January 2001 Major Managem

Challenges and 

Program Risks

Department of Defense

GAO-01-244

Page 1 GAO-01-244 

Letter 

Overview 

Major 

Performance 

and 

Accountability 

Challenges

Related GAO 

Products

Performance 

and 

Accountability 

Series
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of th

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United States General Accounting Office

Washington, D.C. 20548

January 2001

The President of the Senate

The Speaker of the House of Representati

This report addresses the major performa

accountability challenges facing the Depa

Defense (DOD) as it seeks to support and 

Constitution of the United States; provide 

common defense of the nation, its citizens

and protect and advance U.S. interests aro

world. It includes a summary of actions th

taken and that are under way to address t

challenges. It also outlines further actions 

believes are needed. This analysis should 

Congress and administration carry out the

responsibilities and improve government 

of the American people.

This report is part of a special series, first 

January 1999, entitled the Performance an

Accountability Series: Major Management 

and Program Risks. In that series, GAO ad

Congress that it planned to reassess the m

and criteria used to determine which fede

government operations and functions sho

highlighted and which should be designat

risk.” GAO completed the assessment, con

comments provided on a publicly availabl

draft, and published its guidance docume

Determining Performance and Accountab

Challenges and High Risks (GAO-01-159SP

November 2000.

This 2001 Performance and Accountabilit

contains separate reports on 21 agencies—

each cabinet department, most major inde
Page 4 GAO-01-244 DO

agencies, and the U.S. Postal Service. The se

includes a governmentwide perspective on p

and management challenges across the fede

government. As a companion volume to this 

is issuing an update on those government op

and programs that its work identified as “hig

because of either their greater vulnerabilitie

fraud, abuse, and mismanagement or major c

associated with their economy, efficiency, or 

effectiveness.

David M. Walker

Comptroller General 

of the United States
Page 5 GAO-01-244 
Page 6 GAO-01-244 

The mission of the Department of Defens

support and defend the Constitution of th

States; provide for the common defense of 

citizens, and its allies; and protect and adv

interests around the world. Defense opera

over $1 trillion in assets, budget authority 

$310 billion annually, and about 3 million 

civilian employees. Directing these operat

represents one of the largest management 

within the federal government. 

The United States begins the new millenn

world’s sole superpower with military for

none. The effectiveness of U.S. forces is w

by experiences in the Persian Gulf, Bosnia

However, the same level of excellence is n

many of the business processes that are c

achieving the Department’s mission in a r

economical, efficient, and effective mann

years, we and others have reported that a 

Department’s key business processes are 

ineffective. More recently, we have also n

support activities have not always been fu

in meeting the needs of military units. Add

concerns are human capital challenges in 

retaining military personnel as well as ens

civilian workforce is properly constituted 

such as acquisition management. DOD’s h

problems can be seen as part of a broader 

human capital shortcomings that have ero

capabilities across the federal governmen

High-Risk Series: An Update (GAO-01-263, 

for a discussion of human capital as a new

governmentwide high-risk area.

If these and related support problems are 

inefficiencies will continue to make the co

out assigned missions unnecessarily high 

important, increase the risk associated wi

missions. Each dollar that is spent ineffici
Page 7 GAO-01-244 

dollar that is unavailable to meet other int

Department priorities such as weapon sys

modernization and readiness. 

To its credit, the Department has initiated 

Department-wide reform initiatives and o

improve its key business processes in suc

financial and information management, w

acquisitions, and logistics reengineering. W

initiatives have produced some positive re

more remains to be done before the refor

successfully completed.

We have identified eight key interrelated a

represent the Department’s greatest chall

developing world-class operations and ac

support its forces. We consider all or part 

relating to financial management, informa

technology, acquisitions, contracts, suppo

infrastructure, and logistics to be high risk
Page 8 GAO-01-244 DO

Strategic Planning 

Shortfalls

Sound strategic planning is needed to guide 

improvements to the Department’s operation

it, decisionmakers and stakeholders may not 

information they need to ensure that the Dep

has strategies that are well thought-out for r

ongoing problems, achieving its goals and ob

and becoming more results oriented.

• Developing strategic plans that lead to desir

mission outcomes

• Hiring, supporting, and retaining military and 

civilian personnel with the skills to meet mis

needs

• Establishing financial management operatio

that provide reliable information and foster 

accountability

• Effectively managing information technology 

investments 

• Reforming acquisition processes while mee

military needs

• Improving processes and controls to reduce 

contract risk

• Creating an efficient and responsive suppor

infrastructure 

• Providing logistics support that is economica

and responsive
Page 9 GAO-01-244 

While the Department has improved its st

planning process, its strategic plan is not 

mission outcomes. As noted in several of 

challenges, sound plans linked to the Dep

overall strategic goals are critical to achie

reforms. Inefficiencies in the planning pro

to difficulties in assessing performance in 

combat readiness; support infrastructure 

force structure needs; and the matching o

program spending plans. We recommende

Department include more qualitative and 

goals and measures in its annual performa

report to gauge progress toward achieving 

outcomes. 

Human Capital 

Challenges

Given the large number of military and civ

personnel within the Department, human 

management represents a huge challenge 

virtually every activity. The Department is 

military personnel issues such as shortage

officers for the career force, problems in 

certain skills (such as intelligence analyst

programmers, and pilots), and the military 

failure to meet recruiting goals. The Depa

faces significant challenges in managing i

workforce. For example, the sizable reduc

personnel since the end of the Cold War h

imbalance in age, skills, and experience th

jeopardizing certain acquisition and logist

within the Department. The Department h

to address military and civilian human cap

However, to guide individual initiatives an

together, we recommended that the Depa

the relative success and cost effectivenes

services’ recruiting strategies and put too

measuring success in reducing attrition. A

testimony, we noted that the Department 
Page 10 GAO-01-244 DO

align its civilian human capital management 

strategic planning and core business practic

Financial 

Operations 

Reforms

A key enabler to addressing the Department

management challenges is accurate financia

information to support decision-making, con

and manage assets. While improved in recen

financial management remains a high-risk ar

Department. To date, no major part of the De

operations has passed the test of an indepen

financial audit because of pervasive weakne

Department’s financial management systems

operations, and controls. Also, despite genuin

ineffective asset accountability and lack of in

controls continue to adversely affect visibilit

weapon systems and inventories. Further, un

cost and budget information negatively affec

Department’s ability to effectively measure 

performance, reduce costs, and maintain ade

control.

As we recently testified, we are concerned th

the planned financial management improvem

initiatives are mainly focused on one-time, y

numbers for financial statement purposes. A

will not result in the production of timely an

financial and performance information for o

by management. In the short term, DOD nee

on improving its basic processes and control

better manage its every day operations. In th

a sustained commitment from the highest lev

leadership—a commitment that must extend 

administration—will be needed to overhaul 

financial systems and to ensure that personn

throughout the Department share the comm

establishing financial management systems a

processes that routinely generate timely and 

financial information.
Page 11 GAO-01-244 

Information 

Technology 

Challenges

Effective management of information tech

key to implementing many of the Departm

management reforms. However, significan

weaknesses in this area place the ultimate 

many reform initiatives at risk. Weakness

information technology management coul

jeopardize operations and compromise th

confidentiality, integrity, or availability of 

information. Effective systems moderniza

the Department to implement fundamenta

controls, such as integrated enterprise arc

disciplined investment management pract

mature system development and acquisiti

that ensure mission performance and acc

However, this is not occurring on a system

within the Department. For example, poo

and management controls, in conjunction 

development of implementation plans and 

place information technology investments 

commerce and support systems at risk. A

for computer systems continues to pose c

malicious attacks on these systems are an 

threat to the nation’s security. 

The Department recognizes that improvem

needed in information technology manage

comprehensive and integrated enterprise 

to guide and direct its modernization effo

structured and disciplined processes for s

controlling business technology options. E

important, we have also recommended th

Department ensure that corrective action

address identified security vulnerabilities 

accurately and realistically define the resp

mechanisms, and expected outcomes of it

manage and integrate information assuran

the Department.
Page 12 GAO-01-244 DO

Acquisition Reform Acquiring weapons for the military forces is 

accomplishing the Department’s mission. Ho

weapon systems acquisition process continu

high-risk area. Notwithstanding ongoing refo

initiatives, the process is still too slow and c

Pervasive problems persist regarding the pro

acquire weapons; cost, schedule, and perform

estimates; program affordability; and the use 

acquisition strategies such as acquiring weap

on optimistic assumptions about the maturit

availability of enabling technologies. Our wo

shows that leading commercial firms are get

kinds of outcomes from their development o

products that the Department seeks.

Specifically, these firms are developing incre

sophisticated products in significantly less ti

lower cost than their predecessors. Valuable 

be learned from the commercial sector and a

the development of weapon systems. Leadin

commercial firms expect that their program 

will deliver high quality products on time an

budget. We recommended that the Departme

these types of practices in its acquisition ma

processes.

Contract 

Management 

Reform

Closely related to the weapon systems acqui

process is the contracting for goods and serv

also a high-risk area. Over the last few years

broad-based changes, including the establish

metrics, have been made to acquisition and c

processes and management to improve Depa

contractor relationships and rules. But we an

Department of Defense Inspector General co

identify risks in contracting, including (1) im

oversight and accountability in the acquisitio

services, (2) preventing erroneous and impro

payments being made to its contractors, 
Page 13 GAO-01-244 

(3) implementing commercial practices fo

pricing, and (4) managing health care con

Without effective control over its contract 

activities, the Department will continue to 

erroneously paying contractors millions o

perpetuating other financial management 

accounting control problems. Weak system

controls also leave the Department vulner

and improper payment. We have testified 

application of commercial best practices, 

use of more cost-effective buying strategi

commercial spare parts, can improve acqu

contracting processes and help reduce co

Support 

Infrastructure 

Inefficiencies

Regarding specific operations challenges, 

Department has to address inefficiencies 

infrastructure. Again, while progress has b

this area, more needs to be done if the De

expects to reduce infrastructure costs and 

business operations through its reform in

the Cold War, the defense force structure 

spending were reduced, and the Departm

must make its operations and support infr

smaller, more efficient, and more respons

warfighter needs and to create savings for 

like weapons modernization. Although the 

has reduced its forces by about 25 percen

many bases, the percentage of its budget 

support infrastructure has remained relat

Because of continued inefficiencies in its 

infrastructure, this continues as a high-ris

Department. The effectiveness of many civ

has also been undermined by outmoded o

structures that drain resources needed to 

improvements to mission delivery capabil

recommended that the Department develo

implement a comprehensive, integrated, lo
Page 14 GAO-01-244 DO

to sustain and fully implement its reform init

also right-size and recapitalize its facilities 

infrastructure. Addressing facilities infrastru

also require the Department to reach agreem

Congress regarding the need for additional b

realignment and closure rounds. The infrastr

problems in civilian agencies also suggest th

relevance of a civilian facility closure and re

process.

Logistics Support 

Inefficiencies

Providing economical and responsive logisti

is also central to achieving the Department’s 

While the system gets the job done, it is ofte

as a brute force process that is uneconomica

inefficient. Although the Department has pro

improving logistics support, especially throu

application of best inventory management p

serious weaknesses persist throughout its lo

activities, and it is unclear to what extent its 

reengineering management improvement ini

overcome them. A key area of the logistics p

remains high risk is inventory management. 

Department continues to spend more than n

procure and manage inventory. If this conditi

the Department risks having key items, such 

parts, not available when needed, which cou

aircraft and other equipment readiness. Agai

integrated plans for achieving logistics refor

central to making improvements. 

To enhance DOD’s reengineering efforts, we 

recommended that DOD develop an overarc

that integrates the individual service and defe

logistics reengineering plans to include an in

strategy for funding reengineering initiatives 

for how DOD plans to achieve its final logist

end state. We also recommended that DOD r

schedule for testing, evaluating, and implem
Page 15 GAO-01-244 

initiatives; establish a methodology showi

or improvements that come from reengine

concepts; and reassess its approach for ad

various combat command concerns, such 

presence of increasing numbers of contra

on the battlefield. Also, to improve invent

management, we recommended that DOD 

use of supply-chain best management pra

to those used in the private sector to help 

improve customer service.

In conclusion, while the Department is ma

progress toward improving its business su

operations, sustaining such efforts in the 

the past has proven to be elusive. The Dep

unique opportunity to address the manage

challenges discussed in this report becaus

Quadrennial Defense Review will occur in 

the congressionally directed review, the D

examines America’s current and future de

and produces a strategic plan and bluepri

strategy-based, balanced, and affordable d

program. Since the next review is expecte

completed by September 2001, the Depart

timely and appropriate vehicle for also ad

performance and accountability problems 

recommended specific actions we highlig

report.
Page 16 GAO-01-244 

y g

To accomplish its national security missio

Department of Defense (DOD) maintains 

ready to respond to threats to U.S. securit

anywhere on the globe. DOD achieves its 

budget of about $310 billion, which is abo

of the federal budget. DOD maintains a fo

1.4 million active duty personnel, 1.28 mil

guard and reserve personnel, and over 700

personnel. DOD’s military and civilian per

critical to achieving all of its performance 

addition to the Army, the Navy, the Air For

Corps, the Office of the Secretary of Defe

Joint Chiefs of Staff, DOD manages 14 def

such as the Defense Logistics Agency. DO

worldwide presence, with its 10 active Ar

3 Marine expeditionary forces, 12 active A

fighter wings, 163 active bombers, 12 activ

carriers, 10 active naval air wings, 12 amp

groups, 55 attack submarines, 108 active s

combatant ships, and reserve units, and w

its troops and civilians overseas.

Because of the magnitude of its force stru

faces many management challenges. This 

summarizes ours and, where appropriate, 

Inspector General’s findings and recomme

address DOD’s challenges in eight key are

challenges include systemic problems wit

processes related to strategic planning, hu

and financial and information managemen

problems related to acquisition reform, co

processes, support infrastructure, and log

reengineering. Also, our report addresses 

as a specific management challenge and in

where appropriate, human capital issues a

to specific management challenges, includ

management and contracting.
Page 17 GAO-01-244 

Developing 

Strategic Plans That 

Lead to Desired 

Mission Outcomes

Strategic planning that clearly lays out DO

and goals and the resources needed, strat

followed, and assigned responsibilities fo

accomplishing the goals is crucial to fully 

Department’s activities on achieving desir

However, inefficiencies in DOD’s strategic 

process have led to difficulties in assessin

Department’s performance in achieving m

outcomes, in meeting force structure need

planning the budget. 

Challenges in 

Achieving Mission 

Outcomes

The Government Performance and Result

provides a framework for DOD and other 

agencies to achieve greater accountability 

programs and operations. Under the Resu

to develop an annual performance plan to 

performance goals and measures covering 

year and directly link its longer-term strat

day-to-day activities. Annual performance 

disclose the degree to which those perfor

were met. At the request of the Congress, 

performs the Quadrennial Defense Review 

which it draws its mission and vision stat

strategic goals. The next review will be un

during fiscal year 2001.

In June 2000, we reported on DOD’s progr

Act reporting. While noting numerous effo

its overall reporting,1

 we underscored the 

which DOD has achieved some of its outc

completely clear. There are five major exp

1

 We observed that DOD identified and discussed the 

agencies in crosscutting activities, added more infor

efforts to ensure the credibility of its performance in

included initial goals and performance measures for 

management.
Page 18 GAO-01-244 DO

outcomes that relate directly to DOD’s perfo

plan. These are:

• U.S. forces are maintained at the levels p

terms of divisions, aircraft carriers, etc., a

the anticipated overseas presence.

• Combat readiness is maintained at desire

• Planned levels for recruiting and retainin

military personnel are achieved.

• Goals toward transforming military force

future are met.

• Planned progress toward streamlining DO

infrastructure, pursuing business practice 

and improving the acquisition process an

management functions is accomplished.

The extent to which DOD has achieved some 

outcomes is not completely clear, in part, be

outcomes are complex and interrelated and 

a number of years to accomplish, and becau

not fully assessed its performance. Further, r

measures often have not addressed a cost-ba

efficiency aspect of performance, making it 

fully assess its efficiency and effectiveness. F

example, DOD’s combat readiness outcome 

being ready to fight and win two major theat

to conduct multiple operations other than wa

its performance report and plan do not clear

what forces and performance are required to 

accomplish this and whether the outcome is 

achieved. Also, the plan included measures f

of combat forces, but not for support forces

the report acknowledges support force short

discusses Army plans for correcting them. F

DOD’s performance report does not include 

measures based on cost for areas such as ma

inventory and weapon system maintenance. 
Page 19 GAO-01-244 

Planning to Better 

Meet Force Structure 

Demands

U.S. strategy requires military forces to be 

executing a range of military operations, in

theater warfare, overseas presence, and a 

smaller-scale contingencies, and respondi

asymmetric threats. According to DOD, th

transition from smaller-scale contingency 

warfighting remains a fundamental requir

virtually every U.S. military unit. DOD has 

that the same forces needed for war woul

smaller-scale contingencies until they wer

meet wartime requirements. Our work sh

continues to be challenged in meeting cer

contingency operations and major theater 

example, some unique capabilities are in h

and repeatedly deployed. As DOD prepare

the next QDR, it faces the significant chal

determining and providing the right mix o

support the full spectrum of military oper

force structure largely designed for major 

warfare.

Since the 1991 Persian Gulf War, U.S. forc

involved in more than 50 contingency ope

abroad. While the services have been able 

forces and assets necessary for these ope

work shows that some unique capabilities 

high demand. Such capabilities include Ar

and civil affairs units, EA-6B aircraft used 

enemy air defenses and electronically jam 

antiaircraft radar, specialized F-16 aircraf

suppress enemy air defenses, and U-2 airc

fulfill contingency missions, military pers

on a rotational basis from assigned home 

some have exceeded the services’ deploym

the maximum number of days an individu

deploy in a 1-year period. DOD also faces 

transitioning forces from lesser operation

theater wars. For example, redeploying fo

committed to various regions would be di
Page 20 GAO-01-244 DO

could seriously strain the services’ mobility a

forces. 

While DOD has taken some steps to better m

availability of existing assets and made some 

adjustments in its forces, it has not identified 

might be best suited to meet the demands of 

spectrum of military operations. To relieve th

repeated deployments on active forces, DOD 

or is planning actions such as increasing the 

certain units, tasking reserve forces to deplo

converting certain reserve units from non-w

missions to warfighting support, spreading th

deployments over a larger part of the total fo

creating additional squadrons from existing 

DOD also has secondary missions to suppor

federal agencies that have placed demands u

force structure. For example, DOD provides 

federal efforts involving counterterrorism, 

counternarcotics, and counterproliferation in 

the Departments of Justice and State. While 

activities are not part of DOD’s primary warf

mission, a number of DOD units are engaged 

a support role. Integrated, strategic planning 

to ensure these activities are carried out effe

However, DOD and other federal agencies ha

adequately planned or coordinated these eff

DOD Employs Overly 

Optimistic Planning 

Assumptions in Its 

Budget Formulation

Since the mid-1980s, we have reported that D

employs overly optimistic planning assumpt

budget formulation. As a result, DOD has too 

programs for the available dollars, which oft

program instability, costly program stretch-o

program terminations. Moreover, optimistic 

makes defense priorities unclear because to

decisions and trade-offs between needs and 

avoided. Until DOD presents realistic assum

plans in its future budgets, the Congress will 
Page 21 GAO-01-244 

accurate and realistic information it need

exercise its decision-making and oversigh

In 2000, we reported that because the fisc

program’s projected cost was about $16 b

than the cost projected for the same elem

fiscal year 2000 program, DOD could not i

operation and maintenance and procurem

as planned. For example, although DOD p

increase Defense Health Program funding 

$615 million during 2001-05, DOD officials 

program needed an additional $6 billion th

year 2005. Officials in the Office of the Se

Defense said that they work to make Defe

Program funding projections realistic only 

current budget year and that they underfu

program in the outyears to free up funds f

defense programs. If DOD has to spend m

the Defense Health Program than it budge

need to shift funds from other accounts, t

introducing risk that other programs will 

implemented as planned or that it will nee

additional budget authority. 

Key Actions Needed To help overcome inefficiencies in DOD’s 

planning processes and to promote more 

budgeting, DOD must follow results-orien

management principles in performing the 

Quadrennial Defense Review in 2001. To p

picture of DOD’s performance, we recomm

DOD include more qualitative and quantita

measures in its performance plan and rep

progress toward achieving mission outcom

The QDR needs to have an explicit strateg

its force structure goals. DOD should con

identifying force structure alternatives tha

in a better balance between forces require

scale contingency operations and major th
Page 22 GAO-01-244 DO

and ensuring personnel levels are sufficient 

that force structure. DOD should also consid

the strategies and programs that will be used 

the goals included in the QDR to projected a

funding for defense. This process should hel

Department modify and balance force struct

support infrastructure to meet today’s requir

Key Contact Charles I. Patton, Jr., Director

Defense Capabilities and Management

(202) 512-4412

pattonc@gao.gov

Carol Schuster, Director

Defense Capabilities and Management 

(202) 512-3958

schusterc@gao.gov

Hiring, Supporting, 

and Retaining 

Military and 

Civilian Personnel 

With the Skills to 

Meet Mission Needs

Effective human capital management is key 

the Department will have the right number o

and civilian personnel with the right skills to 

its mission. However, human capital manage

represents a huge challenge that impacts vir

activity within the Department. DOD has dec

level of military personnel by about 25 perce

1992, creating skill imbalances in various are

have also encountered considerable difficulti

years in achieving its desired military end str

to problems in recruiting and retaining perso

same time, significant challenges exist for th

management of its civilian workforce. 

Also, since the end of the Cold War, DOD has 

significantly downsized its civilian workforc

downsizing is expected to continue through 

ultimately to result in a cumulative reduction 

43 percent from 1989 levels. The increase in 
Page 23 GAO-01-244 

age of the remaining civilian workforce an

the proportion of younger staff in the pipe

future leadership roles signal potential pr

the road in such key areas as financial and 

management. While initiatives are under w

both military and civilian human capital is

remains to be done. 

Services Need to 

Assess Efforts to 

Meet Recruiting 

Goals and Cut 

Attrition

The Department of Defense faces a signifi

in recruiting and retaining the hundreds o

new recruits it enlists each year. The last 

particular, have been difficult for the milit

as they have struggled to meet their recru

This difficulty, which some believe repres

recruiting crisis, makes the services’ prob

first-term attrition rates even more critica

separation of new recruits is costly in tha

recruiting and training investment in each 

averages almost $38,000.

To address mounting problems in recruiti

numbers of qualified enlisted personnel, t

services—the Army, the Navy, and the Air 

increased their numbers of recruiters and 

advertising budgets and have offered larg

bonuses and more money for college. The

been shown by past research to help the s

new recruits. However, as shown in figure 

resources devoted to recruiting have incre

dramatically over the last 7 years, while th

new recruits has stayed about the same. 
Page 24 GAO-01-244 DO

Figure 1: DOD Expenditures for Advertising and Enlistment Bonuses Relative to the 

Recruits (fiscal years 1993-99) 

Source: DOD.

Because so little time has passed since the s

began to respond to their recent recruiting p

they cannot yet assess the long-term success 

efforts. Also, the services do not yet know wh

new recruiting initiatives work best. For exa

Navy does not know the extent to which eac

changes it has made to its recruiting program

increasing its number of recruiters, its adver

budget, or its enlistment bonuses—contribut

meeting its goal in fiscal year 1999 and whet

strategy will work in the future. Until sufficie

passed and each of the services consistently 

0

50

100

150

200

250

300

1993 1994 1995 1996 1997 1998 19

Advertising

Enlistment Bonuses

Number of Recruits

Fiscal year 2000 constant dollars in millions Recruits in thous
Page 25 GAO-01-244 

goal, DOD cannot be assured that individu

strategies will collectively enable DOD to 

overall recruiting requirements.

To further address military personnel need

have begun many efforts to reduce the att

first-term enlistees. For example, the serv

taken steps to improve the screening of ap

before they enter the service. Efforts aime

recruits after they enter include providing 

attention to recruits struggling during bas

disciplining and working with enlistees w

completed training and are experiencing m

behavioral problems. These actions appea

as they target recruits who might previou

summarily discharged. Nonetheless, as sh

2, the latest full 48-month attrition data av

indicate that first-term attrition has reach

highs for DOD enlistees.

Figure 2: Trends in First-Term Enlisted Attrition

Source: DOD.

29.7 31.4 30.5 31.4

33.9 34.2 33.6 33.2

35.9 36.9 

0

10

20

30

40

1985 1986 1987 1988 1989 1990 1991 1992 1993 199

Fiscal Year

Percentage separating early
Page 26 GAO-01-244 DO

The attrition rate for enlistees entering the s

the mid- to late 1980s hovered between 30 an

34 percent, and this rate gradually rose in the 

a low of 33 percent to a peak of nearly 37 pe

enlistees entering the services in fiscal years 

1995. Greater success in reducing attrition m

be apparent because the services have just b

of their efforts, or the continued high rate of 

may indicate that without these efforts, the s

losses would be even higher. The services, h

not developing tools needed to measure the 

success of their efforts, thus limiting their ab

judge the effectiveness of those efforts in red

attrition.

Significant Civilian 

Workforce 

Management Issues 

Exist

The Department of Defense employs over 70

civilians—some 37 percent of all nonpostal c

federal workers. Because it is the largest em

federal employees in the competitive civil se

DOD approaches human capital managemen

important signals about trends and expectat

federal employment across government. Mo

role that DOD’s civilian workforce plays in s

our U.S. national security makes DOD’s appr

managing its people a matter of fundamenta

interest.

As shown in figure 3, DOD has undergone a 

reduction in its civilian workforce since the 

Cold War, and additional reductions are expe

least through fiscal year 2005. Between fisca

and 1999, DOD reduced its civilian workforc

400,000 positions, from approximately 1,117

714,000—a 36-percent reduction. The Presid

year 2001 budget request projected additiona

reductions in DOD’s civilian workforce, to a 

637,500 by fiscal year 2005—a cumulative re

nearly 43 percent from the fiscal year 1989 le
Page 27 GAO-01-244 

Figure 3: DOD Civilian Workforce Trends (fiscal years 1989-99)

Source: DOD.

DOD’s approach to civilian downsizing in 

relied primarily on voluntary attrition and 

and varying freezes on hiring authority. D

existing authority for early retirements to 

voluntary separations at activities facing m

reductions in force. The fiscal year 1993 N

Defense Authorization Act authorized a n

transition assistance programs for civilian 

including financial separation incentives, 

to induce the voluntary separation of civil

and reduce authorized positions. DOD ha

use of separation incentives, early retirem

and various job placement opportunities t

avoid nearly 200,000 involuntary demotion

separations.

0

200

400

600

800

1000

1200 DOD civilians in thousands

Civilian Workers

1989 1990 1991 1992 1993 1994 1995 1996 1997 
Page 28 GAO-01-244 DO

While the tools available to DOD to manage 

force downsizing helped mitigate the advers

force reductions, DOD’s approach to the red

not oriented toward shaping the makeup of t

workforce. During our work on the early pha

DOD downsizing, some DOD officials voiced 

about what was perceived to be a lack of att

identifying and maintaining a balanced basic 

skills needed to maintain in-house capabilitie

the defense industrial base. These concerns 

today and are heightened by DOD’s increase

on competitively sourcing many of its functi

DOD leaders recognize that agencies have ba

their programs and budgets without fully con

the severe problems looming in the area of c

personnel management or the need for incre

attention to the problem. To address some o

challenges, DOD has recently outlined a num

actions, such as (1) fully executing hiring aut

(with targeted overhiring), (2) expanding tra

education through the Defense Acquisition U

and (3) improving marketing and recruitmen

Department has also noted the need for rene

emphasis on apprenticeship programs to rein

workforce capabilities in its industrial activi

a comprehensive strategic plan for its acquis

workforce. DOD also could benefit from pro

the Congress’ recent enactment of the Fiscal 

Floyd D. Spence National Defense Authoriza

which permits DOD to use separation incent

shape its workforce without requiring that a

positions be eliminated. It also authorizes fe

agencies to pay off college loans of students 

to work for the government.

Key Actions Needed As we have recommended, DOD needs to (1

relative success and cost-effectiveness of the 

recruiting strategies in meeting DOD’s overa
Page 29 GAO-01-244 

applying one service’s best practices to th

services whenever possible and by minim

cross-service competition and (2) put in p

measuring the long-term success of the se

attempts to reduce attrition by confirming 

services’ short-term remedial efforts are n

delaying attrition to later points in enliste

DOD is working to achieve these actions.

As we noted in recent testimony, taking an 

strategic view of the Department’s approa

human capital and using a measurement t

our human capital self-assessment checkl

leaders, will be important to DOD to impr

alignment of its human capital manageme

strategic planning and core business prac

Additionally, to ensure the total integratio

capital resources throughout the Departm

needs a human resources plan that links c

Department’s organizational goals and on

integrated with the Department’s overall m

emphasis on strategic planning to ensure 

sustained emphasis on addressing human 

Shortcomings discussed in the following s

financial management, information techn

acquisitions, and contracts are attributabl

human capital issues. As such, a human c

discussed in this section would require pr

attention. For example, our work on best 

recognized world-class financial organiza

that for DOD to reach and maximize finan

performance throughout the Department, 

strategic approach to human capital. Simi

acquisition reforms to succeed in produci

outcomes, DOD will need a strategic appr

training its acquisition workforce on new 

include the provision of customized traini

specific needs.
Page 30 GAO-01-244 DO

Key Contact Derek B. Stewart, Director

Defense Capabilities and Management 

(202) 512-5559

stewartd@gao.gov

Establishing 

Financial 

Management 

Operations That 

Provide Reliable 

Information and 

Foster 

Accountability

Accurate financial information is crucial to m

sound decisions and controlling assets so th

Department’s mission and goals are efficient

effectively accomplished. With DOD’s vast o

including an estimated $1 trillion in assets an

liabilities and a reported net cost of operatio

$378 billion in fiscal year 1999, effective asse

accountability and reliable financial informa

critical. The Department continues to confro

pervasive and complex financial managemen

that can seriously diminish the efficiency of 

services’ support operations. Since 1995 DOD 

management has been on our list of high-risk 

vulnerable to waste, fraud, abuse, and mism

The Department has made progress in a num

areas, both larger steps forward and smaller i

improvements. As detailed in the following p

however, DOD has a long way to go to effect

address these problems. 

Financial Reporting 

Continues to Be 

Inaccurate

No major part of DOD’s operations has been 

the test of an independent financial audit. Th

recent audits of DOD’s financial statements—

year 1999—highlight ongoing financial mana

challenges that affect the development of ac

complete financial information. If available, 

information could provide useful perspectiv

decisionmakers on such key areas as budget 

performance measurement, and costs. For e

because of weaknesses in DOD’s budget exe

accounting, the Department does not know w

certainty the amount of funding it has availa
Page 31 GAO-01-244 

These weaknesses include (1) an inability 

an estimated $7 billion difference between 

fund balances and the Treasury’s; (2) freq

adjustments of recorded payments betwe

appropriation accounts—with nearly $1 o

fiscal year 1999 contract payments repres

adjustment; and (3) incorrect or unsuppo

obligations. In addition, DOD records show 

$1.6 billion of transactions held in suspen

the end of fiscal year 1999. Until these sus

transactions are posted to the proper app

account, the Department will have little a

reported appropriation balances are corre

testified, such information is essential for 

Congress to determine if funds are availab

current funding requirements or to be rep

meet other critical program needs. 

Also, we have testified that, while the Dep

reported the total net costs for its operati

$378 billion, it could not justify this amou

which DOD has been hampered by the lac

information on the full cost of its program

(1) accounting for the costs associated wi

studied for potential outsourcing under O

A-76, including a long-standing concern ov

accurately DOD’s in-house cost estimates 

costs; (2) controlling and managing weap

acquisition, operation, and disposal costs 

overall Defense Reform Initiative; and

(3) long-standing problems in accumulatin

reporting the cost data needed to help ass

economy and efficiency of its businesslike 

used to provide goods and services in sup

military services. 

Environmental 

Liability Is Uncertain

DOD does not have an effective process in 

comprehensively and accurately report lia

associated with its environmental and cle
Page 32 GAO-01-244 DO

DOD has taken important steps to better rec

report on these liabilities, increasing its repo

estimated liabilities from $34 billion in its fis

year 1998 financial statements to $80 billion 

year 1999. As we have testified, more comple

accurate information on these liabilities wou

important factor in determining the timing o

requests. However, the full magnitude and ti

these costs are not yet known because (1) DO

yet have a comprehensive inventory of all po

environmental and disposal liabilities, poten

excluding billions of dollars of costs associa

nonnuclear weapons, conventional munition

ongoing operations; 

(2) estimates were not based on the consiste

application of assumptions and methodologi

in some cases in significantly different result

services; and (3) support for the basis of rep

estimates continues to be inadequate. 

Accountability Over 

Equipment and 

Inventory Is Weak

DOD cannot properly account for and report 

weapon systems and support equipment. Lac

reliable information, DOD has little assuranc

items purchased are received and properly r

Because the military services cannot identify 

weapon systems and support equipment thro

centralized system, each service had to supp

automated data with manual procedures to c

information needed on these assets to meet 

objectives and readiness goals. For example

were not included in the Army’s centralized 

fiscal year 1999 included 56 airplanes, 32 tan

Javelin missile command-launch units. Addit

DOD has also been unable to account for and 

huge investment in inventories. These weakn

(1) increase the risk that responsible invento

managers may request funds to obtain additi

unnecessary items that may be on hand but n
Page 33 GAO-01-244 

and (2) result in a loss of accountability th

supply responsiveness and purchase deci

Financial 

Management Systems 

Are Inadequate

Establishing an integrated financial mana

system—including both automated and m

processes—will be key to reforming DOD

management operations. DOD has acknow

its current financial management systems 

with decades-old problems that will be im

reverse overnight, (2) for the most part do 

with federal financial management system

requirements, and (3) were not designed t

in accordance with generally accepted ac

principles. The Department has set out an 

financial management system goal. Howe

significant challenge in integrating its fina

management systems because of its size a

and the condition of its current financial m

operations. That is, DOD supports person

estimated 500 bases in 137 countries and 

throughout the world, makes an estimated 

monthly disbursements, and maintains as 

or more active appropriations in any given 

addition, each service operates unique, no

financial processes and systems. As a resu

transactions must be keyed and rekeyed i

systems. To illustrate the difficulty that D

figure 4 shows for one business area—con

vendor payments—the number of financia

involved and their interrelationships.
Page 34 GAO-01-244 DO

Figure 4: DOD’s Current Systems Environment for the Contract and Vendor Paymen

Source: DOD.

Transactions must be recorded using a comp

accounting that accumulates appropriation, 

management information that varies by milit

and fund type. An error in any one character 

line of code can delay payment processing o

reliability of data used to support manageme

budget decisions. 

Further, through the Year 2000 experience, D

learned that its goal of systems improvemen

should be improving end-to-end business pro

Lessons learned from the Year 2000 effort als

the importance of strong leadership from top 

making any goal—such as financial managem

systems improvements—an entitywide prior

IPC

SRD1

ADS

IAPS

CAPS

DJAS

1 Bill Pay

MOCAS

DPPS

DSDS

SABRS

STANFINS

ITIM

SAACONS

SPS

CEFT Debt

Management

Prevalidation
Page 35 GAO-01-244 

current Financial Management Improvem

out an integrated financial management s

long-term solution for establishing effecti

management and includes hundreds of ini

address its financial management problem

as we recently testified, the plan’s vision a

short of achieving basic financial manage

accountability and control and did not po

adopt financial management best practice

Key Actions Needed Successfully completing efforts to prepar

statements that can withstand the test of a

a key milestone for DOD. Such audit effor

better understanding the extent, nature, a

causes of the Department’s long-standing 

management problems; identifying inform

and strengthening fundamental discipline 

and systems. However, as we recently tes

concerned that many of the planned finan

management improvement initiatives are 

focused on one-time, year-end numbers fo

statement purposes. As such, they will no

production of timely and reliable financia

performance information. In the short ter

to focus on improving its routine processe

to manage its every day operations. Howe

term, sustaining the strong commitment w

over the past few years from the highest l

leadership—a commitment that must exte

administration—will be needed to overha

financial systems and to ensure that perso

throughout the Department share the com

establishing financial management system

processes that routinely generate reliable 

information. 
Page 36 GAO-01-244 DO

Key Contact Gregory D. Kutz, Director

Financial Management and Assurance 

(202) 512-9095

kutzg@gao.gov

Effectively 

Managing 

Information 

Technology 

Investments

Information technology management is a cru

to DOD’s efforts to accomplish its mission an

its goals. DOD invests about $20 billion annu

information technology (IT) to support a wid

military business functions and operations (

logistics, finance and accounting, and health 

and 10s of billions of dollars more on techno

embedded in sophisticated weaponry. This h

reliance will only grow as the Department m

modernize and respond to technological adv

are changing traditional approaches to mana

business functions and engaging in conflicts

effective management of system modernizat

continues to challenge DOD and remains a h

area. At the same time, computer security an

information accuracy are also key concerns.

2

 In our 1999 performance and accountability report seri

to this area as DOD information management and techn
Page 37 GAO-01-244 

Effective 

Management of 

System 

Modernization 

Efforts Is a 

Continuing Challenge

The Department of Defense Appropriation

Fiscal Year 20003

 reemphasized the need f

IT implementation and oversight processe

Clinger-Cohen Act of 1996. Among other t

Appropriations Act calls for an IT investm

process that covers the life of each invest

includes explicit criteria for analyzing pro

expected and actual cost, benefits, and ris

and the DOD Inspector General’s reports h

a broad array of problems that reinforce t

these processes and management control

we designated this area as high risk in 199

The Department’s vision of using electron

technologies to transform and streamline 

processes and relationships is a vivid illus

problems and risks that DOD faces in this 

Specifically, as we reported, the Departme

commerce vision is at risk because key el

DOD-wide implementation plan, including 

commerce enterprise architecture(s)—ha

developed to direct and control business p

and IT investments in this area. Without th

management controls, the Department do

common blueprint or roadmap that is ess

effectively introducing modern electronic 

operations and investing in supporting sys

DOD has not developed such a plan prima

the DOD Chief Information Officer and th

Electronic Commerce Program Office hav

to reach agreement with the military serv

Defense agencies on the scope and conten

plan. In lieu of a common and integrated a

3

 P.L. 106-79, Oct. 25, 1999.

4

 In 1999, we referred to this high-risk area as DOD s

development and modernization efforts.
Page 38 GAO-01-244 DO

is allowing the joint program office, the milit

services, and three of the larger Defense age

develop separate plans. According to Chief I

Officer officials, the separate plans may then 

into a DOD-wide plan at some point in the fu

However, no specific commitment or date fo

has been established. As a result, DOD comp

addressing architecture development within 

respective stovepiped organizations. Such an 

will not adequately support the Department’

commerce strategic objectives, such as achie

systems interoperability across the Departm

streamlining its processes before implement

electronic commerce technologies. 

In its 2000 annual report to the President and 

Congress, DOD acknowledges that it needs t

its IT management and oversight. The report 

“DOD systems must transition from isolated 

environments to a seamless and coherent inf

Additionally, the report cites steps under way 

its challenges in this regard, such as the crea

Portfolio Management and Oversight Workin

Integrated Product Team to ensure that IT in

are managed and evaluated based on specifi

measurable contributions to the Department

goals and priorities. Similarly, DOD has publ

framework to guide the components’ efforts 

developing enterprise architectures and bett

that they are defined consistently. Also, the 

Department’s fiscal year 2001 performance p

required by the Government Performance an

Act of 1993, includes performance goals for 

management. Such goals were not in place in 

1999. 
Page 39 GAO-01-244 

Computer Security 

and Information 

Assurance Remain a 

Major Concern

Securing DOD’s vast array of networked c

major challenge and an area fraught with 

for DOD but for the federal government a

Accordingly, we designated computer sec

governmentwide high-risk area in 1997 an

high risk today. In DOD, information secu

readily acknowledged that despite progre

systems and networks continue to be mor

than the Department would like. Of particu

what one official described as the “huge p

unclassified networks in need of addition

Evaluations of the security of the Departm

have continued to identify weaknesses th

seriously jeopardize operations and comp

confidentiality, integrity, or availability of 

information. In August 1999, we reported 

weaknesses in DOD information security 

hackers and hundreds of thousands of un

users the opportunity to modify, steal, ina

disclose, and destroy sensitive DOD data. 

weaknesses impair DOD’s ability to (1) co

and electronic access to its systems and d

that software running on its systems is pr

authorized, tested, and functioning as inte

employees’ ability to perform incompatib

and (4) resume operations in the event of 

Our August 1999 report also pointed out th

had initiated some corrective actions in re

recommendations we made in May 1996, p

correcting weaknesses identified in 1996 a

reviews had been inconsistent across DO

many factors contribute to these weaknes

Inspector General and our audits found th

management of security programs was an 

cause of weaknesses in the protection of 

security. In August 1999, we reiterated thi
Page 40 GAO-01-244 DO

our recommendation that DOD take steps to 

Department-wide security program managem

DOD components are taking actions to corre

weaknesses. Further, DOD has been taking s

improve the Department-wide security mana

Notably, the Department has established the 

wide Information Assurance Program under 

jurisdiction of the DOD CIO and (2) Joint Tas

Computer Network Defense to monitor DOD 

networks and defend against hacker attacks 

unauthorized access.

Key Actions Needed As we have previously testified, DOD’s recog

improvements are needed in IT management 

positive step. Equally important will be the a

of lessons learned from DOD Year 2000 succ

obtaining the unwavering commitment of th

Secretary of Defense to have comprehensive 

integrated enterprise architectures to guide 

DOD’s modernization efforts and following s

and disciplined institutional processes for co

selection and control of the competing busin

technology investment options.

In this regard, in the area of electronic comm

recommended that DOD place a high priority 

completing an electronic commerce implem

plan; finish an electronic commerce architec

establish clearer lines of program manageme

responsibility, authority, and accountability; 

that all new electronic commerce initiatives 

Department’s strategic goals and have meani

performance measures. 

To strengthen departmental security program 

we recommended that DOD implement more 

measures for ensuring that corrective action
Page 41 GAO-01-244 

to address identified security vulnerabiliti

accurately and realistically define the resp

mechanisms, and expected outcomes of D

manage and integrate information assuran

the Department.

Key Contact Randolph Hite, Director

Information Technology

(202) 512-3439

hiter@gao.gov

Robert Dacey, Director

Information Technology

(202) 512-7439

daceyr@gao.gov

Reforming 

Acquisition 

Processes While 

Meeting Military 

Needs

Acquiring weapons for the military forces 

accomplishing the Department’s mission. 

close to $100 billion annually to research, 

acquire weapon systems. Although the De

many acquisition reform initiatives in proc

problems persist regarding (1) questionab

requirements and solutions that are not th

cost-effective available; (2) unrealistic cos

and performance estimates; (3) questiona

affordability relative to competing wants a

(4) the use of high-risk acquisition strateg

these problems have proven resistant to re

practices employed by leading commercia

develop new products offer different and 

solutions. We have reported that weapon 

acquisition is a high-risk area since 1990, 

on our high-risk list.
Page 42 GAO-01-244 DO

Requirements and 

Solutions That Are 

Questionable and Not 

Cost-Effective

DOD acquisition policies require analyses of 

mission needs, costs, and weapon system alt

ensure that cost-effective solutions are matc

needs before substantial resources are comm

particular program. However, we have found 

the services conduct considerable analyses i

major acquisitions, these analyses can be na

focused, without full consideration of altern

solutions, including the joint acquisition of sy

the other services. In addition, because DOD 

routinely develop information on joint missi

and aggregate capabilities, it has little assura

decisions to buy, modify, or retire systems ar

Three examples of our findings follow:

• The Air Force and the Navy continued th

spend $5 billion acquiring 19,000 Joint St

Weapons even though the ability to use th

against moving and relocatable targets w

significantly less than originally projected

• Although average annual funding for spac

exceeds $6 billion, the U.S. Space Comm

range plan and the Air Force Space Comm

supporting strategic master plan do not f

conform to the Department’s new space p

plans propose space systems only and do 

for an assessment of the cost-effectivene

terrestrial land, sea, and air systems as al

to space systems, which is called for in D

• Although the F/A-18E/F met its key perfo

parameters, such as range and carrier sui

operational testers’ comparisons of the F

the F/A-18C showed that the former did n

demonstrate superior operational perform

Instead, after comparing 18 operational m

areas such as interdiction and fighter esc

testers concluded that the F/A-18E/F’s op

mission effectiveness was essentially the 

F/A-18C’s. Such performance is disconcer
Page 43 GAO-01-244 

that the F/A-18E/F costs nearly twice a

F/A-18C/D.

Unrealistic Cost, 

Schedule, and 

Performance 

Estimates

We continue to find that the desire of prog

to keep cost estimates as low as possible 

attractive milestone schedules encourage

unreasonable assumptions about the pace 

magnitude of the technical effort, materia

production rates, savings from competitio

factors. For example:

• Some F-22 development activities have 

deferred, reduced, or eliminated in ord

the aircraft program’s development co

congressional cost limitation. 

• The Army’s Theater High Altitude Area 

Program’s compressed flight-test sche

allow for adequate ground testing, and 

officials could not detect problems pri

tests. The schedule also left insufficien

preflight testing, post-flight analysis, a

actions. 

• The original schedule for developing th

Surface Standoff Missile was ambitious

half of what previous missile programs 

schedule was later delayed by 22 mont

program costs increased by $500 millio

Questionable 

Program 

Affordability

Each year for the past several years, we h

that DOD’s spending plans could not be ex

available funds. We continue to find and r

numerous problems with DOD’s budgeting 

practices for weapon system acquisitions

that wants and needs are not being balanc

affordability limitations. For example, the 

several billions of dollars in funding incre

Air Force has projected for space system 

uncertain. The President and the Congres
Page 44 GAO-01-244 DO

agreed on overall funding increases to DOD 

6 years of the 18-year projection (fiscal years 

Additionally, for the last 12 years of the proje

years 2006-17), the Air Force relies on plann

increases for program modernization withou

identifying funding sources, thus creating ad

uncertainty and putting the expansion of spa

in jeopardy for affordability reasons.

Further, we reported that current planned pr

spending may be reduced to fund potential o

and maintenance shortfalls. Specifically, DO

Future Years Defense Plan may have underst

and overstated savings projections for opera

maintenance, which increases the risk that p

spending for procurement may be used to pa

operations and maintenance funding shortfa

As another example, there is a gap between 

stated requirements and DOD’s planned miss

procurements for the Patriot Advanced Capa

missile. Detailed analyses of the costs, benef

available alternatives for defending U.S. forc

assets are lacking. Such analyses are needed 

decisionmakers in the Department and the C

make better decisions on the number of mis

We have also reported on similar issues rega

vulnerability of surface ships, a concern exp

Navy leaders, but that may not be reflected in 

for ship self-defense programs. As shown in 

fiscal years 1997-2005, spending is relatively 

(fluctuating between $719 million and $1 bill

associated research and development fundin

projected to decline from about $517 million 

$218 million. 
Page 45 GAO-01-244 

Figure 5: Total Ship Self-Defense Funding

Note: Funding does not include the costs of ship co

Source: Fiscal year 1999 and 2000 President’s bud

Other examples include (1) mismatches b

and the Navy’s estimates for how much is 

implement the Navy Theater-Wide Progra

funding at $282 million, considerably lowe

Navy’s estimated needs at $567 million pe

(2) the Navy’s need for a more comprehen

consistent strategy for improving its ship 

capabilities. Previous plans have not inclu

affected ship classes, established prioritie

classes, or consistently used a baseline fro

measure progress and set timelines for ac

desired improvements.

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1997 1998 1999 2000 2001 2002 2003 2004 

Fiscal year

Dollars in thousands
Page 46 GAO-01-244 DO

High-Risk Acquisition 

Strategies

In our previous high-risk reports, we stated t

risk acquisition strategies—such as the acqu

weapons based on optimistic assumptions ab

maturity and availability of enabling technolo

being based on the need to meet the threat an

acquisition costs. We also reported on the hi

practice of beginning production of a weapo

before development, testing, and evaluation 

complete. Using highly concurrent strategies 

rushing prematurely into production can lea

uninformed decisions about a weapon’s dem

operational effectiveness and the purchase o

that do not perform as intended, which ultim

in lower-than-expected availability for opera

expensive modifications. 

Nevertheless, DOD still begins production on 

major and nonmajor weapons without first e

the systems will meet critical performance 

requirements. Examples include:

• The Army plans to begin production of its 

helicopter before initial operational testin

• The Army established an aggressive prod

shedule for an inexperienced contractor 

its Family of Medium Tactical Vehicles, re

the contractor producing trucks that cou

qualification and operational testing requ

• The Navy was moving toward a full-rate p

decision on the MV-22 Osprey aircraft wit

an appropriate level of confidence that th

would meet design parameters as well as 

schedule objectives.

• DOD, citing the emerging missile threat f

nations, compressed the National Missile 

program schedule by at least 4 years—ma

program vulnerable to delays. 
Page 47 GAO-01-244 

In addition to these examples, we have ra

issues regarding the acquisition strategy f

Strike Fighter Program and production of 

F/A-18E/F aircraft.

The Prospects for 

Change

After having performed hundreds of revie

weapon systems over the last 20 years, we 

many of the same problems recur—cost in

schedule delays, and performance shortfa

problems have proven resistant to reform 

because underlying incentives have not ch

other hand, our work also shows that lead

commercial firms are getting the kinds of 

from their development of new products t

seeks. Specifically, these firms are develo

increasingly sophisticated products in sig

time and at lower cost than their predeces

lessons can be learned from the commerc

applied to the development of weapon sys

Leading commercial firms expect that the

managers will deliver high quality produc

within budget. Doing otherwise could resu

customer’s walking away, meaning failure 

product. Thus, these firms have created a

and adopted practices that put their progr

in a good position to succeed in meeting t

expectations. Key elements of this enviro

deliberately short cycle times, assurance t

technology is mature before starting a new 

development, and use of a knowledge-base

managing product development. Commer

develop new products in well under 5 yea

that continues to fall. Short cycle times he

focused on delivering the product and ma

accountable for outcomes. Specific practi

embodied in a knowledge-based approach 

development that can be distilled into thr

knowledge points, depicted in figure 6.
Page 48 GAO-01-244 DO

Figure 6: Knowledge-based Process for Applying Best Practices to the Developmen

Products 

Source: GAO.

Product development in commercial venture

clearly defined undertaking that firms will n

unless they have the technology in hand to m

customers’ needs. Leading firms do not ask t

product managers to develop technology. Th

developing a product culminates in delivery 

therefore gives great weight to design and pr

The firms demand—and receive—specific kn

about a new product before production begi

program does not go forward unless a strong 

case on which the program was originally ju

continues to hold true. Such a knowledge-ba

is essential to commercial firms’ getting bett

schedule, and performance outcomes. It ena

decisionmakers to be reasonably certain abo

facets of the product under development wh

need it. 

DOD wants the kinds of outcomes commerc

companies have achieved and has taken step

its acquisition process to attain them. Examp

the recent revision of the 5000 series of acqu

guidance, which puts more emphasis on mat

technology before a program is started and a 

flexible requirements process that permits re

to be met in stages. A few programs have exh

of these features in the early stages of develo

including the Tactical and Global Hawk unma

Technologies

match

requirements

Technology

Development Product Development Product

Design

performs as

expected

Production ca

cost, schedu

quality tar
Page 49 GAO-01-244 

vehicles. It would be premature to interpr

progress as evidence that systemic change 

in DOD’s acquisition process. Rather, such 

appears to be more the result of individua

pioneer change through extraordinary eff

The environment for DOD weapon system 

particularly regarding the requirements se

and career management processes, encou

launching programs that embody more te

unknowns than commercial ventures and 

knowledge about the performance and pr

they entail. The reason DOD programs are 

earlier is at least partly because establishi

program has been necessary to attract the 

to develop a new weapon system. As requ

being set, a new weapon system is more l

funded if it possesses performance featur

significantly distinguish it from other syst

Consequently, DOD program managers ha

to promote performance features and des

characteristics that rely on immature tech

gain approval, program estimates are sque

profiles of available funding. Additional re

such as high reliability, serve to make the f

As competition for funding continues thro

program, success becomes identified with 

secure the next installment. Other factors

short tenures of program managers—rela

development cycle times—and the unlike

unsatisfied customer will walk away, serv

managers less accountable for delivering 

promised.

Key Actions Needed As we have recommended, DOD leadersh

improve the acquisition of weapon system

(1) routinely considering, in establishing w

requirements, joint mission needs and agg
Page 50 GAO-01-244 DO

capabilities; (2) using more realistic assump

developing system cost, schedule, and perfo

requirements; (3) approving only those prog

can be fully executed within reasonable exp

future funding; and (4) limiting the use of hig

acquisition strategies.

Also, as we have recommended, taking these 

would require a better environment for start

managing weapon system development prog

leadership could help create such an environ

applying best commercial practices unless th

clear and compelling national security reaso

Such practices would enable DOD to (1) ens

technologies are mature before they are incl

weapon system development programs; (2) s

such as 5 years for program development cy

and (3) adopt a knowledge-based approach t

and making decisions on weapon system pro

Key Contact Jack L. Brock, Jr., Managing Director

Acquisition and Sourcing Management 

(202) 512-4841

brockj@gao.gov

Improving 

Processes and 

Controls to Reduce 

Contract Risk

DOD spent in excess of $130 billion in fiscal 

for goods and services. Since 1992, we have 

DOD contract management as a high-risk are

remains on our list of high-risk areas becaus

continues to experience significant challeng

to contract management, including (1) impro

oversight and accountability in the acquisitio

services, (2) preventing erroneous and impro

payments being made to its contractors,

(3) implementing commercial practices for c

pricing, and (4) managing health care contra
Page 51 GAO-01-244 

Although contract management remains a 

DOD has made meaningful changes to imp

it relates to contractors and the rules gove

relationships over the last few years. It als

attempted to measure select changes to it

processes by establishing key metrics, inc

percentage of purchases made by purchas

percentage of paperless contracting and p

transactions, and (3) the percentage redu

acquisition workforce personnel. Howeve

reported it generally met these establishe

last year, the metrics do not measure man

significant challenges to improve processe

for reducing contract risk.

Improving Oversight 

and Accountability in 

Acquiring Services

DOD also faces challenges in addressing c

the lack of oversight and accountability in 

services. This is an area that must receive 

attention as DOD shifts to greater procure

sophisticated services. DOD is presently c

it buys and how it buys. For example, con

research and development, engineering, a

management support services make up a 

of DOD’s purchases. In fact, DOD now spe

$70 billion annually acquiring services fro

sector, and that number is expected to gro

pursues efforts to contract with the privat

many functions currently performed by D
Page 52 GAO-01-244 DO

We recently raised concerns that DOD has av

competition when acquiring services, and th

Inspector General found that DOD had not a

performed many basic management tasks, in

market research, price analyses, and contrac

surveillance.5

 Consequently, DOD seriously u

its ability to ensure that it gets the best servi

best prices. Such concerns, in part, led the C

ask us to examine the practices of leading co

companies and identify “best practices” that 

benefits to DOD in acquiring services. 

Both the Congress and DOD have taken step

improve DOD’s acquisition of services. For e

recently enacted legislation6

 requires that ea

department establish at least one center of e

for service contracting. These centers are int

assist the acquisition community by identify

serving as a clearinghouse on best practices 

contracting for services in the public and pri

sectors.

For its part, DOD has targeted the increased 

performance-based service acquisitions as a 

priority. In April 2000, DOD announced that 

established a goal that by 2005, 50 percent of 

acquisitions, measured in both dollars and a

based on performance. Each of the military s

the Defense Logistics Agency are to develop 

implementation plan, while DOD committed 

provide training, templates, and other tools t

acquisition workforce to help define, acquire

5

 Contracts for Professional, Administrative, and Manag

Services (Office of the Inspector General, Department o

D-2000-100, Mar. 10, 2000) and Contract Management: N

Procedures Undermines Best Pricing Under GSA’s Sche

(GAO-01-125, Nov. 28, 2000).

6 Floyd D. Spence National Defense Authorization Act f

Year 2001 (P.L. 106-398, Oct. 30, 2000).
Page 53 GAO-01-244 

manage service requirements. While these 

should help DOD improve its acquisition o

may be several years before they are fully 

and the impact on DOD’s acquisition of se

evaluated. 

Fixing DOD’s HighRisk Payment 

Systems Is 

Imperative

The need for DOD to achieve effective co

payment process remains imperative. For 

1994-99, DOD reported that contractors re

$5.3 billion. Of this amount, DOD’s Defens

Accounting Service erroneously paid $1.2 

result of errors such as paying the same in

misreading invoice amounts. Other payme

be attributed to problems with contract a

such as the failure to adjust progress paym

changes in contract requirements or perfo

Further, in its fiscal year 1999 financial sta

reported $3.6 billion in uncollected debt th

variety of contract payment problems. Of 

we determined that at least $225 million r

duplicate payments, overpayments, and p

goods not received, all of which we consi

payments.

DOD payment errors can be attributed to 

regulations, long-term contracts, noninteg

and the manual entry of contract data into 

systems. In October 2000, we reported tha

yet made a comprehensive estimate of im

payments made to its contractors, and the

more overpayments that have yet to be id

returned. With an annual budget of over $

purchases involving contractors, DOD wo

from estimating the magnitude of improp

As discussed in the financial management 

deficiencies significantly contribute to im

payments. 
Page 54 GAO-01-244 DO

In addition to improper payments, weak syst

internal controls can leave DOD vulnerable t

February 2000 testimony before the House B

Committee, the DOD Deputy Inspector Gene

that the finance and acquisition communitie

be moving in opposite directions on contrac

noted that while the finance community is at

improve controls over payments by taking m

such as rejecting vouchers with remittance a

that are not in the Central Contractor Regist

be suspect, some DOD acquisition officials b

payments to contractors are not being made 

enough, and they advocate making payments 

any attempt to match invoices to receiving d

According to the DOD Inspector General, co

payment processes remain vulnerable to frau

September 30, 1999, the Defense Criminal In

Service had 85 open financial fraud cases. M

DOD’s reliance on electronic payment metho

increases, unresolved computer security we

will impact its vulnerability to fraudulent con

payments.

Adjusting to 

Commercial Contract 

Pricing Practices

In recent years, DOD has significantly chang

it acquires goods and services by removing w

considered barriers to efficient and effective 

commercial marketplace. A major focus of th

changes is the adoption of commercial buyin

For example, for an increasing number of co

sole-source spare parts, DOD is transitioning 

cost-based pricing environment, in which co

costs are the basis to negotiate prices, to a m

or commercial pricing environment in which 

other than cost, such as pricing data, are the 

means used to determine the reasonableness 

While the level of commercial contracting re

relatively small compared to total DOD proc

is likely to increase substantially in the comi
Page 55 GAO-01-244 

Both we and the DOD Inspector General h

recommended that DOD needs to strength

to obtain fair and reasonable prices. For e

Inspector General found that DOD needs 

cost-effective buying strategies for comm

parts. The Inspector General noted that DO

higher prices for some commercial spare 

necessary. Our work also identified cases 

limited price analyses of commercially off

resulted in significantly higher prices than 

paid. DOD is taking steps to improve its w

training in commercial buying and pricing

DOD’s acquisition workforce will adjust to 

environment with increased use of comm

practices remains to be seen. 

Managing DOD’s 

Contracts for Health 

Care 

DOD’s difficulty in managing contracts is 

illustrated in the implementation of its TR

care program. TRICARE was established d

of military downsizing and budget concer

costs and maintain access to and the qual

care for DOD’s 8.2 million beneficiaries. T

this program DOD awarded seven compet

contracts totaling about $15 billion. 

Once these contracts were awarded, DOD 

numerous and continuous changes to them 

contract change orders. We reported that 

developed a reliable estimate of the total f

for the contract changes and that DOD ne

systematically reviewed the need for each 

considered its likely costs and other effec

2000, over 500 change orders to the TRICA

had not been settled and may represent a 

future liability to the Defense Health Prog

address this growing backlog DOD initiate

called Mobilization, to settle all of its open 

orders by December 2000. We are evaluat
Page 56 GAO-01-244 DO

progress in settling change orders and identi

improvements to the process.

Furthermore, in an effort to better control co

improve health care contracting, DOD has in

broad review of TRICARE’s operational stru

the study, DOD will examine TRICARE’s org

and business plans and will develop a revise

procurement strategy. Whether DOD can suc

develop and launch the new procurement str

whether this new strategy will reduce the cu

volume of contract changes or control health 

remain to be seen. 

Key Actions Needed As we have previously stated in testimony, th

that we have identified are difficult ones and 

rooted in very large programs and organizati

is much to be learned from the best practices 

high-performing private sector organizations 

used to improve the acquisition and contract

and controls to reduce contract risk. We test

when use of commercial best practices is de

be appropriate, government agencies should 

practices unless compelling reasons exist fo

so. To ensure that progress continues, sustai

management attention and congressional ov

be necessary.

Key Contact David E. Cooper, Director 

Acquisition and Sourcing Management

(202) 512-4841

cooperd@gao.gov

Stephen P. Backhus, Director

Health Care

(202) 512-7111

backhuss@gao.gov
Page 57 GAO-01-244 

Creating an 

Efficient and 

Responsive Support 

Infrastructure

DOD also has to address the inefficiencies 

infrastructure. Although the United States 

significantly reduced its defense force str

military spending since the end of the Col

not achieved commensurate reductions in 

and support infrastructure7

 costs. As the D

has sought to bring about a revolution in m

it has realized that it must transform its su

infrastructure to become leaner and more 

serve the warfighter faster, better, and che

has realized that high priority needs such 

modernization can be fulfilled only with a 

infrastructure savings. While DOD has ma

progress, it needs to do more to significan

infrastructure costs, and many obstacles r

effectiveness of many civilian agencies ha

undermined by outmoded organizational s

drain resources needed to make improvem

mission delivery capabilities. Because of t

associated with achieving these reduction

potential for the continued waste of billio

annually on inefficient and unneeded acti

facilities, we included defense infrastruct

of high-risk areas among federal agencies 

remains on that list.

7

 DOD defines infrastructure as those activities that 

services to mission programs, such as combat force

operate from fixed locations. The activities include 

elements as installation support; acquisition infrastr

logistics; and central training, central medical, and p

year 2001, approximately $33 billion of infrastructur

expected to be related to maintenance and upkeep o

these program elements. 
Page 58 GAO-01-244 DO

Infrastructure Costs 

Continue to Consume 

a Larger Than 

Necessary Portion of 

DOD’s Budget

In our recent reviews of DOD’s Future Years 

Program (FYDP),8

 we did not find significant 

in DOD’s budgets devoted to its support infr

For example, we reported in April 1996 that 

significant net infrastructure reductions wer

between fiscal year 1996 and 2001. We noted 

proportion of planned infrastructure funding 

budgets would remain relatively constant at 

60 percent through 2001. This is not to sugge

operating efficiencies and reductions have n

due to such efforts as base realignment and 

consolidations, regionalization, privatization

outsourcing efforts. However, our October 20

of the FYDP for fiscal years 2001-2005 showe

portion of the FYDP devoted to direct infras

relative to mission has not changed, despite 

expectations that it would. Figure 7 shows 

infrastructure funding as compared to the to

budget.

8

 The FYDP is the official document that summarizes th

and funding associated with specific programs that the 

Defense would like the Congress to approve. The FYDP 

decisions made in the DOD Planning, Programming, and 

System, which is intended to produce the best possible 

forces, equipment, and support to accomplish DOD’s m

FYDP presents estimated appropriation needs for the b

which funds are being requested from the Congress and 

years following it.
Page 59 GAO-01-244 

Figure 7: Direct Infrastructure Funding Versus the Total DOD Budget (fiscal years 

Source: OSD.

Additionally, while the Department’s perfo

required by the Results Act includes as an 

measure the percentage of DOD’s budget 

infrastructure, we recently reported that t

of limited value because the reliability of 

budget execution data is questionable and 

data do not reflect what the Department s

spending on infrastructure. The Departme

acknowledges that it has not been spendi

money to offset a growing backlog of faci

maintenance and repair projects. For exa

Department’s September-October 2000 Mo

Readiness Report to the Congress cited co

funding shortfalls in base operating suppo

property maintenance, and military const

accounts. The Air Force noted that these 

inadequately funded, with infrastructure p

0

100

200

300

400

500

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 

Fiscal year

Billions

Infrastructure

Total 
Page 60 GAO-01-244 DO

funded for replacement at the 250-year point

suggests that the Department needs to reduc

facilities infrastructure and requires balance

the infrastructure it retains. 

DOD Faces 

Significant 

Challenges in 

Planning for Reform 

and Infrastructure 

Reductions

The Defense Reform Initiative, announced b

Secretary of Defense in November 1997, was 

improve the effectiveness and efficiency of D

business processes and support infrastructu

represents a number of management initiativ

adopting best business practices; expanding 

electronic commerce, logistics reengineering

public-private competitions (using the Office 

Management and Budget’s A-76 process);10 a

eliminating unneeded facilities infrastructure

has included such actions as demolition of u

buildings, privatization of housing and utiliti

military facilities, and a proposal for addition

realignment and closure rounds. 

While the initiatives collectively offer the po

significant long-term savings, the Departmen

likely to quickly realize large-scale net saving

many of these initiatives because most indiv

initiatives are long-term efforts that require s

up-front investments to implement. Addition

major benefit from some of the initiatives inv

avoidance such as avoiding upkeep of unnee

buildings and relying on private sector resou

than the government’s, for needed capital inv

new housing and revitalized utilities. 

9

 The issue of logistics restructuring is discussed later a

management challenge.

10 Under A-76, agencies conduct public/private competit

determine whether the public or private sector will perf

commercial activities and functions.
Page 61 GAO-01-244 

In July 2000, we reported that only a few o

initiatives had been completed and that w

the remaining initiatives were progressing

barriers that could keep them from meetin

time frames and goals. For example:

• DOD’s program to evaluate activities in

200,000 positions for potential outsour

expected to result in estimated savings 

by 2005 and $2.8 billion in annual recu

thereafter. However, the savings are lik

smaller than expected in the short term 

delays in completing the studies and b

Department had not fully calculated ei

investment costs associated with these 

or the personnel separation costs likel

associated with them. The services hav

concern about the reductions in their f

operating budgets that have already be

anticipation of A-76 savings.

• DOD has encountered delays in its effo

military family housing through privat

financing, ownership, operation, and m

Almost 4 years after the program was 

Department has awarded few contract

renovate military family housing units

program offers an important opportun

military housing at a faster rate than re

traditional military construction metho

found that DOD’s life-cycle cost analys

with its privatization efforts have been 

and inaccurate, and have overstated sa

• DOD continues to emphasize that addi

realignment and closure rounds are ne

reduce unneeded infrastructure and to 

for readiness, weapon modernization, 

life plans. The Secretary’s position has 

post-Cold War transformation of Amer

posture will not be complete until exc

bases and facilities are eliminated. The 
Page 62 GAO-01-244 DO

Initiative called for two additional rounds 

realignments and closures to supplement 

rounds conducted between 1988 and 1995

base closures and A-76 studies are the tw

initiatives for which the Department has 

savings from its Reform Initiative. 

• The Department projects that additional b

rounds could produce new savings of $3.

year once realignment and closure action

completed and the costs of implementing 

actions were offset by savings. However, 

issues related to economic impacts, cost 

from prior rounds, and executive branch 

two closure and realignment decisions in 

round, the Congress has been reluctant to 

additional rounds. 

Key Actions Needed As we have recommended, DOD needs to de

integrated plan to better integrate, guide, and 

implementation of its diverse defense reform 

and an approach for assessing and making k

investment decisions. Key reform initiatives, 

acquisition, financial management, and logis

could be strengthened if addressed in an inte

fashion.

For its facilities infrastructure, DOD also nee

develop a comprehensive long-range facilitie

addresses long-term facility needs, plans to u

replace aging facilities, and plans for reversi

reported increasing work backlog involving 

maintenance and repair. Development of suc

could be significantly affected by DOD’s abil

agreement with the Congress on the need fo

base realignment and closure rounds. The inf

problems in civilian agencies also suggest th

relevance of a civilian facility closure and re

process.
Page 63 GAO-01-244 

Despite limitations in the precision of DO

of savings from base closures, our prior w

that significant net annual recurring savin

expected once initial investment costs hav

Legislation that was enacted in 1990 and w

in 1995 has been seen by many officials as 

point should the Congress decide it wants 

future base realignments and closure roun

Key Contact Barry W. Holman, Director

Defense Capabilities and Management

(202) 512-5581

holmanb@gao.gov

Providing Logistics 

Support That Is 

Economical and 

Responsive

Providing economical and responsive logi

is central to DOD’s achievement of its miss

while the logistics support system gets the 

often described as a brute force process t

uneconomical and inefficient. In the past 

reported problems in DOD’s depot mainte

programs, inventory systems, and distribu

transportation processes. Support costs h

to increase despite reductions in DOD’s e

inventory, support personnel, and military 

the same time, questions have been raised 

whether DOD’s logistics system is respon

emerging operational requirements.

In 2000 we reported that despite DOD’s pr

efforts to reengineer, streamline, and imp

efficiency and effectiveness of its logistics 

processes, and operations, the Departmen

have serious weaknesses throughout its lo

activities, and it is unclear to what extent 

reengineering effort will address these we

of the most critical logistics functions on w

reported problems is inventory managem
Page 64 GAO-01-244 DO

identified as high risk in 1990 because levels 

inventory were too high and management sy

procedures were ineffective and wasteful. Th

continues to be a high-risk area. 

Improvements are 

Needed in Logistics 

Reengineering Plans

DOD is attempting to reengineer and modern

logistics program to increase efficiency, imp

performance, and reduce system operations 

about $84 billion. Numerous studies have lai

groundwork for the current logistics reengin

efforts. Generally these studies have focused 

adopting improved business processes and i

reliance on the private sector to improve log

support operations. Based on these studies, 

taken steps toward restructuring its logistics 

Despite the progress the Department has ma

restructuring effort, our recent review identi

concerns or uncertainties about incompleten

optimistic implementation schedules, the po

savings associated with specific initiatives, t

the initiatives on combat forces, and other fa

example, many aspects of the restructuring p

incomplete, raising questions about whether 

the overall goals of improved service and low

will be achieved. The services and defense a

have about 400 ongoing individual initiatives 

logistics support, and DOD has not develope

overarching plan that integrates individual s

efforts into a single, Department-wide imple

strategy. 

A March 23, 2000, directive required the milit

to establish logistics reengineering plans. Th

supposed to relate the 400 different service-s

logistics reengineering initiatives to DOD’s L

Strategic Plan, but that plan is very general a

address all logistics activities or functions. W

no requirement to develop an overall DOD p
Page 65 GAO-01-244 

integrates the service plans, DOD officials 

integration will be accomplished through 

Department’s planned new logistics archit

is supposed to provide a blueprint that wi

control the development and maintenance 

related logistics systems. It is too early in 

development of the logistics architecture 

integration required if the Department is t

desired economy, efficiency, and perform

the restructured process. 

Also, uncertainties exist about the overly 

implementation schedule that has been es

DOD’s reengineering program. For examp

Department plans to use information glea

30 pilot programs to develop future mode

reengineering and policy changes and to fu

reengineered support strategies by the en

However, as shown in table 1, some pilot 

plans have not been fully developed, test 

others have not been clearly defined or m

change, and test results of some pilots ma

Table 1: Pilot Programs Whose Plans Are Not Likely to Meet Logistics Reenginee

a

Problems are not mutually exclusive; consequently

programs are included in more than one category.

Source: GAO analysis.

Number of pilots, by ser

Problema Army Air Force 

Test plans not yet developed 2 1 

Test plans subject to change 6 7 

Test results likely not available at end of fiscal 

year 2002 to support DOD-wide reengineering

7 6
Page 66 GAO-01-244 DO

Inventory 

Management 

Continues to Be High 

Risk

One of the most serious weaknesses in DOD

operations and where there are questions abo

ongoing initiatives will address past shortcom

Department’s lack of adequate control over it

Since 1990, we have consistently identified D

management of secondary inventories (spare 

parts, clothing, medical supplies, and other i

support the operating forces) as a high-risk a

levels of inventory were too high and manag

systems and procedures were ineffective and 

Figure 8 shows that DOD’s inventory value f

10 years has been generally declining. Howev

and current work in this area indicates that D

(1) continues to store unnecessarily large am

material, (2) purchases material for which th

valid requirement, (3) experiences equipmen

problems because of a lack of key spare part

(4) fails to maintain adequate visibility over 

being shipped to and from military activities

same time, we are seeing selected instances 

insufficient inventory support is causing wea

systems to be unavailable for use.
Page 67 GAO-01-244 

Figure 8: DOD Secondary Inventory Value

Note: Based on latest DOD acquisition cost method 

Source: DOD Supply System Inventory Report, Sep

As of September 30, 1999, nearly half of D

$64 billion inventory exceded war reserve 

operating requirements. DOD had this exc

because demands decreased, fluctuated, o

materialize; items became obsolete or we

of service; and some of the initial requirem

demand forecasts were not accurate. We r

in previous reports that DOD improve the 

and efficiency of its inventory activities an

leading-edge business practices.

As of September 30, 1999, DOD records sh

Department had inventory on order value

$1.6 billion that would not have been orde

current requirements. We reported in Jun

DOD managers needed the items when th

90.4 88.1

80.2 77.5 73.6

69.7 68.5 64.8 61.2 64.0

0

20

40

60

80

120

100

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

Fiscal Year

Current Year--Dollars in Billions
Page 68 GAO-01-244 DO

orders, but either the records contained erro

resulted in overstating the requirements or t

requirements changed after the orders were 

also reported in November 1999 that the Air 

not always cancel purchases that exceeded c

operating requirements. The Air Force had c

contracts for about $5.5 million of the $162.4 

excess inventory that we reviewed, but it co

canceled more. Contracts for unnecessary it

not being canceled primarily because the Air 

process for canceling contracts takes a long t

which costs are incurred for which the gove

liable. To correct these problems, we recomm

the Air Force improve the timeliness and acc

data that managers use for identifying and ca

excess inventory on order.

DOD has experienced equipment readiness p

because of a lack of key spare parts. For yea

insufficient spare parts have been recognized 

contributor to aircraft performing at lower m

capable rates than expected. In June 2000, w

that insufficient quantities of spare parts wa

primary reasons airlift and aerial refueling ai

performed below the Air Force Air Mobility 

mission-capable standard rates. In April 1999 

reported that some Air Force major aircraft 

to fly because supply problems had risen fro

6.4 percent in fiscal year 1990 to 13.9 percen

year 1998. Table 2 shows the reported not m

capable rates due to supply problems for the 

major aircraft for fiscal years 1990-98. 
Page 69 GAO-01-244 

Table 2: Reported Total Not Mission Capable Ra

Major Aircraft

Source: The Air Force’s Multi-Echelon Resource an

Information Network and the Reliability and Maintain

System.

Our April 1999 report noted that to suppo

capability rates, the military was routinely 

aircraft for parts and using parts from uni

kits that were intended to support deploy

The aircraft spare parts shortages were du

DOD’s weaknesses in forecasting inventor

requirements and the failure of DOD’s log

to achieve expected inventory manageme

improvements. The inventory forecasting 

example, caused a $500-million shortfall i

the Air Force supply activity group’s budg

year 1997. This shortfall severely limited t

ability to buy new spare parts for its inven

for the repair of broken aircraft parts.

DOD’s inability to maintain adequate over

material being shipped to and from milita

another long-standing inventory managem

The tracking of this inventory from origin 

continues to raise concerns about the vul

Fiscal year

Percent of air

capable due to 

1990 

1991 

1992 

1993 

1994 

1995 

1996 

1997 

1998 
Page 70 GAO-01-244 DO

this inventory to waste, fraud, and abuse. We 

June 2000 that the Army did not know the ex

which shipped inventory had been lost or sto

of weaknesses in its inventory control proce

financial management practices. The Army r

inventory shipment losses of $297,000, but o

indicated the Army could not account for ab

$900 million in shipped inventory in fiscal ye

also reported in March 1999 that the Navy wa

account for more than $3 billion worth of inv

being shipped, including some classified and 

items.

Because DOD had not fully corrected its lon

problems in tracking inventory during shipm

Congress (section 349 of the Strom Thurmon

Defense Authorization Act for Fiscal Year 199

DOD to submit a comprehensive plan addres

planned to ensure visibility over the shipmen

items and secondary items. In February 2000

reported that DOD’s September 1999 plan di

contain some key management elements nee

effectively implement its proposed actions o

adequately address underlying weaknesses th

to the lack of control over inventory shipme

example, the plan did not fully address how 

Department will correct errors in the automa

systems that the military services use to man

inventory. In addition, the plan did not adequ

address the underlying problems that have b

consistently highlighted in our and DOD’s pr

reports. 

Additionally, we reported in July 1999 that D

developed comprehensive procedures to tra

property being shipped to disposal but that t

procedures were not working effectively. DO

that, during fiscal year 1998, property valued 

$2.7 billion was shipped to disposal but had 

recorded as received by disposal offices. In e
Page 71 GAO-01-244 

recent reports regarding DOD’s inability t

inventory during shipment we have recom

DOD correct the weaknesses in its invent

management systems, adhere to the stand

DOD-wide policies and procedures for tra

inventory shipments, and develop long-ra

enhance the Department’s overall manage

inventory.

Key Actions Needed To enhance DOD’s reengineering efforts, w

recommended that DOD develop an overa

that integrates the individual service and d

logistics reengineering plans to include an 

strategy for funding reengineering initiativ

for how DOD plans to achieve its final log

end state. We also recommended that DO

schedule for testing, evaluating, and imple

initiatives; establish a methodology showi

or improvements that come from reengine

concepts; and reassess its approach for ad

various combat command concerns, such 

presence of increasing numbers of contra

on the battlefield.

Also, to improve inventory management, w

recommended that DOD make more use o

best management practices similar to tho

private sector to help cut costs and impro

service. These include practices such as u

accurate information systems to track and 

inventory and employing various methods 

flow of parts through the logistics pipelin

Key Contact David R. Warren, Director

Defense Capabilities and Management

(202) 512-8412

warrend@gao.gov
Page 72 GAO-01-244 

Strategic Planning Future Years Defense Program: Risks in O

Maintenance and Procurement Programs 

Oct. 5, 2000).

Force Structure: Air Force Expeditionary 

Offers Benefits but Effects Should Be Ass

(GAO/NSIAD-00-201, Aug. 15, 2000).

Force Structure: Army Is Integrating Activ

Combat Forces, but Challenges Remain

(GAO/NSIAD-00-162, July 18, 2000).

Contingency Operations: Providing Critic

Poses Challenges (GAO/NSIAD-00-164, Ju

Observations on the Department of Defen

Year 1999 Performance Report and Fiscal 

Performance Plan (GAO/NSIAD-00-188R, 

Future Years Defense Program: Funding I

Planned Savings in Fiscal Year 2000 Progr

(GAO/NSIAD-00-11, Nov. 22, 1999).

Military Operations: Impact of Operations 

War on the Services Varies (GAO/NSIAD-9

May 24, 1999).

DOD Budget: Substantial Risks in Weapon

Modernization Plans (GAO/T-NSIAD-99-20

Quadrennial Defense Review: Opportunit

the Next Review (GAO/NSIAD-98-155, Jun

Results Act: DOD’s Annual Performance P

Year 1999 (GAO/NSIAD-98-188R, June 5, 1

The Results Act: Observations on DOD’s D

Plan (GAO/NSIAD-97-219R, Aug. 5, 1997).
Page 73 GAO-01-244 

Human Capital Defense Headquarters: Status of Efforts to 

Reduce Headquarters Staff (GAO/NSIAD-

Sept. 6, 2000).

Military Personnel: Services Need to Asse

Meet Recruiting Goals and Cut Attrition

(GAO/NSIAD-00-146, June 23, 2000).

Human Capital: Strategic Approach Shoul

Civilian Workforce Management

(GAO/T-GGD/NSIAD-00-120, Mar. 9, 2000)

Military Personnel: First-Term Recruiting 

Continue to Require Focused Attention

(GAO/T-NSIAD-00-102, Feb. 24, 2000).

Military Attrition: DOD Needs to Follow T

Actions Initiated to Reduce Early Separat

(GAO/T-NSIAD-99-80, Feb. 24, 1999).

Financial 

Management

Department of Defense: Implications of F

Management Issues 

(GAO/T-AIMD/NSIAD-00-264, July 20, 200

Department of Defense: Progress in Finan

Management Reform 

(GAO/T-AIMD/NSIAD-00-163, May 9, 2000

DOD Inventory: Weaknesses in Controls O

Rockets (GAO/AIMD-00-62R, Apr. 13, 2000

Executive Guide: Creating Value Through 

Financial Management (GAO/AIMD-00-13

Financial Management: Differences in Arm

Force Disbursing and Accounting Record

(GAO/AIMD-00-20, Mar. 7, 2000). 
Page 74 GAO-01-244 DO

Financial Management: Analysis of DOD’s Fi

Financial Management Improvement Plan

(GAO/AIMD-99-44, Jan. 29, 1999).

Information 

Management and 

Technology

Information Management and Technology Fi

Management: Significant Weaknesses in Corp

Engineers Computer Controls (GAO-01-89, 

Oct. 11, 2000).

Year 2000 Computing Challenge: Lessons Lea

Be Applied to Other Management Challenges

(GAO/AIMD-00-290, Sept. 12, 2000).

Information Security: Controls Over Softwar

at Federal Agencies (GAO/AIMD-00-151R, M

Defense Information Management: Continuin

Implementation Challenges Highlight the Ne

Improvement (GAO/T-AIMD-99-93, Feb. 25, 1

Defense IRM: Alternatives Should Be Consid

Developing the New Civilian Personnel Syste

(GAO/AIMD-99-20, Jan. 27, 1999).

Acquisition Reform Future Years Defense Program: Risks in Ope

Maintenance and Procurement Programs 

(GAO/NSIAD-01-33, Oct. 5, 2000).

Missile Defense: Schedule for Navy Theater 

Program Should Be Revised to Reduce Risk

(GAO/NSIAD-00-121, May 31, 2000).

Defense Acquisitions: Improvements Needed 

Space Systems’ Planning and Education

(GAO/NSIAD-00-81, May 18, 2000). 
Page 75 GAO-01-244 

Defense Acquisition: Employing Best Prac

Shape Better Weapon System Decisions

(GAO/T-NSIAD-00-137, Apr. 26, 2000).

Missile Defense: Status of the National Mi

Program (GAO/NSIAD-00-131, Mar. 31, 20

Defense Acquisitions: Reduced Operation

Effectiveness of Joint Standoff Weapon 

(GAO/NSIAD-99-137, Aug. 31, 1999).

Missile Defense: THAAD Restructure Add

Problems But Limits Early Capability

(GAO/NSIAD-99-142, June 30, 1999). 

Major Management Challenges and Progr

Department of Defense (GAO/OCG-99-4, J

Army Medium Trucks: Information on De

and Corrosion Problems (GAO/NSIAD-99

Jan. 13, 1999).

Contracting Contract Management: Little Assurance o

for DOD Information Technology Services 

Schedule (GAO-01-125, Nov. 30, 2000).

Contract Management: Not Following Pro

Undermines Best Pricing Under GSA’s Sch

(GAO-01-125, Nov. 28, 2000)

Financial Management: Billions in Improp

Continue to Require Attention (GAO-01-44

Oct. 27, 2000).

Contract Management: Few Competing Pr

Large DOD Information Technology Orde

(GAO/NSIAD-00-56, Mar. 20, 2000).
Page 76 GAO-01-244 DO

Contract Management: DOD Pricing of Comm

Items Needs Continued Emphasis (GAO/NSI

June 24, 1999).

Acquisition Reform: Multiple Award Contrac

Federal Organizations (GAO/NSIAD-98-215,

Sept. 30, 1998).

Defense Health Care: Operational Difficultie

System Uncertainties Pose Continuing Chall

TRICARE (GAO/T-HEHS-98-100, Feb. 26, 199

Defense 

Infrastructure

Future Years Defense Program: Risks in Ope

Maintenance and Procurement Programs (G

Oct. 5, 2000).

Defense Management: Actions Needed to Su

Reform Initiatives and Achieve Greater Resu

(GAO/NSIAD-00-72, July 25, 2000).

Military Housing: Continued Concerns in Imp

the Privatization Initiative (GAO/NSIAD-00-7

Mar. 30, 2000).

Military Real Property Maintenance: Improv

Needed to Ensure That Critical Mission Faci

Adequately Maintained (GAO/T-NSIAD-00-51

Oct. 26, 1999).

Military Infrastructure: Real Property Manag

Needs Improvement (GAO/NSIAD-99-100, Se

Logistics 

Reengineering 

Defense Inventory: Process for Canceling In

Orders Needs Improvement (GAO/NSIAD-00

June 30, 2000).
Page 77 GAO-01-244 

Defense Logistics: Integrated Plans and Im

Implementation Needed to Enhance Engin

(GAO/T-NSIAD-00-206, June 27, 2000).

Defense Inventory: Army Needs to Streng

Follow Procedures to Control Shipped Ite

(GAO/NSIAD-00-109, June 23, 2000).

Defense Logistics: Actions Needed to Enh

of Reengineering Initiatives (GAO/NSIAD

June 23, 2000).

Military Readiness: Air Transport Capabil

of Requirements (GAO/NSIAD-00-135, Jun

Defense Inventory: Plan to Improve Mana

Shipped Inventory Should Be Strengthene

(GAO/NSIAD-00-39, Feb. 22, 2000).

Defense Inventory: Improvements Needed 

Excess Purchases by the Air Force (GAO/

Nov. 10, 1999).

Defense Inventory: Property Being Shippe

Is Not Properly Controlled (GAO/NSIAD-9

July 1, 1999).

Air Force Supply: Management Actions Cr

Parts Shortages and Operational Problem

(GAO/NSIAD/AIMD-99-77, Apr. 29, 1999).

Defense Inventory: Status of Inventory an

and Their Relationship to Current Needs

(GAO/NSIAD-99-60, Apr. 16, 1999).

Defense Inventory: Navy’s Procedures for 

Transit Items Are Not Being Followed

(GAO/NSIAD-99-61, Mar. 31, 1999).
Page 78 GAO-01-244 

Major Management Challenges and Progr

Governmentwide Perspective (GAO-01-24

Major Management Challenges and Progr

Department of Agriculture (GAO-01-242)

Major Management Challenges and Progr

Department of Commerce (GAO-01-243)

Major Management Challenges and Progr

Department of Defense (GAO-01-244)

Major Management Challenges and Progr

Department of Education (GAO-01-245)

Major Management Challenges and Progr

Department of Energy (GAO-01-246)

Major Management Challenges and Progr

Department of Health and Human Service

(GAO-01-247)

Major Management Challenges and Progr

Department of Housing and Urban Develo

(GAO-01-248)

Major Management Challenges and Progr

Department of the Interior (GAO-01-249)

Major Management Challenges and Progr

Department of Justice (GAO-01-250)

Major Management Challenges and Progr

Department of Labor (GAO-01-251)

Major Management Challenges and Progr

Department of State (GAO-01-252)
Page 79 GAO-01-244 

Major Management Challenges and Program 

Department of Transportation (GAO-01-253)

Major Management Challenges and Program 

Department of the Treasury (GAO-01-254)

Major Management Challenges and Program 

Department of Veterans Affairs (GAO-01-255

Major Management Challenges and Program 

Agency for International Development (GAO

Major Management Challenges and Program 

Environmental Protection Agency (GAO-01-2

Major Management Challenges and Program 

National Aeronautics and Space Administrat

(GAO-01-258)

Major Management Challenges and Program 

Nuclear Regulatory Commission (GAO-01-25

Major Management Challenges and Program 

Small Business Administration (GAO-01-260

Major Management Challenges and Program 

Social Security Administration (GAO-01-261)

Major Management Challenges and Program 

U.S. Postal Service (GAO-01-262)

High-Risk Series: An Update (GAO-01-263)
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