a

GAO

United States Government Accountability Office

Testimony

Before the Subcommittee on Government Management, 

Finance, and Accountability, Committee on Government 

Reform, House of Representatives

For Release on Delivery

Expected at 2:00 p.m. EDT

June 8, 2005

DOD BUSINESS 

TRANSFORMATION

Sustained Leadership 

Needed to Address 

Long-standing Financial 

and Business Management 

Problems

Statement of Gregory D. Kutz

Managing Director

Forensic Audits and Special Investigations

Randolph C. Hite

Director, Information Technology Architecture

and Systems Issues

GAO-05-723T
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-723T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Gregory Kutz 

(202) 512-9095 or kutzg@gao.gov. 

Highlights of GAO-05-723T, testimony 

before the Subcommittee on Government 

Management, Finance, and Accountability, 

Committee on Government Reform, 

House of Representatives 

June 8, 2005

DOD BUSINESS TRANSFORMATION

Sustained Leadership Needed to Address 

Long-standing Financial and Business 

Management Problems 

Overhauling the financial management and business operations of one of the 

largest and most complex organizations in the world represents a daunting 

challenge. Eight DOD program areas, representing key business functions, 

are on GAO’s high-risk list, and the department shares responsibility for six 

other governmentwide high-risk areas, meaning that DOD is fully or partially 

responsible for 14 of the 25 high-risk areas in the federal government. DOD’s 

substantial financial and business management weaknesses adversely affect 

not only its ability to produce auditable financial information, but also to 

provide accurate, complete, and timely information for management and 

Congress to use in making informed decisions. Further, the lack of adequate 

accountability across all of DOD’s major business areas results in billions of 

dollars in annual wasted resources in a time of increasing fiscal constraint 

and has a negative impact on mission performance. 

Impact of Weaknesses in Human Capital Management, Internal Control, and Systems 

Business 

area affected Problem identified 

Military pay Injured and ill reserve component soldiers—who are entitled to extend their 

active duty service to receive medical treatment—have been inappropriately 

removed from active duty status causing significant gaps in their pay and 

medical benefits. The current stovepiped, nonintegrated personnel and pay 

systems are labor intensive and require extensive error-prone manual entry and 

reentry of data. 

Logistics DOD does not have the ability to provide timely, complete, or accurate 

information on the location, movement, status, or identity of its supplies, even 

though total asset visibility has been a departmentwide goal for over 30 years. 

Systems DOD lacks the management structure to effectively control billions of dollars 

being spent each year to operate, maintain, and modernize its reported 4,150 

duplicative, nonintegrated business systems. 

Source: GAO. 

The department has recently taken several steps to address provisions of the 

fiscal year 2005 defense authorization act which are aimed at improving 

DOD’s business systems management practices. For example, DOD has 

established the Defense Business Systems Management Committee to 

oversee its business systems modernization efforts. However, DOD’s overall 

transformation efforts have not adequately addressed the key causes of past 

reform failures. Lessons learned from these previous reform attempts 

include the need for sustained leadership at the highest level and a strategic 

and integrated plan. The seriousness of DOD’s weaknesses underscores the 

importance of no longer condoning the “status quo.” 

To improve the likelihood that DOD’s transformation efforts will succeed, 

GAO proposes that business systems funding be appropriated to the 

approval authorities responsible for business systems investments. 

Additionally, GAO suggests that a senior management position be 

established to provide sustained leadership for DOD’s overall business 

transformation. Absent this unified responsibility, authority, accountability, 

and control of funding, DOD’s transformation efforts are likely to fail.

In July 2004, GAO testified before 

this Subcommittee on the impact 

and causes of financial and related 

business weaknesses on the 

Department of Defense’s (DOD) 

operations and the status of DOD 

reform efforts. The report released 

today highlights that DOD still does 

not have management controls to 

ensure that its business systems 

investments are directed towards 

integrated corporate system 

solutions. GAO’s reports continue 

to show that fundamental problems 

with DOD’s financial management 

and related business operations 

result in substantial waste and 

inefficiency, adversely impact 

mission performance, and result in 

a lack of adequate accountability 

across all major business areas. 

Over the years, DOD leaders 

attempted to address these 

weaknesses and transform the 

department. For years, GAO has 

reported that DOD is challenged in 

its efforts to effect fundamental 

financial and business management 

reform and GAO’s ongoing work 

continues to raise serious questions 

about DOD’s chances of success. 

The Subcommittee asked GAO to 

provide information on the 

(1) pervasive long-standing 

financial and business management 

weaknesses that affect DOD’s 

efficiency, (2) cost of and control 

over the department’s business 

systems investments, and 

(3) legislative actions needed to 

enhance the success of DOD’s 

business transformation efforts. 
Page 1 GAO-05-723T 

Mr. Chairman and Members of the Subcommittee:

It is a pleasure to be back before this Subcommittee to discuss 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 in 

addressing DOD’s business transformation challenges. DOD spends billions 

of dollars each year to sustain key business operations that support our 

forces, including systems and processes related to acquisition and contract 

management, financial management, supply chain management, support 

infrastructure management, human capital management, and other key 

areas. Recent and ongoing military operations in Afghanistan and Iraq and 

new homeland defense missions have led to higher demands on our forces 

in a time of growing fiscal challenges for our nation. 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. 

However, as discussed in the report1

 being released at this hearing and 

previous reports and testimonies, fundamental problems with DOD’s 

financial management and related business operations continue to cause 

substantial waste and inefficiency, have an adverse impact on mission 

performance, and result in the lack of adequate transparency and 

appropriate accountability across all major business areas. Of the 25 areas 

on GAO’s governmentwide high-risk list, 8 are DOD specific program areas 

related to key business functions, and the department shares responsibility 

for 6 other high-risk areas that are governmentwide in scope.2

 These 

problems preclude the department from producing reliable and timely 

information to make sound decisions and to accurately report on its 

trillions of dollars of assets and liabilities. 

1

GAO, DOD Business Systems Modernization: Billions Being Invested without Adequate 

Oversight, GAO-05-381 (Washington, D.C: Apr. 29, 2005).

2

GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: January 2005). The 

eight specific DOD high-risk areas are (1) approach to business transformation, (2) business 

systems modernization, (3) contract management, (4) financial management, (5) personnel 

security clearance program, (6) supply chain management, (7) support infrastructure 

management, and (8) weapon systems acquisition. The six governmentwide high risk areas 

that include DOD are: (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.
Page 2 GAO-05-723T 

Today, my testimony will focus on two of the high-risk areas—financial 

management and business systems modernization. Both of these areas 

have been designated as high-risk since 1995—a decade ago. In this regard, 

my testimony will provide our perspectives on the (1) pervasive longstanding financial and business management weaknesses that affect DOD’s 

efficiency, (2) cost of and control over the department’s business systems 

investments, and (3) legislative actions needed to enhance the success of 

DOD’s business transformation efforts—specifically, the central control of 

business systems investment funding and establishment of a chief 

management official. Implementation of these two suggestions would 

provide the sustained top-level leadership and accountability needed and 

thereby increase the likelihood of successful business transformation. 

My statement is based upon the report3

 released today, as well as our 

previous reports and testimonies. Our work was performed in accordance 

with U.S. generally accepted government auditing standards.

Summary DOD’s substantial long-standing management problems related to business 

operations and systems have adversely affected the economy, efficiency, 

and effectiveness of its operations; and, in some cases, impacted the 

morale of our fighting forces that are in harms way. These problems have 

left the department vulnerable to billions of dollars of fraud, waste, and 

abuse annually, at a time of increasing fiscal constraint and have resulted in 

a lack of adequate accountability across all major business areas. 

Additionally, our report released today describes other indicators of the 

department’s limited progress in transforming its business operations and 

systems. This year, we added DOD’s overall approach to business 

transformation to our high-risk list4

 because DOD lacks a strategic and 

integrated business transformation plan and because we have concerns 

over DOD’s lack of adequate management responsibility and accountability 

to achieve and sustain business reform on a broad, strategic, 

departmentwide, and integrated basis. The following examples indicate 

the magnitude and severity of the resulting problems.

3

GAO-05-381.

4

GAO-05-207.
Page 3 GAO-05-723T 

• As we testified5 before this Subcommittee on March 16, 2005, mobilized 

Army National Guard soldiers have experienced significant problems 

getting accurate, timely, and consistent reimbursement for out-of-pocket 

travel expenses. One of the primary causes for these problems is rooted 

in the paper-intensive process used by DOD to reimburse Army National 

Guard soldiers for their travel expenses.

• DOD does not have the ability to provide timely or accurate information 

on the location, movement, status, or identity of its supplies. Although 

total asset visibility has been a departmentwide goal for over 30 years, 

DOD currently estimates that it will not achieve this goal until the year 

2010.6

• DOD’s continued supply chain problems resulted in shortages of items 

in Iraq. As discussed in our April 2005, report, demands for items like 

vehicle track shoes, batteries, and tires exceeded their availability 

because the department did not have accurate or adequately funded 

Army war reserve requirements and had inaccurate forecasts of supply 

demands for the operation. Furthermore, the Army’s funding approval 

process delayed the flow of funds to buy them. In addition, numerous 

problems, such as insufficient transportation, personnel, and 

equipment, as well as inadequate information systems, hindered DOD’s 

ability to deliver the right items to the right place at the right time for the 

warfighter. Among the items the department had problems delivering 

were generators for assault amphibian vehicles, tires, and Meals Readyto-Eat.7

• DOD’s stovepiped, duplicative, and nonintegrated systems environment 

contributes to these operational problems and costs the American 

taxpayers billions of dollars each year. For fiscal year 2005, the 

department requested approximately $13 billion to operate, maintain, 

5

GAO, Army National Guard: Inefficient, Error-Prone Process Results in Travel 

Reimbursement Problems for Mobilized Soldiers, GAO-05-400T (Washington, D.C.: Mar. 16, 

2005).

6

GAO, Defense Inventory: Improvements Needed in DOD’s Implementation of Its LongTerm Strategy for Total Asset Visibility of Its Inventory, GAO-05-15 (Washington, D.C.: 

Dec. 6, 2004).

7

GAO, Defense Logistics: Actions Needed to Improve the Availability of Critical Items 

during Current and Future Operations, GAO-05-275 (Washington, D.C.: Apr. 8, 2005).
Page 4 GAO-05-723T 

and modernize its reported 4,150 business systems—an increase of 

about 1,900 in the number of reported systems since last year.

Because of the department’s flawed processes, we found that DOD is not in 

compliance with the National Defense Authorization Act for Fiscal Year 

2003, which requires the DOD Comptroller to determine that system 

improvements with obligations exceeding $1 million meet the criteria 

specified in the act. Based upon DOD’s reported data, system 

improvements totaling about $651 million of obligations over $1 million 

were not reviewed by the DOD Comptroller before obligations were made 

since passage of the 2003 act. 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 or provide timely reliable 

and complete information for DOD decision makers because of pervasive 

weaknesses in the department’s financial management systems, operations, 

and controls.

The seriousness of DOD’s business management weaknesses underscores 

the importance of no longer condoning “status quo” business operations at 

DOD. To improve the likelihood that the department’s current business 

transformation efforts will be successful, we propose that those who are 

responsible for business systems modernization control the allocation and 

execution of funds for DOD business systems. Investments in the 

modernization of the department’s business systems need to be directed 

towards integrated corporate system solutions to common DOD-wide 

problems, and not the perpetuation of the stovepiped, duplicative systems 

environment that exists today. 

Additionally, due to the complexity and long-term nature of these 

transformation efforts, strong and sustained executive leadership is needed 

if DOD is to succeed. We believe one way to ensure this strong and 

sustained leadership over DOD’s business management reform efforts 

would be to create a full-time, executive-level II position for a chief 

management official (CMO), who would serve as the Deputy Secretary of 

Defense for Management.8

 We believe that the new CMO position should 

be filled by an individual appointed by the President and confirmed by the 

Senate, for a set term of 7 years. Articulating the role and responsibilities 

of the position in statute and establishing a term that spans administrations 

8

GAO, Defense Management: Key Elements Needed to Successfully Transform DOD 

Business Operations, GAO-05-629T (Washington, D.C.: Apr.28, 2005).
Page 5 GAO-05-723T 

underscores the importance of a professional, nonpartisan approach to this 

business management-oriented position. This position 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, information 

technology (IT), and financial management, while facilitating the overall 

business management transformation within DOD. The CMO would not 

conduct the day-to-day management functions of the department; 

therefore, creating this position would not add an additional hierarchical 

layer to the department. Day-to-day management functions of the 

department would continue to be the responsibility of the undersecretaries 

of defense, the service secretaries, and others. Just as the CMO would need 

to focus full-time on business transformation, we believe that the day-today management functions are so demanding that it is difficult for these 

officials to maintain the oversight, focus, and momentum needed to 

implement and sustain needed reforms of DOD’s overall business 

operations.

We are confident that transforming DOD’s business operations and making 

them more efficient would free up resources that could be used to support 

the department’s core mission, enhance readiness, and improve the quality 

of life for our troops and their families. It is worth noting that on April 14, 

2005, a bill was introduced in the Senate that would require the 

establishment of a CMO that would be appointed by the President and 

confirmed by the Senate, for a set term of 7 years.9

In written comments on a draft of the report released today, DOD agreed 

with our four recommendations and briefly outlined its actions for 

addressing them. 

Background Because DOD is one of the largest and most complex organizations in the 

world, overhauling its business operations represents a huge management 

challenge. In fiscal year 2004, DOD reported that its operations involved 

$1.2 trillion in assets, $1.7 trillion in liabilities, over 3.3 million in military 

and civilian personnel, and over $605 billion in net cost of operations. For 

fiscal year 2005, the department received an annual appropriation of about 

$417 billion and was appropriated about $76 billion for the global war on 

9

S. 780, 109th Cong. (2005).
Page 6 GAO-05-723T 

terrorism. 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 

processes, including logistics, procurement, health care, and financial 

management. 

Transformation of DOD’s business systems and operations is critical to the 

department providing Congress and DOD management with accurate and 

timely information for use in the decision-making process. 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 Secretary of 

Defense has estimated that improving business operations of the 

department could save 5 percent of DOD’s annual budget, which based on 

fiscal year 2005 appropriations, represents a savings of about $25 billion.

Pervasive Financial 

and Business 

Management Problems 

Affect DOD’s 

Efficiency and 

Effectiveness

For several years, we have reported that DOD faces a range of financial 

management and related business process challenges that are complex, 

long-standing, pervasive, and deeply rooted in virtually all business 

operations throughout the department. As the Comptroller General 

testified in April 2005,10 DOD’s financial management deficiencies, taken 

together, continue to represent a major impediment to achieving an 

unqualified opinion on the U.S. government’s consolidated financial 

statements. To date, none of the military services has passed the test of an 

independent financial audit because of pervasive weaknesses in internal 

controls and processes and fundamentally flawed business systems. 

In identifying improved financial performance as one of its five 

governmentwide initiatives, the President’s Management Agenda 

recognized that without sound internal controls and accurate and timely 

financial and performance information, it is not possible to accomplish the 

President’s agenda and secure the best performance and highest measure 

of accountability for the American people.

10GAO-05-629T.
Page 7 GAO-05-723T 

Pervasive Weaknesses 

Impact DOD Operations

Long-standing weaknesses in DOD’s financial management and related 

business processes and systems have (1) resulted in a lack of reliable 

information needed to make sound decisions and report on the status of 

DOD activities, including accountability of assets, through financial and 

other reports to Congress and DOD decision makers; (2) hindered its 

operational efficiency; (3) adversely affected mission performance; and 

(4) left the department vulnerable to fraud, waste, and abuse, as the 

following examples illustrate. 

• The current inefficient, paper-intensive, error-prone travel 

reimbursement process has resulted in inaccurate, delayed, and denied 

travel payments for mobilized Army Guard soldiers. We found a broad 

range of reimbursement problems that included disputed amounts for 

meals that we estimated to be as high as about $6,000 for each of 

76 soldiers in one case study that remained unpaid by the end of our 

review. Until DOD improves the antiquated process that requires Army 

Guard soldiers to accumulate, retain, and submit numerous paper 

documents, reimbursement problems and inefficiencies will likely 

continue. Of approximately 930,000 travel vouchers received between 

fiscal years 2002 and 2004, the Defense Finance and Accounting Service 

(DFAS) Contingency Travel Operations Office rejected and returned 

about 139,000 vouchers to soldiers for additional paper documentation 

or to correct other processing deficiencies. This repeated churning of 

vouchers frustrated soldiers and added to the volume of claims to be 

processed.11

• Injured and ill reserve component soldiers—who are entitled to extend 

their active duty service to receive medical treatment—have been 

inappropriately removed from active duty status in the automated 

systems that control pay and access to medical care. The current 

stovepiped, nonintegrated systems are labor-intensive and require 

extensive error-prone manual entry and reentry. Inadequate controls 

resulted in some soldiers experiencing significant gaps in their pay and 

medical benefits, causing hardships for the soldiers and their families. 

In addition, because these soldiers no longer had valid active duty 

orders, they did not have access to the commissary and post 

exchange—which allows soldiers and their families to purchase 

groceries and other goods at a discount. In one case we reviewed, 

11GAO-05-400T.
Page 8 GAO-05-723T 

during a 12-month period, while attempting to obtain care for injuries 

sustained from a helicopter crash in Afghanistan, one Special Forces 

soldier fell out of active duty status four times. During the times he was 

not recorded in the system as being on active duty, he was not paid and 

he and his family experienced delays in receiving medical treatment. In 

all, he missed payments for 10 pay periods—totaling $11,924.12

• Ninety-four percent of mobilized Army National Guard and Reserve 

soldiers we investigated during two audits13 had pay problems. These 

problems distracted soldiers from their missions, imposed financial 

hardships on their families, and may have a negative impact on 

retention. The processes and automated systems relied on to provide 

active duty payments to mobilized Army Guard and Reserve soldiers are 

so error-prone, cumbersome, and complex that neither DOD nor, more 

importantly, the soldiers themselves could be reasonably assured of 

timely and accurate payments. Some of the pay problems soldiers 

experienced often lingered unresolved for considerable lengths of time, 

some for over a year. 

• DOD continues to lack visibility and control over the supplies and spare 

parts it owns. Therefore, it cannot monitor the responsiveness and 

effectiveness of the supply system to identify and eliminate choke 

points.14 Currently, DOD does not have the ability to provide timely or 

accurate information on the location, movement, status, or identity of its 

supplies. Although total asset visibility has been a departmentwide goal 

for over 30 years, DOD estimates that it will not achieve this visibility 

until the year 2010. DOD may not meet this goal by 2010, however, 

unless it overcomes three significant impediments: (1) developing a 

comprehensive plan for achieving visibility, (2) building the necessary 

integration among its many inventory management information systems, 

and (3) correcting long-standing data accuracy and reliability problems 

within existing inventory management systems. A key to successful 

implementation of a comprehensive logistics strategy will be addressing 

12GAO, Military Pay: Gaps in Pay and Benefits Create Financial Hardships for Injured 

Army National Guard and Reserve Soldiers, GAO-05-125 (Washington, D.C.: Feb. 17, 2005).

13GAO, Military Pay: Army Reserve Soldiers Mobilized to Active Duty Experienced 

Significant Pay Problems, GAO-04-911 (Washington, D.C.: Aug. 20, 2004) and Military Pay: 

Army National Guard Personnel Mobilized to Active Duty Experienced Significant Pay 

Problems, GAO-04-89 (Washington, D.C.: Nov. 13, 2003).

14GAO-05-629T.
Page 9 GAO-05-723T 

these initiatives as part of a comprehensive, integrated business 

transformation.

• The Defense Logistics Agency (DLA) and each of the military services 

experienced significant shortages of critical spare parts, even though 

more than half of DOD’s reported inventory—about $35 billion—

exceeded current operating requirements. In many cases, these 

shortages contributed directly to equipment downtime, maintenance 

problems, and the services’ failure to meet their supply availability 

goals. DOD, DLA, and the military services each lack strategic 

approaches and detailed plans that could help mitigate these critical 

spare parts shortages and guide their many initiatives aimed at 

improving inventory management.15

• The Navy did not know how much it spent on telecommunications and 

did not have detailed cost and inventory data needed to evaluate 

spending patterns and to leverage its buying power. At the four case 

study sites we audited, management oversight of telecommunication 

purchases did not provide reasonable assurance that requirements were 

met in the most cost-effective manner. For example, cell phone usage at 

three sites was not monitored to determine whether plan minutes met 

users’ needs, resulting in overpayment for cell phone services. In 

addition, the Navy lacks specific policies and processes addressing the 

administration and management of calling cards. On one card alone, in 

a 3-month period, the Navy paid over $17,000. Not until the vendor’s 

fraud unit raised questions about more than $11,000 in charges in a 6-day 

period was the card suspended.16

• 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 

15GAO-05-207

16GAO, Vendor Payments: Inadequate Management Oversight Hampers the Navy’s Ability 

to Effectively Manage Its Telecommunication Program, GAO-04-671 (Washington, D.C.: 

June 14, 2004). 
Page 10 GAO-05-723T 

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. At December 31, 2004, DOD reports showed 

that, even after the write-offs, more than $1.3 billion (absolute value) 

remained in suspense accounts for longer than 60 days; however, DOD 

has acknowledged that its suspense reports are incomplete and 

inaccurate. In addition, DOD is still not performing effective 

reconciliations of its disbursement and collection activity. Similar to 

checkbook reconciliations, DOD needs to compare its records of 

monthly activity to Treasury’s records and promptly research and 

correct any differences.17 

Financial Improvement 

Initiative Lacks a 

Comprehensive and 

Integrated Plan and 

Effective Oversight and 

Monitoring Capabilities

In September 2004, we reported18 that DOD had begun implementing a 

financial improvement initiative that included the goal of obtaining an 

unqualified audit opinion on its fiscal year 2007 consolidated financial 

statements but that the initiative lacked a clearly defined, integrated, welldocumented, and realistic plan for improving DOD’s financial management 

and thus achieving that goal. We also reported that DOD lacked effective 

oversight and accountability mechanisms to ensure that the mid-range 

financial improvement plans being developed by the military services and 

defense agencies in support of the initiative were adequately planned, 

implemented, and sustainable. Our report expressed concern that DOD’s 

emphasis on obtaining a clean audit opinion for fiscal year 2007 could 

divert limited resources away from ongoing efforts to develop and 

implement the long-term systems and process changes needed to improve 

financial information and to efficiently and effectively manage DOD’s 

business operations.

17GAO, DOD Problem Disbursements: Long-standing Accounting Weaknesses Result in 

Inaccurate Records and Substantial Write-offs, GAO-05-521 (Washington, D.C.: June 2, 

2005).

18GAO, Financial Management: Further Actions Are Needed to Establish Framework to 

Guide Audit Opinion and Business Management Improvement Efforts at DOD, GAO-04-

910R (Washington, D.C.: Sept. 20, 2004).
Page 11 GAO-05-723T 

In the Ronald W. Reagan National Defense Authorization Act for Fiscal Year 

2005,19 Congress placed a limitation on the use of operations and 

maintenance funds for continued preparation or implementation of DOD’s 

mid-range financial improvement plan. Use of such funds for the mid-range 

plan is prohibited until the Secretary of Defense submits to the 

congressional defense committees a report containing the following: (1) a 

determination that DOD’s business enterprise architecture (BEA) and the 

transition plan for implementing the BEA have been developed, (2) an 

explanation of the manner in which fiscal year 2005 operations and 

maintenance funds will be used by DOD components to prepare or 

implement the mid-range financial improvement plan, and (3) an estimate 

of future year costs for each of the military services and defense agencies 

to prepare and implement the mid-range financial improvement plan. As 

of the end of May 2005, DOD has not yet provided the defense committees 

with the required report.

Ineffective 

Management Oversight 

and Control over 

Business System 

Investments 

Until DOD has complete, reliable information on the costs and number of 

business systems operating within the department, its ability to effectively 

control the money it spends on these systems will be limited. DOD’s fiscal 

year 2005 budget request for its business systems was $13.3 billion, which, 

on its face, is about $6 billion, or 29 percent, less than its fiscal year 2004 

budget request. However, we found that this decrease can be attributed to 

DOD’s reclassification of some business systems to national security 

systems, not to a reduction in spending on its systems. While some of the 

reclassifications appeared reasonable, our analysis showed that others 

were questionable or inconsistencies exist, which hinder DOD’s ability to 

develop a definitive business systems inventory. At the same time the 

amount of requested business system funding declined, the reported 

number of business systems increased by about 1,900—from 2,274 in April 

2003 to 4,150 in February 2005. 

Furthermore, given that DOD does not know how many business systems it 

has, it is not surprising that the department continues to lack effective 

management oversight and control over business systems investments. 

Since February 2003, the domains have been given the responsibility to 

oversee the department’s business systems investments, yet the billions of 

dollars spent each year continue to be spread among the military services 

19Pub. L. No. 108-375, § 352.
Page 12 GAO-05-723T 

and defense agencies, enabling the numerous DOD components to 

continue to develop stovepiped, parochial solutions to the department’s 

long-standing financial management and business operation challenges. 

Additionally, based upon data reported to us by the military services and 

DOD components, obligations totaling at least $243 million were made for 

systems modernizations in fiscal year 2004 that were not referred to the 

DOD Comptroller for the required review, as specified in the fiscal year 

2003 defense authorization act.20

Fiscal Year 2005 Budget 

Request for DOD’s Business 

Systems Environment Is 

$13.3 Billion

For fiscal year 2005, DOD requested approximately $28.7 billion21 in IT 

funding to support a wide range of military operations as well as DOD 

business systems operations. Of the $28.7 billion, our analysis showed that 

about $13.3 billion was for business applications and related infrastructure. 

Of the $13.3 billion, our analysis of the budget request disclosed that about 

$8.4 billion was for infrastructure and related costs. Business applications 

include activities that support the business functions of the department, 

such as personnel, health, travel, acquisition, finance and accounting, and 

logistics. The remaining $15.4 billion was classified as being for national 

security systems. Of that amount, our analysis ascertained that about $7.5 

billion was for infrastructure and related costs. 

Of the $13.3 billion, $10.7 billion was for the operation and maintenance of 

the existing systems and $2.6 billion was for the modernization of existing 

systems, the development of new systems,22 or both. Table 1 shows the 

distribution, by DOD component, of the reported $13.3 billion between 

current services and modernization funding.

20Bob Stump National Defense Authorization Act for Fiscal Year 2003, Pub. L. No. 107-314, § 

1004(d), 116 Stat. 2458, 2629 (Dec. 2, 2002).

21DOD categorizes its funding request as follows: business systems—$5 billion; national 

security systems—$7.8 billion; shared infrastructure and information assurance activities—

$14.8 billion; and related technical activities—$1.1 billion.

22According to the department’s definition in its Financial Management Regulation, 

development/ modernization/enhancement include (1) new applications and infrastructure 

capabilities that are planned and under development; (2) any change or modification to 

existing applications and infrastructure capabilities which is intended to result in improved 

capabilities or performance of the activity, including (a) all modifications to existing 

operational software (other than corrective software maintenance) and (b) expansion of 

capabilities to new users; (3) changes mandated by Congress or the Office of the Secretary 

of Defense; and (4) personnel costs for project management.
Page 13 GAO-05-723T 

Table 1: Distribution of DOD’s $13.3 Billion IT Budget Request for Fiscal Year 2005 

for Business Systems and Related Infrastructure

Source: GAO analysis of DOD information.

Note: Based on information DOD reported in its fiscal year 2005 IT budget request.

Reclassification Limits 

Oversight of Business 

Systems 

Incorrect system classification hinders the department’s efforts to improve 

its control and accountability over its business systems investments. Our 

comparison of the fiscal years 2004 and 2005 budget requests disclosed that 

DOD reclassified 56 systems in the fiscal year 2005 budget request from 

business systems to national security systems, which are not subject to the 

same level of investment control. The net effect of the reclassifications was 

a decrease of approximately $6 billion in the fiscal year 2005 budget request 

for business systems and related infrastructure. The reported amount 

declined from about $19 billion in fiscal year 2004 to over $13 billion in 

fiscal year 2005. 

In some cases, we found that the reclassification appeared reasonable. The 

reclassification of the Defense Information System Network initiative as a 

national security system appeared reasonable since it provides a secure 

telecommunication network—voice, data, and video—to the President, the 

Secretary of Defense, the Joint Chiefs of Staff, and military personnel in the 

field. However, our analysis of the 56 systems also identified instances for 

which reclassification was questionable. For example, Base Level 

Communication Infrastructure—initiative number 254—for several DOD 

entities was shown as a national security system in the fiscal year 2005 

Dollars in millions

Component Current services

Development/

modernization Total

Navy $3,278 $206 $3,484

Air Force 2,630 726 $3,356

Army 1,780 607 $2,387

TRICARE Management 

Agency (TRICARE)

 803 255 $1,058

DLA 602 179 $781

DFAS 407 59 $466

Defense Information Systems 

Agency

 157 34 $191

Other DOD components 1,074 566 $1,640

Total $10,731 $2,632 $13,363
Page 14 GAO-05-723T 

budget request. Our review of the fiscal year 2005 budget found that within 

the Air Force, there were numerous other initiatives entitled Base Level 

Communication Infrastructure that were classified as business systems, 

not national security systems. The nomenclature describing these different 

initiatives was the same. Therefore, it was difficult to ascertain why certain 

initiatives were classified as national security systems while others, with 

the same name, were classified as business systems. 

In another example, this is the first year in which the Navy enterprise 

resource planning (ERP) effort was listed in the budget and incorrectly 

classified as a national security system. Its forerunners, four pilot ERP 

projects, have been classified as business systems since their inception. 

DOD officials were not able to provide a valid explanation as to why the 

program was classified as a national security program. For the fiscal year 

2006 budget request, the Navy has requested that the DOD CIO reclassify 

the program from a national security system to a business system. 

Improper classification diminishes Congress’s ability to effectively monitor 

and oversee the billions of dollars spent annually to maintain, operate, and 

modernize the department’s business systems environment. 

DOD Reports Significant 

Increase in the Number of 

Existing Business Systems

The department’s reported number of business systems continues to rise, 

and DOD does not yet have reasonable assurance that the currently 

reported number of business systems is complete. As of February 2005, 

DOD reported that its business systems inventory consisted of 4,150 

systems, which is an increase of approximately 1,900 reported business 

systems since April 2003. Table 2 presents a comparison of the April 2003 

and February 2005 reported business systems inventories by domain.
Page 15 GAO-05-723T 

Table 2: Comparison of DOD Business Systems Inventories by Domain

Source: GAO analysis.

Note: Based on analysis of Business Management Modernization Program (BMMP) reported inventory 

of business systems as of April 2003 and February 2005.

a

A specific domain was not assigned to these systems.

The largest increase is due to the logistics domain increasing its reported 

inventory of business systems from 565 in April 2003 to the current 2,005. 

We reported23 in May 2004 that the logistics domain had validated about 

1,900 business systems but had not yet entered most of them into the 

BMMP systems inventory. Logistics domain officials informed us that they 

completed that process and this increase was the result.

Table 3 shows the distribution of the 4,150 business systems among the 

components and domains.

Domain April 2003 February 2005 Difference

Acquisition 143 179 36

Financial management 752 600 (152)

Human resources 665 713 48

Installations and environment 128 473 345

Logistics 565 2,005 1,440

Enterprise information environment 21 40 19

No domaina 0 140 140

Total 2,274 4,150 1,876

23GAO, DOD Business Systems Modernization: Billions Continue to Be Invested with 

Inadequate Management Oversight and Accountability, GAO-04-615 (Washington, D.C.: 

May 27, 2004).
Page 16 GAO-05-723T 

Table 3: Reported DOD Business Systems by Domain and Component

Source: GAO analysis.

Note: Based on analysis of BMMP reported business system inventory as of February 2005.

The table shows the stovepiped, duplicative nature of DOD’s business 

systems. For example, there are 713 human resources systems across all 

components whose reported funding for fiscal year 2005 includes 

approximately $223 million for modernization and over $656 million for 

operation and maintenance. According to DOD officials, the Defense 

Integrated Military Human Resources System (DIMHRS)24 is intended to 

totally or partially replace 113 of these systems. We were informed that the 

remaining 600 human resources systems are to be reviewed in the context 

of DOD’s BEA, as it is developed.

In discussing the increase in the number of reported systems, some of the 

domains stated that funding for many of the systems are not included in the 

IT budget request. They said that some of these systems were likely 

developed at the local level and financed by the operation and maintenance 

funds received at that location and therefore were not captured and 

reported as part of the department’s annual IT budget request. Financing 

business systems in this manner rather than within the IT budget results in 

Congress and DOD management not being aware of the total amount being 

Domain

Air

Force Army Navy DFAS

Other

defense

agencies

Multiple

owner Not determined Total

Acquisition 20 16 122 2 15 2 2 179

Financial management 41 88 233 93 59 15 71 600

Human resources 84 332 151 30 65 26 25 713

Installations and 

environment

36 63 259 1 12 6 96 473

Logistics 166 193 1,512 4 76 39 15 2,005

Enterprise information 

environment

4 17 10 0 8 0 1 40

No domain 18 18 66 13 18 2 5 140

Total 369 727 2,353 143 253 90 215 4,150

24DIMHRS is a major IT program that is to provide an integrated personnel and pay system 

for all components of the military services.
Page 17 GAO-05-723T 

spent to operate, maintain, and modernize the department’s business 

systems. 

DOD Lacks Reasonable 

Assurance That It Is in 

Compliance with Statutory 

Investment Management 

Controls

We found that DOD is not in compliance with the fiscal year 2003 defense 

authorization act, which requires that all financial system improvements 

with obligations exceeding $1 million be reviewed by the DOD Comptroller. 

Based upon the reported obligational data provided to us by the military 

services and the defense agencies for fiscal year 2004, we identified 30 

modernizations with obligations totaling about $243 million that were not 

submitted for the required review. Because DOD lacks a systematic means 

to identify the systems that were subject to the requirements of the fiscal 

year 2003 defense authorization act, there is no certainty that the 

information provided to us accurately identified all systems improvements 

with obligations greater than $1 million during the fiscal year. BMMP 

officials stated that the domains were responsible for working with the 

components to make sure that business systems with obligations for 

modernizations greater than $1 million were submitted for review as 

required. In essence, compliance was achieved via the “honor system,” 

which relied on systems owners coming forward and requesting approval. 

However, the approach did not work. During fiscal year 2004, the number 

of systems reviewed was small when compared to the potential number of 

systems that appeared to meet the obligation threshold identified in the 

fiscal year 2004 budget request. We analyzed the DOD IT budget request 

for fiscal year 2004 and identified over 200 systems in the budget that could 

involve modernizations with obligations of funds that exceed the $1 million 

threshold. However, BMMP officials confirmed that only 46 systems were 

reviewed, of which 38 were approved as of September 30, 2004. The 

remaining 8 systems were either withdrawn by the component/domain or 

were returned to the component/domain because the system package 

submitted for review lacked some of the required supporting 

documentation, such as the review by the Office of Program Analysis and 

Evaluation, if necessary. 

In an attempt to substantiate that financial system improvements with over 

$1 million in obligations had in fact been reviewed by the DOD 

Comptroller, as provided for in the fiscal year 2003 act, we requested that 

DOD entities provide us with a list of obligations (by system) greater than 

$1 million for modernizations for fiscal year 2004. We compared the 

reported obligational data to the system approval data reported to us by 

BMMP officials. Based upon this comparison and as shown in table 4, DOD 

provided data showed that 30 business systems with obligations totaling 
Page 18 GAO-05-723T 

about $243 million in fiscal year 2004 for modernizations were not reviewed 

by the DOD Comptroller.

Table 4: Identification of Business Systems Modernizations by DOD Component 

That Did Not Have DOD Comptroller Review as Required by the Fiscal Year 2003 

National Defense Authorization Act 

Source: GAO analysis of DOD reported information. 

Examples of DOD business systems modernizations with obligations in 

excess of $1 million included in table 4 that were not submitted to the DOD 

Comptroller include the following.

• DFAS obligated about $3 million in fiscal year 2004 for the DFAS 

Corporate Database/DFAS Corporate Warehouse (DCD/DCW). In fiscal 

year 2003, DFAS obligated approximately $19 million for DCD/DCW 

without submitting it to the DOD Comptroller for review. Additionally, 

we reported in May 200425 that DFAS had yet to complete an economic 

analysis justifying that continued investment in DCD/DCW would result 

in tangible improvements in the department’s operations. The 

department has acknowledged that DCD/DCW will not result in tangible 

savings to DOD. Continued investment is being based upon intangible 

savings of man-hour reductions by DFAS.

Dollars in millions

Component 

Number of systems

not reviewed

Fiscal year 2004

obligations

Army 2 $40.5

Navy 10 92.8

Air Force 11 79.1

DLA 3 9.8

U.S. Transportation Command 1 1.1

DFAS 1 2.6

TRICARE 2 16.6

Total 30 $242.5

25GAO, DOD Business Systems Modernization: Limited Progress in Development of 

Business Enterprise Architecture and Oversight of Information Technology Investments, 

GAO-04-731R (Washington, D.C.: May 17, 2004).
Page 19 GAO-05-723T 

• The Army obligated over $34 million for its Logistics Modernization 

Program (LMP) in fiscal year 2004. In fiscal year 2003, the Army 

obligated over $52 million without the prerequisite review being 

performed by the DOD Comptroller. We have previously reported26 that 

LMP experienced significant problems once it became operational at the 

first deployment site. 

Cumulatively, since passage of the fiscal year 2003 defense authorization 

act in December 2002 through the end of fiscal year 2004, based upon 

information reported to us, the military services and defense components 

obligated about $651 million for business systems modernizations without 

the required review by the DOD Comptroller. While this amount is 

significant, it is not complete or accurate because it does not include any 

fiscal year 2005 obligations that occurred prior to the enactment of the 

fiscal year 2005 defense authorization act on October 28, 2004.

Congress Acts to Improve 

DOD’s Control and 

Accountability over 

Business Systems 

Investments

The statutory requirements enacted as part of the Ronald W. Reagan 

National Defense Authorization Act for Fiscal Year 200527 are aimed at 

improving the department’s business systems management practices. The 

act directs DOD to put in place a definite management structure that is 

responsible for the control and accountability over business systems 

investments by establishing a hierarchy of investment review boards from 

across the department and directs that the boards use a standard set of 

investment review and decision-making criteria to ensure compliance and 

consistency with the BEA. 

DOD has taken several steps to address provisions of the fiscal year 2005 

defense authorization act. On March 19, 2005, the Deputy Secretary of 

Defense delegated the authority for the review, approval, and oversight of 

the planning, design, acquisition, development, operation, maintenance, 

and modernization of defense business systems to the designated approval

26GAO-04-615.

27Pub. L. No. 108-375, § 332.
Page 20 GAO-05-723T 

authority for each business area.28 Additionally on March 24, 2005, the 

Deputy Secretary of Defense directed the transfer of program management, 

oversight, and support responsibilities regarding DOD business 

transformation efforts from the Office of the Under Secretary of Defense, 

(Comptroller), to the Office of the Under Secretary of Defense for 

Acquisition, Technology and Logistics. According to the directive, this 

transfer of functions and responsibilities will allow the Office of the Under 

Secretary of Defense for Acquisition, Technology and Logistics to establish 

the level of activity necessary to support and coordinate activities of the 

newly established Defense Business Systems Management Committee 

(DBSMC). As required by the act, DBSMC, with representation including 

the Deputy Secretary of Defense, the designated approval authorities, 

secretaries of the military services, and heads of the defense agencies, is 

the highest ranking governance body responsible for overseeing DOD 

business systems modernization efforts.

Suggestions for 

Legislative 

Consideration

I would like to reiterate two suggestions for legislative consideration that I 

discussed in my July 2004 testimony,29 which I believe could further 

improve the likelihood of successful business transformation at DOD. Most 

of the key elements necessary for successful transformation could be 

achieved under the current legislative framework; however, addressing 

sustained and focused leadership for DOD business transformation and 

funding control will require additional legislation. These suggestions 

include the appropriation of business system funding to the approval 

authorities responsible and accountable for business systems investments 

under provisions enacted by the Ronald W. Reagan National Defense 

Authorization Act for Fiscal Year 2005,30 and the creation of a CMO.

28Approval authorities include the Under Secretary of Defense for Acquisition, Technology 

and Logistics; the Under Secretary of Defense (Comptroller); the Under Secretary of 

Defense for Personnel and Readiness; and the Assistant Secretary of Defense for Networks 

and Information Integration/Chief Information Officer of the Department of Defense. These 

approval authorities are responsible for the review, approval, and oversight of business 

systems and must establish investment review processes for systems under their 

cognizance.

29GAO, Department of Defense: Long-standing Problems Continue to Impede Financial 

and Business Management Transformation, GAO-04-907T (Washington, D.C.: July 7, 2004).

30See 10 U.S.C. §2222(f).
Page 21 GAO-05-723T 

Central Control over 

Business Systems 

Investment Funds Is Crucial

DOD’s current business systems investment process, in which system 

funding is controlled by DOD components, has contributed to the evolution 

of an overly complex and error-prone information technology environment 

containing duplicative, nonintegrated, and stovepiped systems. We have 

made numerous recommendations to DOD to improve the management 

oversight and control of its business systems investments. However, as 

previously discussed, a provision of the Ronald W. Reagan National 

Defense Authorization Act for Fiscal Year 2005, established specific 

management oversight and accountability with the “owners” of the various 

core business mission areas. This legislation defines the scope of the 

various business areas (e.g., acquisition, finance, logistics, and etc.), and 

established functional approval authority and responsibility for 

management of the portfolio of business systems with the relevant under 

secretary of defense for the departmental core business mission areas and 

the Assistant Secretary of Defense for Networks and Information 

Integration (information technology infrastructure). For example, the 

Under Secretary of Defense for Acquisition, Technology and Logistics is 

now responsible and accountable for any defense business system 

intended to support acquisition activities, logistics activities, or 

installations and environment activities for DOD.

This legislation also requires that the responsible approval authorities 

establish a hierarchy of investment review boards, the highest level being 

DBSMC, with DOD-wide representation, including the military services and 

defense agencies. The boards are responsible for reviewing and approving 

investments to develop, operate, maintain, and modernize business 

systems for their business-area portfolio, including ensuring that 

investments are consistent with DOD’s BEA.

Although this recently enacted legislation clearly defines the roles and 

responsibilities of business systems investment approval authorities, 

control over the budgeting for and execution of funding for business 

systems investment activities remains at the DOD component level. As a 

result, DOD continues to have little or no assurance that its business 

systems investment money is being spent in an economical, efficient, and 

effective manner. Given that DOD spends billions on business systems and 

related infrastructure each year, we believe it is critical that those 

responsible for business systems improvements control the allocation and 

execution of funds for DOD business systems. However, implementation 

may require review of the various statutory authorities for the military 

services and other DOD components. Control over business systems 

investment funds would improve the capacity of DOD’s designated 
Page 22 GAO-05-723T 

approval authorities to fulfill their responsibilities and gain transparency 

over DOD investments, and minimize the parochial approach to systems 

development that exists today.

In addition, to improve coordination and integration activities, we suggest 

that all approval authorities coordinate their business systems 

modernization efforts with a CMO who would chair the DBSMC. Cognizant 

business area approval authorities would also be required to report to 

Congress through a CMO and the Secretary of Defense on applicable 

business systems that are not compliant with review requirements and to 

include a summary justification for noncompliance. 

Chief Management Official 

Is Essential for Sustained 

Leadership of Business 

Management Reform

As DOD embarks on large-scale business transformation efforts, we believe 

that the complexity and long-term nature of these efforts requires the 

development of an executive position capable of providing strong and 

sustained change management leadership across the department—and 

over a number of years and various administrations. One way to ensure 

such leadership would be to create by legislation a full-time executive-level 

II position for a CMO, who would serve as the Deputy Secretary of Defense 

for Management. This position would elevate, integrate, and institutionalize 

the high-level attention essential for ensuring that a strategic business 

transformation plan—as well as the business policies, procedures, systems, 

and processes that are necessary for successfully implementing and 

sustaining overall business transformation efforts within DOD—are 

implemented and sustained. An executive-level II position for a CMO would 

provide this individual with the necessary institutional clout to overcome 

service parochialism and entrenched organizational silos, which in our 

opinion need to be streamlined below the service secretaries and other 

levels.

The CMO would function as a change agent, while other DOD officials 

would still be responsible for managing their daily business operations. The 

position would divide and institutionalize the current functions of the 

Deputy Secretary of Defense into a Deputy Secretary who, as the alter ego 

of the Secretary, would focus on policy-related issues such as military 

transformation, and a Deputy Secretary of Defense for Management, the 

CMO, who would be responsible and accountable for the overall business 

transformation effort and would serve full-time as the strategic integrator 

of DOD’s business transformation efforts by, for example, developing and 

implementing a strategic and integrated plan for business transformation 

efforts. The CMO would not conduct the day-to-day management functions 
Page 23 GAO-05-723T 

of the department; therefore, creating this position would not add an 

additional hierarchical layer to the department. Day-to-day management 

functions of the department would continue to be the responsibility of the 

undersecretaries of defense, the service secretaries, and others. Just as the 

CMO would need to focus full-time on business transformation, we believe 

that the day-to-day management functions are so demanding that it is 

difficult for these officials to maintain the oversight, focus, and momentum 

needed to implement and sustain needed reforms of DOD’s overall business 

operations. This is particularly evident given the demands that the Iraq and 

Afghanistan postwar reconstruction activities and the continuing war on 

terrorism have placed on current leaders. Likewise, the breadth and 

complexity of the problems and their overall level within the department 

preclude the under secretaries, such as the DOD Comptroller, from 

asserting the necessary authority over selected players and business areas 

while continuing to fulfill their other responsibilities.

If created, we believe that the new CMO position could be filled by an 

individual appointed by the President and confirmed by the Senate, for a 

set term of 7 years. As prior GAO work examining the experiences of 

major change management initiatives in large private and public sector 

organizations has shown, it can often take at least 5 to 7 years until such 

initiatives are fully implemented and the related cultures are transformed 

in a sustainable way. Articulating the roles and responsibilities of the 

position in statute would also help to create unambiguous expectations and 

underscore Congress’s desire to follow a professional, nonpartisan, 

sustainable, and institutional approach to the position. In that regard, an 

individual appointed to the CMO position should have a proven track 

record as a business process change agent in large, complex, and diverse 

organizations—experience necessary to spearhead business process 

transformation across DOD.

Furthermore, to improve coordination and integration activities, we 

suggest that all business systems modernization approval authorities 

designated in the Ronald W. Reagan National Defense Authorization Act for 

Fiscal Year 2005 coordinate their efforts with the CMO, who would chair 

the DBSMC that DOD recently established to comply with the act. We also 

suggest that cognizant business area approval authorities would also be 

required to report to Congress through the CMO and the Secretary of 

Defense on applicable business systems that are not compliant with review 

requirements and include a summary justification for noncompliance. In 

addition, the CMO would enter into an annual performance agreement with 

the Secretary that sets forth measurable individual goals linked to overall 
Page 24 GAO-05-723T 

organizational goals in connection with the department’s business 

transformation efforts. Measurable progress toward achieving agreed-upon 

goals should be a basis for determining the level of compensation earned, 

including any related bonus. In addition, the CMO’s achievements and 

compensation should be reported to Congress each year. As previously 

noted, on April 14, 2005, a bill was introduced in the Senate that requires 

the establishment of a CMO who would be appointed by the President and 

confirmed by the Senate, for a set term of 7 years.31

Conclusion DOD lacks the efficient and effective financial management and related 

business operations, including processes and systems, to support the war 

fighter, DOD management, and Congress. With a large and growing fiscal 

imbalance facing our nation, achieving tens of billions of dollars of annual 

savings through successful DOD transformation is increasingly important. 

Recent legislation pertaining to defense business systems, enterprise 

architecture, accountability, and modernization, if properly implemented, 

should improve oversight and control over DOD’s significant system 

investment activities. However, DOD’s transformation efforts to date have 

not adequately addressed key underlying causes of past reform failures. 

Reforming DOD’s business operations is a monumental challenge and many 

well-intentioned efforts have failed over the last several decades. Lessons 

learned from these previous reform attempts include the need for sustained 

and focused leadership at the highest level. This leadership could be 

provided through the establishment of a CMO. Absent this leadership, 

authority, and control of funding, the current transformation efforts are 

likely to fail. 

I commend the Subcommittee for holding this hearing and I encourage you 

to use this vehicle, on an annual basis, as a catalyst for long overdue 

business transformation at DOD. Mr. Chairman, this concludes my 

statement.

Contacts and 

Acknowledgments

For further information about this testimony, please contact Gregory D. 

Kutz at (202) 512-9095 or kutzg@gao.gov. The following individuals 

contributed to the various reports and testimonies that were the basis for 

the testimony: Beatrice Alff, Renee Brown, Donna Byers, Molly Boyle, Mary 

31S. 780, 109th Cong. (2005).
Page 25 GAO-05-723T 

Ellen Chervenic, Francine DelVecchio, Francis Dymond, Geoff Frank, Gina 

Flacco, Diane Handley, Cynthia Jackson, Evelyn Logue, John Martin, 

Elizabeth Mead, Dave Moser, Mai Nguyen, Sharon Pickup, David Plocher, 

John Ryan, and Darby Smith. 

(192170)
This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately. 
GAO’s Mission The Government Accountability Office, the audit, evaluation and 

investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

accountability of the federal government for the American people. GAO 

examines the use of public funds; evaluates federal programs and policies; 

and provides analyses, recommendations, and other assistance to help 

Congress make informed oversight, policy, and funding decisions. GAO’s 

commitment to good government is reflected in its core values of 

accountability, integrity, and reliability.

Obtaining Copies of 

GAO Reports and 

Testimony

The fastest and easiest way to obtain copies of GAO documents at no cost 

is through GAO’s Web site (www.gao.gov). Each weekday, GAO posts 

newly released reports, testimony, and correspondence on its Web site. To 

have GAO e-mail you a list of newly posted products every afternoon, go to 

www.gao.gov and select “Subscribe to Updates.”

Order by Mail or Phone The first copy of each printed report is free. Additional copies are $2 each. 

A check or money order should be made out to the Superintendent of 

Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 

more copies mailed to a single address are discounted 25 percent. Orders 

should be sent to:

U.S. Government Accountability Office

441 G Street NW, Room LM

Washington, D.C. 20548

To order by Phone: Voice: (202) 512-6000 

TDD: (202) 512-2537 

Fax: (202) 512-6061

To Report Fraud, 

Waste, and Abuse in 

Federal Programs

Contact:

Web site: www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470

Congressional 

Relations

Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400

U.S. Government Accountability Office, 441 G Street NW, Room 7125 

Washington, D.C. 20548

Public Affairs Paul Anderson, Managing Director, AndersonP1@gao.gov (202) 512-4800

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, D.C. 20548