Department of Defense
Sustained Leadership Is Critical to Effective Financial and Business Management Transformation Gao ID: GAO-06-1006T August 3, 2006The Department of Defense (DOD) bears sole responsibility for eight DOD-specific high-risk areas and shares responsibility for six governmentwide high-risk areas. These high-risk areas reflect the pervasive weaknesses that cut across all of DOD's major business operations. Several of the high-risk areas are inter-related, including, but not limited to, financial management, business systems modernization, and DOD's overall approach to business transformation. Billions of dollars provided to DOD are wasted each year because of ineffective performance and inadequate accountability. DOD has taken some positive steps to successfully transform its business operations and address these high-risk areas, but huge challenges remain. This testimony discusses (1) pervasive, long-standing financial and business management weaknesses that affect DOD's efficiency; (2) some examples that highlight a need for improved business systems development and implementation oversight; (3) DOD's key initiatives to improve financial management, related business processes, and systems; and (4) actions needed to enhance the success of DOD's financial and business transformation efforts.
DOD's pervasive financial and business management problems adversely affect the economy, efficiency, and effectiveness of its operations, and have resulted in a lack of adequate accountability across all major business areas. These problems have left the department vulnerable to billions of dollars of fraud, waste, and abuse annually, at a time of increasing fiscal constraint. Further evidence of DOD's problems is the long-standing inability of any military service or major defense component to pass the test of an independent financial audit because of pervasive weaknesses in financial management systems, operations, and controls. To support its business operations, DOD invests billions of dollars each year to operate, maintain, and modernize its business systems. But despite this significant annual investment, GAO has continued to identify business system projects that have failed to be implemented on time, within budget, and with the promised capability. For example, in January 2006, GAO reported on problems with the implementation of the Defense Travel System--a project that was initiated in September 1998. DOD's many high-risk challenges are years in the making and will take time to effectively address. Top management has demonstrated a commitment to transforming the department's business processes. In December 2005, DOD issued its Financial Improvement and Audit Readiness Plan to guide its financial management improvement efforts. Also, DOD has developed an initial Standard Financial Information Structure, which is DOD's enterprisewide data standard for categorizing financial information. Because of the complexity and long-term nature of DOD transformation efforts, GAO would like to reiterate two missing critical elements that need to be in place if DOD's transformation efforts are to be successful. First, DOD should develop and implement a comprehensive, integrated, and enterprisewide business transformation plan. Second, GAO continues to support the creation of a chief management officer, with the right skills and at the right level within the department, to provide the needed sustained leadership to oversee the department's overall business transformation process.
GAO-06-1006T, Department of Defense: Sustained Leadership Is Critical to Effective Financial and Business Management Transformation
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Testimony:
Before the Subcommittee on Federal Financial Management, Government
Information, and International Security, Committee on Homeland Security
and Governmental Affairs, U.S. Senate:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 2:30 p.m. EDT:
Thursday, August 3, 2006:
Department of Defense:
Sustained Leadership Is Critical to Effective Financial and Business
Management Transformation:
Statement of David M. Walker Comptroller General of the United States:
GAO-06-1006T:
GAO Highlights:
Highlights of GAO-06-1006T, a testimony before the Subcommittee on
Federal Financial Management, Government Information and International
Security, Committee on Homeland Security and Governmental Affairs, U.S.
Senate
Why GAO Did This Study:
The Department of Defense (DOD) bears sole responsibility for eight DOD-
specific high-risk areas and shares responsibility for six
governmentwide high-risk areas. These high-risk areas reflect the
pervasive weaknesses that cut across all of DOD‘s major business
operations. Several of the high-risk areas are inter-related,
including, but not limited to, financial management, business systems
modernization, and DOD‘s overall approach to business transformation.
Billions of dollars provided to DOD are wasted each year because of
ineffective performance and inadequate accountability. DOD has taken
some positive steps to successfully transform its business operations
and address these high-risk areas, but huge challenges remain.
This testimony discusses
(1) pervasive, long-standing financial and business management
weaknesses that affect DOD‘s efficiency; (2) some examples that
highlight a need for improved business systems development and
implementation oversight; (3) DOD‘s key initiatives to improve
financial management, related business processes, and systems; and (4)
actions needed to enhance the success of DOD‘s financial and business
transformation efforts.
What GAO Found:
DOD‘s pervasive financial and business management problems adversely
affect the economy, efficiency, and effectiveness of its operations,
and have resulted in a lack of adequate accountability across all major
business areas. These problems have left the department vulnerable to
billions of dollars of fraud, waste, and abuse annually, at a time of
increasing fiscal constraint. Further evidence of DOD‘s problems is the
long-standing inability of any military service or major defense
component to pass the test of an independent financial audit because of
pervasive weaknesses in financial management systems, operations, and
controls. The following examples indicate the magnitude and severity of
the problems.
Table: Illustrative Weaknesses in DOD's Financial Management and
Business Operations:
Business area: Military personnel;
Problem identified: Hundreds of separated battle-injured soldiers were
pursued for collection of military debts incurred through no fault of
their own. Overpayment of pay and allowances (entitlements), pay
calculation errors, and erroneous leave payments caused 73 percent of
the reported debts.
Business area: Inventory;
Problem identified: The Army had not maintained accurate accountability
over inventory shipped to repair contractors.
Business area: Financial management;
Problem identified: DOD‘s processes for recording and reporting costs
for the Global War on Terrorism were inadequate, raising significant
concerns about the overall reliability of DOD‘s reported cost data.
Source: GAO.
[End of table]
To support its business operations, DOD invests billions of dollars
each year to operate, maintain, and modernize its business systems. But
despite this significant annual investment, GAO has continued to
identify business system projects that have failed to be implemented on
time, within budget, and with the promised capability. For example, in
January 2006, GAO reported on problems with the implementation of the
Defense Travel System”a project that was initiated in September 1998.
DOD‘s many high-risk challenges are years in the making and will take
time to effectively address. Top management has demonstrated a
commitment to transforming the department‘s business processes. In
December 2005, DOD issued its Financial Improvement and Audit Readiness
Plan to guide its financial management improvement efforts. Also, DOD
has developed an initial Standard Financial Information Structure,
which is DOD‘s enterprisewide data standard for categorizing financial
information. Because of the complexity and long-term nature of DOD
transformation efforts, GAO would like to reiterate two missing
critical elements that need to be in place if DOD‘s transformation
efforts are to be successful. First, DOD should develop and implement a
comprehensive, integrated, and enterprisewide business transformation
plan. Second, GAO continues to support the creation of a chief
management officer, with the right skills and at the right level within
the department, to provide the needed sustained leadership to oversee
the department‘s overall business transformation process.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-1006T].
To view the full product, click on the link above. For more
information, contact McCoy Williams at (202) 512-9095 or
williamsm1@gao.gov.
[End of Section]
Mr. Chairman and Members of the Subcommittee:
It is a pleasure to be here to discuss key aspects of business
transformation efforts at the Department of Defense (DOD). At the
outset, I would like to thank the Subcommittee for having this hearing
and acknowledge the important role hearings such as this one serve. The
involvement of this Subcommittee is critical to ultimately ensuring
public confidence in DOD as a steward that is accountable for its
finances. DOD continues to confront pervasive, decades-old financial
management and business problems related to its systems, processes
(including internal controls), and people (human capital). Of the 26
areas on GAO's governmentwide "high-risk" list, 8 are DOD program
areas, and the department shares responsibility for 6 other high-risk
areas that are governmentwide in scope.[Footnote 1] These problems
serve to, among other things, preclude the department from producing
accurate, reliable, and timely information with which to make sound
decisions and accurately report on its trillions of dollars of assets
and liabilities. Further, DOD's financial management deficiencies
continue to represent the single largest obstacle to achieving an
unqualified opinion on the U.S. government's consolidated financial
statements. In an effort to better manage DOD's resources, the
Secretary of Defense has appropriately placed a high priority on
transforming key business processes to improve their efficiency and
effectiveness in supporting the department's military mission.
As per your request, my testimony will touch on three of the high-risk
areas--financial management, business systems modernization, and DOD's
overall approach to business transformation. I will provide
perspectives on (1) some of the pervasive, long-standing financial and
business management weaknesses that affect DOD's efficiency; (2) some
examples that highlight a need for improved business systems
development and implementation oversight; (3) DOD's key initiatives to
improve financial management, related business processes, and systems;
and (4) actions needed to enhance the success of DOD's financial and
business transformation efforts. My statement is based on our previous
reports and testimonies. Our work was performed in accordance with
generally accepted government auditing standards.
Summary:
DOD's pervasive financial and business management problems adversely
affect the economy, efficiency, and effectiveness of its operations,
and have resulted in a lack of adequate accountability across all major
business areas. These problems have left the department vulnerable to
billions of dollars of fraud, waste, and abuse annually, at a time of
increasing fiscal constraint. Further evidence of DOD's problems is the
long-standing inability of any military service or major defense
component to pass the test of an independent financial audit because of
pervasive weaknesses in financial management systems, operations, and
controls. The following examples indicate the magnitude and severity of
the problems.
* We found that hundreds of separated battle-injured soldiers were
pursued for collection of military debts incurred through no fault of
their own, including 74 soldiers whose debts had been reported to
credit bureaus, private collection agencies, and the Treasury Offset
Program. Overpayment of pay and allowances (entitlements), pay
calculation errors, and erroneous leave payments caused 73 percent of
the reported debts.[Footnote 2]
* We found numerous problems with DOD's processes for recording and
reporting costs for the Global War on Terrorism (GWOT), raising
significant concerns about the overall reliability of DOD's reported
cost data. As noted in our September 2005 report, neither DOD nor
Congress know how much the war was costing and how appropriated funds
were spent, or have historical data useful in considering future
funding needs.[Footnote 3] In at least one case, the reported costs may
have been materially overstated. Specifically, DOD's reported
obligations for mobilized Army reservists in fiscal year 2004 were
based primarily on estimates rather than actual information and
differed from related payroll information by as much as $2.1 billion,
or 30 percent of the amount DOD reported in its cost report.
Additionally, the department invests billions of dollars each year to
operate, maintain, and modernize its business systems. But despite this
significant annual investment, the department has been continually
confronted with the difficult task of implementing business systems on
time, within budget, and with the promised capability. For example, in
December 2005,[Footnote 4] we reported that the Army had not
economically justified its investment in the Transportation
Coordinators' Automated Information for Movement System (TC-AIMS) II,
on the basis of reliable estimates of costs and benefits. TC-AIMS II
was intended to be the single integrated system to automate
transportation management function areas for the military services. As
noted in our report, the most recent economic justification included
cost and benefit estimates based on all four military services using
the system. However, the Air Force and the Marine Corps have stated
that they do not intend to use TC-AMIS II. Even with costs and benefits
for all four services included, the analysis showed a marginal return
on investment; that is, for each dollar spent on the system, slightly
less than one dollar of benefit would be returned. The Army estimates
the total life cycle cost of TC-AIMS II to be $1.7 billion over 25
years, including $569 million for acquisition and $1.2 billion for
operation and maintenance. The Army reports that it has spent
approximately $751 million on TC-AIMS II since its inception in 1995.
This example and others highlight the need for improved oversight of
the billions of dollars DOD invests annually in the operation,
maintenance, and modernization of its business systems. Further, in the
past the department has also struggled with developing a business
enterprise architecture to guide its business system development
efforts. We reported in July 2005, that DOD, after almost 4 years and
investing approximately $318 million, the architecture was not
sufficient to effectively guide and constrain ongoing and planned
systems investments.[Footnote 5] To its credit, DOD has recognized
these weaknesses and taken actions to improve its management control
and accountability over business system investments.
Successful reform of DOD's fundamentally flawed financial and business
management operations must simultaneously focus on its systems,
processes, and people. DOD's top management has demonstrated a
commitment to transforming the department and has launched key
initiatives to improve its financial management processes and related
business systems. For example, in December 2005, DOD issued its
Financial Improvement and Audit Readiness (FIAR) Plan, to guide
financial improvement and financial audit efforts within the
department. Also, DOD has developed an initial Standard Financial
Information Structure (SFIS), which is DOD's enterprisewide data
standard for categorizing financial information. While DOD has made
some encouraging progress in addressing specific challenges, it is
still in the very early stages of a departmentwide reform that will
take many years to accomplish.
DOD continues to make progress in several areas in its overall business
transformation efforts. For example, DOD established the Defense
Business System Management Committee (DBSMC) as DOD's primary
transformation leadership and oversight mechanism, and created the
Business Transformation Agency (BTA) to support the DBSMC. However, I
believe that DOD still lacks several key elements that are needed to
ensure a successful and sustainable transformation effort. In this
regard, I would like to reiterate two critical elements needed if DOD
is to succeed. First, as we have previously recommended, DOD should
develop and implement an integrated and strategic business
transformation plan. The lack of a comprehensive, integrated,
enterprisewide action plan linked with performance goals, objectives,
and rewards has been a continuing weakness in DOD's business management
transformation. Second, we continue to support the creation of a chief
management officer (CMO) at the right level of the organization to
provide the sustained leadership needed to achieve a successful and
sustainable transformation effort. The CMO would serve as a strategic
integrator to elevate and institutionalize the attention essential for
addressing key stewardship responsibilities, such as strategic
planning, enterprise architecture development and implementation,
business systems, and financial management, while facilitating the
overall business management transformation within DOD.
Background:
DOD is a massive and complex organization. Overhauling its business
operations will take years to accomplish and represents a huge
management challenge. In fiscal year 2005, the department reported that
its operations involved $1.3 trillion in assets and $1.9 trillion in
liabilities, more than 2.9 million military and civilian personnel, and
$635 billion in net cost of operations. For fiscal year 2005, the
department was appropriated approximately $525 billion.[Footnote 6]
Large differences between the net cost of operations and amounts
appropriated for any given fiscal year are not unusual in DOD. For the
most part, they are attributed to timing differences. For example, net
cost is calculated using an accrual basis of accounting (revenues and
expenses are recorded when earned and owed, respectively) whereas
appropriations are recorded on a cash basis (revenues and expenses are
recorded when cash is received or paid.) Using the accrual basis versus
the cash basis can result in DOD's reporting of revenues and expenses
in different periods. For instance, DOD may have received in 2005 an
appropriation for the acquisition of a weapon system but may not incur
expenses or make payments from the appropriation until several years
later. Also, DOD's net cost of operations includes non-cash expenses,
such as depreciation related to buildings and equipment that will not
require cash outlays until several years after the funds were
appropriated. In addition, the department's recording of expenses
related to environmental cleanups and pension and retiree health cost
liabilities can occur many years before the appropriations to fund
payment of those liabilities are received.
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 $16 billion to DOD to operate, maintain, and modernize
these business systems, and for fiscal year 2007, DOD has requested
another $16 billion for this purpose.
To assist DOD in addressing its modernization management challenges,
Congress included provisions in the Ronald W. Reagan National Defense
Authorization Act for Fiscal Year 2005 [Footnote 7] that were
consistent with our recommendations for establishing and implementing
effective business system investment management structures and
processes. During the past year, DOD has embarked on a series of
efforts to transform its business operations and further comply with
the act. In February 2005, DOD chartered the DBSMC to oversee
transformation. As the senior most governing body overseeing business
transformation, the DBSMC consists of senior leaders who meet monthly
under the personal direction of the Deputy Secretary of Defense to set
business transformation priorities and recommend policies and
procedures required to attain DOD-wide interoperability of business
systems and processes.
In October 2005, DOD also established the BTA that is intended to
advance DOD-wide business transformation efforts in general, but
particularly with regard to business systems modernization. DOD
believes it can better address agencywide business transformation--
which includes planning, management, organizational structures, and
processes related to all key business areas--by first transforming
business operations that support the warfighter while also enabling
financial accountability across DOD. The BTA reports directly to the
vice chair of the DBSMC--the Under Secretary of Defense for
Acquisition, Technology and Logistics--and includes an acquisition
executive who is responsible for 28 DOD-wide business projects,
programs, systems, and initiatives. The BTA is responsible for
integrating and supporting the work of the Office of the Secretary of
Defense principal staff assistants, some of whom function as the
approval authorities and who chair the business system investment
review boards (IRB). The IRBs serve as the oversight and investment
decision-making bodies for those business capabilities that support
activities in their designated areas of responsibility.
Pervasive Financial and Business Management Problems Affect DOD's
Efficiency and Effectiveness:
Since the first GAO report on the financial statement audit of a major
DOD component over 16 years ago,[Footnote 8] 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 9] 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 10] 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.
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, and prevent fraud, as the following examples
illustrate.
* We found that hundreds of separated battle-injured soldiers were
pursued for collection of military debts incurred through no fault of
their own, including 74 soldiers whose debts had been reported to
credit bureaus, private collection agencies, and the Treasury Offset
Program. Overpayment of pay and allowances (entitlements), pay
calculation errors, and erroneous leave payments caused 73 percent of
the reported debts.[Footnote 11]
* We identified numerous problems with DOD's processes for recording
and reporting costs for the Global War on Terrorism raising significant
concerns about the overall reliability of DOD's reported cost data. As
discussed in our September 2005 report, neither DOD nor Congress know
how much the war was costing and how appropriated funds were spent, or
have historical data useful in considering future funding needs.
[Footnote 12] In at least one case, the reported costs may have been
materially overstated. Specifically, DOD's reported obligations for
mobilized Army reservists in fiscal year 2004 were based primarily on
estimates rather than actual information and differed from related
payroll information by as much as $2.1 billion, or 30 percent of the
amount DOD reported in its cost report.
* In March 2006, we reported that DOD's policies and procedures for
determining, reporting, and documenting cost estimates associated with
environmental cleanup or containment activities were not consistently
followed. Further, none of the military services had adequate controls
in place to help ensure that all identified contaminated sites were
included in their environmental liability cost estimates. DOD's
reported liability of $64 billion is primarily for the cleanup of
hazardous wastes at training ranges, military bases, and former defense
sites; disposal of nuclear ships and submarines; and disposal of
chemical weapons. These weaknesses not only affected the reliability of
DOD's environmental liability estimate, but also that of the federal
government as a whole. Uncertainties in environmental liabilities could
materially affect the ultimate cost and timing of cleanup
activities.[Footnote 13]
* In December 2005, we reported that the Army had not maintained
accurate accountability over inventory shipped to repair contractors,
thereby placing these assets at risk of loss or theft. Although DOD
policy requires the military services to confirm receipt of all assets
shipped to contractors, we found that the Army did not consistently
record shipment receipts in its inventory management systems. In an
analysis of fiscal year 2004 shipment data obtained from two Army
inventory control points, we could not reconcile shipment records with
receipt records for 42 percent of the unclassified secondary repair
item shipments, with a value of $481.7 million, or for 37 percent of
the classified secondary repair item shipments, with a value of $8.1
million. These weaknesses in the Army's ability to account for
inventory shipped to repair contractors increase the risk of undetected
loss or theft because the Army cannot ensure control over assets after
they have been shipped from its supply system. Moreover, inaccurate and
incomplete receipt records diminish asset visibility and can distort on-
hand inventory balances, leading to unnecessary procurement of
items.[Footnote 14]
* Over the years, DOD recorded billions of dollars of disbursements and
collections in suspense accounts because the proper appropriation
accounts could not be identified and charged. Because documentation
needed to resolve these payment recording problems could not be found
after so many years, DOD requested and received authority to write off
certain aged suspense transactions. While DOD reported that it wrote
off an absolute value of $35 billion or a net value of $629 million
using the legislative authority, neither of these amounts accurately
represents the true value of all the individual transactions that DOD
had not correctly recorded in its financial records. Many of DOD's
accounting systems and processes routinely offset individual
disbursements, collections, adjustments, and correction entries against
each other and, over time, amounts might even have been netted more
than once. This netting and summarizing misstated the total value of
the write-offs and made it impossible for DOD to identify what
appropriations may have been under-or overcharged or to determine
whether individual transactions were valid.[Footnote 15]
* In May 2006, we reported that some DOD inventory management centers
had not followed DOD-wide and individual policies and procedures to
ensure they were retaining the right amount of contingency retention
inventory. While policies require the centers to (1) use category codes
to describe why they are retaining items in contingency inventory, (2)
hold only those items needed to meet current and future needs, and (3)
perform annual reviews of their contingency inventory decisions, one or
more centers had not followed these policies. For example, the Army's
Aviation and Missile Command was not properly assigning category codes
that described the reasons they were holding items in contingency
inventory because the inventory system was not programmed to use the
codes. We found that items valued at $193 million did not have codes to
identify the reasons why they were being held, and therefore we were
unable to determine the items' contingency retention category. We also
found that some inventory centers have held items such as gears,
motors, and electronic switches, even though there have been no
requests for some of them by the services in over 10 years. By not
following policies for managing contingency inventory, DOD's centers
may be retaining items that are needlessly consuming warehouse space,
and they are unable to know if their inventories most appropriately
support current and future operational needs.[Footnote 16]
* In June 2006, we reported that the military services had not
consistently implemented DOD's revised policy in calculating
carryover.[Footnote 17] Instead, the military services used different
methodologies for calculating the reported actual amount of carryover
and the allowable amount of carryover since DOD changed its carryover
policy in December 2002. Specifically, (1) the military services did
not consistently calculate the allowable amount of carryover that was
reported in their fiscal year 2004, 2005, and 2006 budgets because they
used different tables (both provided by DOD) that contained different
outlay rates for the same appropriation; (2) the Air Force did not
follow DOD's regulation on calculating carryover for its depot
maintenance activity group, which affected the amount of allowable
carryover and actual carryover by tens of millions of dollars as well
as whether the actual amount of carryover exceeded the allowable amount
as reported in the fiscal year 2004, 2005, and 2006 budgets; and (3)
the Army depot maintenance and ordnance activity groups' actual
carryover was understated in fiscal years 2002 and 2003 because
carryover associated with prior year orders was not included in the
carryover calculation as required. As a result, year-end carryover data
provided to decision makers who review and use the data for budgeting
were erroneous and not comparable across the three military
services.[Footnote 18]
Improved Oversight of DOD Business Systems Needed:
The department is provided billions of dollars annually to operate,
maintain, and modernize its stovepiped, duplicative, legacy business
systems. Despite this significant investment, the department is
severely challenged in implementing business systems on time, within
budget, and with the promised capability. The Clinger-Cohen Act of
1996[Footnote 19] and Office of Management and Budget guidance provide
an effective framework for information technology (IT) investment
management. They emphasize the need to have investment management
processes and information to help ensure that IT projects are being
implemented at acceptable costs and within reasonable and expected time
frames and that they are contributing to tangible, observable
improvements in mission performance. Effective project management and
oversight will be critical to the department's success in transforming
its business management systems and operations. Many of the problems
related to DOD's inability to effectively implement its business
systems on time, within budget, and with the promised capability can be
attributed to its failure to implement the disciplined
processes[Footnote 20] necessary to reduce the risks associated with
these projects to acceptable levels.[Footnote 21] Disciplined processes
have been shown to reduce the risks associated with software
development and acquisition efforts and are fundamental to successful
systems acquisition. While the department invests billions of dollars
annually in its business systems, the following examples highlight the
continuing problem faced by the department in successfully implementing
business systems.
* Logistics Modernization Program (LMP). In May 2004, we first reported
our concerns with the requirements management and testing processes
used by the Army in the implementation of LMP and the problems being
encountered after it became operational in July 2003.[Footnote 22] At
the time of our initial report, the Army decided that future
deployments would not occur until it had reasonable assurance that the
system would operate as expected for a given deployment. However, as we
reported in June 2005, the Army's inability to effectively address the
requirements management and testing problems hampered its ability to
field LMP to other locations.[Footnote 23] Our analysis disclosed that
LMP could not properly recognize revenue or bill customers.
Furthermore, data conversion problems resulted in general ledger
account balances not being properly converted when LMP became
operational in July 2003. These differences remained unresolved almost
18 months later. These weaknesses adversely affected the Army's ability
to set the prices for the work performed at the Tobyhanna Army Depot.
In addition, data conversion problems resulted in excess items being
ordered and shipped to Tobyhanna. As noted in our June 2005 report,
three truckloads of locking washers (for bolts) were mistakenly ordered
and received and subsequently returned because of data conversion
problems. At the request of the Chairman and Ranking Minority Member of
the Subcommittee on Readiness and Management Support, Senate Committee
on Armed Services, we have initiated an audit of the Army's efforts to
achieve financial management visibility over its assets. One aspect of
this audit will be to ascertain the Army's progress in resolving the
previously identified problems with LMP.
* Navy Enterprise Resource Planning (ERP). We reported in September
2005 that the Navy had invested approximately $1 billion in four pilot
ERP efforts, without marked improvement in its day-to-day
operations.[Footnote 24] The four pilots were limited in scope and were
not intended to be a corporate solution for resolving any of the Navy's
long-standing financial and business management problems. The lack of a
coordinated effort among the pilots led to a duplication of efforts in
implementing many business functions and resulted in ERP solutions that
carry out similar functions in different ways from one another. In
essence, the pilots resulted in four more DOD stovepiped systems that
did not enhance DOD's overall efficiency and resulted in $1 billion
being largely wasted. While the current Navy ERP effort has the
potential to address some of the Navy's financial management
weaknesses, its planned functionality will not provide an all-
inclusive, end-to-end corporate solution for the Navy. For example, the
scope of the ERP project does not provide for real-time asset
visibility of shipboard inventory. Asset visibility has been and
continues to be a long-standing problem within the department.
Furthermore, the project has a long way to go, with a current estimated
completion date of 2011, at an estimated cost of $800 million.
* Defense Travel System (DTS). As we reported in January 2006,[Footnote
25] DTS continues to face implementation challenges, particularly with
respect to testing key functionality to ensure that the system will
perform as intended. Our analysis of selected requirements for one key
area disclosed that system testing was not effective in ensuring that
the promised capability was delivered as intended. For example, we
found that DOD did not have reasonable assurance that flight
information was properly displayed.[Footnote 26] This problem was not
detected prior to deployment of DTS because DOD did not properly test
the system interfaces through which the data are accessed for display.
As a result, those travelers using the system may not have received
accurate information on available flights, which could have resulted in
higher travel costs. Our report also identified key challenges facing
DTS in becoming DOD's standard travel system, including the development
of needed interfaces and underutilization of DTS at sites where it has
been deployed. While DTS has developed 36 interfaces with various DOD
business systems, it will have to develop interfaces with at least 18
additional business systems--not a trivial task. Additionally, the
continued use of the existing legacy travel systems at locations where
DTS is already deployed results in underutilization of DTS and affects
the savings that DTS was planned to achieve.
* Naval Tactical Command Support System (NTCSS). The Navy initiated the
NTCSS program in 1995 to enhance the combat readiness of ships,
submarines, and aircraft. To accomplish this, NTCSS was to provide unit
commanding officers and crews with information about maintenance
activities, parts inventories, finances, technical manuals and
drawings, and personnel. According to the Navy, it spent approximately
$1.1 billion for NTCSS from its inception through fiscal year 2005 and
expects to spend another $348 million from fiscal years 2006 through
2009, for a total of approximately $1.45 billion. As discussed in our
December 2005 report,[Footnote 27] the Navy has not economically
justified its ongoing and planned investment in NTCSS on the basis of
reliable estimates of future costs and benefits. The most recent
economic justification's cost estimates were not reliably derived, and
return on investment was not properly calculated. In addition,
independent reviews of the economic justification to determine its
reliability did not occur, and the Navy has not measured whether
already deployed and operating components of the system are producing
expected value.
* TC-AIMS II. In December 2005, we reported that the Army had not
economically justified its investment in TC-AIMS II on the basis of
reliable estimates of costs and benefits. TC-AIMS II was intended to be
the single integrated system to automate transportation management
function areas for the military services.[Footnote 28] As noted in our
report, the most recent economic justification included cost and
benefit estimates predicated on all four military services using the
system. However, the Air Force and the Marine Corps have stated that
they do not intend to use TC-AMIS II. Even with costs and benefits for
all four services included, the analysis showed a marginal return on
investment; that is, for each dollar spent on the system, slightly less
than one dollar of benefit would be returned. The Army estimates the
total life cycle cost of TC-AIMS II to be $1.7 billion over 25 years,
including $569 million for acquisition and $1.2 billion for operation
and maintenance. The Army reports that it has spent approximately $751
million on TC-AIMS II since its inception in 1995.
To effectively and efficiently modernize its nonintegrated and
duplicative business operations and systems, it is essential for DOD to
develop and use a well-defined business enterprise architecture. In
July 2001, the department initiated a business management modernization
program to, among other things, develop the architecture. We have
previously reported on DOD's long-standing architecture management
weaknesses.[Footnote 29] Despite spending almost 4 years and about $318
million, the architecture did not provide sufficient content and
utility to effectively guide and constrain ongoing and planned business
systems investments. DOD recognized the weaknesses that needed to be
addressed and assigned a new business transformation leadership team in
2005. More specifically, as previously noted, in October 2005, DOD
established BTA to advance DOD-wide business transformation efforts in
general, but particularly with regard to business systems
modernization.
DOD's Key Initiatives to Improve Financial Management Processes and
Business Systems:
DOD's complex and pervasive weaknesses cannot be fixed with short-term
solutions, but require ongoing and sustained top management attention
and resources. DOD's top management has demonstrated a commitment to
transforming the department and has launched key initiatives to improve
its financial management processes and related business systems, as
well as made important progress in complying with legislation
pertaining to its business systems modernization and financial
management improvement efforts. For example, we reported in May
2006[Footnote 30] that DOD released an update to its business
enterprise architecture on March 15, 2006, developed an updated
enterprise transition plan, and issued its annual report to Congress
describing steps taken and planned with regard to business
transformation, among other things. These steps address several of the
missing elements we previously identified relative to the legislative
provisions concerning the architecture, transition plan, budgetary
reporting of business system investments, and investment review.
Further, we testified[Footnote 31] that in December 2005 DOD had issued
its FIAR Plan, a major component of its business transformation
strategy, to guide financial management improvement and audit efforts
within the department. In addition, DOD developed SFIS that will be its
enterprisewide data standard for categorizing financial information to
support financial management and reporting functions. While this
progress better positions the department to address the business
systems modernization and financial management high-risk areas,
significant challenges remain, particularly in implementing its tiered
accountability investment approach.
DOD Issued Its Financial Improvement and Audit Readiness Plan:
A major component of DOD's business transformation strategy is its FIAR
Plan, issued in December 2005. The FIAR Plan was issued pursuant to
section 376 of the National Defense Authorization Act for Fiscal Year
2006,[Footnote 32] which for fiscal year 2006 limited DOD's ability to
obligate or expend funds for financial improvement activities until the
department submitted a comprehensive and integrated financial
management improvement plan to congressional defense committees that
(1) described 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 tied
such 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 be (1) consistent with the financial management improvement
plan and (2) likely to improve internal controls or otherwise result in
sustained improvement in DOD's ability to produce timely, reliable, and
complete financial management information. The act also required that
each written determination be submitted to the congressional defense
committees.
The FIAR Plan is intended to provide DOD components with a road map for
achieving the following objectives: (1) resolving problems affecting
the accuracy, reliability, and timeliness of financial information, and
(2) obtaining clean financial statement audit opinions. Similar to the
Financial Improvement Initiative, an earlier DOD improvement effort,
the FIAR Plan uses an incremental approach to structure its process for
examining operations, diagnosing problems, planning corrective actions,
and preparing for audit. However, unlike the previous initiative, the
FIAR Plan does not establish a specific target date for achieving a
clean audit opinion on the departmentwide financial statements. Target
dates under the prior plan were not credible. Rather, the FIAR Plan
recognizes that it will take several years before DOD is able to
implement the systems, processes, and other changes necessary to fully
address its financial management weaknesses. This plan is an important
and positive step that will help key department personnel to better
understand and address its financial management deficiencies.
As outlined in its FIAR Plan, DOD has established business rules and an
oversight structure to guide improvement activities and audit
preparation efforts. In December 2005, the U.S. Army Corps of
Engineers, Civil Works, became the first major DOD component to assert,
under DOD's new process and business rules, that its fiscal year 2006
financial statement information was reliable. An independent public
accounting firm has been hired to perform this component's financial
statement audit, under the oversight and direction of the DOD Inspector
General. However, the effectiveness of DOD's FIAR Plan, as well as the
department's leadership and business rules, in addressing DOD's
financial management deficiencies will be ultimately measured by the
department's ability to provide timely, reliable, accurate, and useful
information for day-to-day management and decision making.
DOD Developed an Initial Standard Financial Information Structure:
Another key initiative is SFIS, which is DOD's enterprisewide data
standard for categorizing financial information to support financial
management and reporting functions. DOD has recently completed phase I
of the SFIS initiative, which focused on standardizing general ledger
and external financial reporting requirements. SFIS includes a standard
accounting classification structure that can allow DOD to standardize
financial data elements necessary to support budgeting, accounting,
cost management, and external reporting; it also incorporates many of
the Department of the Treasury's U. S. Standard General Ledger
attributes. Additional SFIS efforts remain under way, and the
department plans to further define key data elements, such as those
relating to the planning, programming, and budgeting business process
area.
DOD intends to implement SFIS using three approaches. One approach
requires legacy accounting systems to submit detail-level accounting
transactions that are to be converted to SFIS-equivalent data elements.
The second approach applies to business feeder systems and will require
incorporation of SFIS data elements within systems that create the
business transactions. Lastly, accounting systems under development,
including new enterprise resource planning systems, are required to
have the ability to receive SFIS data as part of source transactions
and generate appropriate general ledger entries in accordance with the
U.S. Standard General Ledger.
DOD Efforts to Control Business Systems Investments:
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 responsibilities and accountabilities
is crucial to having an effective institutional approach to IT
investment management.[Footnote 34]
The fiscal year 2005 national defense authorization act also required
DOD to establish investment review structures and processes, including
a hierarchy of IRBs, 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 1
shows the systems by the responsible IRB and component.
Table 1: DOD Systems by 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 phaseout 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. 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.
Eliminating this duplicative system will enable DOD to use this funding
for other priorities. The funding of multiple systems that perform the
same function is one reason the department has thousands of business
systems. Identifying and eliminating duplicative systems helps optimize
mission performance and accountability and supports the department's
transformation goals.
Furthermore, based on information provided by BTA program officials,
there was a reduction 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 to 2011, but the amount
approved was reduced to approximately $51 million for fiscal years 2006
to 2008. Similarly, Navy's Military Sealift Command Human Resources
Management System requested funding of about $19 million for fiscal
years 2006 to 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 as part of the investment review and approval
process, this process is also resulting 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 LMP initiative, one of the noted conditions was that the
Army had to address the issues discussed in our previous
reports.[Footnote 35] 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 36] The department's action is consistent with the
intent of our recommendations.
Notwithstanding the department's efforts to control its business system
investments, 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.
The extent to which the review structures and processes will be applied
to the department's 3,717 business systems is still evolving. 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 1, 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.
Key Elements Needed to Guide DOD Transformation Efforts:
While DOD's recent efforts represent positive steps toward improving
financial management and changing DOD's business systems environment,
the department still lacks key elements that are needed to ensure a
successful and sustainable business transformation effort. We reiterate
two major elements necessary for successful business transformation:
(1) a comprehensive, integrated, and enterprisewide business
transformation plan and (2) a CMO with the right skills and at the
right level of the department for providing the sustained leadership
needed to achieve a successful and sustainable transformation effort.
Comprehensive, Integrated, and Enterprisewide Business Transformation
Plan Not Developed:
Although some progress has been made in business transformation
planning, DOD still has not developed a comprehensive, integrated, and
enterprisewide strategy or action plan for managing its overall
business transformation effort. The lack of a comprehensive,
integrated, enterprisewide action plan linked with performance goals,
objectives, and rewards has been a continuing weakness in DOD's
business management transformation.
Since 1999, GAO has recommended a comprehensive, integrated strategy
and action plan for reforming DOD's major business operations and
support activities.[Footnote 37] DOD's efforts to plan and organize
itself to achieve business transformation are continuing to evolve.
Critical to the success of these efforts will be 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 areas. This strategic 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. Such an integrated business transformation
plan would be instrumental in establishing investment priorities and
guiding the department's key resource decisions.
DOD's leadership has recognized the need to transform the department's
business operations. DOD released a major update to its business
enterprise architecture in September 2005 and developed an updated
transition plan in March 2006 for modernizing its business processes
and supporting IT assets. The business enterprise architecture provides
a foundational blueprint for modernizing business operations,
information, and systems, while the enterprise transition plan provides
a road map and management tool that sequences business systems
investments in the areas of personnel, logistics, real property,
acquisition, purchasing, and financial requirements.
However, while the enterprise transition plan is an important step
toward developing a strategic plan for the department's overall
business transformation efforts, it is still focused primarily on
business systems. Business transformation is much broader; it
encompasses areas such as support infrastructure, human capital,
financial management, planning and budgeting, and supply chain
management. DOD officials acknowledge that the enterprise transition
plan may not have all of the elements of an overarching business
transformation plan as we envision it. However, they consider the plan
to be evolving.
Sustained Leadership Is Needed:
DOD continues to lack the sustained leadership at the right level to
achieve successful and lasting transformation. We have testified on the
need for a CMO on numerous occasions.[Footnote 38] Because of the
complexity and long-term nature of DOD's business transformation
efforts, we reiterate the need for a 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
between 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. The
National Defense Authorization Act for Fiscal Year 2006[Footnote 39]
directs the department to study the feasibility of a CMO position in
DOD. In this regard, the Institute for Defense Analysis has initiated a
study and the results are due by December 2006. Further, in May 2006,
the Defense Business Board recommended the creation of a Principal
Under Secretary of Defense, with a 5 year term appointment, to serve as
CMO. Additionally, in July 2006, a major global consulting firm
recommended the concept of a chief operating officer be instituted in
many federal agencies as the means to help achieve the transformation
that many agencies have undertaken.[Footnote 40]
To provide for senior-level leadership, the CMO would serve as the
strategic, enterprisewide integrator of DOD's overall efforts to
transform its business operations. The CMO would be an executive level
II appointment, with a tenure of 5 to7 years and serve as the Deputy
Secretary or Principal Under Secretary of Defense for Management. This
position would elevate integrate, and institutionalize the attention
essential for addressing key stewardship responsibilities, such as
strategic planning, enterprise architecture development and
implementation, IT management, financial management reform, and human
capital reform while facilitating the overall business management
transformation effort within DOD. It is important to note that 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. Rather, 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
transformational efforts.
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 fiscal year 2005 national defense
authorization act, including establishing the DBSMC as 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 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.
Conclusion:
DOD continues to face two formidable challenges. Externally, it must
combat the global war on terrorism, and internally, it must address the
long-standing problems of fraud, waste, and abuse. Pervasive, decades-
old management problems related to its business operations affect all
of DOD's major business areas. While DOD has taken several positive
steps to address these problems, our previous work has uncovered a
persistent pattern among DOD's reform initiatives that limits their
overall impact on the department. These initiatives have not been fully
implemented in a timely fashion because of the absence of
comprehensive, integrated strategic planning; inadequate transparency
and accountability; and the lack of sustained leadership. In this time
of growing fiscal constraints, every dollar that DOD can save through
improved economy and efficiency of its operations is important to the
well-being of our nation and the legitimate needs of our warfighters.
Until DOD resolves the numerous problems and inefficiencies in its
business operations, billions of dollars will continue to be wasted
every year. Furthermore, without strong and sustained leadership, both
within and across administrations, DOD will likely continue to have
difficulties in maintaining the oversight, focus, and momentum needed
to implement and sustain the needed reforms to its business operations.
In this regard, I would like to reiterate the need for a CMO to serve
as the strategic and enterprisewide integrator to oversee the overall
transformation of the department's business operations.
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 bears responsibility for the following eight high-risk
areas: (1) DOD's overall approach to business transformation, (2)
business systems modernization, (3) financial management, (4) the
personnel security clearance process, (5) supply chain management, (6)
support infrastructure management, (7) weapon systems acquisition, and
(8) contract management. The department 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] GAO, Military Pay: Hundreds of Battle-Injured GWOT Soldiers Have
Struggled to Resolve Military Debts, GAO-06-494 (Washington, D.C.: Apr.
27, 2006).
[3] GAO, Global War on Terrorism: DOD Needs to Improve the Reliability
of Cost Data and Provide Additional Guidance to Control Costs, GAO-05-
882 (Washington, D.C.: Sept. 21, 2005).
[4] 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).
[5] GAO, DOD Business Systems Modernization: Long-standing Weaknesses
in Enterprise Architecture Development Need to Be Addressed, GAO-05-702
(Washington, D.C.: July 22, 2005).
[6] Of the fiscal year 2005 appropriation, approximately $78 billion
was for the Global War on Terrorism and tsunami and hurricane relief
efforts and about $39 billion was for permanent indefinite
appropriations for retiree pensions and health care.
[7] Ronald W. Reagan National Defense Authorization Act for Fiscal Year
2005, Pub. L. No. 108-375, § 332, 118 Stat. 1811, 1851-1856 (Oct. 28,
2004) (codified in part at 10 U.S.C. § 2222).
[8] 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).
[9] 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).
[10] Department of the Treasury, 2005 Financial Report of the United
States Government (Washington, D.C.: Dec. 15, 2005).
[11] GAO-06-494.
[12] GAO-05-882.
[13] GAO, Environmental Liabilities: Long-Term Fiscal Planning Hampered
by Control Weaknesses and Uncertainties in the Federal Government's
Estimates, GAO-06-427 (Washington, D.C.: Mar. 31, 2006).
[14] GAO, Defense Inventory: Army Needs to Strengthen Internal Controls
for Items Shipped to Repair Contractors, GAO-06-209 (Washington, D.C.:
Dec. 13, 2005).
[15] GAO, DOD Problem Disbursements: Long-standing Accounting
Weaknesses Result in Inaccurate Records and Substantial Write-offs, GAO-
05-521 (Washington, D.C.: June 2, 2005).
[16] GAO, Defense Inventory: Actions Needed to Improve Inventory
Retention Management, GAO-06-512 (Washington, D.C.: May 25, 2006).
[17] Carryover is the dollar value of work that has been ordered and
funded (obligated) by customers but not completed by working capital
fund activities at the end of the fiscal year. Carryover consists of
both the unfinished portion of work started but not completed as well
as requested work that has not yet commenced.
[18] GAO, Defense Working Capital Fund: Military Services Did Not
Calculate and Report Carryover Amounts Correctly, GAO-06-530
(Washington, D.C.: June 27, 2006).
[19] Pub. L. No. 104-106, div. E, 110 Stat. 186, 679 (Feb. 10, 1996).
[20] Disciplined processes include a wide range of activities,
including project planning and management, requirements management,
risk management, quality assurance, and testing.
[21] Acceptable levels refer to the fact that any systems acquisition
effort will have risks and will suffer the adverse consequences
associated with defects in the processes. However, effective
implementation of disciplined processes reduces the possibility of the
potential risks actually occurring and prevents significant defects
from materially affecting the cost, timeliness, and performance of the
project.
[22] 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).
[23] GAO, Army Depot Maintenance: Ineffective Oversight of Depot
Maintenance Operations and System Implementation Efforts, GAO-05-441
(Washington, D.C.: June 30, 2005).
[24] GAO, DOD Business Systems Modernization: Navy ERP Adherence to
Best Business Practices Critical to Avoid Past Failures, GAO-05-858
(Washington, D.C.: Sept. 29, 2005).
[25] GAO, DOD Business Transformation: Defense Travel System Continues
to Face Implementation Challenges, GAO-06-18 (Washington, D.C.: Jan.
18, 2006).
[26] Flight information includes items such as departure and arrival
times, airports, and the cost of the airline ticket.
[27] 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).
[28] GAO-06-171.
[29] GAO-05-702.
[30] GAO, Business Systems Modernization: DOD Continues to Improve
Institutional Approach, but Further Steps Needed, GAO-06-658.
(Washington, D.C.: May 15, 2006).
[31] GAO-06-406T.
[32] Pub. L. No. 109-163, § 376, 119 Stat. 3136, 3213 (Jan. 6, 2006).
[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/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] GAO-04-615 and GAO-05-441.
[36] GAO-04-615.
[37] GAO, Defense Reform Initiative: Organization, Status, and
Challenges, GAO/NSIAD-99-87 (Washington, D.C.: Apr. 21, 1999).
[38] GAO, Department of Defense: Long-standing Problems Continue to
Impede Financial and Business Management Transformation, GAO-04-907T
(Washington, D.C.: July 7, 2004); Department of Defense: Financial and
Business Management Transformation Hindered by Long-standing Problems,
GAO-04-941T, (Washington, D.C.: July 8, 2004); Department of Defense:
Further Actions Are Needed to Effectively Address Business Management
Problems and Overcome Key Business Transformation Challenges, GAO-05-
140T (Washington, D.C.: Nov. 18, 2004); and DOD's High-Risk Areas:
Successful Business Transformation Requires Sound Strategic Planning
and Sustained Leadership, GAO-05-520T (Washington, D.C.: Apr. 13,
2005).
[39] National Defense Authorization Act for Fiscal Year 2006, Pub. L.
No. 109-163, § 907, 119 Stat. 3136, 3403 (Jan. 6, 2006).
[40] Tony Danker, Thomas Dohrmann, Nancy Killefer, and Lenny Mendonca,
How can American government meet its productivity challenge?
(Washington, D.C.: McKinsey & Company, 2006).
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