United States Government Accountability Office

GAO Testimony 

Before the Subcommittee on Readiness 

and Management Support, Committee on 

Armed Services, U.S. Senate 

DEFENSE BUSINESS 

TRANSFORMATION 

A Comprehensive Plan, 

Integrated Efforts, and 

Sustained Leadership Are 

Needed to Assure Success 

Statement of David M. Walker 

Comptroller General of the United States 

For Release on Delivery

Expected at 9:30 a.m. EST 

Thursday, November 16, 2006 

 

GAO-07-229T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

November 16, 2006

DEFENSE BUSINESS TRANSFORMATION

A Comprehensive Plan, Integrated 

Efforts, and Sustained Leadership Are 

Needed to Assure Success 

Highlights of GAO-07-229T, a testimony to 

the Subcommittee on Readiness and 

Management Support, Committee on 

Armed Services, U.S. Senate 

Of the 26 areas on GAO’s high-risk 

list of federal programs or activities 

that are at risk for waste, fraud,

abuse, or mismanagement, 8 are 

Department of Defense (DOD) 

programs or operations and 

another 6 are governmentwide 

high-risk areas that also apply to 

DOD. These high-risk areas relate

to most of DOD’s major business 

operations. DOD’s failure to 

effectively resolve these high-risk 

areas has resulted in billions of 

dollars of waste each year, 

ineffective performance, and 

inadequate accountability. At a 

time when DOD is competing for 

resources in an increasingly fiscally

constrained environment, it is 

critically important that DOD get 

the most from every defense dollar.

DOD has taken several positive 

steps and devoted substantial 

resources toward establishing key 

management structures and 

processes to successfully

transform its business operations 

and address its high-risk areas, but

overall progress by area varies 

widely and huge challenges remain. 

This testimony addresses DOD’s

efforts to (1) develop a 

comprehensive, integrated, 

enterprisewide business

transformation plan and its related 

leadership approach and

(2) comply with legislation that 

addresses business systems

modernization and improving

financial management

accountability. The testimony also 

addresses two sections included in 

recent legislation and other DOD 

high-risk areas. 

In the past year, DOD has made progress in transforming its business 

operations, but continues to lack a comprehensive, enterprisewide approach

to its overall business transformation effort. Within DOD, business 

transformation is broad, encompassing people, planning, management, 

structures, technology, and processes in many key business areas. While 

DOD’s planning and management continues to evolve, it has yet to develop a 

comprehensive, integrated, and enterprisewide plan that covers all key

business functions, and contains results-oriented goals, measures and 

expectations that link organizational, unit, and individual performance goals, 

while also being clearly linked to DOD’s overall investment plans. Because 

of the complexity and long-term nature of business transformation, DOD 

also continues to need a chief management official (CMO) with significant 

authority, experience, and tenure to provide sustained leadership and 

integrate DOD’s overall business transformation effort. Without formally 

designating responsibility and accountability for results, reconciling 

competing priorities in investments will be difficult and could impede DOD’s 

progress in its transformation efforts. 

DOD is taking steps to comply with legislative requirements aimed at 

improving its business systems modernization and financial management; 

however, much remains to be accomplished. In particular, DOD recently 

issued updates to both the business enterprise architecture and the 

transition plan, which are still not sufficiently complete to effectively and 

efficiently guide and constrain business system investments across the 

department. Most notably, the architecture is not adequately linked to DOD 

component architectures, and the plan does not include business system 

information for all major DOD components. To address these shortfalls, 

DOD issued a strategy for “federating” or extending its architecture to the 

defense components. But much remains to be accomplished before a welldefined federated architecture is in place, given that GAO recently reported 

that select components’ architecture programs are not mature. However,

DOD components continue to invest billions of dollars in thousands of new 

and existing business system programs. The risks associated with investing

in systems ahead of having a well-defined architecture and transition plan 

are profound and must be managed carefully, as must the wide assortment 

of other risks that GAO’s work has shown to exist on specific DOD business 

system investments. While not a guarantee, GAO’s work and research has 

shown that establishing effective system modernization management 

controls, such as an architecture-centric approach to investment decision 

making, can increase the chances of delivering cost-effective business 

capabilities on time and within budget. Further, with regard to legislation 

pertaining to financial management improvement, DOD issued and updated 

its Financial Improvement and Audit Readiness Plan in fiscal year 2006 to 

provide components with a construct for resolving problems affecting the 

accuracy and timeliness of financial information and an improved audit 

strategy for obtaining financial statement audit opinions. 

www.gao.gov/cgi-bin/getrpt?GAO-07-229T.

To view the full product, click on the link 

above. For more information, contact Sharon 

Pickup at (202) 512-9619 or

pickups@gao.gov or Randy Hite at (202) 512-

6256 or hiter@gao.gov. 
Mr. Chairman and Members of the Subcommittee: 

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

progress and challenges associated with the Department of Defense’s 

(DOD) efforts to transform its business operations. Since the first financial 

statement audit of a major DOD component was attempted almost 

20 years ago, we have reported that weaknesses in business operations not 

only adversely affect the reliability of reported financial data, but also the 

economy, efficiency, and effectiveness of DOD’s operations. In fact, DOD 

currently bears responsibility, in whole or in part, for 14 of our 26 high-risk 

areas. Eight of these are specific to DOD and include DOD’s overall 

approach to business transformation, business systems modernization, 

financial management, the personnel security clearance process, supply 

chain management, support infrastructure management, weapon systems 

acquisition, and contract management. In addition, DOD shares 

responsibility for six governmentwide high-risk areas.1

 Collectively, these 

high-risk areas relate to most of DOD’s major business operations which 

directly support the warfighter, including how they get paid, the benefits 

provided to their families, and the availability and condition of the 

equipment they use both on and off the battlefield. 

DOD’s business area weaknesses result in reduced efficiencies, ineffective 

performance, and inadequate accountability to Congress and the American 

people, wasting billions of dollars each year at a time when DOD is 

competing for resources in an increasingly fiscally constrained 

environment. As a result, it is important that DOD get the most from every 

dollar it invests. Our nation is not only threatened by external security 

threats, but also from within by growing fiscal imbalances due primarily to 

our aging population and rising health care costs. These trends are 

compounded by the near-term deficits arising from new discretionary and

mandatory spending as well as lower revenues as a share of the economy.

If left unchecked, these fiscal imbalances will ultimately impede economic

growth, have an adverse effect on our future standard of living, and in due 

course affect our ability to address key national and homeland security 

needs. These factors create the need to make choices that will only 

become more difficult and potentially disruptive the longer they are 

postponed. Among these difficult choices will be decisions about the 

 1

GAO, GAO’s High-Risk Program, GAO-06-497T (Washington, D.C.: Mar. 15, 2006). DOD

shares responsibility for the following six governmentwide high-risk areas: (1) disability 

programs, (2) interagency contracting, (3) information systems and critical infrastructure, 

(4) information-sharing for homeland security, (5) human capital, and (6) real property.

Page 1 GAO-07-229T 
affordability and sustainability of the continued growth in defense 

spending. Furthermore, irrespective of the size of the defense budget, the 

taxpayers and warfighters deserve more effective management of DOD’s 

overall resources. 

I continue to believe that DOD’s senior leadership is committed to 

transforming the department and DOD has taken a number of positive 

steps to begin this effort. In fact, because of the impact of the

department’s business operations on its warfighters, DOD recognizes now, 

more than ever, the need to transform its business operations and provide 

transparency in this process. Indeed, Secretary Rumsfeld was very clear in 

his speech on September 10, 2001, when he identified business 

transformation as a top priority. However, DOD’s ability to focus on this 

priority was overshadowed by the events of September 11, 2001, and the 

ensuing Global War on Terrorism, including military operations in Iraq and 

Afghanistan. Clearly, these events have required considerable emphasis 

and have become the department’s primary focus. As a result, progress on 

the full range of DOD’s business transformation challenges has been 

inconsistent, focusing thus far on enterprisewide transformation, with 

many challenges remaining concerning the transformation of the various 

military services and defense agencies. 

Congress, in part through the leadership of this Subcommittee, passed 

legislation that codified many of our prior recommendations related to 

DOD business systems modernization.2

 Since then, DOD has devoted 

substantial resources and made important progress toward establishing 

key management structures and processes to guide business systems 

investment activities, particularly at the enterprise, or departmentwide, 

level. DOD’s current approach is clearly superior to its prior approach; 

however, a number of formidable challenges remain. 

Last year when we testified before this Subcommittee, we highlighted 

several of these formidable challenges.3

 Today, I would like to provide my 

perspectives on actions DOD has taken to address these challenges and 

achieve business transformation through all levels of the department over

 2

Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005, Pub. L. No. 

108-375, § 332 (2004) (codified in part at 10 U.S.C. §§ 186 and 2222). 

3

GAO, Defense Management: Foundational Steps Being Taken to Manage DOD Business 

Systems Modernization but Much Remains to be Accomplished to Effect True Business

Transformation, GAO-06-234T (Washington, D.C.: Nov. 9, 2005). 

Page 2 GAO-07-229T 
the past year. Specifically, I will discuss DOD’s efforts to (1) develop a 

comprehensive, integrated, enterprisewide business transformation plan 

and its related leadership approach and (2) comply with legislation that 

addresses business systems modernization and improving financial 

management accountability. I will also discuss two sections of the recently 

enacted John Warner National Defense Authorization Act for Fiscal Year 

20074

 that address financial improvement and acquisition of all major 

automated information systems, and selected additional DOD high-risk

areas that highlight the need for continued attention. 

My statement is based in large part on our previous reports and some of 

our current, ongoing efforts. Our work was performed in accordance with 

generally accepted government auditing standards. 

I have stated on many occasions that transforming DOD’s business 

operations is an absolute necessity given our nation’s current deficits and 

long-term fiscal outlook. In the past year, DOD has made progress in 

transforming its business operations, but continues to lack a 

comprehensive, enterprisewide approach to planning and decision making 

needed to ensure successful transformation and address systemic business 

challenges. Within DOD, business transformation is broad, encompassing 

people, planning, management, structures, technology, and processes in 

several key business areas. While DOD’s planning and management 

continues to evolve, it has yet to develop a comprehensive, integrated, 

enterprisewide plan that covers all key business functions, and contains 

results-oriented goals, measures and expectations that link organizational 

and individual performance goals, while also being clearly linked to DOD’s 

overall investment plans. Because of the complexity and long-term nature 

of business transformation, DOD also continues to need a chief 

management official (CMO) with significant authority, experience, and 

tenure to provide sustained leadership and integrate DOD’s overall 

business transformation efforts. Without formally designating 

responsibility and accountability for results, reconciling competing 

priorities and prioritizing investments will be difficult and could impede 

DOD’s progress in its transformation efforts. 

Summary 

 4

John Warner National Defense Authorization Act for Fiscal Year 2007, Pub. L. No. 109-364 

(2006). 

Page 3 GAO-07-229T 
DOD continues to take steps to comply with legislative requirements 

aimed at improving its business systems modernization and financial 

management; however, much remains to be accomplished before the full

intent of this legislation is achieved. In particular, DOD recently issued 

updates to both the business enterprise architecture and the transition 

plan, which while addressing several issues previously reported by us, are

still not sufficiently complete to effectively and efficiently guide and 

constrain business system investments across all levels of the department. 

Most notably, the architecture does not include DOD component 

architectures, and the plan does not include most component business 

system investments. To address these shortfalls, DOD recently issued a 

strategy for “federating” or extending its architecture to the military 

services and defense agencies. In our view, much remains to be 

accomplished before a well-defined federated architecture is in place, 

particularly given that we recently reported that the respective military 

service architecture programs are not mature. Nevertheless, DOD 

components are continuing to invest billions of dollars in thousands of 

new and existing business system programs. As we previously stated, the

risks associated with investing in systems ahead of having a well-defined 

architecture and accompanying transition plan are profound and must be 

managed carefully, as must the wide assortment of other risks that our 

work has shown to exist on specific DOD business system investments. 

While not a guarantee, our work and research has shown that establishing

effective system modernization management controls, such as an 

architecture-centric approach to investment decision making, can increase 

the chances of delivering cost-effective business capabilities on time and 

within budget. Further, with regard to legislation pertaining to its financial 

management improvement, DOD issued its Financial Improvement and 

Audit Readiness Plan and two updates in fiscal year 2006 to provide 

components with a construct for resolving problems affecting the 

accuracy and timeliness of financial information and an improved audit 

strategy for obtaining financial statement audit opinions. 

In addition, you asked for my comments on two sections of the recently 

enacted John Warner National Defense Authorization Act for Fiscal Year 

2007.

5

 The first provision, section 321, seeks to ensure that the department 

pursues financial management improvement activities only in accordance

with a comprehensive financial management improvement plan that 

 5

John Warner National Defense Authorization Act for Fiscal Year 2007, Pub. L. No. 109-364 

(2006). 

Page 4 GAO-07-229T 
coordinates these activities with improvements in its systems and 

controls. I fully support the intent of this legislation, which is aimed at 

directing DOD’s corrective actions toward achieving sustained 

improvements in its ability to provide timely, reliable, complete, and useful

information. This is important not only for financial reporting purposes, 

but also, more importantly, for informed decision making and oversight. 

Section 321 is consistent with existing legislation, as well as recent actions

taken by the department. The second provision, section 816, establishes 

certain reporting and oversight requirements for the acquisition of all 

major automated information systems (MAIS),

6

 which if properly 

implemented could strengthen oversight of and accountability for business 

system acquisitions that fail to meet cost, schedule, or performance 

criteria. Therefore, I also support the purpose of this legislation. 

Ensuring effective transformation of other areas within DOD that we have 

identified as high risk will require continued attention and sustained 

leadership over a number of years to be successful. These other high-risk 

areas include DOD’s weapon systems acquisition, contract management, 

supply chain management, personnel security clearance program, and 

support infrastructure management. In the area of weapon systems 

acquisition, recurring problems with cost overruns and schedule delays 

have resulted in a reduction of buying power of the defense dollar at a 

time when the nation is struggling with a large and growing structural 

deficit. While DOD has made some progress in addressing its supply chain 

management problems, the department faces challenges in successfully 

implementing its changes and measuring progress. While positive steps 

have been taken to address the financial costs, delays, and other risks 

associated with DOD’s personnel security clearance program, problems 

with this program continue. Finally, much work remains for DOD to 

transform its support infrastructure to adequately fund and improve 

operations and achieve efficiencies while ensuring that infrastructure 

costs no longer consume a larger than necessary portion of DOD’s budget. 

DOD is one of the largest and most complex organizations in the world. 

Overhauling its business operations will take many years to accomplish 

and represents a huge management challenge. Execution of DOD’s 

operations spans a wide range of defense organizations, including the 

Background 

 6

The Committee originally asked GAO to comment on sec. 804 of the Senate bill, S. 2766, 

which, with some changes, has now been enacted as sec. 816.

Page 5 GAO-07-229T 
military services and their respective major commands and functional 

activities, numerous large defense agencies and field activities, and 

various combatant and joint operational commands that are responsible 

for military operations for specific geographic regions or theaters of 

operation. To support DOD’s operations, the department performs an 

assortment of interrelated and interdependent business functions—using 

more than 3,700 business systems—related to major business areas such 

as weapon systems management, supply chain management, procurement, 

health care management, and financial management. The ability of these 

systems to operate as intended affects the lives of our warfighters both on 

and off the battlefield. For fiscal year 2006, Congress appropriated 

approximately $15.5 billion to DOD, and for fiscal year 2007, DOD has 

requested another $16 billion in appropriated funds to operate, maintain, 

and modernize these business systems and associated infrastructure. 

Until DOD can successfully transform its operations, it will continue to 

confront the pervasive, decades-old management problems that cut across 

all of DOD’s major business areas. Since our report on the financial 

statement audit of a major DOD component over 16 years ago,7

 we have 

repeatedly reported that weaknesses in business management systems, 

processes, and internal controls not only adversely affect the reliability of 

reported financial data, but also the management of DOD operations. In 

March 2006,8 I testified that DOD’s financial management deficiencies, 

taken together, continue to represent the single largest obstacle to 

achieving an unqualified opinion on the U.S. government’s consolidated 

financial statements. These issues were also discussed in the latest 

consolidated financial audit report.9

 To date, none of the military services 

or major DOD components has passed the test of an independent financial 

 7

GAO, Financial Audit: Air Force Does Not Effectively Account for Billions of Dollars of 

Resources, GAO/AFMD-90-23 (Washington, D.C.: Feb. 23, 1990). 

8

GAO, Fiscal Year 2005 U.S. Government Financial Statements: Sustained Improvement 

in Federal Financial Management Is Crucial to Addressing Our Nation’s Financial

Condition and Long-term Fiscal Imbalance, GAO-06-406T (Washington, D.C.: Mar. 1,

2006). 

9

Department of the Treasury, 2005 Financial Report of the United States Government 

(Washington, D.C.: Dec. 15, 2005). 

Page 6 GAO-07-229T 
audit because of pervasive weaknesses in internal control and processes 

and fundamentally flawed business systems.10

DOD’s financial management problems are pervasive, complex, longstanding, deeply rooted in virtually all of its business operations, and 

challenging to resolve. The nature and severity of DOD’s financial 

management business operations and system deficiencies not only affect 

financial reporting, but also impede the ability of DOD managers to receive 

the full range of information needed to effectively manage day-to-day 

operations. Such weaknesses have adversely affected the ability of DOD to 

control costs, ensure basic accountability, anticipate future costs and 

claims on the budget, measure performance, maintain funds control, 

prevent fraud, and address pressing management issues, including 

supporting warfighters and their families. 

Transformation of DOD’s business systems and operations is key to 

improving the department’s ability to provide DOD management and 

Congress with accurate, timely, reliable, and useful information for 

analysis, oversight, and decision making. This effort is an essential part of 

the Secretary of Defense’s broad initiative to “transform the way the 

department works and what it works on.” The savings resulting from an 

effective business transformation effort could be significant. 

I would like to take a few minutes to briefly discuss two critical elements 

that are still needed at DOD to ensure successful and sustainable business 

transformation before turning to DOD’s business modernization and 

financial management accountability improvement efforts. First, DOD 

needs a comprehensive, integrated, and enterprisewide plan to guide its 

overall business transformation efforts. Second, a chief management 

official with the right skills and at the right level of the department is 

essential for providing the leadership continuity needed to sustain the 

momentum for business transformation efforts across administrations and 

ensure successful implementation. 

DOD Lacks a Fully 

Developed, 

Comprehensive, 

Integrated, and 

Enterprisewide 

Approach to Decision 

Making and Sustained 

Leadership 

 10Although not major DOD components, the Military Retirement Fund received an

unqualified audit opinion on its fiscal year 2005 financial statements, and the DOD 

Medicare Eligible Retiree Health Care Fund received a qualified audit opinion on its fiscal 

year 2005 financial statements. 

Page 7 GAO-07-229T 
DOD has not fully developed a comprehensive, integrated, and 

enterprisewide strategy or action plan for managing its overall business 

transformation effort. The lack of a comprehensive, integrated, and 

enterprisewide action plan linked with performance goals, objectives, and 

rewards has been a continuing weakness in DOD’s overall business 

transformation efforts that I have been testifying on for years.11 I recognize 

that DOD’s efforts to plan and organize itself to achieve business 

transformation are continuing to evolve. However, I cannot emphasize 

enough how critical to the success of these efforts are top management 

attention and structures that focus on transformation from a broad 

perspective and a clear, comprehensive, integrated, and enterprisewide 

plan that, at a summary level, addresses all of the department’s major 

business operations. This plan should cover all of DOD’s key business 

functions; contain results-oriented goals, measures, and expectations that

link institutional, unit, and individual performance goals and expectations

to promote accountability; identify people with needed skills, knowledge, 

experience, responsibility, and authority to implement the plan; and 

establish an effective process and related tools for implementation and 

oversight. Such an integrated business transformation plan would be 

instrumental in establishing investment priorities and guiding the 

department’s key resource decisions. 

Comprehensive, 

Integrated, and 

Enterprisewide Business 

Transformation Plan Not 

Fully Developed 

While DOD has developed plans that address aspects of business 

transformation at different organizational levels, these plans have not been

clearly aligned into a comprehensive, integrated, and enterprisewide 

approach to business transformation. As I will shortly discuss in more 

detail, DOD recently issued an enterprise transition plan (ETP) that is to 

serve as a road map and management tool for sequencing business system 

investments in the areas of personnel, logistics, real property, acquisition, 

purchasing, and financial management. As Business Transformation 

Agency (BTA) officials acknowledge, the ETP does not contain all of the 

components of a comprehensive and integrated enterprisewide

transformation plan as we envision. BTA officials stated that, while the 

ETP is integrated with the Financial Improvement and Audit Readiness 

 11See for example, GAO, Department of Defense: Sustained Leadership is Critical to 

Effective Financial and Business Management Transformation, GAO-06-1006T 

(Washington, D.C.: Aug. 3, 2006); DOD’s High-Risk Areas: Successful Business 

Transformation Requires Sound Strategic Planning and Sustained Leadership, 

GAO-05-520T (Washington, D.C.: Apr. 13, 2005); and DOD Financial Management: 

Integrated Approach, Accountability, Transparency, and Incentives Are Keys to Effective

Reform, GAO-02-497T (Washington, D.C.: Mar. 6, 2002). 

Page 8 GAO-07-229T 
Plan,12 the ETP is not as integrated with other enterprisewide, high-risk 

area improvement plans, such as the Supply Chain Plan.13 However, BTA 

officials consider the ETP to be an evolving plan and are currently 

analyzing other enterprisewide plans aimed at improving and transforming 

DOD’s business operations in order to improve the degree of alignment 

between those plans and the ETP. Finally, BTA officials indicate that the 

department is moving toward a family of linked plans that could be used to 

guide and monitor business transformation, rather than one 

comprehensive plan that addresses all aspects of DOD’s business 

operations. 

To develop a family of linked plans, the enterprise transition plan would 

also need to be aligned with the high-level Quadrennial Defense Review 

(QDR) strategic plan and its initiatives, which so far is not the case. For 

example, the QDR highlights the need for transforming the way the 

department works and what it works on, but it does not contain 

supporting details such as key metrics, milestones, and mechanisms to 

guide and direct the business transformation effort. Moreover, the QDR’s 

business transformation initiative, the Institutional Reform and 

Governance project, is not clearly aligned with the ETP. This initiative is 

intended to (1) establish a common and authoritative analytical 

framework to link strategic decisions to execution, (2) integrate core 

decision processes, (3) and align and focus the department’s governance 

and management functions under an integrated enterprise model. Finally, 

the QDR and other DOD planning documents do not address the ongoing

gap between wants, needs, affordability, and sustainability in what is likely 

to be a resource-constrained environment. 

Sustained Leadership Is 

Needed 

While DOD has established leadership and oversight mechanisms to 

address transformation, DOD lacks the sustained leadership at the right 

level needed to achieve successful and lasting transformation. Due to the 

complexity and long-term nature of DOD’s business transformation 

efforts, we continue to believe DOD needs a chief management officer 

(CMO) to provide sustained leadership and maintain momentum. Without 

 12U.S. Department of Defense, Defense Financial Improvement and Audit Readiness Plan

(Washington, D.C.: Sept. 30, 2006). 

13U.S Department of Defense, DOD Plan for Improvement in the GAO High Risk Area of 

Supply Chain Management with a Focus on Inventory Management and Distribution,

(Washington, D.C.: September 2006). 

Page 9 GAO-07-229T 
formally designating responsibility and accountability for results, choosing 

among competing demands for scarce resources and resolving differences 

in priorities among various DOD organizations will be difficult and could 

impede DOD’s ability to transform in an efficient, effective, and reasonably 

timely manner. In addition, it may be particularly difficult for DOD to 

sustain transformation progress when key personnel changes occur. This 

position would elevate, integrate, and institutionalize the attention 

essential for addressing key stewardship responsibilities, such as strategic 

planning, enterprise architecture development and implementation, 

information technology management, and financial management, while 

facilitating the overall business management transformation effort within 

DOD. 

I would also like to articulate what this position would not do. The CMO 

would not be another layer in DOD’s day-to-day management structure. 

Specifically, the CMO would not assume the responsibilities of the 

undersecretaries of defense, the service secretaries, or other DOD officials 

for the day-to-day management of the department, nor would the CMO 

supervise those officials in connection with their ongoing responsibilities. 

Instead, the CMO would be responsible and accountable for planning, 

integrating, and executing the overall business transformation effort. The

CMO also would develop and implement a strategic plan for the overall 

business transformation effort. As required by Congress, DOD is studying 

the feasibility and advisability of establishing a CMO to oversee the 

department’s business transformation process. As part of this effort, the 

Defense Business Board, an advisory panel, examined various options and,

in May 2006, endorsed this concept. The Institute for Defense Analysis is 

scheduled to issue a report on this issue before the end of this year. In 

addition, McKinsey and Company recently endorsed the CMO concept. 

The Secretary of Defense, Deputy Secretary of Defense, and other senior 

leaders have clearly shown a commitment to business transformation and 

addressing deficiencies in the department’s business operations. During 

the past year, DOD has taken additional steps to address certain 

provisions and requirements of the Ronald W. Reagan National Defense 

Authorization Act for Fiscal Year 2005, including establishing the Defense 

Business Systems Management Committee (DBSMC), which is intended to

be DOD’s primary transformation leadership and oversight mechanism, 

and creating the BTA to support the DBSMC, a decision-making body. 

However, these organizations do not provide the sustained leadership 

needed to successfully achieve the needed overall business 

transformation. The DBSMC’s representatives consist of political 

appointees whose terms expire when administrations change. 

Page 10 GAO-07-229T 
Furthermore, it is important to remember that committees do not lead,

people do. Thus, DOD still needs to designate a person to provide 

sustained leadership and have overall responsibility and accountability for 

this effort. 

In addition, we testified in November 200514 that DOD’s BTA offers 

potential benefits relative to the department’s business systems 

modernization efforts if the agency can be properly organized, given 

resources, and empowered to effectively execute its roles and 

responsibilities and is held accountable for doing so. However, the 

department has faced challenges in making the BTA operational. For 

example, we previously testified that there are numerous key acquisition 

functions that would need to be established and made operational for the 

BTA to effectively assume responsibility for 21 DOD-wide projects, 

programs, systems, and initiatives, and our experience across the 

government shows that these functions can take considerable time to 

establish.15

To assist the department, the Fiscal Year 2004 National Defense 

Authorization Act gives DOD the authority to hire up to 2,500 highly 

qualified experts from outside the civil service and uniformed services 

without going through the normal civil service hiring system.16 Earlier this 

year, the BTA had yet to take advantage of this authority because of 

certain departmental obstacles concerning, for example, the roles that 

these experts could perform. However, it is our understanding that this is 

no longer the case, and to date the BTA has hired 9 of these individuals. 

Moreover, we were told that the BTA has also obtained direct hiring 

authority from the Office of Personnel Management. The BTA’s total 

projected end strength is 235 personnel. As of November 2006, the BTA 

had hired 128 personnel; agency officials anticipate hiring the remaining 

107 personnel, including 16 additional highly qualified subject experts by 

September 30, 2007. 

 14GAO, Defense Management: Foundational Steps Being Taken to Manage DOD Business 

Systems Modernization, but Much Remains to be Accomplished to Effect True Business 

Transformation, GAO-06-234T (Washington, D.C.: Nov. 9, 2005). 

15According to DOD, 21 systems and initiatives have been transferred under the BTA as of 

Oct. 31, 2006. 

16National Defense Authorization Act for Fiscal Year 2004, Pub. L. No. 108-136, § 1101

(2003) (codified in part at 10 U.S.C. § 9903). 

Page 11 GAO-07-229T 
While achieving the BTA’s initial staffing goals would represent a major 

accomplishment and is extremely important to its ability to perform its 

business transformation and business systems modernization roles and 

responsibilities, BTA human capital management is not a one-time event

but rather an essential BTA function that needs to be managed 

strategically. Our research shows that to be successful, organizations need

to treat human capital as strategic assets—continuously working to 

understand gaps between future needs and on-board capabilities and 

establish plans for filling gaps through a combination of, for example, 

training, retention incentives, hiring, and performance-related rewards. By 

employing such an approach, the BTA can be better positioned to make 

sure that it has the right people, with the right skills, when it needs them 

not only today but in the future. The Deputy Undersecretary of Defense for 

Financial Management stated that the BTA is currently developing a 

human capital strategy that is expected to be completed by January 2007.

It will to (1) provide for rotating staff between BTA and the DOD 

components to infuse talent into the BTA and to develop a changeoriented culture, (2) align individual and team performance to already

established organizational mission outcomes, and (3) employ OPM’s 

Human Capital Assessment and Accountability Framework and the DOD 

Human Capital Strategy.

Page 12 GAO-07-229T 
The department has made important progress in complying with 

legislation pertaining to its financial management improvement and 

business systems modernization efforts. However, formidable challenges

remain relative to extending the architecture and implementing its tiered

accountability investment approach across the military services and 

defense agencies, and ensuring that the department’s thousands of 

business system investments are implemented on time and within budget 

and provide promised capabilities and benefits. The Fiscal Year 2005 

National Defense Authorization Act contained provisions aimed at 

establishing some of the tools needed to accomplish this. As our 

evaluations of federal information technology (IT) management and our 

research of successful organizations show, other tools necessary for 

successfully modernizing systems will also be needed. 

As we reported earlier this year,17 DOD also made important progress in 

complying with the Fiscal Year 2005 National Defense Authorization Act 

pertaining to its business systems modernization. For example, on March 

15, 2006, DOD released updates to its business enterprise architecture 

(Version 3.1) and its ETP. These updates added previously missing content 

to the architecture and transition plan, such as identifying an 

enterprisewide data standard to support financial management and 

reporting requirements. Other business system modernization 

management improvements were also apparent, such as increased 

budgetary reporting of business system investments and additional 

investment review controls. 

DOD Has Made 

Progress in 

Complying with 

Business Systems 

Modernization and 

Financial 

Management 

Accountability 

Legislation, but Much 

Work Remains 

More recently, DOD issued Version 4.0 of its business enterprise 

architecture and ETP. These latest versions provide additional content and 

clarity. For example, the transition plan now includes the results of 

ongoing analyses of gaps between existing business capabilities and 

needed capabilities. However, enormous challenges, such as extending the 

architecture across the military services and defense agencies, remain. To 

this end, the department defined a conceptual strategy in September 2006, 

for federating the architecture18 and adopting a shared services 

 17GAO-06-406T and GAO, Business Systems Modernization: DOD Continues to Improve 

Institutional Approach, but Further Steps Needed, GAO-06-658 (Washington, D.C.: May 15,

2006). 

18A federated architecture is an architecture that is composed of a set of coherent, but

distinct, entity architectures. The entities or members of the federation collaborate to

develop an integrated enterprise architecture that conforms to the enterprise view and to 

the overarching rules of the federation. 

Page 13 GAO-07-229T 
orientation.19 While we believe that the concepts have merit and are 

applicable to DOD, much remains to be decided and accomplished before 

they can be implemented in a way to produce architectures and transition 

plans for each DOD component that are aligned with the department’s 

corporate view and that can guide and constrain component-specific 

investments. 

At the same time, DOD components continue to invest billions of dollars in 

new and existing business systems each year. This means that the risks of 

investing in these programs ahead of the federated architecture need to be

part of investment approval decisions. As we have previously reported,20

investment decision making based on architecture alignment is but one of

many keys to success of any business system modernization. Other keys to 

the success in delivering promised system capabilities and benefits on 

time and within budget include having the right human capital team in 

place and following a range of essential program management and system 

and software acquisition disciplines. As I will discuss later, our experience 

in reviewing several DOD business system programs shows that these keys 

to success are not consistently practiced. While not a guarantee, our 

research of leading program management and system acquisition practices

and evaluations of federal agencies shows that institutionalization of a 

family of well-defined management controls can go a long way in 

minimizing business system modernization risks. 

 19A service-oriented architecture is an approach for sharing functions and applications 

across an organization by designing them as discrete, reusable, business-oriented services. 

These services need to be, among other things, (1) self-contained, meaning that they do not

depend on any other functions or applications to execute a discrete unit of work; 

(2) published and exposed as self-describing business capabilities that can be accessed and 

used; and (3) subscribed to via well-defined and standardized interfaces instead of unique,

tightly coupled connections. Such a service orientation is thus not only intended to

promote the reduced redundancy and increased integration that any architectural approach 

is designed to achieve, but to also provide the kind of flexibility needed to support a 

quicker response to changing and evolving business requirements and emerging conditions.

20GAO, DOD Systems Modernization: Planned Investment in the Navy Tactical 

Command Support System Needs to be Reassessed, GAO-06-215 (Washington, D.C.: Dec. 5,

2005) and DOD Systems Modernization: Uncertain Joint Use and Marginal Expected

Value of Military Asset Deployment System Warrant Reassessment of Planned

Investment, GAO-06-171 (Washington, D.C.: Dec. 15, 2005). 

Page 14 GAO-07-229T 
In May 2006,21 we reported on DOD’s efforts to address a number of 

provisions in the Fiscal Year 2005 National Defense Authorization Act.22

Among other things, we stated that the department had adopted an 

incremental strategy for developing and implementing its architecture, 

which was consistent with our prior recommendation and a best practice. 

We further stated that DOD had addressed a number of the limitations in 

prior versions of its architecture. For example, we reported that Version 

3.1 of the architecture had much of the information needed, if properly 

implemented, to achieve compliance with the Department of the 

Treasury’s United States Standard General Ledger,23 such as the data 

elements or attributes that are needed to facilitate information sharing and 

reconciliation with the Treasury. In addition, we stated that the 

architecture continued to specify DOD’s Standard Financial Information 

Structure (SFIS)24 as an enterprisewide data standard for categorizing 

financial information to support financial management and reporting 

functions. 

DOD Continues to Evolve 

Its Business Enterprise 

Architecture, but Much 

Remains to Be 

Accomplished 

Despite this progress, we also reported25 that this version of the 

architecture did not comply with all of the legislative requirements26 and 

related best practices. For example, while program officials stated that 

analyses of the current architectural environment for several of the 

enterprise-level systems had occurred, the architecture did not contain a 

description of, or a reference to, the results of these analyses. The 

architecture also did not include a systems standards profile to support 

implementation of data sharing among departmentwide business systems 

and interoperability with departmentwide IT infrastructure. Program 

officials acknowledged that the architecture did not include this profile 

and stated that they were working with the Assistant Secretary of Defense 

(Networks and Information Integration) and Chief Information Officer to 

address this in future versions. We also reported that the architecture was 

 21GAO-06-658. 

22Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005, Pub. L. No. 

108-375, § 332 (2004) (codified in part at 10 U.S.C. § 2222). 

23The United States Standard General Ledger provides a uniform chart of accounts and

technical guidance used in standardizing federal agency accounting. 

24SFIS is the department’s common financial business language. 

25GAO-06-658. 

2610 U.S.C. §2222(d). 

Page 15 GAO-07-229T 
not, for example, adequately linked to the military service and defense 

agency component architectures and transition plans, which we said was 

particularly important given the department’s stated intention to adopt a 

federated approach to developing and implementing the architecture. 

In September 2006, DOD released Version 4.0 of its architecture, which 

according to the department, resolves several of the architecture gaps that

were identified with the prior version. One example of a gap that DOD 

reports Version 4.0 is beginning to fill is the definition of a key business 

process area missing from prior versions—the planning, programming, 

and budgeting process area. In this regard, according to DOD, the 

architecture now includes departmental and other federal planning, 

programming, and budgeting guidance (e.g., OMB Circular A-11) and some 

high-level activities associated with this process area. In addition, DOD 

reports that Version 4.0 has restructured the business process models to 

reduce data redundancy and ensure adherence to process modeling 

standards (e.g., eliminated numerous process modeling standards 

violations and stand-alone process steps with no linkages). Despite these 

improvements, this version is still missing, for example, a depiction of the 

current environment (i.e., baseline of its current assets and current 

capabilities) that was analyzed against its target environment to identify 

capability gaps that the ETP is to address. Further, it does not include 

DOD component architectures (e.g., services and various DOD agencies) 

as distinct yet coherent members of a federated DOD business enterprise 

architecture.

DOD Plans to Federate Its 

Business Enterprise 

Architecture to the 

Components 

Recognizing the need to address component architectures, DOD released 

its business mission area federation strategy and road map in September 

2006, which is intended to define how DOD will extend its business 

enterprise architecture across the military services and defense agencies. 

According to DOD, the strategy will provide for standardization across the 

federation of architectures by, for example, introducing a consistent set of 

standards for determining the status and quality of the member 

(component and program) architectures, a standard methodology for 

linking member architectures to the overarching corporate architecture, 

the capability to search member architectures, and a common method to 

reuse capabilities described by these architectures. 

In the end, the strategy is intended to link related business mission area 

services or capabilities in the various architectures by establishing a set of 

configuration standards for architecture repositories. Further, the strategy 

is also intended to support the development of the interoperable execution 

Page 16 GAO-07-229T 
of enterprise and component systems by defining and disclosing common 

services that can be shared and reused by these systems. (See fig. 1 for a 

simplified and illustrative conceptual depiction of DOD’s federated 

business enterprise architecture.) 

Figure 1: Simplified and Illustrative Diagram of DOD’s Federated Business Enterprise Architecture 

The importance of extending the DOD business enterprise architecture to

the military services is underscored by our recent findings about the 

military services’ management of their respective enterprise architecture 

programs.27 Specifically, in August 2006, we released an assessment of 

federal agency enterprise architecture programs’ satisfaction of the 

elements in our Enterprise Architecture Management Maturity Framework 

(EAMMF).28 Our EAMMF is a five-stage architecture framework for 

managing the development, maintenance, and implementation of an 

architecture and understanding the extent to which effective architecture 

management practices are being performed and where an organization is

in its progression toward having a well-managed architecture program. In 

short, the framework consists of 31 core elements that relate to 

 27GAO, Enterprise Architecture: Leadership Remains Key to Establishing and Leveraging 

Architectures for Organizational Transformation, GAO-06-831 (Washington, D.C.: August

2006). 

28GAO-06-831. 

Page 17 GAO-07-229T 
architecture governance, content, use, and measurement.29 These elements

reflect research by us and others showing that architecture programs 

should be founded upon institutional architecture commitment and 

capabilities, and measured and verified products and results. 

With respect to the maturity of the military services’ respective enterprise 

architecture programs, we found that the departments of the Air Force, 

the Army, and the Navy had not satisfied about 29, 55, and 29 percent of 

the core elements in our framework, respectively. In addition, the Army 

had only fully satisfied 1 of the 31 core elements (3 percent). (See table 1 

for the number and percentage of elements fully, partially, and not 

satisfied by each of the military services). 

Table 1: Number and Percentage of Framework Elements Fully, Partially, and Not 

Satisfied by the Military Services 

Military services Fully satisfied Partially satisfied Not satisfied

Air Force 14 (45%) 8 (26%) 9 (29%)

Army 1 (03%) 13 (42%) 17 (55%) 

Navy 10 (32%) 12 (39%) 9 (29%) 

Source: GAO.

By comparison, the other major federal departments and agencies that we 

reviewed had as a whole fully satisfied about 67 percent of the 

framework’s core elements. Among the key elements that all three 

services had not fully satisfied were developing architecture products that 

describe their respective target architectural environments and developing 

transition plans for migrating to a target environment, in addition to the 

following. 

• The Air Force, for example, had not yet placed its architecture products 

under configuration management to ensure the integrity and consistency 

of these products and was not measuring and reporting on the quality of

these products. 

• The Army, for example, had yet to develop effective architecture 

development plans and had not developed architecture products that fully 

described its current architectural environment. 

 29GAO, Information Technology: A Framework for Assessing and Improving Enterprise 

Architecture Management (Version 1.1), GAO-03-584G (Washington, D.C.: April 2003). 

Page 18 GAO-07-229T 
• The Navy, for example, had yet to describe its current architectural 

environment in terms of performance and had not explicitly addressed 

security in its architecture descriptions. 

Further, while the services had partially satisfied between 8 and 13 core 

elements in our framework, it is important to note that even though 

certain core elements are partially satisfied, fully satisfying some of them 

will not be accomplished quickly and easily. It is also important to note the 

importance of fully, rather than partially, satisfying certain elements, such 

as those that address architecture content, which can have important 

implications for the quality of an architecture and thus its usability and 

results. 

To assist the military services in addressing enterprise architecture 

challenges and managing their architecture programs, we recommended 

that the services develop and implement plans for fully satisfying each of 

the conditions in our framework. The department generally agreed with 

our findings and recommendations and stated that it plans to use our 

framework as one of the benchmark best practices as DOD components 

continuously work to improve enterprise architecture management 

maturity. 

Clearly, much remains to be accomplished to implement the federated 

strategy and create DOD’s federated business enterprise architecture. One 

key to making this happen, which we have previously recommended,30 is 

having a business enterprise architecture development management plan 

that defines what will be done, when, by whom, and how it will done to 

fully develop the architecture. Having and using such a plan is provided for 

in our EAMMF. Without one, the department is less likely to effectively 

accomplish its intended architecture evolution, extension, and 

improvement efforts. According to BTA officials, they are in the process of

addressing this recommendation. We currently have ongoing work for this 

committee and others looking at, among other things, how the department

plans to implement the federated strategy and the challenges that it faces 

in doing so.

 30GAO-06-658. 

Page 19 GAO-07-229T 
DOD has taken a number of steps to improve its ETP and address some of 

the missing elements that we previously identified31 relative to the Fiscal 

Year 2005 National Defense Authorization Act’s requirements and related 

transition planning guidance. For example, in May 2006, we reported that

the transition plan included an initiative aimed at identifying capability 

gaps between the current and target architectural environments, and 

provided information on progress on major investments—including key 

accomplishments and milestones attained, and more information about 

the termination of legacy systems. However, we reported that it still did 

not identify, among other things, all legacy systems that will not be part of

the target architecture, and it did not include system investment 

information for all the military services, defense agencies, and combatant 

commands.

In September 2006, DOD released an updated revision to its ETP, which 

continues to include major investments—such as key accomplishments 

and milestones attained, as well as new information on near-term activities 

(i.e., within the next 6 months) at both the enterprise and component 

levels. For example, in an effort to improve visibility into personnel 

activities, DOD reported that, for the Defense Civilian Personnel Data 

System, it met the September 2006 milestone to implement enterprisewide 

tools for use in advanced reporting and data warehousing, and that it has 

set a September 2008 milestone for developing an implementation strategy

for integrating modules supporting functionality that is currently provided 

by stand-alone applications. In addition, the updated plan provides 

information on business priorities supported by systems and initiatives 

and aligns these priorities with a set of business value measures (e.g., ontime customer request, payroll accuracy). Specifically, for each business 

enterprise priority, the plan now identifies the business capability 

improvements (e.g., manage personnel and pay) necessary to achieve the 

business enterprise priority (e.g., personnel visibility) objectives and the 

metrics for measuring progress towards achieving these objectives. In 

addition, the plan now identifies the relationship between target systems, 

business capabilities, operational activities, and the system functions they 

provide and specific organizations that will or plan to use the system. 

Further, the transition plan now includes the initial results of ongoing 

analyses of gaps between its current and target environments for most of 

the business enterprise priorities, in which capability and performance 

shortfalls and their root causes are described and the architecture solution 

DOD Continues to Improve 

Its Enterprise Transition 

Plan, but Needed 

Improvements Remain 

 31GAO-06-219. 

Page 20 GAO-07-229T 
component (such as business rules and transformation initiatives and 

systems) that are to address these shortfalls are identified. 

However, the current transition plan is still missing important elements. 

Specifically, the plan does not yet include system investment information 

for all the defense agencies and combatant commands. In addition, the 

planned investments in the transition plan are not sequenced based on a 

range of activities that are critical to developing an effective transition 

plan. As we have previously reported,32 a transition or sequencing plan 

should provide a temporal investment road map for moving between the 

current and target environments, based on such considerations as 

technology opportunities, marketplace trends, institutional system 

development and acquisition capabilities, legacy and new system 

dependencies and life expectancies, and the projected value of competing 

investments. According to a BTA official responsible for the ETP, the 

transition plan investments have not been sequenced based on these 

considerations. Rather, the ETP is based on fiscal year budgetary 

constraints. 

Program officials stated that the next version of the plan will enhance 

performance metric tracking, improve the quality of system functional 

scope and organizational span information, better integrate component 

plans with enterprise plans, enhance federating plans for each business 

capability, and possibly add other components to the enterprise transition 

plan. As the transition plan evolves and all system investments are 

validated against the architecture via capability gap analyses, the 

department should be better positioned to sequentially define and manage 

the migration and disposition of existing business processes and 

systems—and the introduction of new ones. 

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, 

DOD Has Established 

Business Systems 

Investment DecisionMaking Controls, but Full 

Implementation Remains 

Unclear 

 32GAO-06-658. 

Page 21 GAO-07-229T 
maintenance, and modernization of defense business systems to 

designated approval authorities or “owners” of certain business missions.33

DOD has satisfied this requirement under the act. On March 19, 2005, the 

Deputy Secretary of Defense issued a memorandum that delegated the 

authority in accordance with the criteria specified in the act, as described

above. Our research and evaluation of agencies’ investment management 

practices have shown that clear assignment of senior executive investment 

management responsibility and accountability is crucial to having an

effective institutional approach to IT investment management.34

The Fiscal Year 2005 National Defense National Authorization Act also 

required DOD to establish investment review structures and processes, 

including a hierarchy of investment review boards (IRB), each with 

representation from across the department, and a standard set of 

investment review and decision-making criteria for these boards to use to 

ensure compliance and consistency with DOD’s business enterprise 

architecture. In this regard, the act required the establishment of the 

DBSMC—which serves as the highest ranking governance body for 

business system modernization activities within the department. As of 

April 2006, DOD identified 3,717 business systems and assigned 

responsibility for these systems to IRBs. Table 2 shows the systems and 

the responsible IRB and component. 

 33Approval authorities, including the Under Secretary of Defense for Acquisition, 

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

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

Networks and Information Integration and Chief Information Officer of the Department of

Defense; and the Deputy Secretary of Defense or an Under Secretary of Defense, as 

designated by the Secretary of Defense, are responsible for the review, approval, and 

oversight of business systems and must establish investment review processes for systems 

under their cognizance. 

34GAO, Information Technology Investment Management: A Framework for Assessing

and Improving Process Maturity, GAO-04-394G (Washington, D.C.: March 2004). 

Page 22 GAO-07-229T 
Table 2: DOD Systems and Investment Review Board and Component

Investment review board Air Force Army Navy

Defense Finance and 

Accounting Service 

Other defense 

agencies Total

Financial Management 67 161 148 72 35 483

Human Resources Management 164 320 174 20 114 792

Weapon System Life-Cycle Management 

and Materiel Supply and Service 

Management 780 730 406 1 168 2,085

Real Property and Installations Life-Cycle 

Management 71 122 44 0 17 254

Other 65 0 26 0 12 103

Total 1,147 1,333 798 93 346 3,717

Source: GAO analysis of DOD data. 

A key element of the department’s approach to reviewing and approving 

business systems investments is the use of what it refers to as tiered 

accountability. DOD’s tiered accountability approach involves an 

investment control process that begins at the component level and works 

its way through a hierarchy of review and approval authorities, depending

on the size and significance of the investment. Military service officials 

emphasized that the success of the process depends on them performing a 

thorough analysis of each business system before it is submitted for 

higher-level review and approval. Through this process, the department 

reported in March 2006 that 226 business systems, representing about 

$3.6 billion in modernization investment funding, had been approved by 

the DBSMC—the department’s highest-ranking approval body for business 

systems. According to the department’s March 2006 report, this process 

also identified more than 290 systems for phase out or elimination and 

approximately 40 business systems for which the requested funding was 

reduced and the funding availability periods were shortened to fewer than 

the number of years requested. For example, one business system 

investment that has been eliminated is the Forward Compatible Payroll 

(FCP) system. In reviewing the program status, the IRB determined that 

FCP would duplicate the functionality contained in the Defense Integrated 

Military Human Resources System, and it was unnecessary to continue 

investing in both systems.35 A major reason the department has thousands 

 35According 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. 

Page 23 GAO-07-229T 
of business systems is that it has historically failed to consistently employ 

the range of effective institutional investment management controls, such 

as an architecture-centric approach to investment decision making, that 

our work and research show are keys to successful system modernization 

programs. Such controls help to identify and eliminate duplicative systems 

and this helps to optimize mission performance, accountability, and 

transformation. They also help to ensure that promised system capabilities 

and benefits are delivered on time and within budget. 

Furthermore, the BTA reports that the tiered accountability approach has 

reduced the level of funding and the number of years that funding will be 

available for 14 Army business systems, 8 Air Force business systems, and 

8 Navy business systems. For example, the Army’s Future Combat Systems 

Advanced Collaborative Environment program requested funding of 

$100 million for fiscal years 2006 through 2011, but the amount approved 

was reduced to approximately $51 million for fiscal years 2006 through 

2008. Similarly, Navy’s Military Sealift Command Human Resources 

Management System requested funding of about $19 million for fiscal 

years 2006 through 2011, but the amount approved was approximately 

$2 million for the first 6 months of fiscal year 2006. According to Navy 

officials, this system initiative will be reviewed to ascertain whether it has

some of the same functionality as the Defense Civilian Personnel Data 

System. Funding system initiatives for shorter time periods can help 

reduce the financial risk by providing additional opportunities for 

monitoring a project’s progress against established milestones and help 

ensure that the investment is properly aligned with the architecture and 

the department’s overall goals and objectives. 

Besides limiting funding, the investment review and approval process has 

resulted in conditions being placed on system investments. These 

conditions identify specific actions to be taken and when the actions must 

be completed. For example, in the case of the Army’s Logistics 

Modernization Program (LMP) initiative, one of the noted conditions was 

that the Army had to address the issues discussed in our previous 

reports.36 In our May 2004 report, we recommended that the department 

establish a mechanism that provides for tracking all business systems 

 36GAO, DOD Business Systems Modernization: Billions Continue to Be Invested with

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

May 27, 2004 and Army Depot Maintenance: Ineffective Oversight of Depot Maintenance 

Operations and System Implementation Efforts, GAO-05-441 (Washington, D.C.: June 30, 

2005). 

Page 24 GAO-07-229T 
modernization conditional approvals to provide reasonable assurance that 

all specific actions are completed on time.37 In response, the department 

has begun to track conditional approvals. 

Despite the department’s efforts to control its investments to acquire new 

business systems or to enhance existing business systems, formidable 

challenges remain. In particular, the reviews of those business systems 

that have modernization funding of less than $1 million, which represent

the majority of the department’s reported 3,717 business systems, are only 

now being started on an annual basis, and thus the extent to which the 

review structures and processes will be applied to the department’s 

3,717 business systems is not clear. Given the large number of systems 

involved, it is important that an efficient system review and approval 

process be effectively implemented for all systems. As indicated in table 2,

there are numerous systems across the department in the same functional 

area. Such large numbers of systems indicate a real possibility for 

eliminating unnecessary duplication and avoiding unnecessary spending 

on the department’s multiple business systems. In support of this 

Subcommittee, we have work planned to address the extent to which 

these management controls are actually being implemented for both the 

enterprise-level investments and the thousands of other system 

investments that are being managed at the component level. 

Key DOD Systems Still 

Face Challenges 

As we have previously testified and reported,38 DOD has not effectively 

managed a number of business system programs. Among other things, our 

reviews of individual system investments have identified weaknesses in 

such things as architectural alignment and informed investment decision 

making, which are focus areas of the Fiscal Year 2005 National Defense 

Authorization Act provisions. Our reviews have also identified weaknesses 

in other system acquisition and investment management areas—such as 

requirements management, testing, and performance management—where 

good management is crucial for the successful implementation of any 

given DOD business system. I will describe examples of the weaknesses 

that we have recently reported on for five system investments. The system 

investments are the Defense Integrated Military Human Resources System 

(DIMHRS), Defense Travel System (DTS), the Army Logistics 

Modernization Program (LMP), the Navy Tactical Command Support 

 37GAO-04-615. 

38See, for example, GAO-06-234T. 

Page 25 GAO-07-229T 
System (NTCSS), and the Transportation Coordinators’ Automated 

Information for Movements System II (TC-AIMS II). The weaknesses that 

we have found raise questions as to the extent to which the structures, 

processes, and controls that DOD has established in response to the Fiscal

Year 2005 National Defense Authorization Act are actually being 

implemented, and illustrate the range of system acquisition and investment 

management controls (beyond those provided for in the act) that need to 

be effectively implemented in order for a given investment to be 

successfully acquired and deployed.

In 2005 we reported that DIMHRS—a planned DOD-wide military pay and 

personnel system—-was not being managed as a DOD-wide investment, to 

include alignment with a DOD-wide architecture and governance by a 

DOD-wide body.39 In addition, we reported that DIMHRS requirements had 

not been adequately defined, and not all acquisition best practices 

associated with commercial component-based systems were being 

followed. Accordingly, we made a number of recommendations. In 

response, DOD has elevated the system to an enterprise investment under 

the BTA, and established a DIMHRS steering committee that is chartered

to include representation from the services. The BTA has also hired a 

DIMHRS program manager, and the Army and the Air Force, while 

continuing to evaluate their respective requirements, have determined that 

the commercial software product selected for DIMHRS can be used under 

certain conditions. The Army expects to deploy DIMHRS in April 2008 and 

the Air Force plans to begin deployment in May 2008. The Navy, on the 

other hand, assessed both DIMHRS and the Marine Corps Total Force 

System (MCTFS)40 and determined that MCTFS would better meet its 

requirements. According to a Navy official, the DBSMC has directed the 

Navy to research MCTFS and to fully evaluate the cost implications of the 

MCTFS option, but has not granted the Navy permission to deploy MCTFS. 

We plan to evaluate DOD’s implementation of our prior recommendations 

and the Navy’s analysis of the merits of pursuing the MCTFS option. 

DIMHRS 

In September 2006, we reported41 on limitations in the economic

justification underlying DOD’s decision to invest in DTS, which is intended 

DTS 

 39GAO, DOD Systems Modernization: Management of Integrated Military Human Capital

Program Needs Additional Improvements, GAO-05-189 (Washington, D.C.: Feb 11, 2005). 

40MCTFS is the Marine Corps’ integrated personnel and pay system. 

41GAO, Defense Travel System: Reported Savings Questionable and Implementation 

Challenges Remain, GAO-06-980 (Washington, D.C.: Sept. 26, 2006).

Page 26 GAO-07-229T 
to be the standard departmentwide travel system. Specifically, we found 

that two key assumptions used to estimate cost savings in the September 

2003 DTS economic analysis were not based on reliable information. 

Additionally, we reported that DOD did not have quantitative metrics to 

measure the extent to which DTS is actually being used. Moreover, we 

found that DOD had not adequately defined and tested the system’s 

requirements, an area of concern that was also discussed in our January 

2006 report.42 These system acquisition management weaknesses introduce 

considerable risk to DOD’s ability to deliver promised DTS capabilities 

and benefits on time and within budget. Although the September 2003 

economic analysis was not based on supportable data, the department’s 

criteria do not require that a new economic analysis be prepared. DTS has 

already completed all of the major milestones related to a major 

automated system which require that an economic analysis be prepared or

at least updated to reflect the current assumptions and the related costs 

and benefits. However, the Fiscal Year 2005 National Defense 

Authorization Act43 requires the periodic review, but not less than 

annually, of every defense business system investment. Further, the 

department’s April 2006 guidance44 notes that the annual review process 

“provides follow-up assurance that information technology investments, 

which have been previously approved and certified, are managed properly, 

and that promised capabilities are delivered on time and within budget.” If

effectively implemented, this annual review process provides an excellent

opportunity for DOD management to assess whether DTS is meeting its 

planned cost, schedule, and functionality goals. Going forward, such a 

review could serve as a useful management tool in making funding and 

other management decisions related to DTS. We made recommendations 

to DOD aimed at improving the management oversight of DTS, including 

periodic reports on DTS utilization and resolution of inconsistencies in 

DTS’s requirements. DOD generally agreed with the recommendations and 

described its efforts to address them. 

 42GAO DOD Business Transformation: Defense Travel System Continues to Face 

Implementation Challenges, GAO-06-18 (Washington, D.C.: Jan. 18, 2006).

43Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005, Pub. L. No. 

108-375, § 332 (2004) (codified, in part at 10 U.S.C. §§ 186 and 2222). 

44DOD, DOD IT Business Systems Investment Review Process: Investment Certification 

and Annual Review Process User Guidance (Apr. 10, 2006). 

Page 27 GAO-07-229T 
In 2004 and 2005,

45 we reported that the Army faced considerable 

challenges in developing and implementing LMP which is intended to 

transform the Army Materiel Command’s logistics operations. In 

particular, we reported that LMP will not provide intended capabilities and 

benefits because of inadequate requirements management and system 

testing. These problems prevented the Tobyhanna Army Depot from 

accurately reporting on its financial operations, which, in turn, adversely

impacts the depot’s ability to accurately set prices. We found that the 

Army has not put into place an effective management process to help 

ensure that the problems with the system are resolved. While the Army 

developed a process that identified the specific steps that should be 

followed in addressing the problems identified, the process was not 

followed. We recommended improvements in the implementation of LMP 

as well as delaying implementation at the remaining four depots until 

problems encountered have been resolved. DOD concurred with all the 

recommendations. The Subcommittee has requested that we undertake a 

series of audits directed at DOD’s efforts to resolve long-standing financial 

management problems over the visibility of its assets. Our first such audit 

is evaluating the Army’s efforts in the area and will include follow-up work 

on LMP. 

LMP 

In December 2005, 46 we reported that DOD needed to reassess its planned 

investment in the NTCSS—a system intended to help Navy personnel 

effectively manage ships, submarines, and aircraft support activities. 

Among other things, we reported that the Navy had not economically 

justified its ongoing and planned investment in the NTCSS and had not 

invested in the NTCSS within the context of a well-defined DOD or Navy 

enterprise architecture. In addition, we reported that the Navy had not 

effectively performed key measurement, reporting, budgeting, and 

oversight activities, and had not adequately conducted requirements 

management and testing activities. We conclude that without this 

information, the Navy could not determine whether the NTCSS as defined,

and as being developed, is the right solution to meet its strategic business 

NTCSS 

 45GAO, DOD Business Systems Modernization: Billions Continue to Be Invested with

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

May. 27, 2004) and Army Depot Maintenance: Ineffective Oversight of Depot Maintenance 

Operations and System Implementation Efforts, GAO-05-441 (Washington, D.C.: June 30, 

2005). 

46GAO, 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). 

Page 28 GAO-07-229T 
and technological needs. Accordingly, we recommended that DOD 

develop the analytical basis to determine if continued investment in the 

NTCSS represents prudent use of limited resources and we also made 

recommendations to strengthen management of the program, conditional 

upon a decision to proceed with further investment in the program. In 

response, DOD generally concurred with the recommendations. 

In December 2005,47 we reported that TC-AIMS II—a joint services system 

with the goal of helping to manage the movement of forces and equipment

within the United States and abroad—had not been defined and developed 

in the context of a DOD enterprise architecture. Similar to DIMHRS and 

DTS, TC-AIMS II was intended to be an enterprise-level system. However, 

the Army—DOD’s acquisition agent for TC-AIMS II—had pursued the 

system on the basis of an Army logistics-focused architecture. This means 

that TC-AIMS II, which was intended to produce a departmentwide 

military deployment management system, was based on a service-specific 

architecture, thus increasing the risk that this program, as defined, will not 

properly fit within the context of future DOD enterprisewide business 

operations and IT environments. In addition, the Army had not 

economically justified the program on the basis of reliable estimates of 

life-cycle costs and benefits, and as a result, the Army does not know if 

investment in TC-AIMS II, as planned, is warranted or represents a prudent

use of limited DOD resources. Accordingly, we recommended that DOD, 

among other things, develop the analytical basis needed to determine if 

continued investment in TC-AIMS II, as planned, represents prudent use of

limited defense resources. In response, DOD generally concurred with our 

recommendations and described efforts initiated or planned to bring the 

program into compliance with applicable guidance. 

TC-AIMS II 

DOD Issues Its Financial 

Improvement and Audit 

Readiness Plan 

A major component of DOD’s business transformation effort is the defense 

Financial Improvement and Audit Readiness Plan (FIAR), initially issued 

in December 2005 and updated in June 2006 and September 2006, pursuant 

to section 376 of the National Defense Authorization Act for Fiscal Year 

2006.

48 Section 376 limited DOD’s ability to obligate or expend funds for 

fiscal year 2006 on financial improvement activities until the department 

 47GAO, 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). 

48Pub. L. No. 109-163, § 376, 119 Stat. 3136, 3213 (2006). 

Page 29 GAO-07-229T 
submitted a comprehensive and integrated financial management 

improvement plan to the congressional defense committees. Section 376 

required the plan to (1) describe specific actions to be taken to correct 

deficiencies that impair the department’s ability to prepare timely, reliable, 

and complete financial management information and (2) systematically tie 

these actions to process and control improvements and business systems 

modernization efforts described in the business enterprise architecture 

and transition plan. Further, section 376 required a written determination 

that each financial management improvement activity undertaken is 

consistent with the financial management improvement plan and likely to

improve internal controls or otherwise result in sustained improvement in 

DOD’s ability to produce timely, reliable, and complete financial 

management information. DOD had to submit each written determination 

to the congressional defense committees. Section 321 of the National 

Defense Authorization Act for Fiscal Year 2007 extended the written 

determination provision beyond fiscal year 2006.49

DOD intends the FIAR Plan to provide DOD components with a 

framework for resolving problems affecting the accuracy, reliability, and 

timeliness of financial information, and obtaining clean financial statement 

audit opinions. The FIAR Plan states that it prioritizes DOD’s improvement 

efforts based on the following criteria: (1) impact on DOD financial 

statements, (2) ability to resolve long-standing problems, (3) need for 

focused DOD leadership attention to resolve the problem, (4) dependency 

on business transformation initiatives and system solutions, and 

(5) availability of resources. The FIAR Plan outlines the business rules and 

oversight structure DOD has established to guide financial improvement 

activities and audit preparation efforts. According to DOD, its June and 

September 2006 FIAR Plan updates were intended to (1) begin identifying 

milestones that must be met for assertions about the reliability of reported 

financial statement information to occur on time, (2) develop greater 

consistency among components regarding their corrective actions and 

milestones, and (3) further describe how the FIAR Plan will be integrated 

with the enterprise transition plan. In addition, the September 2006 update

outlines three key elements for achieving financial management 

transformation: accountability, integration, and prioritization. Although 

the FIAR Plan states that it is integrated with DOD component-level 

financial improvement plans and the ETP, DOD officials have 

 49Pub. L. No. 109-364, § 321, 120 Stat. 2083 (2006). 

Page 30 GAO-07-229T 
acknowledged that the level of integration between the two efforts is not 

complete and is still evolving. 

The FIAR Plan is a high-level summary of DOD’s plans and reported 

actions to comply with financial management legislation and achieve clean 

financial statement audit opinions. We have reviewed the FIAR Plan and 

its updates and discussed the FIAR Plan with DOD and OMB. We cannot 

comment on specific focus areas or milestones because we have not seen

any of the underlying component or other subordinate plans on which the 

FIAR Plan is based. However, we believe the incremental line item 

approach, integration plans, and oversight structure outlined in the FIAR 

Plan for examining DOD’s operations, diagnosing problems, planning 

corrective actions, and preparing for audit represents a vast improvement 

over prior financial improvement initiatives. 

We continue to stress that the effectiveness of DOD’s FIAR Plan will 

ultimately be measured by the department’s ability to provide timely, 

reliable, and useful information for day-to-day management and decision 

making. Nonetheless, I would like to see DOD place greater emphasis on 

achieving auditability by 2012. If DOD is able to achieve this date, and 

other impediments to an opinion on the consolidated financial statements 

of the U.S. government are also addressed, an opinion for the federal 

government may also be possible by 2012. We look forward to working 

with DOD and the new DOD inspector general, when appointed, in further 

developing DOD’s audit strategy. 

Page 31 GAO-07-229T 
Lastly, you asked for my comments on two sections of the recently 

enacted John Warner National Defense Authorization Act for Fiscal Year 

2007.

50 The first provision, section 321, seeks to ensure that the department 

pursues financial management improvement activities only in accordance

with a comprehensive financial management improvement plan that 

coordinates these activities with improvements in its systems and 

controls. The second provision, section 816, establishes certain reporting 

and oversight requirements for the acquisition of all major automated 

information systems (MAIS).51

Legislation Enacted to 

Address DOD’s 

Financial 

Management 

Weaknesses and 

Strengthen Business 

Systems

Accountability 

Legislation Reiterates 

Need for Consistency 

between DOD’s Financial 

and Business 

Transformation Plans 

Section 321 of the John Warner National Defense Authorization Act for 

Fiscal Year 2007 extends beyond fiscal year 2006 certain limitations and 

requirements placed on DOD’s financial management improvement and 

audit initiatives in section 376 of the National Defense Authorization Act 

for Fiscal Year 2006. Specifically, section 321 of the act limits DOD’s ability 

to obligate or expend any funds for the purpose of any financial 

management improvement activity relating to the preparation, processing, 

or auditing of financial statements until it has submitted to the 

congressional defense committees a written determination that each 

activity proposed to be funded is (1) consistent with the DOD financial 

management improvement plan required by section 376 of the National 

Defense Authorization Act for Fiscal Year 2006 and (2) is likely to improve

internal controls or otherwise result in sustained improvements in the 

ability of the department to produce timely, reliable, and complete 

financial management information. 

I fully support the intent of legislation, such as section 321, which is aimed 

at directing DOD’s corrective actions towards the implementation of 

sustained improvements in its ability to provide timely, reliable, complete, 

and useful information. This is imperative not only for financial reporting 

purposes, but more importantly for daily decision making and oversight. 

 50John Warner National Defense Authorization Act for Fiscal Year 2007, Pub. L. No. 109-364 

(2006). 

51The Committee originally asked GAO to comment on sec. 804 of the Senate bill, S. 2766, 

which, with some changes, has now been enacted as sec. 816.

Page 32 GAO-07-229T 
Section 321 is consistent with and builds on existing legislation, in 

addition to section 376 of the National Defense Authorization Act for 

Fiscal Year 2006. For example, section 1008 of the National Defense 

Authorization Act for Fiscal Year 200252 currently requires DOD to limit 

resources used to prepare and audit unreliable financial information, 

thereby saving the taxpayers millions of dollars annually. In addition, the 

fiscal year 2002 act requires DOD to report to congressional committees 

and others annually on the reliability of DOD’s financial information and to

provide a summary of improvement activities, including priorities, 

milestones, measures of success, and estimates of when each financial 

statement will convey reliable information. In my opinion, Congress has 

clearly articulated its expectation that DOD exercise prudence in its use of 

taxpayer money and focus only on those activities that will result in 

sustained improvements in its ability to produce timely and reliable 

financial management information. 

It is evident that DOD intends to use its FIAR Plan, which it plans to 

update semiannually, as a tool for complying with legislative requirements 

regarding its financial improvement efforts. However, as is true with most 

large initiatives, a comprehensive and integrated plan, sustained 

leadership, results-oriented performance measures, and effective 

implementation will be key to successful reform.

Legislative Language 

Establishing Reporting 

Requirements for Major 

Automated Information 

Systems Increases 

Oversight and 

Accountability 

The provisions in section 816 of the John Warner National Defense 

Authorization Act for Fiscal Year 2007 provide for greater disclosure and 

accountability of business system investment performance, and thus 

facilitate greater oversight. More specifically, the legislation establishes 

certain reporting and oversight requirements for the acquisition of MAIS 

that fail to meet cost, schedule, or performance criteria. In general, a MAIS 

is a major DOD IT program that is not embedded in a weapon system (e.g., 

a business system investment). As such, we believe that the provisions can 

increase oversight and accountability. Therefore, I also support this 

legislation. 

 52Pub. L. No. 107-107, §1008, 115 Stat. 1012, 1204 (Dec. 28, 2001). 

Page 33 GAO-07-229T 
I would like to discuss the five remaining high-risk areas within DOD. 

These include weapon systems acquisitions and contract management; 

supply chain management; personnel security clearance program; and 

support infrastructure management.

Specific High-risk 

Program Areas

Highlight the Need for 

Continued Attention 

to Ensure Effective 

Transformation 

DOD Weapon Systems 

Acquisitions and Contract 

Management 

Two interrelated areas are the management of DOD’s major weapon 

systems acquisitions and its contracts. While DOD eventually fields the 

best weapon systems in the world, we have consistently reported that 

typically the programs take significantly longer, cost significantly more 

money, and deliver fewer capabilities than originally promised. DOD’s new 

weapon system programs are expected to be the most expensive and

complex ever and will consume an increasingly large share of DOD’s 

budget. These costly current and planned acquisitions are running head-on 

into the nation’s unsustainable fiscal path. In the past 5 years, DOD has 

doubled its commitment to weapon systems from $700 billion to 

$1.4 trillion, but this huge increase has not been accompanied by more 

stability, better outcomes, or increased buying power for the acquisition 

dollar. Rather than showing appreciable improvement, programs are 

experiencing recurring problems with cost overruns, missed deadlines, 

and performance shortfalls. A large number of the programs included in 

our annual assessment of weapon systems are costing more and taking 

longer to develop than estimated.53 It is not unusual to see development 

cost increases between 30 percent and 40 percent and attendant schedule 

delays. These cost increases mean DOD cannot produce as many weapons 

as intended nor can it be relied on to deliver to the warfighter when 

promised. This causes DOD to either cut back on planned quantities or 

capabilities, or to even scrap multibillion dollar programs, after years of 

effort. If these systems are managed with the traditional margins of error, 

the financial consequences can be dire, especially in light of a constrained 

discretionary budget. 

 53GAO, Defense Acquisitions: Assessments of Selected Major Weapon Programs, 

GAO-06-391 (Washington, D.C.: Mar. 31, 2006). 

Page 34 GAO-07-229T 
It is within this context that we must engage in a comprehensive and

fundamental reexamination of new and ongoing investments in our 

nation’s weapon systems. Success for acquisitions means making sound 

decisions to ensure that program investments are based on needs versus 

wants and getting promised results. In the commercial world, successful 

companies have no choice but to adopt processes and cultures that 

emphasize basing decisions on knowledge, reducing risks prior to 

undertaking new efforts, producing realistic cost and schedule estimates, 

and building in quality to deliver products to customers at the right price, 

time, and cost. However, this is not happening within DOD. The 

department has tried to embrace best practices in its policies and instill 

more discipline in setting requirements, among numerous other actions, 

but it still has trouble distinguishing wants from true needs. While DOD’s 

acquisition policy supports a knowledge-based, evolutionary approach to

acquiring new weapons, its practice of making decisions on individual 

programs often sacrifices knowledge and executability in favor of 

revolutionary solutions. In an important sense, success has come to mean 

starting and continuing programs even when cost, schedule, and quantities

must be sacrificed. 

Our reviews have identified a number of causes behind the acquisition 

problems just described, but I would like to focus on three. The first I refer 

to as “big A,” or acquisition with a capital “A.” What I mean by this is that 

DOD’s funding, requirements, and acquisition processes are not working 

synergistically. DOD does not clearly define and stabilize requirements 

before programs are started. Our work has shown that DOD’s 

requirements process generates more demand for new programs than 

fiscal resources can support. DOD compounds the problem by approving 

many highly complex and interdependent programs. Moreover, once a 

program is approved, requirements can be added along the way—

significantly stretching technology, creating design challenges, 

exacerbating budget overruns, and enhancing accountability challenges. 

For example, in the F-22A program, after the program was started, the Air 

Force added a requirement for air-to-ground attack capability. In its Global 

Hawk program, after the start of the program, the Air Force added both 

signals intelligence and imagery intelligence requirements. Both programs 

have experienced serious schedule delays and significant unit cost 

increases. Customers often demand additional requirements fearing there 

may not be another chance to get new capabilities because programs can 

take a decade or longer to complete. Yet, perversely, these strategies delay 

delivery to the warfighter, often by years. 

Page 35 GAO-07-229T 
The second cause I would refer to as “little a” or the acquisition process 

itself. DOD commits to individual programs before it obtains assurance 

that the capabilities it is pursuing can be achieved within available 

resources and time constraints. In particular, DOD routinely accepts high 

levels of technology risk at the start of major acquisition programs. 

Funding processes encourage this approach, since acquisition programs 

attract more dollars than efforts concentrating solely on proving out 

technologies. However, without mature technologies at the outset, a 

program will almost certainly incur cost and schedule problems. Only 

10 percent of the programs in our latest annual assessment of weapon 

systems had demonstrated critical technologies to best practice standards

at the start of development; and only 23 percent demonstrated them to 

DOD’s standards.54 The cost effect of proceeding without completing 

technology development before starting an acquisition can be dramatic. 

For example, research, development, test and evaluation costs for the 

programs included in our review that met best practice standards at 

program start increased by a modest average of 4.8 percent more than the 

first full estimate, whereas the costs for the programs that did not meet 

these standards increased by a much higher average of 34.9 percent more 

than the first full estimate. The bottom line is that these consequences are 

predictable and, thus, preventable. 

The third cause has to do with the lack of accountability. DOD officials are 

not always held accountable when programs go astray. Likewise, 

contractors are not always held accountable when they fail to achieve 

desired acquisition outcomes. In December 2005, we reported that DOD 

gives its contractors the opportunity to collectively earn billions of dollars 

through monetary incentives.55 Unfortunately, we found DOD programs 

routinely engaged in practices that failed to hold contractors accountable 

for achieving desired outcomes and undermined efforts to motivate 

contractor performance, such as 

 54DOD’s policy states technologies should be demonstrated in at least a relevant 

environment before a program enters system development; whereas, GAO utilizes the best 

practice standard that calls for technologies to be demonstrated one step higher—

demonstration in an operational environment. 

55GAO, Defense Acquisitions: DOD Has Paid Billions in Award and Incentive Fees 

Regardless of Acquisition Outcomes, GAO-06-66 (Washington, D.C.: Dec. 19, 2005); and

Defense Acquisitions: DOD Wastes Billions of Dollars through Poorly Structured 

Incentives, GAO-06-409T (Washington, D.C.: Apr. 5, 2006).

Page 36 GAO-07-229T 
• evaluating contractor performance on award-fee criteria that are not 

directly related to key acquisition outcomes (e.g., meeting cost and 

schedule goals and delivering desired capabilities to the warfighter); 

• paying contractors a significant portion of the available fee for what 

award-fee plans describe as “acceptable, average, expected, good, or 

satisfactory” performance, which sometimes did not require meeting the 

basic requirements of the contract; and 

• giving contractors at least a second opportunity to earn initially unearned

or deferred fees. 

As a result, DOD has paid out an estimated $8 billion in award fees on 

contracts in our study population, regardless of whether acquisition 

outcomes fell short of, met, or exceeded DOD’s expectations. For 

example, we found that DOD paid its contractor for a satellite program—

the Space-Based Infrared System High—74 percent of the award fee 

available, $160 million, even though research and development costs 

increased by more than 99 percent, and the program was delayed for many 

years and was rebaselined three times. In another instance, DOD paid its 

contractor for the F-22A aircraft more than $848 million, 91 percent of the 

available award fee, even though research and development costs 

increased by more than 47 percent, and the program had been delayed by 

more than 2 years and rebaselined 14 times. Despite paying billions of 

dollars in award and incentive fees, DOD has not compiled data or 

developed performance measures to validate its belief that award and 

incentive fees improve contractor performance and acquisition outcomes. 

Similarly, DOD officials are rarely held accountable when programs go 

astray. There are several reasons for this, but the primary ones include the 

fact that DOD has never clearly specified who is accountable for what, 

invested responsibility for execution in any single individual, or even 

required program leaders to stay until the job is done. Moreover, program 

managers are not empowered to make go or no-go decisions, they have 

little control over funding, they cannot veto new requirements, and they 

have little authority over staffing. Because there is frequent turnover in 

their positions, program managers also sometimes find themselves in the

position of having to take on efforts that are already significantly flawed. 

There are many other factors that play a role in causing weapons programs

to go astray. They include workforce challenges, poor contractor 

oversight, frequent turnover in key leadership, and a lack of systems 

engineering, among others. Moreover, many of the business processes that 

Page 37 GAO-07-229T 
support weapons development—strategic planning and budgeting, human 

capital management, infrastructure, financial management, information 

technology, and contracting—are beset with pervasive, decades-old 

management problems, including outdated organizational structures, 

systems, and processes. In fact, all of these areas—along with weapon 

systems acquisition—are on our high-risk list of major government 

programs and operations. 

Our work shows that acquisition problems will likely persist until DOD 

provides a better foundation for buying the right things, the right way. This

involves making tough trade-off decisions as to which programs should be 

pursued and, more importantly, not pursued, making sure programs are 

executable, locking in requirements before programs are started, and 

making it clear who is responsible for what and holding people 

accountable when these responsibilities are not fulfilled. These changes 

will not be easy to make. They require DOD to reexamine the entirety of 

its acquisition process and to make deep-seated changes to the setting, 

funding, and execution of program requirements. In other words, DOD 

would need to revisit who sets requirements and strategy, and who 

monitors performance, and what factors to consider in selecting and 

rewarding contractors. It also involves changing how DOD views success, 

and what is necessary to achieve success. I am encouraged by DOD’s 

recent efforts to improve the collaboration and consultation between the 

requirements and acquisition communities. The test of these efforts will be

whether they produce better decisions. If they do, it is important that they

are sustained by more than the force of personality. 

Buying major systems is not the only area where DOD needs to improve its 

acquisition practices. For example, DOD’s management of its contracts 

has been on our high-risk list since 1992. Our work has found that DOD is 

unable to ensure that it is using sound business practices to acquire the 

goods and services needed to meet the warfighter’s needs, creating 

unnecessary risks and paying higher prices than justified. In this regard, in

a March 2005 report, we concluded that deficiencies in DOD’s oversight of 

service contractors could place DOD at risk of paying the contractors 

more than the value of the services they performed.56 In June 2006, we 

reported that personnel at the Defense Logistics Agency were not 

consistently reviewing prices for commodities acquired under its Prime 

 56GAO, Contract Management: Opportunities to Improve Surveillance on Department of 

Defense Service Contracts, GAO-05-274 (Washington, D.C.: Mar. 17, 2005).

Page 38 GAO-07-229T 
Vendor Program.57 We noted that until DOD provides sufficient 

management oversight, the program will remain vulnerable to the systemic 

pricing problems that have plagued it in the past. Earlier this year, we 

reported that the Army acquired security guard services under an 

authorized sole-source basis, despite recognizing that it was paying about 

25 percent more than it had under contracts that had been previously 

awarded competitively.58 We recommended that the Army reassess its 

acquisition strategy to help make the best use of taxpayer dollars and 

achieve its desired outcomes. In other reports, we identified numerous 

issues in DOD’s use of interagency contracting vehicles that contributed to 

poor acquisition outcomes. 

Until the department devotes sufficient management attention to address 

these long-standing issues, DOD remains at risk of wasting billions of 

dollars and failing to get the goods and services it needs to accomplish its 

missions. 

Since the January 2005 update of the high-risk series, DOD has made some 

progress toward addressing supply chain management problems. With the 

encouragement of OMB, DOD has developed a plan to show progress 

toward the long-term goal of resolving problems and removing supply 

chain management from our list of high-risk areas within the department. 

DOD issued the first iteration of the plan in July 2005 and, since then, has 

regularly updated it. Based on our initial review of the plan, we believe it is

a solid first step toward improving supply chain management in support of 

the warfighter. For example, DOD’s plan identifies three key areas—

requirements forecasting, asset visibility, and materiel distribution—that 

we believe are critical to DOD’s efforts to improve supply chain 

management. The plan highlights selected DOD supply chain initiatives, 

including key milestones in their development. Within the last year, for 

example, DOD has made some progress in streamlining the storage and 

distribution of defense inventory items on a regional basis as part of its 

Joint Regional Inventory Materiel Management initiative. DOD has 

completed a pilot for this initiative in the San Diego region and, in January 

2006, began a similar transition for inventory items in Oahu, Hawaii. 

DOD Supply Chain 

Management 

 57GAO, Defense Management: Attention is Needed to Improve Oversight of DLA Prime 

Vendor Program, GAO-06-739R (Washington, D.C.: June 19, 2006). 

58 GAO, Contract Security Guards: Army’s Guard Program Requires Greater Oversight 

and Reassessment of Acquisition Approach, GAO-06-284 (Washington, D.C.: Apr. 3, 2006).

Page 39 GAO-07-229T 
Notwithstanding this positive first step, the department faces challenges 

and risks in successfully implementing its proposed changes across the 

department and measuring progress in resolving supply chain

management problems. It will be important for DOD to sustain top 

leadership commitment and long-term institutional support for the plan; 

obtain necessary resource commitments from the military services, the 

Defense Logistics Agency, and other organizations; implement its 

proposed initiatives across the department; identify performance metrics 

and valid data to use in monitoring the initiatives; and demonstrate 

progress toward meeting performance targets. We have been holding 

monthly meetings with DOD and OMB officials to receive updates on the 

plan and gain a greater understanding of the ongoing initiatives. In 

addition, we are continuing to review the performance measures DOD is 

using to track the plan’s progress in resolving supply chain problems and 

DOD’s efforts to develop a comprehensive, integrated, and enterprisewide 

strategy to guide logistics programs and initiatives. DOD is working on a 

logistics road map, referred to as the “To Be” road map, which provides a 

vision for future logistics programs and initiatives, including supply chain 

management; identifies capability gaps; and links programs with 

investments. However, the schedule for completing the initial road map 

has recently slipped. Until the road map is completed, we will not be able

to assess how it addresses the challenges and risks DOD faces in its supply 

chain management efforts. 

DOD’s personnel security clearance program is another area that we 

continue to assess because of the risks it poses. For over two decades, we 

have reported on problems with DOD’s personnel security clearance 

program as well as the financial costs and risks to national security 

resulting from these problems. For example, at the turn of the century, we 

documented problems such as incomplete investigations, inconsistency in 

determining eligibility for clearances, and a backlog of overdue clearance 

reinvestigations that exceeded 500,000 cases. More recently in 2004, we 

identified continuing and new impediments hampering DOD’s clearance 

program and made recommendations for increasing the effectiveness and

efficiency of the program. These long-standing delays in completing 

hundreds of thousands of clearance requests for servicemembers, federal 

employees, and industry personnel as well as numerous impediments that 

hinder DOD’s ability to accurately estimate and eliminate its clearance 

backlog led us to declare DOD’s personnel security clearance program a 

DOD Personnel Security 

Clearance Program 

Page 40 GAO-07-229T 
high-risk area in January 2005. Since then, we have issued a report and 

participated in four hearings that addressed issues related to DOD’s 

program.59 Among other things, our September 2006 report showed that 

the 2,259 industry personnel granted eligibility for a top secret clearance in

January and February 2006 had waited an average of 471 days. Also, our 

reviews of 50 of the cases for completeness revealed that required 

information was not included in almost all of the cases. While positive 

steps—such as (1) the development of an initial version of a plan to 

improve security clearance processes governmentwide and (2) high-level 

involvement from OMB—have been taken toward addressing the 

problems, other recent events such as DOD halting the processing of all 

new clearance requests for industry personnel on April 28, 2006, reveal

continuing problems with DOD’s personnel security clearance program. 

Since 1997, GAO has identified DOD’s management of its support 

infrastructure as a high-risk area because infrastructure costs continue to 

consume a larger than necessary portion of its budget. DOD officials have 

been concerned for several years that much of the department’s 

infrastructure is outdated, inadequately maintained, and that DOD has 

more infrastructure than needed, which impacts its ability to devote more 

funding to weapon systems modernization and other critical needs. 

Inefficient management practices and outdated business processes have 

also contributed to the problem. 

While DOD has made progress and expects to continue making 

improvements in its support infrastructure management, DOD officials 

recognize they must achieve greater efficiencies. To its credit, the 

department has given high-level emphasis to reforming its support 

operations and infrastructure since we last reported on this high-risk area, 

including efforts to reduce excess infrastructure, promote transformation, 

and foster jointness through the 2005 base realignment and closure 

DOD Support 

Infrastructure 

Management 

 59GAO, DOD Personnel Clearances: Additional OMB Actions Are Needed to Improve the

Security Clearance Process , GAO-06-1070 (Washington, D.C.: Sept. 28, 2006); DOD 

Personnel Clearances: New Concerns Slow Processing of Clearances for Industry

Personnel, GAO-06-748T (Washington, D.C.: May 17, 2006); DOD Personnel Clearances: 

Funding Challenges and Other Impediments Slow Clearances for Industry Personnel, 

GAO-06-747T (Washington, D.C.: May 17, 2006); DOD Personnel Clearances: Government

Plan Addresses Some Longstanding Problems with DOD’s Program, But Concerns 

Remain, GAO-06-233T (Washington, D.C.: Nov. 9, 2005); and DOD Personnel Clearances: 

Some Progress Has Been Made but Hurdles Remain to Overcome the Challenges That Led

to GAO’s High-Risk Designation, GAO-05-842T (Washington, D.C.: June 28, 2005). 

Page 41 GAO-07-229T 
(BRAC) process. Also, DOD is updating its Defense Installations Strategic 

Plan to better address infrastructure issues, and has revised its 

installations readiness reporting to better measure facility conditions, 

established core real property inventory data requirements to better 

support the needs of real property asset management, and continued to 

modify its suite of analytical tools to better forecast funding requirements 

for installation management services. It has also achieved efficiencies 

through privatizing military family housing and demolishing unneeded 

buildings at military installations. 

Our engagements examining DOD’s management of its facilities 

infrastructure indicates that much work remains for DOD to fully 

rationalize and transform its support infrastructure to improve operations, 

achieve efficiencies, and allow it to concentrate its resources on the most 

critical needs, as the following illustrates. 

• In July 2005, we reported on clear limitations associated with achieving 

DOD’s projected $50 billion in savings from this BRAC round. While DOD 

offered many proposed actions in the 2005 round, these actions were more 

related to business process reengineering and realignment of various 

functions and activities than base closures and actual facility reductions. 

Moreover, sizable savings were projected from efficiency measures and 

other actions, but many underlying assumptions had not been validated 

and could be difficult to track over time. We have ongoing work 

monitoring actions emanating from the 2005 BRAC process and assessing 

costs and savings from those actions, and will be able to comment further 

on the status of these initiatives over the next several years as 

implementation actions progress. 

• In June 2005, we reported that hundreds of millions of operation and 

maintenance dollars designated for facilities’ sustainment, restoration, and 

modernization and other purposes were moved by the services to pay for 

base operations support (BOS) due in part to a lack of a common 

terminology across the services in defining BOS functions, as well as the 

lack of a mature analytic process for developing credible and consistent 

requirements.60 While these funding movements are permissible, we found 

that they were disruptive to the orderly provision of BOS services and 

contributed to the overall degradation of facilities, which adversely affects 

the quality of life and morale of military personnel. In another report 

 60GAO, Defense Infrastructure: Issues Need to Be Addressed in Managing and Funding 

Base Operations and Facilities Support, GAO-05-556 (Washington, D.C.: June 15, 2005).

Page 42 GAO-07-229T 
issued in June 2005, we reported that many of DOD’s training ranges were 

in deteriorated condition and lacked modernization, which adversely 

affected training activities and jeopardized the safety of military 

personnel.61

• In an April 2006 report, we identified several opportunities for DOD and 

the services to improve their oversight and monitoring of the execution 

and performance of awarded privatized housing projects.62 We further 

reported that 36 percent of awarded privatization projects had occupancy 

rates below expectations even though the services had begun renting 

housing units to parties other than military families, including units rented 

to single or unaccompanied servicemembers, retired military personnel,

civilians and contractors who work for DOD, and civilians from the 

general public. Factors contributing to occupancy challenges include 

increased housing allowances, which have made it possible for more 

military families to live off base thus reducing the need for privatized 

housing, and the questionable reliability of DOD’s housing requirements 

determination process, which could result in overstating the need for 

privatized housing. 

• During recent visits to installations in the United States and overseas, 

service officials continue to report inadequate funding to provide both 

base operations support and maintain their facilities. They express 

concern that unless this is addressed, future upkeep and repair of many 

new facilities to be constructed as a result of BRAC, overseas rebasing, 

and the Army’s move to the modular brigade structure will suffer and the 

condition of their facilities will continue to deteriorate. 

• We have also found that DOD’s outline of its strategic plan for addressing 

this high-risk area had a number of weaknesses and warranted further 

clarification and specification. We have met with OMB and DOD officials 

periodically to discuss the department’s efforts to address this high-risk 

area. 

Through our monitoring of DOD activities between now and the next 

several years for base closures and overseas basing, we will be able to

determine what other work needs to be done on issues associated with 

 61GAO, Military Training: Better Planning and Funding Priority Needed to Improve 

Conditions of Military Training Ranges, GAO-05-534 (Washington, D.C.: June 10, 2005).

62GAO, Military Housing: Management Issues Require Attention as the Privatization 

Program Matures, GAO-06-438 (Washington, D.C.: Apr. 28, 2006). 

Page 43 GAO-07-229T 
DOD’s management of its support infrastructure, as well as provide a more 

complete assessment of costs, savings, and overall benefits realized from 

the department’s efforts to address these issues. Organizations throughout 

DOD will need to continue reengineering their business processes and 

striving for greater operational effectiveness and efficiency. DOD will also

need to develop a comprehensive, long-range plan for its infrastructure 

that addresses facility requirements, recapitalization, and maintenance and 

repair, as well as to provide adequate resources to meet these 

requirements and halt the degradation of facilities and services. 

Mr. Chairman and Members of the Subcommittee, this concludes my 

prepared statement. I would be happy to answer any questions you may 

have at this time. 

Page 44 GAO-07-229T (350937) 
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