GAO

United States General Accounting Office

Report to Congressional Requesters

August 2001 FINANCIAL 

MANAGEMENT

DOD Improvement 

Plan Needs Strategic 

Focus

GAO-01-764

Page 1 GAO-01-764 DOD Financial Management Improvement Plan

Contents

Letter 3

Appendixes Appendix I: Objectives, Scope, and Methodology 36

Appendix II: Comments From the Department of Defense 37

Appendix III: List of Accounting, Finance, and Feeder Systems Not 

Included in DOD Fiscal Year 2000 Financial 

Management Systems Inventory 38

Tables Table 1: Human Capital Framework 15

Table 2: Responsiveness of the Plan to the Requirements of 

the National Defense Authorization Act for Fiscal Year 2000 21

Table 3: Financial Personnel Competency Plan/Programs 26
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United States General Accounting Office

Washington, D.C. 20548 Leter

August 17, 2001

Congressional Requesters

The Department of Defense (DOD) is one of the largest and most complex 

organizations in the world. Defense operations involve about $1 trillion in 

assets, $310 billion in annual budgetary authority, $24 billion in monthly 

disbursements, and 3 million military and civilian employees. Moreover, 

execution of DOD’s operations spans a wide range of defense 

organizations, including the military services and their respective major 

commands and numerous defense agencies. Effectively managing DOD’s 

finance and accounting operations across this complex array of 

organizations is both a formidable challenge and prerequisite for effective 

and efficient departmental performance and accountability. Without 

reliable financial management information, DOD cannot make informed 

decisions among competing spending priorities and cannot effectively 

identify opportunities for reducing costs and reallocating resources to 

pressing needs. Since 1995, DOD financial management has been on our list 

of high-risk areas vulnerable to waste, fraud, abuse, and mismanagement.1

Because of congressional concern with DOD’s financial management 

difficulties, Section 1008 of the National Defense Authorization Act for 

Fiscal Year 1998 (Public Law 105-85) directed the Secretary of Defense to 

submit to the Congress, no later than September 30 of each even-numbered 

year, a biennial strategic plan for the improvement of financial 

management. The plan is to address all aspects of financial management 

within DOD, including the accounting, finance, and data feeder systems 

that support the department’s financial operations. The Secretary 

submitted DOD’s first Financial Management Improvement Plan to the 

Congress on October 26, 1998. DOD has elected to prepare the plan 

annually thereafter. 

Subsequently, the National Defense Authorization Act for Fiscal Year 2000 

established additional reporting requirements that were to be addressed in 

DOD’s 2000 Financial Management Improvement Plan. The plan was to:

• provide an inventory of accounting, finance, and feeder systems;

1

High-Risk Series: An Update (GAO/01-263, Jan. 2001).
Page 4 GAO-01-764 DOD Financial Management Improvement Plan

• describe the major procurement actions to replace or improve 

accounting, finance, or feeder systems and the measures taken or 

planned to ensure adequate interfaces among the systems;

• provide a financial management workforce competency plan that 

includes performance objectives, milestones, responsible officials, and 

the needed resources; 

• include a detailed plan for improving internal controls at the Defense 

Finance and Accounting Service (DFAS) and a review process for 

ensuring that the improved internal controls are implemented and 

functioning as intended; and

• include an internal control checklist prescribed by the Under Secretary 

of Defense (Comptroller) that outlines the internal control standards 

that are to be followed departmentwide.

The Senate Armed Services Committee Report2

 that accompanied the 

National Defense Authorization Act for Fiscal Year 2001 directed that we 

review the fiscal year 2000 Financial Management Improvement Plan and 

report our findings and recommendations to the congressional defense 

committees. The objectives of our review were to determine if the plan (1) 

represents an effective tool for helping resolve DOD’s longstanding 

financial management problems and (2) addresses the reporting 

requirements stipulated in the National Defense Authorization Act for 

Fiscal Year 2000. We performed our work in accordance with generally 

accepted government auditing standards from March to May 2001. Further 

details on our scope and methodology are discussed in appendix I.

Results In Brief The fiscal year 2000 Financial Management Improvement Plan represents 

a significant effort and an improvement over prior plans. The plan, which 

encompasses 2 volumes and over 600 pages, highlights the financial 

management challenges facing the department and identifies actions 

underway or planned to address the acknowledged weaknesses. However, 

the plan is not an effective management tool that establishes a 

departmentwide strategic approach that can be used to guide and direct the 

department’s financial management reform efforts. The plan was 

developed primarily to comply with a legislative requirement through a 

compilation of data calls from DOD’s various components. For the most 

part, the plan presents the military services’ and DOD components’

2

Senate Report 106-292, May 12, 2000.
Page 5 GAO-01-764 DOD Financial Management Improvement Plan

stovepiped approaches to reforming financial management, and does not 

clearly articulate how these various efforts will collectively result in an 

integrated DOD-wide financial management system. Additionally, the plan 

does not have performance measures that can be used to assess DOD’s 

progress in resolving its financial management problems. Further, because 

financial management transcends virtually every DOD function and 

activity, it is important that financial management reform initiatives be 

undertaken in conjunction with other DOD reform efforts aimed at 

transforming DOD’s other business activities into more efficient and 

effective operations. To accomplish this goal, it is critical that DOD develop 

a more strategic and integrated business transformation plan that includes 

financial management and other key processes.

Over the years, DOD has undertaken various initiatives to reform its 

financial management operations. However, as discussed in our January 

2001 report3

 on the management challenges and high-risk areas facing 

DOD, the department has had difficulty in resolving these problems. Prior 

reform initiatives have largely failed due to the lack of top-level support 

and specific accountability; organizational parochialism; decentralized, 

nonintegrated systems improvement efforts; and the lack of meaningful 

performance metrics to monitor and assess progress. The current plan 

perpetuates many of these fundamental problems. For example, as we 

recently reported,4

 DOD plans to spend billions of dollars on new and 

modified financial management systems despite the fact that it lacks a 

financial management enterprise architecture or “blueprint” to guide and 

constrain DOD’s investments in financial management operations and 

systems. If the hundreds of initiatives outlined in the plan are not 

implemented as part of an overall financial management architecture, DOD 

runs the risk that its system efforts will result in perpetuating a system 

environment that is duplicative, not interoperable, unnecessarily costly to 

maintain, and does not optimize financial management performance and 

accountability. 

One of the lessons learned from DOD’s successful efforts to address the 

Year 2000 computing challenge and our survey of leading financial

3

Major Management Challenges and Program Risks: Department of Defense (GAO-01-244, 

Jan. 2001).

4

Information Technology: Architecture Needed to Guide Modernization of DOD’s 

Financial Operations (GAO-01-525, May 17, 2001).
Page 6 GAO-01-764 DOD Financial Management Improvement Plan

management organizations5 was the importance of strong senior 

management leadership. To his credit, the Secretary of Defense has 

indicated that financial management reform is among his top priorities. 

However, the 2000 Financial Management Improvement Plan was 

primarily the responsibility of the DOD Comptroller, who does not have 

control over and is not accountable for the feeder systems—which account 

for about 80 percent of the data needed for financial management. The 

military services and defense agencies control these systems. Similar to its 

role in the Year 2000 computer challenge, top management’s sustained 

commitment and leadership could help ensure that the Financial 

Management Improvement Plan becomes an effective management tool. A 

visible, substantive, and sustained commitment from the Secretary of 

Defense and the Deputy Secretary of Defense, as well as from the military 

and civilian leadership, will be needed to overhaul DOD’s financial 

operations. 

In addition to not being an effective management tool, the plan does not 

fully comply with legislative requirements in the National Defense 

Authorization Act for Fiscal Year 2000. For instance, the act requires that 

the plan identify all accounting, finance, and feeder systems. Instead, the 

plan included only those systems identified as “critical” by DOD 

components. 

Our analysis showed that over 40 systems were not included in the plan. 

For example, the plan omitted the Defense Logistics Agency’s Distribution 

Standard System, which accounts for about 75 percent of the items in 

DOD’s reported $53 billion inventory. 

Developing a comprehensive inventory of DOD’s financial management 

systems has been a longstanding concern. In 1997, we reported that DOD 

did not have a comprehensive inventory of systems it relies on to record, 

accumulate, classify, and report financial information.6

 Further, although 

the plan provides information on the military services’ and DOD 

components’ efforts to improve the professionalism of the financial 

management workforce, the plan does not provide a strategic human 

capital approach that will be needed to ensure the competency of financial 

5

Executive Guide: Creating Value Through World-class Financial Management

(GAO/AIMD-00-134, Apr. 2000).

6

Financial Management: DOD Inventory of Financial Management Systems Is 

Incomplete (GAO/AIMD-97-29, Jan. 31, 1997).
Page 7 GAO-01-764 DOD Financial Management Improvement Plan

management personnel. For example, it is not clear how DOD’s existing 

training programs and educational curriculums are designed to meet the 

financial management core competency requirements specified by the 

Chief Financial Officers (CFO) Council and the Joint Financial 

Management Improvement Program (JFMIP). To assist the department in 

its efforts to reform financial management, we are making 

recommendations to the Secretary of Defense aimed at improving future

Financial Management Improvement Plans so that they can be used as a 

strategic management tool.

In written comments on a draft of this report dated July 26, 2001, the DOD 

Deputy Chief Financial Officer (CFO) stated that the Secretary of Defense 

has indicated that financial management reform is among his top priorities. 

In addition, he stated that the department is developing strategies for 

resolving DOD’s financial management deficiencies and that the 

department’s strategy will encompass a number of our recommendations. 

These comments are reprinted in appendix II.

Background As discussed in our January 1999 report on DOD’s 1998 plan,7

 DOD’s initial 

plan provided a first-ever vision of the department’s future financial 

management environment and represented a significant landmark. It 

included, for the first time, a discussion of the importance of the 

programmatic functions of personnel, acquisition, property management, 

and inventory management to DOD’s ability to support consistent, accurate 

information flows to all information users. The plan also identified over 200 

initiatives that were intended to improve DOD’s financial management 

operations and systems.

We also reported that the plan’s discussion of DOD’s future financial 

management environment focused on DFAS versus the department as a 

whole and did not address how financial management reform and 

modernization would address such areas as asset accountability and 

control and budget formulation. Additionally, we reported that the plan did 

not (1) clearly link the over 200 improvement initiatives to the department’s 

future environment and (2) address feeder systems’ data integrity. 

7

Financial Management: Analysis of DOD’s First Biennial Financial Management 

Improvement Plan (GAO/AIMD-99-44, Jan. 29, 1999).
Page 8 GAO-01-764 DOD Financial Management Improvement Plan

In September 1999, DOD updated the plan, and in May 20008 and July 20009

we testified that the plan provided more detail on strategies and the 

hundreds of improvement initiatives. We also stated that the plan proposed 

an integrated financial management system as a long-term solution for 

establishing effective financial management and specifically identified the 

critical feeder systems as an essential element of this solution. We noted, 

however, that the fundamental issues that we reported upon in our January 

1999 report still remained. 

In transmitting its January 2001 updated plan, DOD stated that it had 

established the Financial and Feeder System Compliance Process to 

govern the military services’ and Defense agencies’ actions to make sure 

their respective accounting, finance, and feeder systems are compliant with 

federal financial management requirements10 and are integrated. If 

successfully implemented, this effort would help address the data integrity 

issue within DOD and thereby provide more timely and accurate data to 

DOD decisionmakers. Modeled after the process DOD used to resolve the 

Year 2000 computing challenge, the process consists of five phases—

awareness, evaluation, renovation, validation, and compliance. Each 

component is to have defined criteria before moving to the next phase. The 

Senior Financial Management Oversight Council11 is to provide oversight 

and guidance.

8

Department of Defense: Progress In Financial Management Reform (GAO/TAIMD/NSIAD-00-163, May 9, 2000).

9

Department of Defense: Implications of Financial Management Issues (GAO/TAIMD/NSIAD-00-264, July 20, 2000).

10The Federal Financial Management Improvement Act of 1996 requires that agency 

financial management systems comply substantially with (1) federal financial management 

systems requirements, (2) federal accounting standards, and (3) the United States 

Government Standard General Ledger at the transaction level.

11 The Senior Financial Management Oversight Council membership includes the Under 

Secretary of Defense (Comptroller) (Chair); Principal Deputy Under Secretary of Defense 

(Comptroller) (Vice Chair); Under Secretary of Defense (Acquisition, Technology and 

Logistics); Under Secretary of Defense (Personnel and Readiness); Assistant Secretary of 

Defense (Command, Control, Communications and Intelligence); Deputy Chief Financial 

Officer (Executive Secretary); Director, Defense Finance and Accounting Service; Director, 

Defense Logistics Agency; Assistant Secretaries of the Military Departments (Financial 

Management and Comptroller); Assistant Secretary of the Army (Acquisition, Logistics and 

Technology); Assistant Secretary of the Navy (Research, Development and Acquisition); 

Assistant Secretary of the Air Force (Acquisition); Assistant Secretary of Defense or Special 

Operations and Low-Intensity Conflict; and the Deputy Chief of Staff for Installations and 

Logistics (Air Force).
Page 9 GAO-01-764 DOD Financial Management Improvement Plan

Department’s Fiscal 

Year 2000 Plan 

Represents Substantial 

Effort

The DOD fiscal year 2000 Financial Management Improvement Plan

represents a significant effort and is an improvement over prior plans. DOD 

stated that the plan reflects the continued commitment of its senior 

managers to enhancing financial management systems, operations, and 

processes. Given the acknowledged financial management challenges 

facing the department and the size and complexity of DOD’s business 

operations, an attempt to develop a DOD-wide view of efforts in this area 

represents an enormous undertaking. In former Secretary Cohen’s message 

accompanying the plan, he stated that DOD’s overarching strategy for 

improving its financial management operations is ensuring that financial 

and feeder systems comply with federal accounting standards and systems 

requirements.

The fiscal year 2000 plan contains over 600 pages and is divided into 2 

volumes. Volume I presents high-level information about DOD’s overall 

financial management operations, while Volume II presents information on 

DOD’s numerous improvement initiatives for financial management 

systems, policy and oversight, and infrastructure. The plan includes 

sections addressing:

• DOD’s plans for structuring and managing its future operations to 

comply with legislative and regulatory requirements representing a 

concept of operations for financial management;

• DOD’s current financial management environment;

• DOD’s plans for transitioning from its current environment to its target 

environment; and

• DOD’s efforts concerning five specific reporting requirements in the 

National Defense Authorization Act for Fiscal Year 2000.

The fiscal year 2000 Financial Management Improvement Plan also 

provided a thorough discussion of DFAS improvements implemented in 

recent years and its plans for accomplishing the requirements of the 

National Defense Authorization Act for Fiscal Year 2000. In addition, the 

plan also briefly discussed DFAS’ recently implemented management tools, 

including performance measures, to provide visibility over its internal 

operations. 

The plan also presents DOD’s submission in response to several mandated 

annual reporting requirements related to the CFO Act, the Federal 

Financial Management Improvement Act (FFMIA), and the Federal 

Managers’ Financial Integrity Act (FMFIA). DOD recognized the National 
Page 10 GAO-01-764 DOD Financial Management Improvement Plan

Defense Authorization Act of 1998 requirement for a biennial financial 

management improvement plan, beginning in 1998, resulted in duplicate 

reporting requirements related to the CFO Act, FMFIA, and FFMIA. 

Consequently, DOD has chosen to publish its plan annually and, as 

permitted by the Reports Consolidation Act of 2000,12 to use the plan to 

address these annual financial management reporting requirements in a 

consolidated fashion. 

Plan Does Not Present A 

Strategic Approach for 

Reforming Financial 

Management

The fiscal year 2000 Financial Management Improvement Plan is not a 

strategic plan that DOD managers can use to reform financial management 

and improve other DOD operations. The plan, which is compliance 

oriented, was developed primarily to meet the legislative requirements of 

the National Defense Authorization Acts for Fiscal Years 1998 and 2000. 

Information in the plan was obtained through a data call to the military 

services and defense agencies requesting a compilation of their activities 

and initiatives to improve financial management.

Central to effectively addressing the underlying causes of DOD’s financial 

management problems will be the recognition that they cannot be 

addressed in an isolated or piecemeal fashion separate from the other 

major management challenges and high-risk areas facing the department.13

A key to reforming DOD’s financial management operations will be to 

address them as part of a comprehensive, strategic, and integrated, DODwide plan to transform all of its business support processes. We have 

previously recommended that DOD develop a plan to better integrate, 

guide, and sustain the implementation of its diverse management reform 

initiatives and an approach for assessing and making key investment 

decisions. Strategic planning that clearly lays outs DOD’s mission and goals 

and the resources needed, strategies to be followed, and assigned 

responsibilities for accomplishing its goals is crucial to fully focusing the 

department’s activities on achieving desired outcomes. Strategic planning 

that addresses and appropriately links all DOD business support processes 

12 P. L. 106-531.

13The eight interrelated areas that represent the greatest challenge to DOD developing 

world-class business operations supporting its forces are: strategic planning, human capital, 

financial management, information technology, acquisition, contract management, support 

infrastructure, and logistics. See Major Management Challenges and Program Risks: 

Department of Defense (GAO-01-244, Jan. 2001).
Page 11 GAO-01-764 DOD Financial Management Improvement Plan

is critical if DOD’s numerous reform initiatives, including financial 

management, are to succeed. 

Organizational and cultural impediments, human capital challenges, and 

the lack of meaningful goals, performance measures, progress monitoring, 

and an enterprise architecture have hindered DOD’s past efforts at financial 

management reform. Leadership and commitment from the highest levels 

of the department are critical if DOD is to develop an effective strategic 

plan that can be used to reform financial management.

Organizational and Cultural 

Impediments to Reform 

We have previously reported14 that a major obstacle to achieving reform 

initiatives in DOD is the department’s organizational structure. In that 

report of almost 10 years ago, we pointed out that DOD, faced with the 

challenge of maintaining a strong military with fewer resources, began its 

Corporate Information Management (CIM) initiative to help streamline 

operations and manage resources more efficiently. The Deputy Secretary of 

Defense laid the foundation for CIM and the initiative began with top-level 

support. However, the initiative failed largely because the top-level support 

was not sustained and the department was unable to change its culture. 

Specifically, instead of centralizing responsibility for CIM, the services and 

defense agencies continued to operate in a business-as-usual manner, 

maintaining their service parochialism. 

Again last year, we reported15 that DOD has encountered resistance to 

changes called for under the Defense Reform Initiative (DRI). The ultimate 

goal of DRI was to improve service to the war fighters and help reduce 

infrastructure costs so that savings in operations and maintenance funding 

could be shifted to support weapons modernization. Under DRI, DOD 

established a Defense Management Council (chaired by the Deputy 

Secretary and consisting of key civilian and military leaders) to oversee the 

DRI efforts and advise the Secretary on new reform initiatives. However, 

the council’s effectiveness was impaired because members were unable to 

put their individual service or other DOD agency parochial interests aside 

to focus on a departmentwide approach to DOD’s longstanding problems. 

In contrast, the personal involvement of the Deputy Secretary of Defense 

14Defense ADP: Corporate Information Management Must Overcome Major Problems

(GAO/IMTEC-92-77, Sept. 14, 1992).

15Defense Management: Actions Needed to Sustain Reform Initiatives and Achieve 

Greater Results (GAO/NSIAD-00-72, July 25, 2000).
Page 12 GAO-01-764 DOD Financial Management Improvement Plan

played an important role in building entity-wide support in addressing the 

Year 2000 computing challenge.

DOD’s Comptroller is responsible for developing the department’s 

Financial Management Improvement Plan. However, mechanisms have 

not been established between the Comptroller and the military services and 

other DOD components to gain the cooperation needed to develop an 

integrated strategic financial management improvement plan. For example, 

as previously discussed, the Comptroller does not have control over and is 

not accountable for the feeder systems, which, according to DOD, provide 

about 80 percent of DOD’s financial data. The military services and defense 

agencies, such as the Defense Logistics Agency, control these systems.

While DOD has established a goal of having an integrated financial 

management system, it faces a significant challenge in integrating its 

financial management systems because of its size and complexity and the 

condition of its current financial management operations. Compounding 

this challenge is the fact that each service operates unique, nonstandard 

financial processes and systems that individually have serious weaknesses 

and collectively do not provide the basis for an integrated system. Although 

the Comptroller can recognize the need for and types of changes to be 

made, because of the autonomy of the services and the Comptroller’s lack 

of authority to effect change, past reform efforts have been elusive.

Human Capital Strategy 

Essential for Reform

While the plan’s section addressing efforts to improve the professional 

competencies of DOD’s financial management personnel is a step in the 

right direction, the plan does not lay out a human capital strategy. Like 

other federal agencies, DOD is faced with a considerable challenge if it is to 

improve its financial management human capital to meet changing and 

increasing work demands. While DOD’s financial personnel are now 

struggling to carry out routine day-to-day transaction processing, personnel 

in world-class financial management organizations are providing valueadded analyses and insights about the financial implications of program 

decisions and the impact of those decisions on their organizations’

performance goals and objectives. We have previously reported16 that 

effective human capital management is key to ensuring that DOD will have 

the right number of people with the right skills to accomplish its mission. 

16Major Management Challenges and Program Risks: Department of Defense (GAO-01-244, 

Jan. 2001).
Page 13 GAO-01-764 DOD Financial Management Improvement Plan

As previously discussed, while the current plan addresses competency 

training, DOD has an opportunity to set forth an effective human capital 

strategy in future plans. Unless such a strategy is developed, DOD will not 

be able to meet the challenges presented by the increasing number of 

employees becoming eligible to retire over the next few years, resulting in 

added risk for management succession as well as meeting existing and 

changing skill needs.

Modern human capital policies and practices offer the federal government, 

including DOD, a means to improve its economy, efficiency, and 

effectiveness. In May 2000, we testified that an integral part of building an 

effective financial management structure is marshalling and maintaining a 

strategic approach to improving DOD’s financial management human 

capital.17

In January 2001, we reported that many of DOD’s financial management 

shortcomings were attributable in part to human capital issues.18 While 

DOD has several initiatives underway that are essential for improving the 

competencies and professionalism of its financial management workforce, 

it has not yet embraced a strategic approach to improving its financial 

management human capital challenges.

An effective human capital strategy would include a number of critical and 

interrelated issues, which are discussed in our April 2000 Executive Guide19

on financial management practices of leading finance organizations. One 

such issue is identifying the skills financial management personnel will 

need to perform effectively in the future work environment. Closely tied to 

this is closing the gap between current personnel skills and those that will 

be needed in the future. In DOD’s case this would involve a strategy for 

attracting the right people and training not only the newly hired staff, but 

also current DOD staff. An effective human capital strategy would also 

involve developing a plan for retaining staff with the proper skills. In

17Department of Defense: Progress in Financial Management Reform (GAO/TAIMD/NSIAD-00-163, May 9, 2000).

18Performance and Accountability Series: Major Management Challenges and Program 

Risks, Department of Defense (GAO-01-244, Jan. 2001).

19Executive Guide: Creating Value Through World-class Financial Management

(GAO/AIMD-00-134, Apr. 2000).
Page 14 GAO-01-764 DOD Financial Management Improvement Plan

addition, a successful human capital strategy would include linking 

performance with results, holding staff accountable, treating staff fairly, 

and properly rewarding staff. Finally, it is important that DOD have a good 

estimate of the costs/investment needed to carry out its human capital 

initiatives. 

In September 2000, we issued a human capital self-assessment checklist for 

agency leaders to use in developing strategic human capital management.20

The concepts set forth in this self-assessment framework could be used as 

a guide to improve human capital management across DOD, as well as in its 

management of human capital in the area of financial management. 

Further, DOD could utilize the checklist to develop a human capital 

strategy for future Financial Management Improvement Plans. If 

effectively established and linked to other DOD operations, such an 

approach would not only help reform financial management human capital 

issues but other DOD operations. This framework is shown in table 1.

20Human Capital: A Self-Assessment Checklist for Agency Leaders (GAO/OCG-00-148, 

Sept. 1999).
Page 15 GAO-01-764 DOD Financial Management Improvement Plan

Table 1: Human Capital Framework

Need for Meaningful Goals, 

Performance Measures, and 

Monitoring

While DOD’s current plan addresses hundreds of initiatives to reform its 

financial management operations, it does not establish clear goals and a 

strategy for monitoring and measuring progress. According to the plan, 

DOD’s overarching strategy for improving its financial management 

operations is to ensure that financial and feeder systems comply with 

federal accounting standards and systems requirements in order to prepare 

auditable financial statements. While DOD’s strategy is important, it 

represents only a portion of what should be an overall financial 

management goal. DOD managers need timely, reliable financial 

information to make day-to-day decisions. Similarly, the Congress needs 

such information to exercise effective oversight. 

Strategic planning Establish the agency’s mission, vision for the future, 

core values goals and objectives, and strategies

• Shared vision

• Human capital focus

Organizational alignment Integrate human capital strategies with the agency’s 

core business practices

• Improving workforce planning

• Integrating the human resources function

Leadership Foster a committed leadership team and provide for 

reasonable continuity through succession planning

• Defining leadership

• Building teamwork and communications

• Ensuring continuity

Talent Recruit, hire, develop, and retain employees with the 

skills needed for mission accomplishment

• Recruiting and hiring

• Training and professional development

• Workforce deployment

• Compensation

• Employee-friendly workplace

Performance culture Empower and motivate employees while ensuring 

accountability and fairness in the workplace

• Performance management

• Performance incentives

• Continuous learning and improvement

• Managers and supervisors

• Job processes, tools, and mission support

• Information technology

• Inclusiveness

• Employee and labor relations
Page 16 GAO-01-764 DOD Financial Management Improvement Plan

The fiscal year 2000 plan identifies the individuals primarily responsible for 

each of the initiatives. However, the initiatives set forth in the current plan 

may not be achieved because the plan does not present a clear 

methodology for tracking and measuring progress towards achieving the 

initiatives’ goals and objectives. Further, although the plan provides 

resource requirements for over 50 percent and milestone dates for over 60 

percent of the initiatives listed,21 the plan does not elaborate on how, or if, 

this information will be used to evaluate DOD’s progress in resolving its 

financial management difficulties. Given the extensive nature of DOD 

financial management problems, it is imperative that measures be in place 

to track DOD’s progress in reforming its financial management operations 

and developing and implementing an integrated financial management 

system.

The Government Performance and Results Act of 1993 directs agencies22 to 

develop strategic plans containing mission statements and outcome-related 

strategic goals; develop annual performance plans with annual 

performance goals and indicators to measure performance; and prepare 

annual performance reports with information on the extent to which the 

agency has met its annual performance goals. However, as discussed in our 

June 2000 report,23 DOD’s existing measures do not address areas that are 

critical to improving the department’s financial operations, including (1) 

how its financial management operations will effectively support not only 

financial reporting but also asset accountability and control, (2) how 

financial management ties to budget formulation, and (3) how the planned 

and ongoing improvement initiatives will result in the target financial 

management environment.

21We did not verify the accuracy and reliability of the plan’s resource requirements and 

milestones. 

22The requirements of the Government Performance and Results Act of 1993 apply to 

executive agencies, including the 24 federal agencies that are required to prepare annual 

financial statements.

23DOD’s FY-99 Performance and FY-01 Plan (GAO/NSIAD-00-188R, June 30, 2000).
Page 17 GAO-01-764 DOD Financial Management Improvement Plan

Financial Management 

Enterprise Architecture 

Needed to Guide and 

Constrain DOD System 

Investments

We recently reported24 that DOD lacks a financial management enterprise 

architecture to guide and constrain its significant investments in financial 

management operations and systems. DOD’s various components are 

either spending or planning to spend billions of dollars to acquire new or 

modify existing financial management systems without the benefit of a 

financial management enterprise architecture. In the absence of a 

complete, enforceable enterprise architecture for DOD-wide financial 

management operations and systems, making such investments is unwise. 

If DOD continues down this road, it runs the serious risk that its 

components will spend billions of dollars modifying and modernizing 

financial management systems independently from one another, resulting 

in DOD perpetuating an existing systems environment that (1) suffers from 

duplication of systems, limited interoperablity, and unnecessarily costly 

operations and maintenance; and (2) does not effectively address 

longstanding problems or optimize financial management performance and 

accountability. 

The use of enterprise architectures is a best practice in information 

technology (IT) management followed by leading public and private 

organizations and is required by the Clinger-Cohen Act of 1996, the Office 

of Management and Budget (OMB), and DOD.25 Our experience with 

federal agencies has shown that attempting a major systems modernization 

effort without a complete and enforceable enterprise architecture results in 

systems that are duplicative, not well integrated, unnecessarily costly to 

maintain and interface, and do not effectively optimize mission 

performance.26

24Information Technology: Architecture Needed to Guide Modernization of DOD’s 

Financial Operations (GAO-01-525, May 17, 2001).

25The Omnibus Consolidated Appropriations Act for Fiscal Year 1997, Public Law 104-208, 

renamed both Division D (the Federal Acquisition Reform Act) and E (the Information 

Technology Management Reform Act) of the 1996 DOD Authorization Act, Public Law 104-

106, as the Clinger-Cohen Act of 1996; OMB Circular No. A-130, Management of Federal 

Information Resources (Nov. 30, 2000); and DOD’s Command, Control, 

Communications, Computers, Intelligence, Surveillance, and Reconnaissance (C4ISR) 

Architecture Framework, Version 2.0 (Sept. 1997).

26Air Traffic Control: Complete and Enforced Architecture Needed for FAA Systems 

Modernization (GAO/AIMD-97-30, Feb. 3, 1997) and Customs Service Modernization: 

Architecture Must Be Complete and Enforced to Effectively Build and Maintain Systems

(GAO/AIMD-98-70, May 5, 1998).
Page 18 GAO-01-764 DOD Financial Management Improvement Plan

An enterprise architecture systematically captures in useful models, 

diagrams, and narrative the full breadth and depth of the mission-based 

mode of operations for a given enterprise, which can be (1) a single 

organization or (2) a functional or mission area that transcends more than 

one organizational boundary (e.g., financial, acquisition, or logistics 

management). Further, such an architecture describes the enterprise’s 

operations in both (1) logical terms, such as interrelated business 

functions, information needs and flows, work locations, and system 

applications; and (2) technical terms, such as hardware, software, data, 

communications, and security attributes and performance standards. An 

architecture also provides operational and technological perspectives or 

views both for the enterprise’s current (or “as is”) environment and for its 

target (or “to be”) environment, and an IT capital investment road map for 

moving between the two environments.

The development, implementation, and maintenance of enterprise 

architectures are recognized hallmarks of successful public and private 

sector organizations. Managed properly, an enterprise architecture can 

clarify and thus help to optimize the interdependencies and 

interrelationships among an organization’s business operations and the 

underlying IT infrastructure and applications supporting these operations. 

Employed in concert with other important IT management controls, such 

as portfolio investment management (selection, control, and evaluation) 

practices,27 and continuous information security management practices,28

enterprise architectures can greatly increase the chances of modernization 

programs succeeding.

The Congress, OMB, and the CIO Council have recognized the importance 

of enterprise architectures. The Clinger-Cohen Act of 1996 mandates that 

an agency’s CIO develop, maintain, and facilitate the implementation of 

these architectures as means for managing the integration of business 

processes and agency goals with IT. Further, OMB has issued guidance29

that, among other things, requires system investments to be consistent with 

these architectures. Similarly, the CIO Council has issued guidance 

providing (1) a federal framework for the content and structure of an 

27Information Technology Investment Management: A Framework for Assessing and 

Improving Process Maturity (Exposure Draft) (GAO/AIMD-10.1.23, May 2000).

28Executive Guide: Information Security Management (GAO/AIMD-98-68, May 1998).

29OMB Circular No. A-130, Management of Federal Information Resources (Nov. 30, 2000).
Page 19 GAO-01-764 DOD Financial Management Improvement Plan

enterprise architecture,30 (2) a process for assessing investment 

compliance with an enterprise architecture,31 and (3) a set of management 

controls for developing, implementing, and maintaining an enterprise 

architecture.32

DOD has also issued enterprise architecture policy, including a framework 

defining an architecture’s structure and content. Specifically, in February 

1998,33 DOD directed its components and activities to use the Command, 

Control, Communications, Computers, Intelligence, Surveillance, and 

Reconnaissance (C4ISR) Architecture Framework, Version 2.0. According 

to DOD, the C4ISR Architecture Framework is a critical tool for achieving 

its strategic direction and all DOD components and activities should use 

the framework for all functional areas and domains within the department. 

The C4ISR Architecture Framework is recognized in the CIO Council’s A 

Practical Guide to Federal Enterprise Architecture as a model 

architecture framework.

Top Level Support and 

Accountability Key to 

Success

As previously discussed, DOD faces a monumental, but not 

insurmountable, challenge in reforming its financial management 

operations and ensuring that such reforms are integrated with and 

supported by all affected DOD components. For financial management 

improvement efforts to be successful, it is critical that they have DOD-wide 

support from not only financial, but also nonfinancial managers. To ensure 

this commitment and support throughout the department, sustained and 

committed leadership is needed from the highest levels of DOD leadership. 

Because of the size and complexity of DOD’s operations and the parochial 

interests of the military services and defense agencies, this leadership can 

only come from the Secretary or Deputy Secretary of Defense.

30Chief Information Officers Council, Federal Enterprise Architecture Framework, Version 

1.1 (Sept. 1999).

31Chief Information Officers Council, Architecture Alignment and Assessment Guide (Oct. 

2000).

32Chief Information Officers Council, A Practical Guide to Federal Enterprise Architecture, 

Version 1.0 (Feb. 2001).

33The February 28, 1998, memorandum was jointly signed by the Under Secretary of Defense 

(Acquisition and Technology), the Acting Assistant Secretary of Defense (Command, 

Control, Communications, and Intelligence), and the Director for C4 Systems, Joint Chiefs 

of Staff.
Page 20 GAO-01-764 DOD Financial Management Improvement Plan

DOD’s successful Year 2000 effort illustrated—and our survey of leading 

financial management organizations34 captured—the importance of strong 

leadership from top management. As we have stated many times before, 

strong, sustained executive leadership is critical to changing a deeply 

rooted corporate culture—such as the existing “business as usual” culture 

at DOD—and successfully implementing financial management reform. 

The personal, active involvement of the Deputy Secretary of Defense 

played an important role in building entity-wide support for the 

department’s Year 2000 initiatives. Given the longstanding and deeply 

entrenched nature of the department’s financial management problems and 

numerous competing DOD organizations, each operating with varying and 

often parochial views and incentives, such visible, sustained top-level 

leadership will be critical.

A visible, substantive, and sustained commitment from the Secretary of 

Defense and the Deputy Secretary of Defense, as well as from the military 

and civilian leadership, is crucial for overhauling DOD’s financial 

operations. In our recent report,35 we recommended that (1) the Deputy 

Secretary be Chair of the Senior Financial Management Oversight Council 

(SFMOC) and the council oversee the development of a financial 

management enterprise architecture and serve as the DOD financial 

management investment review board. Consistent with these 

recommendations, we believe it would be appropriate for the council to 

oversee the development of the Financial Management Improvement 

Plan.

In written comments on a draft of our May 2001 report (GAO-01-525), the 

DOD Deputy Comptroller acknowledged that the department had financial 

management deficiencies and reaffirmed the Secretary’s commitment to 

improving DOD’s financial management operations and providing 

departmental managers and the Congress with more accurate and reliable 

information for use in the decision-making process. The Deputy 

Comptroller further noted that it would be more appropriate to consider 

our recommendations (1) after DOD’s new financial management team, 

such as the Under Secretary of Defense (Comptroller), is in place and (2) in 

conjunction with recommendations from ongoing studies directed by the

34Executive Guide: Creating Value Through World-class Financial Management

(GAO/AIMD-00-134, Apr. 2000).

35Information Technology: Architecture Needed to Guide Modernization of DOD’s 

Financial Operations (GAO-01-525, May 17, 2001).
Page 21 GAO-01-764 DOD Financial Management Improvement Plan

Secretary to develop a proposed strategy to improve DOD’s financial 

management operations.

Plan Does Not Fully 

Address the Fiscal Year 

2000 Legislative 

Requirements

The National Defense Authorization Act for Fiscal Year 2000 directed that 

the plan include a systems inventory, identification of major system 

procurement actions, a financial management competency plan, discussion 

of improvements to DFAS’ operations, and an internal controls checklist 

prescribed by the Under Secretary of Defense (Comptroller). As shown in 

table 2, our analysis of the plan found that although the above items were 

discussed in the plan, it is not fully responsive to the requirements of the 

act. 

Table 2: Responsiveness of the Plan to the Requirements of the National Defense 

Authorization Act for Fiscal Year 2000

Financial Management 

System Inventory 

Incomplete

It is critical for DOD to identify its financial management systems if the 

department is to be assured that it is addressing all its accounting, finance, 

and feeder systems and that they are compliant with federal financial 

management requirements. Our review of the plan identified over 40 

systems that were not included, but that account for billions of dollars of 

financial resources. For example, the plan did not include: 

• The Defense Logistics Agency’s Distribution Standard System, which 

accounts for approximately 75 percent of the items in DOD’s reported 

$53 billion of inventory.

Requirements of the act Discussed in 

the plan

Responsive to the 

requirements of the act

Yes No Fully Partially

Inventory of accounting, finance, 

and feeder systems

x x

Major system procurement 

initiatives and data integrity

x x

Financial management 

competency plan

x x

Improvements to DFAS’ operations x x

Internal control checklist x x
Page 22 GAO-01-764 DOD Financial Management Improvement Plan

• The Standard Army Ammunition System, which accounts for over $3 

billion worth of Army ammunition and missile assets stored at Army 

installations worldwide and is the official record-keeping system for the 

assets it maintains. 

• The Air Force Integrated Logistics System—Supply, which in the future 

will be responsible for managing base level supply activities at 

installations worldwide. Based on discussions with several Air Force 

officials, the system should have been included. 

Appendix III, although not necessarily all inclusive, lists other financial 

management systems that, based on our past work and discussions with 

DOD personnel, we believe should be reported as part of a comprehensive 

financial management systems inventory.

Further, according to a DOD Inspector General report, the DOD 

components inconsistently applied the definition of a critical financial 

management system in determining their respective critical system 

inventory for inclusion within the plan.36 The Navy used a $500 million 

threshold of dollar transactions processed for defining systems to include 

in the inventory, while the Army applied the definition at the Army-wide 

level, the Air Force applied the definition at the general funds and working 

capital funds level, and the defense agencies each used different thresholds 

for identifying and reporting systems as critical. 

Because each DOD component interpreted the definition differently, one 

component might have deemed some systems as critical while a similar 

system in another component might not have been reported. For example, 

the Army included as a critical data feeder system the Standard Installation 

and Division Personnel System 3.0, which maintains military personnel 

information necessary for computing Army payroll and personnel 

expenses, such as promotion dates, at the installation level. However, the 

Army system does not calculate payroll or other personnel benefit 

payments. If the Navy had a similar system it would not have passed the 

Navy’s dollar threshold test for being included as a critical system.

In addition, the fiscal year 2000 plan did not include complete and accurate 

information on the status of the systems’ compliance with applicable 

government financial management standards. The DOD Inspector General 

36The 2000 DOD Financial Management Improvement Plan (DOD Inspector General 

Report No. D-2001-085, Mar. 19, 2001).
Page 23 GAO-01-764 DOD Financial Management Improvement Plan

report noted that 12 of 19 systems reported to be compliant with FFMIA 

either were not compliant or their compliance status could not be verified.

As discussed in our January 1997 report,37 a comprehensive inventory of 

the financial management systems used to record, accumulate, classify, and 

report DOD’s financial management information is a critical step if DOD is 

to (1) effectively manage its existing systems, (2) prioritize and coordinate 

efforts to correct its longstanding financial systems deficiencies, and (3) 

develop a reliable, integrated financial management system. DOD’s severe 

systems deficiencies have been a major factor contributing to its inability 

to meet its stewardship responsibilities for the vast resources entrusted to 

it. 

To develop a complete inventory of financial management systems, the 

military services and defense agencies need to “map” the flow of financial 

information from points of origin through the labyrinth of management 

information systems to reporting in the various line items on the pertinent 

financial statements. Without completing such analyses, DOD cannot be 

certain that the systems involved in the financial management process have 

been identified and all deficiencies corrected. According to DOD, as part of 

the Financial and Feeder System Compliance Process announced in 

January 2001, all DOD components are to identify the flow of data for their 

respective financial management systems. This effort should help DOD to 

develop a more accurate inventory of the financial management systems 

involved in the department’s financial management processes. 

Major System Procurement 

Initiatives Do Not Address 

Data Integrity

The National Defense Authorization Act for Fiscal Year 2000 required DOD 

to describe in the plan each major new procurement action being taken to 

replace or improve an existing accounting, finance, or feeder system. 

Further, the plan was to describe the measures being taken to provide easy 

and reliable interfacing with core finance and accounting systems and 

other feeder systems and include appropriate controls to ensure data 

integrity. The accuracy and reliability of data in DOD financial management 

systems has been a longstanding problem.38 It is critical to understand and 

describe how new systems will interface or be integrated with core finance

37Financial Management: DOD Inventory of Financial Management Systems Is 

Incomplete (GAO/AIMD-97-29, Jan. 31, 1997).

38Major Management Challenges and Program Risks (GAO/OCG-99-4, Jan. 1999).
Page 24 GAO-01-764 DOD Financial Management Improvement Plan

and accounting systems and other key systems to optimize system 

performance and avoid costly future redesign efforts. Additionally, absent a 

complete inventory, DOD cannot be certain if the procurement actions 

described in the plan are all inclusive for replacing or consolidating 

existing financial management systems.

Our analysis of the plan showed that it did not adequately describe the 

measures program developers were taking or planning to take to ensure 

easy and reliable interfacing of their systems with the accounting, finance, 

and other feeder systems. For example, the plan’s discussion of the Global 

Combat Support System-Army (GCSS-A) merely stated that the system was 

“being developed to meet applicable requirements.” The plan did not 

include sufficient information, strategies, performance measures, or 

milestones to ensure that GCSS-A’s development would achieve financial 

requirements. Our prior work found that the GCSS-A program developers 

had not incorporated financial requirements into the planned first releases. 

Program managers had intended to retrofit the financial functionality in 

later releases. 

Subsequently, because of significant contractor development problems, the 

Army cancelled its GCSS-A development contract after spending 

approximately $70 million and awarded the system development effort to 

another contractor. 

Further, in discussing other new development systems, the plan provided 

no specific information on controls being implemented to ensure data 

integrity for only one system. Without appropriate internal controls that 

ensure the integrity of the data in the myriad of accounting, finance, and 

feeder systems, DOD risks developing systems that are not FFMIA 

compliant and do not provide reliable, useful, and timely information for 

day-to-day decision-making and financial reporting. 

Plan Addresses Competency 

of Financial Management 

Personnel

The National Defense Authorization Act for Fiscal Year 2000 directed DOD 

to include in the fiscal year 2000 plan a financial management competency 

plan that includes performance objectives, responsible officials, and the 

necessary resources to accomplish the performance objectives. More 

specifically, the plan was to provide:

• a description of the actions necessary to ensure that the person in each 

comptroller or comparable position has the necessary educational and 
Page 25 GAO-01-764 DOD Financial Management Improvement Plan

technical financial management expertise to perform in accordance 

with core competencies necessary for financial management;

• a description of the education that is necessary for a financial manager 

in a senior grade to be knowledgeable in applicable laws, strategic 

planning, resource management, budget operations, and systems of 

financial management;

• the advantages and disadvantages of establishing a consolidated DOD 

school for financial management; and

• the applicable requirements for formal civilian education.

We found that the plan includes an extensive description of the efforts 

being taken by each of the military services and five defense agencies to 

provide financial management training to the respective staffs. While the 

plan does not provide details on the education and requirements necessary 

for senior financial managers and civilian financial management personnel, 

it does provide references to other sources that describe the necessary 

education and other applicable requirements. For example, the plan refers 

to a Secretary of Navy instruction that details professional development 

course work and experience required for financial management personnel 

at all levels. The plan, however, does not include the advantages and 

disadvantages of a consolidated financial management school. 

As shown in table 3, the plan highlights each component’s competency 

program, including the objective and purpose, and development and 

training programs. However, as noted in the table, only the Defense 

Contract Audit Agency had a process in place to help ensure that the 

objectives of the program are being achieved.
Page 26 GAO-01-764 DOD Financial Management Improvement Plan

Table 3: Financial Personnel Competency Plan/Programs

DOD components Purpose and objective Development and training programs

Review check to 

ensure objectives 

are achieved

Army To develop a professional corps of 

financial managers who possess 

the competencies, skills, abilities, 

training, and experience to 

effectively execute financial 

management functions

• U.S. Army Finance School

• Military Financial Management Branch to establish a 

financial management career field

• Comptroller Civilian Career Program Strategic Plan 

for Civilians which includes the multidisciplined 

financial analyst initiative

• Professional development guided by mentors and 

supervisors

None

Navy/Marines To develop the Navy’s financial 

management workforce 

• Naval Financial Management Career Center 

• Civilian Financial Management Career Program 

Improvement

• Funded Graduate Education Program

• Centralized Financial Management Trainee Program 

• Naval Postgraduate School

None

Air Force To improve professional 

qualifications of its financial 

management personnel

• Implements training and development through 

guidelines issued by senior financial management 

leadership to improve the qualifications of its financial 

management personnel 

• CPE (80 hours every 2 years)

• Fiscal law tutorial via internet and CD-ROM

• Individual development plan 

None

Defense Contract 

Audit Agency

To ensure that financial 

management personnel are 

provided the necessary training to 

attain critical core competencies 

for their positions by fiscal year 

2001

• Implements training needs and instructions through 

published guidelines

• Individual development plan

Annual feedback 

and validation

Defense Threat 

Reduction Agency

To implement individual 

development plans

and offer training to match the 

goals of financial employees to 

agency needs and criteria

• Provides financial training by request

• Certified Defense Financial Manager Program 

• Individual development plan

• Meets the minimum of 24 semester hours of 

accounting for leader/supervisor in a 510 series

• Each functional manager is provided a tailored 

checklist and regulatory reference guide

None
Page 27 GAO-01-764 DOD Financial Management Improvement Plan

It is imperative that financial management personnel possess appropriate 

knowledge, skills, and abilities (KSAs). The core competencies in federal 

financial management and related areas represent a compilation of KSAs 

defined by the Human Resources Committees of the CFO Council and 

JFMIP. The CFO Human Resources Committee and the Joint Financial 

Management Improvement Program (JFMIP) identify financial manager 

core competencies under four general categories: Strategic Vision, 

Resource and Program Management, Human Resources Management, and 

General. These core competencies enable financial managers to meet the 

challenges of today’s changing environment and the future. Examples of 

KSAs managers need to develop include:

Defense Finance and 

Accounting

Service

To meet guidelines and 

competencies established by the 

JFMIP, Chief Financial Officer 

(CFO) Council

• Financial Management Career Development Plan 

from entry level to executive level

• Individual development plan

• Financial management education and training for the 

development, delivery, and maintenance of 160 

courses

• Professional certification review courses and 

examinations in place for Certified Government 

Financial Managers and Certified Defense Financial 

Manager 

• Self-paced computer-based training instruction via 

the learning centers for certified public accountant 

candidates

• Professional and Leadership Certification Program to 

build a cadre of highly skilled financial managers for 

future executive positions

• Implements an Executive Development Training 

Suite for all journey level and higher positions

• In-house, online, and satellite training

None

Defense Information 

Systems Agency

To assess skills of financial 

management personnel 

• Provides resources to allow financial personnel to 

take courses and/or attend seminars on accounting 

and finance subjects

• Participates in the DOD Comptroller training initiative

• Provides in-house training on Comptroller topics

• Partners with the Air Force to make use of training 

resources

None

Defense Logistics 

Agency

Evaluate financial-related 

competencies and identify 

deficiencies and provide training

• Financial Management Professional Development 

Guide for both financial and nonfinancial personnel 

who impact financial management operations

• Sponsors in-house contractor and governmentprovided financial management training

None

DOD components Purpose and objective Development and training programs

Review check to 

ensure objectives 

are achieved
Page 28 GAO-01-764 DOD Financial Management Improvement Plan

• knowledge of applicable legislative, administrative, and regulatory 

requirements (including the Government Performance and Results Act), 

and the impact of those requirements on stakeholders, customers (and 

other organizations), agency strategic plans, and agency operations; 

• skills at building teams and fostering cooperation throughout the 

organization; and

• ability to prepare budget submissions according to prescribed format 

and specifications.

Core competencies are also important tools that can be used to focus on 

areas such as recruitment, training programs, and retention of personnel. 

Success in the management of professionals depends on how the core 

competencies are implemented and how the results are evaluated, not only 

from the standpoint of individual feedback for personal development, but 

also in achieving the agency’s goals. Core competencies for financial 

management personnel according to the CFO Council and JFMIP are 

ensured when39

• the federal financial management community of each service 

component has made an investment in the professional development of 

its workforce;

• education and training courses demonstrate that each course is 

consistent with the core competency profiles for financial management 

identified by the CFO Council and published in partnership with the 

JFMIP; and 

• there is a review and evaluation program to assure all the above have 

been delivered. 

Ensuring the competency of financial management personnel is critical to 

establishing an environment where financial managers are able to provide 

greater accountability and better decision-making in a cost-effective 

manner. Although the plan shows that each of the service components is 

making an investment in the professional development of its workforce, 

the plan generally lacks specific details needed to ensure the competency 

of financial personnel. As noted in table 3, not all DOD components have 

internal control checks, validation procedures, or a review process. 

Further, it is not clear how some of the training programs and educational 

39Core Competencies: Financial Managers in the Federal Government, A Joint Project of 

the Chief Financial Officers Council and the Joint Financial Management Improvement 

Program (JFMIP-ET-99-11).
Page 29 GAO-01-764 DOD Financial Management Improvement Plan

curriculums fulfill the requirements of the core competency profiles for 

financial management personnel as identified by the CFO Council and 

JFMIP. 

Plan Outlines DFAS 

Improvements

The National Defense Authorization Act for Fiscal Year 2000 required DOD 

to describe a detailed plan for 

• improving internal controls and review processes of DFAS;

• ensuring DFAS’ establishment and use of a single standard transaction 

general ledger that meets FFMIA financial requirements; an integrated 

database for finance and accounting functions; and automated cost, 

performance, and other output measures;

• providing a single, consistent set of policies and procedures for financial 

transactions throughout DOD; 

• ensuring compliance with applicable policies and procedures for 

financial transactions throughout DOD; and 

• reviewing safeguards for preservation of assets and verifying the 

existence of assets.

The fiscal year 2000 plan provided a discussion of the improvements DFAS 

has made in recent years and its plans for accomplishing the above 

objectives. For example, DFAS reorganized its internal review organization 

in 1999 to re-focus the organization’s mission toward better achieving 

corporate goals, improving efficiencies, and increasing senior management 

oversight of the review organization. The plan further noted that DFAS, in 

conjunction with the DOD Comptroller, is developing a single consistent 

financial management regulation for the DOD. However, while the plan 

briefly identifies some of DFAS’ performance measures, it does not 

elaborate how these measures will be used to evaluate DFAS efforts to 

improve its operations. 

Our review of the plan also disclosed that it does not contain a detailed 

blueprint of the internal controls in place or planned that provide 

reasonable assurance that key DFAS business processes are operating as 

intended. Rather, the plan stated that DFAS is currently in the process of 

developing objectives, capabilities, and initiatives in support of its strategic 

business goal. As part of this process, DFAS plans to develop a risk 

management model to identify those areas and functions requiring 

immediate attention by the internal review function. According to the plan, 

DFAS will use this model to develop a detailed action plan for the internal 

review operation, including provisions for quarterly updates, to assure 
Page 30 GAO-01-764 DOD Financial Management Improvement Plan

senior management that DFAS activities are meeting agency goals. 

According to the plan, ensuring that internal controls are in place and 

effectively operating will be a major objective of the new internal review 

operation. 

We found that the plan is forthright in acknowledging that much work 

remains to be done to improve the quality of financial data provided by 

non-DFAS feeder systems. As the primary accounting and financial arm of 

DOD, DFAS needs to be actively involved in the ongoing DOD financial and 

feeder system compliance process by providing guidance to ensure that 

financial data provided to DFAS by feeder systems are compliant with 

federal financial management systems requirements. 

Limited Information on 

Internal Controls Included 

in the Plan

The fiscal year 2000 Authorization Act directed that the plan include an 

internal controls checklist, to be prescribed by the Under Secretary of 

Defense (Comptroller), which provides standards for use throughout DOD, 

together with a statement of DOD’s policy on use of the checklist 

throughout the department. We found that the plan does not contain all of 

the information on internal controls specified in the act. 

Contrary to the act’s requirements, DOD has not established (1) a checklist 

of departmentwide internal controls and standards, or (2) a policy on use 

of the checklist. Instead, DOD’s plan notes that while internal control 

objectives are similar across DOD, the specific procedures needed to 

satisfy the internal control objectives would necessarily vary among 

components. While this may be true, without a departmentwide checklist 

to guide this effort, DOD may be unable to ensure that each component’s 

controls are effective and current. 

Our review of the plan showed that most components have developed their 

own internal control checklist. Although the plan did not include these 

checklists, it did provide references to where they could be found. 

However, there was no standard review of these checklists to ensure they 

were current. For example, some of the checklists were dated 1994 and 

earlier. Additionally, we found that the primary responsible office and 

responsible program manager for one component listed in the plan were in 

error. In the latter case, the individual listed as program manager for one 

component was unaware of this designation and the responsibility it 

entailed. 
Page 31 GAO-01-764 DOD Financial Management Improvement Plan

Because it does not provide a standard checklist for departmentwide use, 

DOD is unable to assess agency controls to ensure that strong internal 

controls exist over its financial management systems environment. As 

stated in the plan, strong internal controls are necessary to process 

transactions and produce information that is accurate and reliable and to 

help ensure the proper recording, processing, and maintenance of 

accounting, finance, and feeder system information. 

Conclusions Reforming DOD financial management is a monumental challenge. The 

current Financial Management Improvement Plan includes hundreds of 

initiatives to address DOD’s longstanding and acknowledged financial 

management challenges. However, DOD has not developed an effective 

strategic and integrated business transformation plan, which includes 

financial management as well as other key business processes. DOD-wide 

strategic planning is needed to effectively address the department’s 

numerous interrelated management challenges. Further, DOD has not 

developed a financial management enterprise architecture to help guide 

these various efforts. In the absence of a complete and enforceable 

enterprise architecture for DOD-wide financial management operations 

and systems, investing billions of dollars to acquire new or modify existing 

systems is unwise. We reaffirm the recommendations made in our recent 

report on the need for a DOD enterprise architecture to guide the 

department’s financial management modernization, namely that the Deputy 

Secretary of Defense be appointed chair of the Senior Financial 

Management Oversight Council (SFMOC) and that this Council’s 

responsibilities and duties be expanded.

Additionally, until DOD successfully resolves issues that have hindered 

prior reform efforts—such as the lack of sustained top-level leadership, 

commitment, and accountability; its resistance to cultural change; and the 

lack of results-oriented goals and performance measures—DOD’s financial 

management difficulties will continue. Without addressing the underlying 

causes of its financial management weaknesses, DOD at best will only 

make incremental change, but will not achieve the dramatic improvements 

needed for effective financial management. With hundreds of billions of 

dollars in annual DOD spending at stake, true financial management reform 

is needed to restore public confidence that taxpayer dollars are well spent 

in meeting our nation’s defense objectives.
Page 32 GAO-01-764 DOD Financial Management Improvement Plan

Recommendations for 

Executive Action

We recommend that the Secretary of Defense direct the SFMOC to oversee 

and monitor enhancements to DOD’s Financial Management 

Improvement Plan to ensure that it is an effective departmentwide 

financial management strategic plan. Further, we are making the following 

recommendations regarding the content of future plans. At a minimum, 

future plans should 

• assign specific responsibility and accountability, 

• establish realistic milestones, 

• develop measurable performance goals, 

• monitor and assess progress in resolving financial management 

deficiencies,

• establish a viable framework for building, maintaining, and marshaling 

DOD’s financial management human capital needs, and

• develop a complete inventory of all existing DOD accounting, finance, 

and feeder systems, and interrelationships among the systems.

Agency Comments In written comments on a draft of this report, the DOD Deputy Chief 

Financial Officer (CFO) stated that the Secretary of Defense has indicated 

that financial management reform is among his top priorities. The Deputy 

CFO also acknowledged that in many cases, DOD’s financial management 

processes do not produce timely and accurate financial information needed 

by decision makers. Additionally, he noted that the department is taking a 

fresh look at its Financial Management Improvement Plan and 

reevaluating how the plan should be strengthened and administered. The 

Deputy CFO also pointed out that resolving DOD’s financial management 

problems is a monumental task, which cannot be accomplished in the near 

term. In addition, he stated that in conjunction with the formulation of its 

fiscal years 2002 and 2003 budgets, DOD is reviewing its strategies and will 

select one that best addresses the resolution of DOD’s financial 

management deficiencies. The Deputy CFO also stated that the strategy 

DOD selects would encompass a number of our recommendations. 

We are sending copies of this report to the Honorable Donald H. Rumsfeld, 

Secretary of Defense; the Honorable Paul Wolfowitz, Deputy Secretary of 

Defense; the Honorable Dov S. Zakheim, Under Secretary of Defense 

(Comptroller) and Lawrence J. Lanzillotta, Principal Deputy and Deputy 

Under Secretary for Management Reform, Office of Under Secretary of 

Defense (Comptroller); and the Honorable Mitchell E. Daniels Jr., Director, 
Page 33 GAO-01-764 DOD Financial Management Improvement Plan

Office of Management and Budget. Copies will be made available to others 

upon request.

Should you or your staff have any questions on matters discussed in this 

report, please contact me at (202) 512-9095. I can also be reached by e-mail 

at kutzg@gao.gov . Key contributors to this report were James D. Berry, Jr., 

Nina E. Crocker, Geoffrey B. Frank, Cleggett S. Funkhouser, Diane G. 

Handley, Darby W. Smith, and Robert W. Wagner.

Sincerely yours,

Gregory D. Kutz

Director, Financial Management and Assurance
Page 34 GAO-01-764 DOD Financial Management Improvement Plan

List Of Congressional Requesters

The Honorable Carl Levin

Chairman

The Honorable John Warner

Ranking Minority Member

Committee on Armed Services

United States Senate

The Honorable Daniel Inouye

Chairman

The Honorable Ted Stevens

Ranking Minority Member

Subcommittee on Defense

Committee on Appropriations

United States Senate

The Honorable Bob Stump

Chairman

The Honorable Ike Skelton

Ranking Minority Member

Committee on Armed Services

House of Representatives

The Honorable Jerry Lewis

Chairman

The Honorable John Murtha

Ranking Minority Member

Subcommittee on Defense

Committee on Appropriations

House of Representatives

The Honorable Charles E. Grassley

Unites States Senate
Page 35 GAO-01-764 DOD Financial Management Improvement Plan
Page 36 GAO-01-764 DOD Financial Management Improvement Plan

Appendix I

Objectives, Scope, and Methodology ApApenednxidexiIs

To address the reporting requirements required by section 1007 of the 

National Defense Authorization Act For Fiscal Year 2000, our objectives 

were to determine if the plan (1) addresses the reporting requirements 

stipulated in the Act and (2) represents an effective tool for helping resolve 

DOD’s longstanding financial management problems. 

To accomplish our objectives, we obtained and analyzed the fiscal year 

2000 Financial Management Improvement Plan and compared its 

contents to the requirements of the National Defense Authorizations Acts 

for Fiscal Years 1998 and 2000 and to relevant laws, regulations, and 

standards. We also compared the 2000 plan with previous plans to 

determine differences between the plans and with prior GAO and DOD IG 

reports1

 to determine if previously noted deficiencies and 

recommendations were addressed. In addition, we met with 

representatives of the Office of the Under Secretary of Defense 

(Comptroller) who are responsible for issuing the plan to determine the 

specific role the military services and Defense components had in 

developing the plan. Further, we contacted representatives of the Offices of 

the Assistant Secretary for Financial Management, within the military 

services, to help verify selected information contained in the plan that 

related to their specific organization. Further, we contacted selected 

system program managers who were identified in the plan regarding 

various initiatives. We conducted our review from March to May 2001 in 

accordance with generally accepted government auditing standards. We 

did not verify the accuracy and reliability of the information presented in 

the Financial Management Improvement Plan, including cost estimates 

and resource requirements for the plan’s various initiatives. DOD provided 

written comments on a draft of this report from the DOD Deputy Chief 

Financial Officer. These comments are reprinted in appendix II.

1

Financial Management: Analysis of DOD’s First Biennial Financial Management 

Improvement Plan (GAO/AIMD-99-44, Jan. 29, 1999); and Assessment of the DoD Biennial 

Financial Management Improvement Plan (DoD IG Report No. 99-123, Apr. 2, 1999).
Page 37 GAO-01-764 DOD Financial Management Improvement Plan

Appendix II

Comments From the Department of Defense ApendxiI
Page 38 GAO-01-764 DOD Financial Management Improvement Plan

Appendix III

List of Accounting, Finance, and Feeder 

Systems Not Included in DOD Fiscal Year 2000 

Financial Management Systems Inventory ApendxiI

System name Acronym

DOD 

component Purpose

Air Force Base Conversion 

Agency Management 

Information System

AFMCA MIS Air Force Provides multiple tools for managing funding, environmental, and real 

estate actions. The information is used to track and manage 

environmental project costs and execution of real estate transactions 

and their revenues.

Automated Civil Engineering 

System-Environmental

ACES-EM Air Force Environmental component of the Automated Civil Engineering System 

used to track and manage environmental project costs.

Automated Civil Engineering 

System-Program Management

ACSS-PM Air Force Provides information management support for managing and 

reporting of A-106, O&M, and military construction projects for active, 

guard, and reserve units.

Combat Ammunition Systems CAS Air Force Inventory management and tracking system for munitions. CAS 

provides information on weapon location, configuration, status, and 

critical failure data.

Depot Maintenance Accounting 

and Production System

DMAPS Air Force Provides actual data on repair costs for major weapon systems.

Depot Maintenance Workload 

Planning and Control System

MWPCS Air Force Maintains historical and planning labor applications, supports 

workload pricing, and maintains the master list of resource control 

centers and their accepted workload factors.

Equipment Inventory Multiple 

Status Utilization Reporting 

System

EIMSURS Air Force Accounts for active and inactive aircraft.

Financial Information Resource 

System

FIRST Air Force An initiative to modernize Air Force budget systems into a single 

integrated information system.

Global Decision Support System GDSS Air Force Provides Air Mobility Command with information necessary to plan, 

schedule, and monitor flight status.

Integrated Logistics SystemSupplyILS-S Air Force A replacement base level inventory accounting and ordering 

management system. 

Integrated Maintenance Data 

System

IMDS Air Force Planned standard, production-oriented base-level automated 

maintenance information management system.

Maintenance Actual Material 

Cost System

MAMCS Air Force Provides structured information for the effective and economical 

management of material applied in end item production and cost.

Time and Attendance Reporting 

System

TASYS Air Force Provides an online system to report exception basis time and 

attendance.

Department of Defense Facilities 

and Equipment Maintenance 

System

FEM Army Provides a single automated system for real and personal property 

maintenance.

FUDS Management Information 

System

FUDSMIS Army Information system used by the Corps of Engineers to manage the 

formerly used defense sites (FUDS) environmental program.

Logistics Integrated Data Base LIDB Army An integrated database being developed to provide status of Army 

readiness, requisition, supply, maintenance, and service information 

to customers worldwide.
Appendix III

List of Accounting, Finance, and Feeder 

Systems Not Included in DOD Fiscal Year 

2000 Financial Management Systems 

Inventory

Page 39 GAO-01-764 DOD Financial Management Improvement Plan

Planning Resource for 

Infrastructure Development and 

Evaluation

PRIDE Army National Guard information base focused on project management and 

inventory of Guard facilities. 

Remedial Action Cost 

Engineering and Requirements 

RACER Army Cost-estimating system for determining environmental restoration 

liability.

Reserve Component Input 

System

RCIS Army Army Reserve software application for pay change input.

Restoration Cost-to-Complete 

System

RCTCS Army Tracks cost-to-complete estimates for environmental restoration 

activities and forms the basis of the environmental liability to be 

reported on annual financial statements.

Standard Army Ammunition 

System-Modernization

SAAS-MOD Army Accounts for receiving, storing, and issuing ammunition assets at 

Army installations.

Total Officer Personnel 

Management Information 

System

TOPMIS Army System used to manage officer personnel readiness.

Transportation CoordinatorsAutomated Information for 

Movement System II

TC AIMS II Army New development initiative to provide an integrated information 

transportation system capability for routine deployment, sustainment, 

and redeployment/retrograde operations.

Base Accounts Receivable 

System

BARS DFAS Automates the accounts receivable functions on Air Force bases for 

miscellaneous reimbursement accounts and maintains accounts 

receivable records for customers.

Departmental on-line Accounting 

and Reporting System

DOLARS DFAS Used to consolidate and prepare Air Force-level budgetary reports.

Contractor Property 

Management System

CPMS DLAa Used by DOD contractors to control materials and equipment supplied 

by the government for contract performance and tracking Operating 

Materials and Supplies and Property, Plant, and Equipment in the 

possession of contractors. 

Distribution Standard System DSS DLA An automated perpetual inventory system that maintains inventory 

records; tracks materiel receipts, issues, and re-warehousing at 

depots; and provides inventory quantities for purchase decisions and 

financial statements.

Joint Ammunition Management 

Standard System

JAMSS DOD A new development information system for logistical management and 

financial reporting of conventional ammunition as Operating Materials 

and Supplies.

Modern Defense Civilian 

Personnel Data System

Modern 

DCPDS

DOD A human resources information system that supports civilian 

personnel operations in DOD. It allows DOD to use a single 

management information system for DOD civilian employees.

Automated Travel Order System 

Plus

ATOS Plus Navy An information system to manage personnel travel obligations and 

costs. This system is scheduled to be replaced by the Defense Travel 

System. 

Financial and Air Clearance 

Transportation System

FACTS Navy Improves the ability to manage the expenditure of transportation funds 

for cargo and personal property movement. 

Funds Administration and 

Standardized Document 

Automation 

FASTDATA Navy Manages and tracks obligation data and provides reports to Navy fund 

administrators.

(Continued From Previous Page)

System name Acronym

DOD 

component Purpose
Appendix III

List of Accounting, Finance, and Feeder 

Systems Not Included in DOD Fiscal Year 

2000 Financial Management Systems 

Inventory

Page 40 GAO-01-764 DOD Financial Management Improvement Plan

a

Defense Logistics Agency

Naval Industrial Materiel 

Management System

NIMMS Navy Navy’s standardized materiel management system for depot 

maintenance operations. System supports inventory accountability 

and materiel ordering and tracking, and provides managerial controls.

Naval Air Command Project 

Sigma Enterprise Resource 

Project (ERP) pilot 

Project Sigma Navy Pilot project to integrate acquisition, human resources, project 

management, asset tracking, and financial processes. 

Naval Air Logistics Command 

Management Information 

System

NALCOMIS Navy Provides aviation maintenance and material management 

information.

Naval Ordnance Management 

Information System

NOMIS Navy Provides automated management support regarding ammunition 

distribution and control, project planning, financial, supply, payroll, 

personnel, and transportation functions in the operation of ordnance 

activities.

Navy Enterprise Maintenance 

Automated Information System

Project 

NEMAIS

Navy ERP pilot to standardize and streamline business processes for 

maintenance of Navy vessels. 

Supply Maintenance Aviation 

Reengineering Team ERP 

Project

Project 

SMART

Navy Project to use best business practices and supporting architecture 

(ERP approach) to improve aviation supply and maintenance 

management.

Navy Facility Assets Data Base NFADB Navy The central repository for land, buildings, and structure assets.

Procurement Contract 

Monitoring Automated System

ProCMAS Navy Provides large procurement action tracking from pre-award through 

contract award. Downloads award data for contract delivery orders, 

modifications, and funding data.

Shipboard Non-tactical ADP 

Program

SNAP Navy A logistics management information system that automates 

equipment configuration, equipment maintenance, requirement 

requisition, receipt, financial, and inventory functions for Navy ships.

ShipBoard Uniform Automated 

Data Processing System-Real 

Time

SUADPS-RT Navy Provides financial, inventory, and logistics management of aviation 

supplies for Marine aircraft.

Smart Procurement Electronic 

Data Interchange

SPEDI Navy Provides automation to the entire procurement management cycle 

from the customer browsing on-line to electronic payment for the 

vendor.

Project Cabrillo ERP Pilot Project 

Cabrillo

Navy ERP focuses on improving the Navy Working Capital Funds financial 

management process.

Standard Personnel 

Management System II

SPMS Navy Provides support to the functions of manpower, personnel, education 

and training, mobilization planning, and expense distribution for the 

Bureau of Medicine and Surgery.

(Continued From Previous Page)

System name Acronym

DOD 

component Purpose

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