initiatives. DOD is working on a logistics
road map, referred to as the "To Be" road map, which provides a vision
for future logistics programs and initiatives, including supply chain
management; identifies capability gaps; and links programs with
investments. However, the schedule for completing the initial road map
has recently slipped. Until the road map is completed, we will not be
able to assess how it addresses the challenges and risks DOD faces in
its supply chain management efforts.
DOD Personnel Security Clearance Program:
DOD's personnel security clearance program is another area that we
continue to assess because of the risks it poses. For over two decades,
we have reported on problems with DOD's personnel security clearance
program as well as the financial costs and risks to national security
resulting from these problems. For example, at the turn of the century,
we documented problems such as incomplete investigations, inconsistency
in determining eligibility for clearances, and a backlog of overdue
clearance reinvestigations that exceeded 500,000 cases. More recently
in 2004, we identified continuing and new impediments hampering DOD's
clearance program and made recommendations for increasing the
effectiveness and efficiency of the program. These long-standing delays
in completing hundreds of thousands of clearance requests for
servicemembers, federal employees, and industry personnel as well as
numerous impediments that hinder DOD's ability to accurately estimate
and eliminate its clearance backlog led us to declare DOD's personnel
security clearance program a high-risk area in January 2005. Since
then, we have issued a report and participated in four hearings that
addressed issues related to DOD's program.[Footnote 59] Among other
things, our September 2006 report showed that the 2,259 industry
personnel granted eligibility for a top secret clearance in January and
February 2006 had waited an average of 471 days. Also, our reviews of
50 of the cases for completeness revealed that required information was
not included in almost all of the cases. While positive steps--such as
(1) the development of an initial version of a plan to improve security
clearance processes governmentwide and (2) high-level involvement from
OMB--have been taken toward addressing the problems, other recent
events such as DOD halting the processing of all new clearance requests
for industry personnel on April 28, 2006, reveal continuing problems
with DOD's personnel security clearance program.
DOD Support Infrastructure Management:
Since 1997, GAO has identified DOD's management of its support
infrastructure as a high-risk area because infrastructure costs
continue to consume a larger than necessary portion of its budget. DOD
officials have been concerned for several years that much of the
department's infrastructure is outdated, inadequately maintained, and
that DOD has more infrastructure than needed, which impacts its ability
to devote more funding to weapon systems modernization and other
critical needs. Inefficient management practices and outdated business
processes have also contributed to the problem.
While DOD has made progress and expects to continue making improvements
in its support infrastructure management, DOD officials recognize they
must achieve greater efficiencies. To its credit, the department has
given high-level emphasis to reforming its support operations and
infrastructure since we last reported on this high-risk area, including
efforts to reduce excess infrastructure, promote transformation, and
foster jointness through the 2005 base realignment and closure (BRAC)
process. Also, DOD is updating its Defense Installations Strategic Plan
to better address infrastructure issues, and has revised its
installations readiness reporting to better measure facility
conditions, established core real property inventory data requirements
to better support the needs of real property asset management, and
continued to modify its suite of analytical tools to better forecast
funding requirements for installation management services. It has also
achieved efficiencies through privatizing military family housing and
demolishing unneeded buildings at military installations.
Our engagements examining DOD's management of its facilities
infrastructure indicates that much work remains for DOD to fully
rationalize and transform its support infrastructure to improve
operations, achieve efficiencies, and allow it to concentrate its
resources on the most critical needs, as the following illustrates.
* In July 2005, we reported on clear limitations associated with
achieving DOD's projected $50 billion in savings from this BRAC round.
While DOD offered many proposed actions in the 2005 round, these
actions were more related to business process reengineering and
realignment of various functions and activities than base closures and
actual facility reductions. Moreover, sizable savings were projected
from efficiency measures and other actions, but many underlying
assumptions had not been validated and could be difficult to track over
time. We have ongoing work monitoring actions emanating from the 2005
BRAC process and assessing costs and savings from those actions, and
will be able to comment further on the status of these initiatives over
the next several years as implementation actions progress.
* In June 2005, we reported that hundreds of millions of operation and
maintenance dollars designated for facilities' sustainment,
restoration, and modernization and other purposes were moved by the
services to pay for base operations support (BOS) due in part to a lack
of a common terminology across the services in defining BOS functions,
as well as the lack of a mature analytic process for developing
credible and consistent requirements.[Footnote 60] While these funding
movements are permissible, we found that they were disruptive to the
orderly provision of BOS services and contributed to the overall
degradation of facilities, which adversely affects the quality of life
and morale of military personnel. In another report issued in June
2005, we reported that many of DOD's training ranges were in
deteriorated condition and lacked modernization, which adversely
affected training activities and jeopardized the safety of military
personnel.[Footnote 61]
* In an April 2006 report, we identified several opportunities for DOD
and the services to improve their oversight and monitoring of the
execution and performance of awarded privatized housing
projects.[Footnote 62] We further reported that 36 percent of awarded
privatization projects had occupancy rates below expectations even
though the services had begun renting housing units to parties other
than military families, including units rented to single or
unaccompanied servicemembers, retired military personnel, civilians and
contractors who work for DOD, and civilians from the general public.
Factors contributing to occupancy challenges include increased housing
allowances, which have made it possible for more military families to
live off base thus reducing the need for privatized housing, and the
questionable reliability of DOD's housing requirements determination
process, which could result in overstating the need for privatized
housing.
* During recent visits to installations in the United States and
overseas, service officials continue to report inadequate funding to
provide both base operations support and maintain their facilities.
They express concern that unless this is addressed, future upkeep and
repair of many new facilities to be constructed as a result of BRAC,
overseas rebasing, and the Army's move to the modular brigade structure
will suffer and the condition of their facilities will continue to
deteriorate.
* We have also found that DOD's outline of its strategic plan for
addressing this high-risk area had a number of weaknesses and warranted
further clarification and specification. We have met with OMB and DOD
officials periodically to discuss the department's efforts to address
this high-risk area.
Through our monitoring of DOD activities between now and the next
several years for base closures and overseas basing, we will be able to
determine what other work needs to be done on issues associated with
DOD's management of its support infrastructure, as well as provide a
more complete assessment of costs, savings, and overall benefits
realized from the department's efforts to address these issues.
Organizations throughout DOD will need to continue reengineering their
business processes and striving for greater operational effectiveness
and efficiency. DOD will also need to develop a comprehensive, long-
range plan for its infrastructure that addresses facility requirements,
recapitalization, and maintenance and repair, as well as to provide
adequate resources to meet these requirements and halt the degradation
of facilities and services.
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.
FOOTNOTES
[1] GAO, GAO's High-Risk Program, GAO-06-497T (Washington, D.C.: Mar.
15, 2006). DOD shares responsibility for the following six
governmentwide high-risk areas: (1) disability programs, (2)
interagency contracting, (3) information systems and critical
infrastructure, (4) information-sharing for homeland security, (5)
human capital, and (6) real property.
[2] Ronald W. Reagan National Defense Authorization Act for Fiscal Year
2005, Pub. L. No. 108-375, § 332 (2004) (codified in part at 10 U.S.C.
§§ 186 and 2222).
[3] GAO, Defense Management: Foundational Steps Being Taken to Manage
DOD Business Systems Modernization but Much Remains to be Accomplished
to Effect True Business Transformation, GAO-06-234T (Washington, D.C.:
Nov. 9, 2005).
[4] John Warner National Defense Authorization Act for Fiscal Year
2007, Pub. L. No. 109-364 (2006).
[5] John Warner National Defense Authorization Act for Fiscal Year
2007, Pub. L. No. 109-364 (2006).
[6] The Committee originally asked GAO to comment on sec. 804 of the
Senate bill, S. 2766, which, with some changes, has now been enacted as
sec. 816.
[7] GAO, Financial Audit: Air Force Does Not Effectively Account for
Billions of Dollars of Resources, GAO/AFMD-90-23 (Washington, D.C.:
Feb. 23, 1990).
[8] GAO, Fiscal Year 2005 U.S. Government Financial Statements:
Sustained Improvement in Federal Financial Management Is Crucial to
Addressing Our Nation's Financial Condition and Long-term Fiscal
Imbalance, GAO-06-406T (Washington, D.C.: Mar. 1, 2006).
[9] Department of the Treasury, 2005 Financial Report of the United
States Government (Washington, D.C.: Dec. 15, 2005).
[10] Although not major DOD components, the Military Retirement Fund
received an unqualified audit opinion on its fiscal year 2005 financial
statements, and the DOD Medicare Eligible Retiree Health Care Fund
received a qualified audit opinion on its fiscal year 2005 financial
statements.
[11] See for example, GAO, Department of Defense: Sustained Leadership
is Critical to Effective Financial and Business Management
Transformation, GAO-06-1006T (Washington, D.C.: Aug. 3, 2006); DOD's
High-Risk Areas: Successful Business Transformation Requires Sound
Strategic Planning and Sustained Leadership, GAO-05-520T (Washington,
D.C.: Apr. 13, 2005); and DOD Financial Management: Integrated
Approach, Accountability, Transparency, and Incentives Are Keys to
Effective Reform, GAO-02-497T (Washington, D.C.: Mar. 6, 2002).
[12] U.S. Department of Defense, Defense Financial Improvement and
Audit Readiness Plan (Washington, D.C.: Sept. 30, 2006).
[13] U.S Department of Defense, DOD Plan for Improvement in the GAO
High Risk Area of Supply Chain Management with a Focus on Inventory
Management and Distribution, (Washington, D.C.: September 2006).
[14] GAO, Defense Management: Foundational Steps Being Taken to Manage
DOD Business Systems Modernization, but Much Remains to be Accomplished
to Effect True Business Transformation, GAO-06-234T (Washington, D.C.:
Nov. 9, 2005).
[15] According to DOD, 21 systems and initiatives have been transferred
under the BTA as of Oct. 31, 2006.
[16] National Defense Authorization Act for Fiscal Year 2004, Pub. L.
No. 108-136, § 1101 (2003) (codified in part at 10 U.S.C. § 9903).
[17] GAO-06-406T and GAO, Business Systems Modernization: DOD Continues
to Improve Institutional Approach, but Further Steps Needed, GAO-06-658
(Washington, D.C.: May 15, 2006).
[18] A federated architecture is an architecture that is composed of a
set of coherent, but distinct, entity architectures. The entities or
members of the federation collaborate to develop an integrated
enterprise architecture that conforms to the enterprise view and to the
overarching rules of the federation.
[19] A service-oriented architecture is an approach for sharing
functions and applications across an organization by designing them as
discrete, reusable, business-oriented services. These services need to
be, among other things, (1) self-contained, meaning that they do not
depend on any other functions or applications to execute a discrete
unit of work; (2) published and exposed as self-describing business
capabilities that can be accessed and used; and (3) subscribed to via
well-defined and standardized interfaces instead of unique, tightly
coupled connections. Such a service orientation is thus not only
intended to promote the reduced redundancy and increased integration
that any architectural approach is designed to achieve, but to also
provide the kind of flexibility needed to support a quicker response to
changing and evolving business requirements and emerging conditions.
[20] GAO, DOD Systems Modernization: Planned Investment in the Navy
Tactical Command Support System Needs to be Reassessed, GAO-06-215
(Washington, D.C.: Dec. 5, 2005) and DOD Systems Modernization:
Uncertain Joint Use and Marginal Expected Value of Military Asset
Deployment System Warrant Reassessment of Planned Investment, GAO-06-
171 (Washington, D.C.: Dec. 15, 2005).
[21] GAO-06-658.
[22] Ronald W. Reagan National Defense Authorization Act for Fiscal
Year 2005, Pub. L. No. 108-375, § 332 (2004) (codified in part at 10
U.S.C. § 2222).
[23] The United States Standard General Ledger provides a uniform chart
of accounts and technical guidance used in standardizing federal agency
accounting.
[24] SFIS is the department's common financial business language.
[25] GAO-06-658.
[26] 10 U.S.C. §2222(d).
[27] GAO, Enterprise Architecture: Leadership Remains Key to
Establishing and Leveraging Architectures for Organizational
Transformation, GAO-06-831 (Washington, D.C.: August 2006).
[28] GAO-06-831.
[29] GAO, Information Technology: A Framework for Assessing and
Improving Enterprise Architecture Management (Version 1.1), GAO-03-584G
(Washington, D.C.: April 2003).
[30] GAO-06-658.
[31] GAO-06-219.
[32] GAO-06-658.
[33] Approval authorities, including 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; the Assistant Secretary of Defense for Networks and
Information Integration and Chief Information Officer of the Department
of Defense; and the Deputy Secretary of Defense or an Under Secretary
of Defense, as designated by the Secretary of Defense, are responsible
for the review, approval, and oversight of business systems and must
establish investment review processes for systems under their
cognizance.
[34] GAO, Information Technology Investment Management: A Framework for
Assessing and Improving Process Maturity, GAO-04-394G (Washington,
D.C.: March 2004).
[35] According to the department's fiscal year 2007 IT budget request,
approximately $33 million was sought for fiscal year 2007 and about $31
million was estimated for fiscal year 2008 for FCP.
[36] GAO, DOD Business Systems Modernization: Billions Continue to Be
Invested with Inadequate Management Oversight and Accountability, GAO-
04-615 (Washington, D.C.: May 27, 2004 and Army Depot Maintenance:
Ineffective Oversight of Depot Maintenance Operations and System
Implementation Efforts, GAO-05-441 (Washington, D.C.: June 30, 2005).
[37] GAO-04-615.
[38] See, for example, GAO-06-234T.
[39] GAO, DOD Systems Modernization: Management of Integrated Military
Human Capital Program Needs Additional Improvements, GAO-05-189
(Washington, D.C.: Feb 11, 2005).
[40] MCTFS is the Marine Corps' integrated personnel and pay system.
[41] GAO, Defense Travel System: Reported Savings Questionable and
Implementation Challenges Remain, GAO-06-980 (Washington, D.C.: Sept.
26, 2006).
[42] GAO DOD Business Transformation: Defense Travel System Continues
to Face Implementation Challenges, GAO-06-18 (Washington, D.C.: Jan.
18, 2006).
[43] Ronald W. Reagan National Defense Authorization Act for Fiscal
Year 2005, Pub. L. No. 108-375, § 332 (2004) (codified, in part at 10
U.S.C. §§ 186 and 2222).
[44] DOD, DOD IT Business Systems Investment Review Process: Investment
Certification and Annual Review Process User Guidance (Apr. 10, 2006).
[45] GAO, DOD Business Systems Modernization: Billions Continue to Be
Invested with Inadequate Management Oversight and Accountability, GAO-
04-615 (Washington, D.C.: May. 27, 2004) and Army Depot Maintenance:
Ineffective Oversight of Depot Maintenance Operations and System
Implementation Efforts, GAO-05-441 (Washington, D.C.: June 30, 2005).
[46] GAO, DOD Systems Modernization: Planned Investment in the Navy
Tactical Command Support System Needs to be Reassessed, GAO-06-215
(Washington, D.C.: Dec. 5, 2005).
[47] GAO, DOD Systems Modernization: Uncertain Joint Use and Marginal
Expected Value of Military Asset Deployment System Warrant Reassessment
of Planned Investment, GAO-06-171 (Washington, D.C.: Dec. 15, 2005).
[48] Pub. L. No. 109-163, § 376, 119 Stat. 3136, 3213 (2006).
[49] Pub. L. No. 109-364, § 321, 120 Stat. 2083 (2006).
[50] John Warner National Defense Authorization Act for Fiscal Year
2007, Pub. L. No. 109-364 (2006).
[51] The Committee originally asked GAO to comment on sec. 804 of the
Senate bill, S. 2766, which, with some changes, has now been enacted as
sec. 816.
[52] Pub. L. No. 107-107, §1008, 115 Stat. 1012, 1204 (Dec. 28, 2001).
[53] GAO, Defense Acquisitions: Assessments of Selected Major Weapon
Programs, GAO-06-391 (Washington, D.C.: Mar. 31, 2006).
[54] DOD's policy states technologies should be demonstrated in at
least a relevant environment before a program enters system
development; whereas, GAO utilizes the best practice standard that
calls for technologies to be demonstrated one step higher--
demonstration in an operational environment.
[55] GAO, Defense Acquisitions: DOD Has Paid Billions in Award and
Incentive Fees Regardless of Acquisition Outcomes, GAO-06-66
(Washington, D.C.: Dec. 19, 2005); and Defense Acquisitions: DOD Wastes
Billions of Dollars through Poorly Structured Incentives, GAO-06-409T
(Washington, D.C.: Apr. 5, 2006).
[56] GAO, Contract Management: Opportunities to Improve Surveillance on
Department of Defense Service Contracts, GAO-05-274 (Washington, D.C.:
Mar. 17, 2005).
[57] GAO, Defense Management: Attention is Needed to Improve Oversight
of DLA Prime Vendor Program, GAO-06-739R (Washington, D.C.: June 19,
2006).
[58] GAO, Contract Security Guards: Army's Guard Program Requires
Greater Oversight and Reassessment of Acquisition Approach, GAO-06-284
(Washington, D.C.: Apr. 3, 2006).
[59] GAO, DOD Personnel Clearances: Additional OMB Actions Are Needed
to Improve the Security Clearance Process , GAO-06-1070 (Washington,
D.C.: Sept. 28, 2006); DOD Personnel Clearances: New Concerns Slow
Processing of Clearances for Industry Personnel, GAO-06-748T
(Washington, D.C.: May 17, 2006); DOD Personnel Clearances: Funding
Challenges and Other Impediments Slow Clearances for Industry
Personnel, GAO-06-747T (Washington, D.C.: May 17, 2006); DOD Personnel
Clearances: Government Plan Addresses Some Longstanding Problems with
DOD's Program, But Concerns Remain, GAO-06-233T (Washington, D.C.: Nov.
9, 2005); and DOD Personnel Clearances: Some Progress Has Been Made but
Hurdles Remain to Overcome the Challenges That Led to GAO's High-Risk
Designation, GAO-05-842T (Washington, D.C.: June 28, 2005).
[60] GAO, Defense Infrastructure: Issues Need to Be Addressed in
Managing and Funding Base Operations and Facilities Support, GAO-05-556
(Washington, D.C.: June 15, 2005).
[61] GAO, Military Training: Better Planning and Funding Priority
Needed to Improve Conditions of Military Training Ranges, GAO-05-534
(Washington, D.C.: June 10, 2005).
[62] GAO, Military Housing: Management Issues Require Attention as the
Privatization Program Matures, GAO-06-438 (Washington, D.C.: Apr. 28,
2006).
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