Information Technology: Improvements Needed in the Reliability of Defense Budget Submissions
Published: 2003-12-19T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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.
section_title: What GAO Found
paragraphs: DOD's IT budget submission for fiscal year 2004 contains material inconsistencies, inaccuracies, or omissions that limit its reliability. 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. 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.

section_title: Letter
paragraphs: 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.
subsections: section_title: Background
paragraphs: 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: 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. 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 OMB- defined 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.
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.
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. 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.
section_title: DOD’s Fiscal Year 2004 IT Budget Submission Contains Unreliable Information
paragraphs: “In the past, the  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.”
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. 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.
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.
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) 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.
subsections: section_title: DOD’s Exhibit 300s Are Not Consistent with Its IT-1 Budget Spreadsheet
paragraphs: 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.  Table 2 compares the total amounts reported for these three groupings of  major initiatives.
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.  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  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.
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. 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. 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.
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.
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 department- level 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  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.
section_title: DOD’s Exhibit 300s Contain Omissions and Errors
paragraphs: 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), 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.
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.
section_title: Modernization Activities Were Improperly Categorized
paragraphs: 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  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  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  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  offices.”
The FMR definitions are confusing regarding the classification of project  management costs because current services costs include “certain  overhead costs associated with PM  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  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.
section_title: IT Budget Submission Does Not Use Appropriation Accounts Consistently
paragraphs: “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  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. “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. “In general, all developmental activities involved in bringing a program to its objective  system are to be budgeted in RDT&E.”
DOD’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. “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, use of the wrong  appropriation account constitutes a violation of the Purpose Statute and  can lead to a violation of the Anti-deficiency Act. 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.
section_title: DOD’s Submission Does Not Include All Relevant Project Costs
paragraphs: 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, 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  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.  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.
section_title: Conclusions
paragraphs: 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.
section_title: Recommendations
paragraphs: 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,   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.
section_title: Agency Comments and GAO Evaluation
paragraphs: 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;   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   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  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.
section_title: Objective, Scope, and Methodology
paragraphs: 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  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  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.
subsections: section_title: GAO’s Mission
paragraphs: The General Accounting Office, the audit, evaluation and investigative arm of  Congress, exists to support Congress in meeting its constitutional responsibilities  and to help improve the performance and accountability of the federal government  for the American people. GAO examines the use of public funds; evaluates federal  programs and policies; and provides analyses, recommendations, and other  assistance to help Congress make informed oversight, policy, and funding  decisions. GAO’s commitment to good government is reflected in its core values of  accountability, integrity, and reliability.
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