a

GAO

United States General Accounting Office

Report to the Subcommittee on 

Terrorism, Unconventional Threats, and 

Capabilities, Committee on Armed 

Services, House of Representatives

December 2003 INFORMATION 

TECHNOLOGY

Improvements Needed 

in the Reliability of 

Defense Budget 

Submissions

GAO-04-115
www.gao.gov/cgi-bin/getrpt?GAO-04-115.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Randolph C. 

Hite at (202) 512-3439 or hiter@gao.gov. 

Highlights of GAO-04-115, a report to the 

Subcommittee on Terrorism, 

Unconventional Threats, and Capabilities, 

Committee on Armed Services, House of 

Representatives 

December 2003

INFORMATION TECHNOLOGY 

Improvements Needed in the Reliability of 

Defense Budget Submissions 

DOD’s IT budget submission for fiscal year 2004 contains material 

inconsistencies, inaccuracies, or omissions that limit its reliability. For 

example: 

• Two primary parts of the submission—the IT budget summary report 

and the detailed Capital Investment Reports on each IT initiative—are 

inconsistent. In particular, 15 initiatives that appear in the budget 

summary do not appear in the Capital Investment Reports, and 

discrepancies exist between the two types of reports in the amounts 

requested for 73 major initiatives. These discrepancies total about 

$1.6 billion. (The table below shows the portion of this total difference 

that is attributable to various DOD organizations.) 

• Major initiatives do not consistently use the same type of appropriations 

to fund the same activities. That is, to fund the same types of activities, 

some DOD organizations used the Research, Development, Test, and 

Evaluation appropriations and others used the Operation and 

Maintenance appropriations. 

• The IT budget summary does not include all the costs of the IT 

initiatives, which is contrary to federal guidance. For example, the IT 

budget reports do not always include the costs of military personnel 

working on the initiatives. 

These problems are largely attributable to insufficient management attention 

and limitations in departmental policies and procedures, such as guidance in 

DOD’s Financial Management Regulation, and to shortcomings in systems 

that support budget-related activities. The result is that OMB and the 

Congress are constrained in their ability to make informed IT funding 

decisions and conduct effective oversight and control, which could cause 

decision makers to approve or deny funding for programs that they might 

otherwise have treated differently, as well as increasing the chances of funds 

in an appropriation not being sufficient to cover obligations. 

Discrepancies between Funding Totals from DOD IT Budget Summary and Capital 

Investment Reports for Fiscal Year 2004 

Dollars in millions

DOD component Discrepancy 

Department of the Air Force $362.81 

Department of the Army 55.57 

Department of the Navy 581.89 

Seven agencies and activities and the Office of the Secretary of Defense 88.96 

Multiple organizations a 530.61 

Total $1,619.84 

Source: GAO analysis of DOD data. 

a Of 30 cross-service initiatives, 27 had differences, but these differences could not be attributed to a 

single component because more than one component reported funding for each initiative. 

The Department of Defense (DOD) 

spends more on information 

technology (IT) annually than any 

other department or agency, 

accounting for about half of the 

$59 billion governmentwide IT 

budget in fiscal year 2004. It is thus 

important that consistent, accurate, 

and complete DOD IT budget 

information is available to the 

Congress and the Office of 

Management and Budget (OMB) so 

that they can make informed 

decisions among competing 

demands for funds. Accordingly, 

GAO reviewed the department’s 

fiscal year 2004 IT budget 

submission to determine whether it 

was reliable, including identifying 

opportunities for future 

improvement. 

To improve the consistency, 

accuracy, and completeness of 

future DOD IT budget submissions, 

GAO is making recommendations 

to the Secretary of Defense that are 

aimed at establishing appropriate 

policies, procedures, and 

supporting systems to avoid 

repeating the same problems that 

GAO found in the department’s 

submission for fiscal year 2004. 

DOD either agreed or partially 

agreed with GAO’s 

recommendations, and it described 

actions that it plans to take to 

improve the reliability of its IT 

budget submissions. 
Page i GAO-04-115 Reliability of Defense Budget Submissions

Contents

Letter 1

Results in Brief 2

Background 3

DOD’s Fiscal Year 2004 IT Budget Submission Contains Unreliable 

Information 6

Conclusions 21

Recommendations 22

Agency Comments and GAO Evaluation 23

Appendix

Appendix I: Objective, Scope, and Methodology 26

Tables Table 1: Information Included in Budget Justification Reports 4

Table 2: Comparison of Total Funding for Three Groupings of Major 

Initiatives 9

Table 3: Stratified Funding Differences among 176 Initiatives in 

Exhibit 300 and IT-1 Reports 10

Table 4: Net Differences, Total Differences, and Number of 

Initiatives with Differences, by DOD Component 11

Table 5: Discrepancies between Sum of Line Items and Total 

Amount Reported on Exhibit 300s, by DOD Component 14
Contents

Page ii GAO-04-115 Reliability of Defense Budget Submissions

Abbreviations

CFO Chief Financial Officer 

CIO Chief Information Officer 

DOD Department of Defense 

FMR Financial Management Regulation 

IT information technology 

O&M Operation and Maintenance

OMB Office of Management and Budget

OSD Office of the Secretary of Defense

RDT&E Research, Development, Test, and Evaluation

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Page 1 GAO-04-115 Reliability of Defense Budget Submissions

United States General Accounting Office

Washington, D.C. 20548

A

December 19, 2003 Letr

The Honorable Jim Saxton

Chairman 

The Honorable Martin T. Meehan

Ranking Minority Member

Subcommittee on Terrorism, Unconventional Threats,

 and Capabilities

Committee on Armed Services

House of Representatives

To make informed funding decisions among competing demands for 

federal funds, the Congress and the Office of Management and Budget 

(OMB) need federal departments and agencies to provide consistent, 

accurate, and complete budget information. This is particularly important 

in the case of the information technology (IT) budget for the Department of 

Defense (DOD), because the department spends more on IT annually than 

any other department or agency, accounting for about half of the roughly 

$59 billion governmentwide IT budget in fiscal year 2004. Among other 

things, the department’s IT funding is to provide for modernization, 

operation, and maintenance of thousands of information systems that 

support such important business functions as accounting, acquisition, 

logistics, and personnel management. DOD’s IT funding is also to provide 

for modernization, operation, and maintenance of the department’s 

technology infrastructure, such as its telecommunication networks. 

Because of the importance of DOD’s IT budget information to the 

Congress, we evaluated the department’s fiscal year 2004 IT budget 

submission. Our objective was to determine whether the submission was 

reliable, including identifying opportunities for improving the reliability of 

future submissions. To do so, we assessed the funding information in 

DOD’s primary IT budget reports to determine whether the information 

reported was consistent between reports, whether the reports included all 

information that OMB requires, whether the correct appropriations and 

budget categories were used, and whether the reports included all relevant 

costs. Our objective, scope, and methodology are discussed in detail in 

appendix I.
Page 2 GAO-04-115 Reliability of Defense Budget Submissions

Results in Brief DOD’s fiscal year 2004 IT budget submission includes inconsistencies, 

inaccuracies, and omissions that limit its reliability. For example, the 

Capital Investment Reports, which provide detailed information on each 

major IT initiative, are inconsistent with DOD’s IT budget summary report.1

In particular, 15 major initiatives that appear in the budget summary report 

do not appear in the Capital Investment Reports, and discrepancies exist 

between the amounts that the two types of reports included for 73 major 

initiatives. These discrepancies total about $1.6 billion. The Capital 

Investment Reports also contain omissions and errors, such as missing life 

cycle phase information and errors in calculations. Also, the Capital 

Investment Reports’ amounts for planning and acquisition activities for 

major initiatives are not always classified as development/modernization, 

which is the budget category that OMB requires for such activities, and 

these reports do not consistently use the same appropriations to fund the 

same activities. Additionally, the IT budget summary does not include all 

the costs of the IT initiatives, which is contrary to guidance in federal 

accounting standards and the Federal Financial Management Improvement 

Act of 1996.2

 For example, the budget submission does not always include 

the costs of military personnel working on the initiatives. These 

inconsistencies, inaccuracies, and omissions are largely attributable to 

limitations in departmental regulations and guidance and to shortcomings 

in the systems that support the development of the budget submission, as 

well as to insufficient management attention. The result is that OMB and 

the Congress are forced to make IT funding decisions on the basis of 

information whose reliability is limited, which could cause decision makers 

to approve or deny funding for programs that they might otherwise have 

treated differently and increases the chances of funds in an appropriation 

not being sufficient to cover obligations. 

To improve the reliability of DOD’s future IT budget submissions, we are 

making eight recommendations to the Secretary of Defense aimed at 

raising the level of management attention to IT budget submission 

reliability and strengthening the associated management processes and 

supporting systems. In commenting on a draft of this report, DOD either 

1

According to OMB Circular A-11, Capital Investment Reports, also known as Exhibit 300s, 

are required for initiatives that OMB defines as major: that is, those initiatives that require 

special management attention because of their importance to an agency’s mission or that 

have significant program or policy implications.

2

Public Law 104-208, section 803(a).
Page 3 GAO-04-115 Reliability of Defense Budget Submissions

agreed or partially agreed with our recommendations and described 

actions that it plans to take to improve the reliability of its IT budget 

submissions. 

Background DOD’s IT budget submission for fiscal year 2004 totaled about $28 billion. 

Of this, about $9.1 billion was for what the department termed national 

security systems, such as telecommunications networks and systems that 

perform command and control functions. The remaining approximately 

$18.8 billion was for business initiatives, such as finance and accounting 

systems, military and civilian personnel systems, and logistics systems. The 

roughly $28 billion included about $17.4 billion for operating and 

maintaining existing systems and infrastructure and about $10.5 billion for 

modernizing systems and infrastructure. Examples of major initiatives 

included in this budget submission are the following: 

• the Global Command and Control System, a joint program intended to 

provide the information resources needed by warfighters to accomplish 

their command and control missions;

• the Defense Information System Network, a communications 

infrastructure initiative that is intended to connect DOD’s mission 

support and armed forces using a combination of government and 

private infrastructure; and 

• the Defense Integrated Military Human Resources System, a military 

personnel and pay system that is expected to integrate personnel and 

pay functions for all military services.

DOD’s IT budget submission consists of three basic reports:3

3

In addition to the three basic reports, the budget submission includes a report called All 

Departments Information Technology/National Security Systems, which presents the budget 

information by DOD organization. 
Page 4 GAO-04-115 Reliability of Defense Budget Submissions

• Capital Investment Reports, also called Exhibit 300s, which are used by 

OMB to determine whether an IT initiative meets budgetary guidelines 

for funding. These reports provide detailed information on major IT 

initiatives, including budget information by appropriation type and life 

cycle phase. They are required for every major IT initiative, according to 

OMB Circular A-11.4

 The Exhibit 300 is submitted to OMB, and a subset 

of the information contained in it is submitted to the Congress. 

• The IT budget summary, also known as the IT-1 spreadsheet, which is 

intended to capture DOD’s entire IT budget, including both major and 

nonmajor initiatives, as well as information on which of two OMBdefined budget categories each initiative’s funding falls into—

development/modernization or current services. (The Exhibit 300 does 

not provide information on budget category.) The IT-1 spreadsheet is 

submitted to the Congress. 

• The Exhibit 53 provides a high-level summary of information that is in 

the IT-1 spreadsheet; thus, it does not include all the information that is 

in the IT-1 spreadsheet. This exhibit is provided to OMB.

Table 1 describes the types of budget information provided in these three 

reports. 

Table 1: Information Included in Budget Justification Reports

4

OMB Circular A-11, Preparation, Submission, and Execution of the Budget.

Type of 

information Information subtype Description a

Report in which 

information appears

System 

classification

Major Among other things, those initiatives that require special 

management attention because of their importance to an 

agency’s mission, or that have significant program or policy 

implications (OMB definition)

Exhibit 300, IT-1 

spreadsheet, Exhibit 53

Nonmajor Investments or initiatives that do not meet the criteria for 

major initiatives (DOD classification)

All other An additional DOD classification for certain initiatives
Page 5 GAO-04-115 Reliability of Defense Budget Submissions

Sources: OMB, DOD.

a

Descriptions of budget information are based on OMB Circular A-11, DOD’s Financial Management 

Regulation, Exhibit 53, Exhibit 300s, and IT-1 spreadsheet for fiscal year 2004. 

b

In addition, some IT initiatives are funded through working capital funds, which may be used for any 

type of cost by organizations that are financed in this way. (Working capital fund organizations sell 

goods or services—e.g., network services or financial services—to other DOD organizations and use 

the income from these sales to fund the production of their respective goods or services.)

The types of information in these budget justification reports are 

interrelated. For example, according to an official from the DOD 

Comptroller’s office, the life cycle phase in which a cost is to be incurred is 

key to determining the proper appropriation type for funding that cost, as 

well as to determining the proper budget category 

(development/modernization or current services). Similarly, Circular A-11 

states that funding for all activities that occur during the planning or 

acquisition phases should be placed in the development/modernization 

budget category. 

Appropriation type

used to fund IT b

Procurement Funds for the acquisition of such items as hardware, 

infrastructure, software, and services

Exhibit 300, IT-1 

spreadsheet

Research, Development, 

Test, and Evaluation 

Funds for research, development, test, and evaluation 

activities

Military Personnel Funds for military personnel who are planning, acquiring, 

developing, or maintaining IT initiatives

Operation and 

Maintenance 

Generally, funds for operating and maintaining IT systems 

or infrastructure

Budget category Development/ 

modernization 

Funds for developing new IT systems or making major 

enhancements to existing systems

IT-1 spreadsheet,

Exhibit 53

Steady state (referred to by 

DOD as “current services”)

Funds for operating and maintaining systems at current 

levels (i.e., without major enhancements)

Life cycle phase Planning Funds for planning IT initiatives Exhibit 300

Acquisition Funds for acquiring or developing IT systems

Maintenance Funds for operating and maintaining IT systems

(Continued From Previous Page)

Type of 

information Information subtype Description a

Report in which 

information appears
Page 6 GAO-04-115 Reliability of Defense Budget Submissions

The DOD Chief Information Officer (CIO), who is also the Assistant 

Secretary of Defense for Networks and Information Integration, is 

responsible for compiling and submitting the department’s IT budget 

reports to OMB and the Congress. The CIOs and Comptrollers for DOD’s 

component organizations are responsible for the reliability of the 

information about their respective initiatives in the submission.5

 Because 

of the importance of the budget submission, these officials are required to 

certify in writing as to their reliability. According to a DOD CIO official, the 

information in the submission is initially prepared by component program 

offices and processed through the CIO and Comptroller chains of 

command for the components. The information is then forwarded to the 

DOD CIO office, where it is consolidated before being sent to OMB and the 

Congress. 

DOD’s Fiscal Year 2004 

IT Budget Submission 

Contains Unreliable 

Information

The House Report6 on the Bob Stump National Defense Authorization Act 

for Fiscal Year 2003 emphasized the need for reliable IT budget 

information. Specifically, the report stated:

“In the past, the [Armed Services Committee] has received information technology 

documents that describe the various information technology initiatives and provide budget 

data on these initiatives. These documents, however, are too often inaccurate, misleading, 

and incomplete. The Department must provide the committee accurate and precise 

information and data on information technology systems. The committee will rely on the 

documents, submitted pursuant to this provision, when making recommendations.” 

5

DOD components consist of the military services and DOD agencies and activities, such as 

the Defense Information Systems Agency and the Defense Human Resources Activity.

6

H.R. Rep. No. 107-436, at 298 (May 3, 2002).
Page 7 GAO-04-115 Reliability of Defense Budget Submissions

Federal agencies also need reliable IT budget information to comply with 

the requirements of the Clinger-Cohen Act, which specifies that agencies 

should design capital planning and investment control processes for 

selecting, controlling, and evaluating IT investments and should integrate 

those processes with the agencies’ processes for making budget-related 

decisions.7

 IT investment management best practices, as well as OMB 

guidance, recognize the importance of reliable information, including the 

correct use of budget categories and the consistent use of appropriation 

types, to support these processes and decisions.8

DOD’s fiscal year 2004 IT budget submission includes inconsistent, 

inaccurate, and incomplete information, as follows: 

• The Exhibit 300 Capital Investment Reports and the IT-1 spreadsheet 

contain different numbers of major initiatives, and the reports’ funding 

amounts for major initiatives also differ significantly. 

• The Exhibit 300s contain omissions and errors, such as missing life 

cycle phase information and errors in calculations. 

• The Exhibit 300s contain funding amounts for planning and acquisition 

activities that do not use the correct budget category—

development/modernization.

• The Exhibit 300s do not consistently use the same appropriation types 

to fund the same IT development and modernization activities.

• The IT-1 spreadsheet does not include all the direct and indirect costs 

required to fund IT initiatives, such as the direct costs of military 

personnel working on the initiatives and the indirect costs of resources 

that are jointly used by multiple initiatives or organizations.

7

40 U.S.C. § 11312.

8

U.S. General Accounting Office, Information Technology Investment Management: A 

Framework for Assessing and Improving Process Maturity, GAO/AIMD-10.1.23 

(Washington, D.C.: May 1, 2000).
Page 8 GAO-04-115 Reliability of Defense Budget Submissions

These inconsistencies, inaccuracies, and omissions are attributable in part 

to insufficient management attention to the reliability of the reports as well 

as ambiguities in DOD’s Financial Management Regulation (FMR)9

 and a 

lack of supporting systems and control processes for ensuring consistency 

between reports. Without accurate and complete IT budget information, 

OMB and the Congress are not provided with sufficient information to 

make informed decisions about DOD’s portfolio of competing IT 

investment options or to adjust the level of funding devoted to IT. Without 

sufficient information, decision makers could approve or deny funding for 

programs that might otherwise have been treated differently. Moreover, 

inconsistency in how DOD uses appropriation accounts reduces 

congressional and departmental oversight and control of how the 

department uses the accounts. Further, this inconsistency increases the 

risk of violations of the Anti-deficiency Act, which can occur when funds 

that have been apportioned from an appropriation are insufficient to cover 

obligations.10

DOD’s Exhibit 300s Are Not 

Consistent with Its IT-1 

Budget Spreadsheet

Information in DOD’s Exhibit 300 Capital Investment Reports, reported for 

its major IT initiatives as part of the fiscal year 2004 budget submission, is 

not consistent with funding information in DOD’s fiscal year 2004 IT budget 

summary, which DOD submits to the Congress in the form of the IT-1 

spreadsheet and to OMB in the form of the Exhibit 53. Discrepancies were 

evident in the number of major initiatives that appear in these two reports, 

as well as in the amounts for 41 percent of the major initiatives that appear 

on both reports. DOD reported 191 major initiatives in the IT-1 spreadsheet 

and 179 major initiatives in the Exhibit 300s. While the two reports have 

176 major initiatives in common, the IT-1 spreadsheet includes 15 

initiatives that are not in the Exhibit 300s, and the Exhibit 300s classify 3 

initiatives as major that the IT-1 spreadsheet classifies as nonmajor.11

Table 2 compares the total amounts reported for these three groupings of 

major initiatives.

9

DOD’s Financial Management Regulation includes rules on the use of appropriations and 

definitions of development/modernization and current services.

1031 U.S.C. §§ 1341(a), 1517(a). These sections of the Anti-deficiency Act prohibit obligations 

or expenditures in excess of available funds.

11The IT-1 spreadsheet classifies each initiative as major, nonmajor, or all other. OMB 

requires that an Exhibit 300 be prepared for each major initiative, but not for the other 

categories.
Page 9 GAO-04-115 Reliability of Defense Budget Submissions

Table 2: Comparison of Total Funding for Three Groupings of Major Initiatives 

Sources: GAO, DOD.

Note: GAO analysis of DOD’s Exhibit 300s and IT-1 spreadsheet. 

a

Difference is the IT-1 spreadsheet total amount minus the Exhibit 300 total amount.

DOD officials cited various reasons why 15 major initiatives on the IT-1 

spreadsheet did not have Exhibit 300s. For example, an official 

representing the Department of the Army’s CIO office told us that one of 

the Exhibit 300s was omitted because responsibility for the initiative was 

not assigned to the Army in time to prepare the report. The same official 

told us that another was omitted because after preparing the IT-1 

spreadsheet, senior DOD officials decided not to fund the initiative.12

However, the root cause of these omissions is that DOD does not provide 

sufficient management attention to IT budget submission reliability. 

Additionally, DOD does not have the management processes (e.g., policies 

and procedures) and support systems needed to ensure that the two 

reports are consistent.

Significant discrepancies also appear in the total dollar amounts reported 

in the Exhibit 300s and the IT-1 spreadsheet for the 176 major initiatives 

that were included in both reports. Specifically, DOD’s IT-1 spreadsheet 

totals about $14.5 billion for these initiatives. For the same major IT 

initiatives on DOD’s Exhibit 300s, the total dollar amount is about $14.8 

billion, about a $300 million difference. This discrepancy can be traced to 

73 of the 176 initiatives (41 percent), of which 44 (25 percent) had 

Dollars in millions

Major initiatives 

 Funding

 IT-1 

spreadsheet Exhibit 300s Differencea

176 on both Exhibit 300 and IT-1 

spreadsheet $14,527 $14,823 –$296

15 on IT-1 spreadsheet only 83 — 83

3 classified as nonmajor on IT-1 

spreadsheet — 57 –57

Total $14,610 $14,880 –$270

12For 5 of the 15 initiatives without Exhibit 300s, no funding was included for fiscal year 

2004. However, for 9 other initiatives, Exhibit 300s were submitted even though no funding 

was included for fiscal year 2004. 
Page 10 GAO-04-115 Reliability of Defense Budget Submissions

differences over $1 million, and 4 had differences of more than $100 

million. Table 3 provides a summary of funding totals for the 176 initiatives 

stratified by differences between the initiatives’ funding on the IT-1 

spreadsheet and Exhibit 300s. 

Table 3: Stratified Funding Differences among 176 Initiatives in Exhibit 300 and IT-1 

Reports

Sources: GAO, DOD.

Note: GAO analysis of 176 initiatives that appear both in DOD’s Exhibit 300 and in IT-1 spreadsheet 

budget reports.

Amount of difference (thousands)

Initiatives

Number Percent

More than $100,000 4 2

$50,001 to $100,000 1 1

$10,001 to $50,000 14 8

$1,001 to $10,000 25 14

Subtotal: differences over $1 million 44 25

$501 to $1,000 9 5

$101 to $500 9 5

$51 to $100 5 3

$1 to $50 6 3

No difference 103 59

Total 176 100
Page 11 GAO-04-115 Reliability of Defense Budget Submissions

The net difference between the total amount reported for all major 

initiatives on the IT-1 spreadsheet and that reported on the Exhibit 300s is 

around $296 million.13 A much greater value results when we sum the 

differences for each initiative between the IT-1 spreadsheet and the Exhibit 

300s: about $1.6 billion.14 Of the 73 initiatives that account for these 

differences, the Army and the Department of the Air Force each had 12, and 

the Department of the Navy had 6. The Navy accounts for the largest share 

of the total dollar difference, followed by the Air Force. About 95 percent of 

Navy’s total dollar difference can be attributed to the Navy Marine Corps 

Intranet program.15

Table 4 breaks down the 73 initiatives by component, showing both the 

different amounts on the two reports and the difference between the total 

amounts reported. 

Table 4: Net Differences, Total Differences, and Number of Initiatives with Differences, by DOD Component 

13We computed the net difference between the total amounts reported for 176 major 

initiatives on both reports by subtracting the total amount reported for all major initiatives 

on the IT-1 spreadsheet from the total amount reported for all major initiatives on the 

Exhibit 300s.

14We computed the sum of the differences between the amounts for each initiative in the two 

reports by first finding the difference between the amounts for each of the 176 major 

initiatives in the two, converting any negative differences to positive values, and then 

summing all the differences. The sum of the differences is larger than the difference 

between the IT-1 spreadsheet and Exhibit 300 total amounts because for this calculation, 

the positive and negative differences between the two reports do not cancel each other out.

15The Navy Marine Corps Intranet is to provide the Navy with a single, secure network for all 

Navy and Marine Corps military and civilian personnel, including deployed forces.

DOD component

Total number 

of initiatives

Initiatives with differences Difference (millions)

Number Percent Neta Totalb

Air Force 22 12 55 $357.99 $362.81

Army 28 12 43 54.37 55.57

Navy 32 6 19 –559.13 581.89

American Forces Information Service 1 1 100 18.01 18.01

Defense Commissary Agency 1 0 0 0 0

Defense Finance and Accounting Service 16 2 13 1.09 1.09

Defense Human Resources Activity 3 0 0 0 0
Page 12 GAO-04-115 Reliability of Defense Budget Submissions

Sources: GAO, DOD.

Note: GAO analysis of Exhibit 300s and IT-1 spreadsheet.

a

Net is the IT-1 spreadsheet total amount minus the Exhibit 300 total amount.

b

The total difference was calculated by computing the difference between the amounts for each of the 

176 major initiatives in the two reports, converting any negative differences to positive values, and then 

summing all the differences. 

c

TRICARE is a regionally managed health care program for active duty and retired members of the 

uniformed services and their families and survivors.

d

Of the 30 cross-service initiatives, 27 had differences, but these differences could not be attributed to 

a single component because more than one component reported funding for each initiative.

These inconsistencies among initiatives on the IT-1 spreadsheet and the 

Exhibit 300s occurred in part because DOD’s management attention to its 

budget submission has not been sufficient, and because it does not have 

the management processes (e.g., policies and procedures) and support 

systems that are needed to ensure consistency. For example, the DOD CIO 

official who is responsible for compiling the IT budget submission said that 

the department does not have support systems that allow funding 

information to be input once and then used to create both the IT-1 

spreadsheet and Exhibit 300s. Rather, DOD’s budgeting systems require 

that similar, but not identical, information be input into multiple databases, 

in different formats. According to program offices, this practice contributes 

to inaccuracies and inconsistencies in the budget submission. 

Additionally, DOD does not have management processes to ensure the 

accuracy of changes made to the exhibits by component- and departmentlevel officials after the exhibits are prepared by program offices. For 

example, officials from two of the six program offices that provided 

information about this matter told us that information that they reported on 

the Exhibit 300s was changed when it was incorporated into the IT-1 

Defense Information Systems Agency 14 4 29 –0.09 8.37

Defense Logistics Agency 5 1 20 –0.17 0.17

Defense Security Service 1 1 100 –12.89 12.89

Office of the Secretary of Defense 4 3 75 7.00 11.14

Transportation Command 9 0 0 0 0 

TRICARE c 7 3 43 37.22 37.22

Washington Headquarters Service 3 1 33 0.07 0.07

Multiple-component initiatives d 30 27 90 –199.52 530.61

Total 176 73 41 –$296.05 $1,619.84

(Continued From Previous Page)

DOD component

Total number 

of initiatives

Initiatives with differences Difference (millions)

Number Percent Neta Totalb
Page 13 GAO-04-115 Reliability of Defense Budget Submissions

spreadsheet by their component CIO offices, and that program offices were 

not consulted to ensure that the changes were accurate. Furthermore, 

these officials said that the component CIO offices did not inform program 

offices of changes made to the IT-1 spreadsheets, and that they did not 

have access to the information needed to update Exhibit 300s to reflect 

changes. 

DOD’s Exhibit 300s Contain 

Omissions and Errors

DOD’s fiscal year 2004 Exhibit 300 Capital Investment Reports contain 

three types of omissions or errors. First, the reports do not include 

complete information on the life cycle phase of the major initiatives, as 

required by Circular A-11. According to this circular, Exhibit 300s must 

summarize funding data by life cycle phase: that is, planning, acquisition, or 

maintenance. OMB officials stated that this information is used to 

determine whether IT initiatives have an appropriate balance of planning, 

acquisition, and maintenance activities. However, of the 197 DOD Exhibit 

300s for fiscal year 2004 (representing 179 initiatives),16 20 exhibits did not 

classify the funds by life cycle phase. 

Second, the total dollar amount reported on 45 Exhibit 300s does not equal 

the sum of their respective line items. As shown in table 5, the Navy 

accounts for the majority of these cases—about 69 percent of the 45 

exhibits and almost all of the total dollar difference. The discrepancies can 

be traced to a variety of causes. For example, among the 31 Navy Exhibit 

300s with differences, 13 erroneously treated the fiscal year (2004) as a 

value and added $2,004 million to the funding total. That is, the numeral 

“2004” was incorrectly treated as a line of funding in the summary of 

spending. These 13 errors account for about $26 billion of the Navy’s 

approximately $39 billion difference. 

16For major initiatives that involve two or more components, each component may submit a 

separate Exhibit 300 for the same initiative. As a result, components collectively submitted 

197 Exhibit 300s for 179 initiatives.
Page 14 GAO-04-115 Reliability of Defense Budget Submissions

Table 5: Discrepancies between Sum of Line Items and Total Amount Reported on 

Exhibit 300s, by DOD Component

Sources: GAO, DOD.

Note: GAO analysis of Exhibit 300s and IT-1 spreadsheet.

a

We computed the total difference by first calculating the actual sum of the Exhibit 300 line items, 

subtracting DOD’s reported total for the Exhibit 300 from it, converting any negative differences to 

positive values, and then summing the differences. 

Third, although OMB requires an Exhibit 300 for each major initiative and 

specifies a defined format to use to present funding information for each 

initiative, DOD components did not consistently adhere to this format. For 

example, the Defense Information Systems Agency combined the funding 

information for seven initiatives in a format that did not clearly provide 

OMB and congressional decision makers with the funding amounts for 

each initiative. This inconsistency occurred because the Office of the 

Secretary of Defense (OSD) does not have clearly defined and consistently 

applied management controls to ensure that organizations adhere to a 

specified format for displaying funding information in the Exhibit 300. 

Some Development/

Modernization Activities 

Were Improperly 

Categorized 

Circular A-11 requires planning and acquisition activities to be categorized 

as development/modernization and activities related to operation and 

maintenance of existing systems to be categorized as steady state, which 

DOD refers to as current services. Using the appropriate budget categories 

is important, according to Circular A-11, because it permits understanding, 

and thus informed decision making, about the relative amounts being spent 

on developing and modernizing IT versus operating and maintaining the 

status quo IT environment. Moreover, OMB officials stated that using the 

DOD component

Fiscal year 2004 amounts (millions) Number of 

Exhibit 

300s with 

differences

Sum of 

line items

Total 

amount 

reported

Total 

differencea

Air Force $435.3 $445.8 $10.6 5

Army 336.0 214.5 121.5 6

Navy 1,934.6 40,791.2 38,856.6 31

Defense Finance and 

Accounting Service 8.3 8.8 0.5 1

Defense Logistics Agency 8.0 7.8 0.2 1

Transportation Command 44.9 — 44.9 1

Total $2,767.1 $41,468.1 $39,034.3 45
Page 15 GAO-04-115 Reliability of Defense Budget Submissions

proper budget category is also important because it triggers the 

appropriate OMB review process for an initiative. If 

development/modernization activities are miscategorized as current 

services, the required OMB review process will not be invoked. 

DOD’s fiscal year 2004 IT budget submission incorrectly categorized the 

funding reported for some initiatives’ planning and acquisition activities as 

current services, rather than as development/modernization. This incorrect 

categorization affected both DOD’s Operation and Maintenance (O&M) and 

its Military Personnel appropriation accounts. For example, the budget 

submission for the department’s new integrated personnel and pay system 

included about $14 million to fund program office costs from the O&M 

appropriation and categorized these costs as current services. However, 

because DOD intends to perform planning and acquisition activities for this 

program during fiscal year 2004, a portion of the funding should have been 

categorized as development/modernization. This means that the 

development/modernization funding amount for this initiative is 

understated and the current services amount is overstated. As another 

example, the IT-1 spreadsheet shows that every major initiative that 

included funding from the Military Personnel appropriation categorized the 

amount as current services, regardless of the activities the military 

personnel were to perform. The DOD CIO official who is responsible for 

compiling the IT budget submission acknowledged that such 

miscategorization occurs, but stated that information is not readily 

available to determine the total number of initiatives and the associated 

amount of funding that is miscategorized departmentwide. 

Officials representing the Navy CIO office stated that the Navy categorizes 

all IT funding from the O&M appropriation as current services, even if the 

funding is to be used for development/modernization activities. This 

miscategorization occurs, in part, because the FMR does not provide clear 

guidance on categorizing activities as either development/modernization or 

current services. Specifically, the FMR states that budgeted costs funded 

from the O&M and Military Personnel appropriations are to be considered 

expenses, and it defines expenses similarly to current services, in that both 

refer to the costs of operating and maintaining systems. However, Circular 

A-11 states that funding for activities that occur during either the planning 

or acquisition phases of a new IT initiative must be classified as 

development/modernization. This means that costs budgeted for planning 

or acquisition activities should be classified as 

development/modernization, regardless of whether the O&M, Military 

Personnel, or another appropriation is used to fund the activities. Further, a 
Page 16 GAO-04-115 Reliability of Defense Budget Submissions

DOD Comptroller official who is responsible for advising components on 

IT budgeting told us that if appropriations are used to fund the planning or 

acquisition of a system, the costs should be classified as 

development/modernization, rather than current services. 

Our analysis of the FMR confirmed that it does not clearly distinguish 

between development/modernization and current services costs. More 

specifically, it defines the two terms as follows: 

• development/modernization costs are those for “new applications and 

infrastructure capabilities” and for “any change or modification to an 

existing [information system] program, and/or initiative that results in 

improved capability or performance of the baseline activity,” and the 

definition includes “personnel costs for Project Management” and

• current services costs are those required to maintain “operations at a 

current capability and performance level” and include “certain overhead 

costs associated with PM [program management] offices.”

The FMR definitions are confusing regarding the classification of project 

management costs because current services costs include “certain 

overhead costs associated with PM [program management] offices,” and 

development/modernization includes “personnel costs for Project 

Management.” Also, the definitions do not clearly state that for new IT 

initiatives, all funding for planning or acquisition activities should be 

classified as development/modernization. Furthermore, for modifications 

of existing systems, the definitions do not provide sufficient criteria for 

determining whether modifications will result in “improved capability or 

performance” (development/modernization) or will maintain “operations at 

a current capability and performance level” (current services). 

OSD and Navy CIO officials stated that decisions regarding the amounts 

that should be categorized as development/modernization or current 

services for an individual initiative are complicated by the practical fact 

that the same personnel and equipment are sometimes used to perform 

both development/modernization and current services activities for the 

initiative. This occurs because DOD uses a generally accepted system life 

cycle management practice that involves sequentially developing and 

deploying subsystems, rather than waiting until the system is completely 

developed to deploy it. As a result, at various points in the system’s life 

cycle, some subsystems may be in the maintenance phase while others are 

in the planning or acquisition phases. In these cases, these officials stated 
Page 17 GAO-04-115 Reliability of Defense Budget Submissions

that most DOD program offices do not have process controls and 

supporting systems to enable them to accurately estimate the amount that 

should be budgeted for development/modernization and current services 

activities.

IT Budget Submission Does 

Not Use Appropriation 

Accounts Consistently

Appropriations provide the legal authority for federal agencies to obligate 

funds and make payments from the Treasury for specified purposes. In the 

report of the House Committee on Appropriations17 accompanying the 

Department of Defense Appropriations Bill, 1999, the Congress expressed 

concern about DOD’s inconsistent use of appropriation accounts to fund IT 

development/modernization activities. In response, DOD acknowledged 

the inconsistencies and took steps to correct them by transferring funds 

from the incorrect appropriation accounts to the correct accounts and by 

issuing clarifications to its FMR guidelines. Additionally, DOD’s Office of 

the Comptroller issued a memorandum on this issue stating that

“Cross-Service and Agency consistency is important.... In determining what appropriation 

to use, the purpose of the funding must fall logically within the appropriation’s purpose and 

conform with the expense and investment criteria.” 

However, the inconsistent use of appropriation accounts is continuing to 

occur. DOD’s fiscal year 2004 IT budget submission does not consistently 

use the same appropriations accounts to fund the same types of activities. 

That is, defense components used two different appropriations—the 

Research, Development, Test, and Evaluation (RDT&E) and O&M—to fund 

the same types of activities (the cost of civilian personnel and other costs 

for performing or managing development/modernization activities). 

According to officials representing 7 of the 10 major initiatives that 

provided information on this topic, their respective budget reports 

included funding from the O&M appropriation for civilian personnel costs 

and other costs for performing or managing development/modernization 

activities, while according to officials representing 3 other initiatives, their 

budget reports included funding for these activities from the RDT&E 

appropriation. Officials from the DOD Comptroller’s office stated that the 

O&M appropriation is the correct one to fund these costs, but that research 

and development organizations are allowed to use RDT&E appropriations 

for these costs, because such organizations do not receive O&M 

appropriations. However, according to a representative of the Army CIO’s 

17H.R. Rep. No. 105-591, at 173-174 (June 22, 1998). 
Page 18 GAO-04-115 Reliability of Defense Budget Submissions

office, two of the three organizations that used RDT&E appropriations 

were not research and development organizations (both were Army 

programs) and, according to the DOD Comptroller official, should have 

used O&M appropriations. 

A representative of the Army CIO’s office explained that the reason the 

Army program offices used the RDT&E appropriation to fund the cost of 

civilian personnel and other costs for performing or managing 

development/modernization activities was that his office advised them to 

do so. He stated that this advice was based on the Army CIO office’s 

interpretation of the FMR and on an October 1999 memorandum from the 

DOD Comptroller containing the following language:

“The RDT&E funds are typically used for developing new capability. Expenses—the 

resources used to operate and maintain organizations and current services—are generally 

budgeted in the O&M appropriations. Investments are costs to acquire capital assets and 

have a long-term benefit....” 

This official further stated that FMR sections, as well as the language in this 

memorandum, indicate that the costs to develop new IT capabilities, 

including the costs of civilian personnel and other costs for managing and 

performing IT development and modernization activities, should be funded 

with the RDT&E appropriation. However, the official added that the FMR is 

ambiguous on this matter because other sections indicate that the O&M 

appropriation may be the correct one to use to fund these costs. 

Our analysis of the FMR shows that the FMR is ambiguous regarding the 

proper appropriation types for funding the costs for 

development/modernization activities—specifically, the cost of civilian 

personnel and other costs for managing and performing these activities. 

The following excerpts from the FMR illustrate its ambiguity in this area. 

The section on “Budgeting for Information Technology and Automated 

Information Systems” supports the Army CIO’s position that the RDT&E 

appropriation should be used to fund these activities: 

“In general, all developmental activities involved in bringing a program to its objective 

system[18] are to be budgeted in RDT&E.”

18DOD’s FMR states that bringing a program to its objective system means developing the 

system to the point that it meets the requirements defined in the system’s requirements 

documents. 
Page 19 GAO-04-115 Reliability of Defense Budget Submissions

However, other sections of the regulation support the DOD Comptroller 

officials’ position that the O&M appropriation is the correct appropriation 

for funding the cost of civilian personnel and other costs for managing and 

performing development/modernization activities. For example, the 

section on funding policies states that 

“Costs budgeted in the Operation and Maintenance (O&M) and Military Personnel 

appropriations are considered expenses.... 

“The following guidelines shall be used to determine expense costs: Labor of civilian, 

military, or contractor personnel.... 

“The cost of civilian personnel compensation and other direct expenses (i.e., travel, office 

equipment leasing, maintenance, printing and reproduction) incurred in support of 

procurement and/or production programs by departmental headquarters staff, contracting 

offices, contract audit offices, system project offices, and acquisition managers are 

expenses.” 

These FMR sections provide conflicting guidance regarding which 

appropriation should be used to fund civilian personnel and other costs for 

development/modernization activities, which can result in the inconsistent 

use of appropriations. As we have previously reported,19 use of the wrong 

appropriation account constitutes a violation of the Purpose Statute20 and 

can lead to a violation of the Anti-deficiency Act.21 For example, we 

reported that the Navy incorrectly purchased component parts for IT 

systems with the O&M appropriation account rather than with the 

Procurement appropriation. Subsequent actions to correct the improper 

use of the O&M appropriation account resulted in an overobligation of the 

amount that had been apportioned from Procurement appropriations, 

thereby violating the Anti-deficiency Act. Further, we reported that the 

violations resulted from misunderstanding, confusion, or misapplication of 

financial management regulations and guidance regarding procurement 

and fund management. 

19U.S. General Accounting Office, Navy Anti-Deficiency Act Training, GAO/AIMD-96-53R

(Washington, D.C.: Apr. 12, 1996).

2031 U.S.C. § 1301(a) is commonly referred to as the Purpose Statute.

21Anti-deficiency Act (31 U.S.C. § 1517(a)).
Page 20 GAO-04-115 Reliability of Defense Budget Submissions

DOD’s Submission Does Not 

Include All Relevant Project 

Costs

Contrary to federal accounting guidance, DOD’s budget submission does 

not include all the costs required to fund IT initiatives. Federal accounting 

standards and guidance from the Chief Financial Officers (CFO) Council 

both support the preparation of budget submissions that include the full 

cost of initiatives—including all direct costs, such as military personnel 

costs—and those indirect costs that can be allocated or traced to an 

initiative. Further, the Federal Financial Management Improvement Act of 

1996 requires federal agencies to comply with federal accounting 

standards,22 including the Statement of Federal Financial Accounting 

Standard Number 4, “Managerial Cost Accounting Concepts and Standards 

for the Federal Government.” According to this statement, organizations 

should report full costs in general purpose financial reports, including the 

salaries and other benefits of employees who work directly on producing 

outputs (such as IT initiatives), as well as indirect costs that can be 

allocated to producing outputs. The statement continues that the cost data 

in the organization’s budget should be consistent with the full cost data 

reported in the financial reports. Also, the CFO Council’s Cost Accounting 

Implementation Guide states that preferably, the cost of all significant 

inputs that can be traced to the achievement of a program’s outputs and 

intended outcomes should be included in the program’s budget. 

DOD’s fiscal year 2004 IT-1 spreadsheet, which summarizes the IT budget 

and provides information on the budget submission for each major 

initiative, does not include all the direct costs of the initiatives. Specifically, 

for numerous initiatives, the spreadsheet did not consistently include IT 

funding for military personnel who are part of DOD’s IT workforce. On the 

basis of the average pay and benefits for military personnel, we estimated 

that the total amount of these workers’ salary and benefits is about $4 

billion annually. In its fiscal year 2004 budget submission, DOD’s IT-1 

spreadsheet included about $1 billion from the Military Personnel 

appropriation, meaning that the department’s fiscal year 2004 IT budget is 

potentially understated by as much as $3 billion. According to the DOD CIO 

official responsible for assembling the IT budget submission, a portion of 

this $3 billion might have been included in the IT-1 spreadsheet as either 

reimbursable costs or working capital funds, and some of the costs 

associated with DOD’s IT military personnel are not included in the IT 

budget submission because these personnel work on embedded or satellite 

system programs, which are not in DOD’s IT budget. The official also stated 

22Public Law 104-208, section 803(a).
Page 21 GAO-04-115 Reliability of Defense Budget Submissions

that information is not readily available to determine the number or cost of 

IT military personnel erroneously omitted from the IT budget reports. 

However, officials from five of the six program offices that provided 

information about this matter told us that they planned to use military 

personnel during fiscal year 2004, but they did not include these costs in 

their respective IT budget reports because the military services, rather than 

the initiatives, are responsible for budgeting and accounting for these 

personnel. 

Further, program offices did not include all indirect costs of the 

initiatives—that is, costs that are used jointly with other initiatives or DOD 

component organizations—in their fiscal year 2004 IT budget reports.23

Officials of both the Army and Navy CIO offices stated that program offices 

generally do not include all indirect costs in their IT budget reports, 

because these costs are budgeted by the other DOD organizations that may 

be stakeholders in the respective initiatives, and the program offices are 

not generally provided with information on the amount of these shared 

costs that can be attributed to their respective initiatives. These officials 

also stated that with a few exceptions, department organizations have 

neither cost accounting systems nor cost estimating processes in place to 

determine the amount of indirect costs that should be allocated to each IT 

initiative. 

Conclusions DOD has not devoted sufficient management attention and it does not have 

adequate management controls and supporting systems in place to ensure 

that its IT budget submissions provide consistent, accurate, and complete 

cost information for major IT initiatives. The result is that DOD, OMB, and 

congressional decision makers are forced to make IT funding decisions for 

major IT initiatives on the basis of conflicting, uncertain, and inaccurate 

information regarding the cost of these initiatives. Without reliable budget 

information, decision makers are unnecessarily impaired in their ability to 

execute effective departmental control and oversight by linking budgetary 

inputs to outputs and outcomes, to compare full budgeted and actual costs 

of IT initiatives, and to make decisions on the relative merits of competing 

initiatives. 

23Indirect costs include such shared costs as those for general administrative services; 

general research and technical support; security; employee health and recreation facilities; 

and operation and maintenance of buildings, equipment, and utilities.
Page 22 GAO-04-115 Reliability of Defense Budget Submissions

Recommendations To improve the consistency, accuracy, and completeness of future DOD IT 

budget submissions, we recommend that the Secretary of Defense direct 

the OSD and component CIOs, in consultation with the OSD and 

component Comptrollers, to increase management attention and establish 

the appropriate management controls and supporting systems to avoid the 

weaknesses described in this report, including revising the FMR and other 

guidance for preparing the DOD IT budget to clearly reflect these policies 

and procedures. At a minimum, we recommend that revisions to policies, 

procedures, and supporting systems ensure that

• Exhibit 300s and IT-1 spreadsheets are consistent in terms of (1) the 

major initiatives that are included in each report (unless otherwise 

explained) and (2) the funding reported for each of these initiatives;

• Exhibit 300s are complete, accurate, and internally consistent, in that 

(1) funding information is provided for each life cycle phase for each 

initiative; (2) total amounts reported for each initiative equal the sum of 

the individual line items for the initiative; and (3) the format used to 

display the funding information clearly shows the total funding amount 

for each initiative;

• amounts are properly categorized as development/modernization or 

current services in the IT budget submission, so that OMB and 

congressional decision makers are provided with accurate information 

on the funding required to (1) develop new systems or significantly 

improve existing systems and (2) operate and maintain existing 

systems;

• budget submissions are consistent in the costs that are funded with the 

RDT&E appropriation and those that are funded with the O&M 

appropriation; and

• budget submissions fully account for all relevant costs, including 

military personnel costs and indirect costs, to the extent that these costs 

can be identified and properly allocated to each initiative, so that OMB 

and congressional decision makers are provided with complete budget 

information for each initiative. 

We further recommend that the OSD and component CIO offices, in 

consultation with the OSD and component Comptroller offices, 
Page 23 GAO-04-115 Reliability of Defense Budget Submissions

• assess the costs and benefits of alternative approaches for establishing 

cost accounting systems or cost estimating processes to determine the 

amount of indirect costs attributable to each IT initiative and the 

amounts that should be categorized as development/modernization and 

current services, and implement the more cost-effective approach; 

• assess approaches to reduce or eliminate requirements for duplicative 

manual entry of information by program offices and components into 

systems supporting the preparation of the IT budget reports; and

• review the IT budget submission for fiscal year 2004 and the IT budget 

submission for fiscal year 2005 from the O&M and RDT&E 

appropriations and transfer, as necessary, the amounts for civilian 

personnel and other costs associated with IT planning or acquisition 

activities to the proper appropriation account, to ensure consistent use 

of these accounts, provide for congressional and departmental oversight 

of DOD’s use of appropriations accounts, and reduce the risk of 

violations of the Anti-deficiency Act. 

Agency Comments and 

GAO Evaluation

DOD provided what it termed “official oral comments” on a draft of this 

report from the CIO, OSD, who is also the Assistant Secretary of Defense 

for Networks and Information Integration. In commenting, DOD either 

agreed or partially agreed with our recommendations and described 

actions that it plans to take to establish the appropriate controls and 

systems needed to correct many of the weaknesses described in this 

report, including revising the FMR. Examples of DOD’s planned actions 

include

• providing the Congress with a list of initiatives for which Exhibit 300s 

were provided to OMB, but not to the Congress, along with explanations 

for differences;

• negotiating with OMB a later submission date for DOD’s exhibits, to 

provide additional time to ensure that exhibits are reliable; 

• establishing a common, consistent data source to use in producing 

Exhibit 300s and the IT-1 spreadsheets;

• modifying the process for producing Exhibit 300s to ensure that correct 

funding amounts are captured; 
Page 24 GAO-04-115 Reliability of Defense Budget Submissions

• using a standardized format for Exhibit 300s;

• working with OMB to ensure the use of consistent definitions of and 

terminology for development/modernization and current services; 

• updating the FMR to clarify areas of concern or inconsistencies in (1) 

the information presented in Exhibit 300s, (2) the use of 

development/modernization and current services categories, and (3) the 

categorization of costs as RDT&E or O&M;

• assessing, on a departmentwide basis, the establishment of a cost 

accounting system;

• evaluating approaches to reduce or eliminate duplicative data entry; and

• considering appropriations realignments during the fiscal year 2006 

budget cycle.

Notwithstanding DOD’s agreement with our recommendations, as well as 

its planned actions to improve its submissions’ consistency, accuracy, and 

completeness, DOD also provided mitigating reasons for the discrepancies 

and problems that we reported. For example, DOD stated that Exhibit 300s 

and IT-1 spreadsheets are not consistent in terms of the major initiatives 

included in each report because DOD does not necessarily report all major 

initiatives in the Exhibit 300s. Instead, DOD and OMB agree as to which 

major initiatives are to be reported in the Exhibit 300s based on a goal of 

reporting a dollar percentage of all initiatives. Similarly, DOD stated that its 

IT-1 spreadsheet does not include all relevant costs, such as military 

personnel costs and indirect costs, because the spreadsheet is an extract of 

the budget justification documents and does not include full life cycle costs 

or total cost of ownership. Nevertheless, DOD added that it will assess its 

guidance on reporting the cost of military personnel and other relevant 

costs. 

While we do not question the information that DOD provided to explain the 

discrepancies and problems discussed in our report, this information does 

not eliminate the need to provide congressional decision makers with 

reliable information upon which to make informed decisions. Thus, for 

DOD to fully respond to our recommendations, it will need to take 

additional actions beyond those provided in its comments. For example, it 

will need to provide the Congress with a list of major initiatives included in 

the IT-1 spreadsheet that are not included in Exhibit 300 (with an 
Page 25 GAO-04-115 Reliability of Defense Budget Submissions

explanation of these differences). Also, beyond modifying the FMR, it will 

need to revise related guidance and implement controls to ensure that 

costs are correctly categorized as (1) development/modernization or 

current services and (2) RDT&E or O&M. 

We are sending copies of this report to other interested congressional 

committees and the other Members of the Senate and House Committees 

on Armed Services; the House and Senate Committees on Appropriations, 

Subcommittees on Defense; the Director, Office of Management and 

Budget; the Secretary of Defense; the Assistant Secretary of Defense 

(Networks and Information Integration)/Chief Information Officer; the 

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

Defense (Acquisition, Technology, and Logistics). We will also provide 

copies to others on request. This report will also be available at no charge 

on our Web site at http://www.gao.gov. 

If you have any questions concerning this report, please contact me at (202) 

512-3439 or by e-mail at hiter@gao.gov. Other key contributors to this letter 

are Barbara Collier, Alison Jacobs, George L. Jones, Nick Marinos, Daniel 

Wexler, and Robert Williams, Jr.

Randolph C. Hite

Director, Information Technology Architecture

 and Systems Issues
Page 26 GAO-04-115 Reliability of Defense Budget Submissions

Appendix I

Objective, Scope, and Methodology AAppenednxidexiIs

Our objective was to determine whether the fiscal year 2004 information 

technology (IT) budget submission for the Department of Defense (DOD) 

was reliable, including identifying opportunities to improve its reliability in 

the future. To do so, we assessed the funding information in DOD’s primary 

IT budget reports to determine whether the information reported was 

consistent between reports, whether the reports included all the funding 

information that the Office of Management and Budget (OMB) requires, 

whether the correct budget categories and consistent appropriation types 

were used to fund the initiatives, and whether the submission included all 

costs of the initiatives. 

We reviewed OMB Circular A-11 to obtain requirements and guidelines for 

preparing budget submissions and confirmed our understanding of the 

guidelines through interviews with OMB officials. We also assessed DOD’s 

Financial Management Regulation (FMR) and its budget submission 

guidance, and we interviewed DOD departmental and component officials 

to determine DOD’s criteria for budget submissions. Finally, we reviewed 

federal accounting standards to determine additional guidance for budget 

preparation.

To identify inconsistencies between the reports, we assessed the Exhibit 

300 Capital Investment Reports and the IT-1 budget summary spreadsheet. 

We compared the Exhibit 300s with the IT-1 spreadsheet and not with the 

Exhibit 53 because the Exhibit 53 presents essentially the same 

information as the IT-1 spreadsheet, but in less detail. We counted the 

number of major initiatives that appeared in both reports, as well as the 

number appearing in only one of the reports. We also calculated the 

differences in the funding amounts between the Exhibit 300s and the IT-1 

spreadsheet and made comparisons among the initiatives and components, 

as well as between totals, for each report. We interviewed departmental, 

component, and program officials to determine causes for the 

inconsistencies.

To select which program officials to contact, we chose a cross section of 

DOD’s organizations, including the Office of the Secretary of Defense; the 

Departments of the Air Force, Army, and Navy; and seven agencies and 

activities (the American Forces Information Service, Defense Contract 

Management Agency, Defense Human Resources Activity, Defense 

Information Systems Agency, Defense Security Service, TRICARE, and 

Washington Headquarters Service). From each program office, we obtained 

explanations of its funding submission related to one or more of the 

following issues: inconsistencies between the reports, omissions and errors 
Appendix I

Objective, Scope, and Methodology

Page 27 GAO-04-115 Reliability of Defense Budget Submissions

in Exhibit 300s, improper categorization of development/modernization 

activities, inconsistent use of appropriations, and costs that were not 

included in the submission.

To determine whether the reports included all information required by 

OMB, we analyzed the Exhibit 300 Capital Investment Reports to identify 

omissions and inconsistencies in the information for each initiative. We 

tallied the number of initiatives that omitted life cycle information. We also 

identified initiatives with total funding amounts that were not equal to the 

sum of the amounts reported for individual line items and calculated the 

totals by component. To determine causes for these inconsistencies, we 

interviewed departmental, component, and program officials.

To determine whether the correct budget categories were used to fund the 

initiatives, we examined programs that included activities for development 

and modernization and determined how their funding amounts were 

categorized. We interviewed program officials to determine what activities 

were planned and then assessed whether the budget categories were 

consistent with OMB criteria. We also interviewed component and 

departmental officials to determine the guidance they were providing to 

program officials, and we assessed DOD’s FMR to determine whether its 

guidance was clear and consistent with OMB guidelines.

To determine whether consistent appropriation types were used to fund 

initiatives, we determined what appropriation types were included for 

funding development and modernization activities. We identified three 

program offices that were using the Research, Development, Test, and 

Evaluation appropriation for these purposes and seven that were using the 

Operation and Maintenance appropriation, and contacted them to 

determine the reasons that they selected these appropriations. We 

reviewed DOD’s prior actions to correct similar inconsistencies. We also 

analyzed the language in the FMR for its clarity on these issues.

To determine whether the submission included all costs of the initiatives, 

we assessed the appropriation activities reflected in the IT-1 spreadsheet. 

From this assessment and interviews with program officials, we 

determined that many programs did not include funding for military 

personnel. To confirm that such costs should be included, we interviewed 

officials representing OMB, the DOD Comptroller, and the DOD Chief 

Information Officer, and we reviewed the FMR and budgeting guidance in 

the Statement of Federal Financial Accounting Standard Number 4, 

“Managerial Cost Accounting Concepts and Standards for the Federal 
Appendix I

Objective, Scope, and Methodology

Page 28 GAO-04-115 Reliability of Defense Budget Submissions

Government.” We also interviewed program officials to determine why they 

did not include funding for military personnel costs in their budget reports. 

We used Defense Manpower Data Center information to estimate the 

potential amount that military personnel costs are understated in the fiscal 

year 2004 IT budget submission. To do this, we calculated the difference 

between the cost of military personnel performing IT functions and the 

amount of funding in DOD’s IT budget submission that was to be funded 

using the Military Personnel appropriations. To estimate the cost of IT 

military personnel, we used Defense Manpower Data Center information 

on the number of military personnel performing IT work in each of the four 

services—Air Force, Army, Navy, and the U.S. Marine Corps—and 

multiplied the number at each rank for each service by the respective 

average annual pay and benefits. We included only active military 

personnel in IT duty positions in our estimate. We also assessed federal 

accounting standards and interviewed program officials to determine the 

requirements and practices for including indirect costs in budget reports. 

We conducted our work at GAO and at DOD headquarters during June to 

October 2003 in accordance with generally accepted government auditing 

standards.

(310252)
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