DOD Business Transformation: A Comprehensive, Integrated, and Enterprisewide Business Transformation Plan Coupled With Sustained Senior Leadership Attention Are Needed to Strengthen Ongoing Efforts
Published: 2006-06-13T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Of the 25 areas on GAO's 2005 high-risk list of federal programs or activities that are at risk for waste, fraud, abuse, or mismanagement, 8 are Department of Defense (DOD) programs or operations and 6 are governmentwide high-risk areas for which DOD shares some responsibility. These high-risk areas relate to DOD's major business operations. DOD's failure to effectively resolve these high-risk areas results in billions of dollars of waste each year, ineffective performance, and inadequate accountability. At a time when DOD is competing for resources in an increasingly fiscally constrained environment, it is critically important that DOD get the most from every defense dollar. DOD has taken several positive steps and devoted substantial resources toward establishing key management structures and processes to successfully transform its business operations and address its high-risk areas, but overall progress by area varies widely and huge challenges remain. This testimony addresses (1) DOD's progress in developing a strategic, integrated, enterprise-wide business transformation plan and its related leadership approach, (2) the extent to which DOD has complied with legislation that addresses business systems modernization and improving financial management accountability, and (3) selected additional DOD high-risk areas that highlight the need for continued attention.
section_title: What GAO Found
paragraphs: DOD has made some progress in its overall approach to business transformation, which GAO has designated as high risk. Yet, GAO still believes DOD needs an integrated, enterprisewide strategic plan and chief management official (CMO) to guide and oversee these efforts. DOD has developed a revised business enterprise architecture and enterprise business transition plan. However, this plan does not go far enough to constitute a strategic plan for the overall business transformation effort. DOD also established the Defense Business Systems Management Committee (DBSMC), as DOD's primary transformation leadership and oversight mechanism, and the Business Transformation Agency (BTA) to support the DBSMC. However, these organizations do not provide the sustained leadership needed to successfully achieve business transformation. Also, the BTA still faces challenges to become operational, such as filling a number of key positions to oversee the transformation process. DOD continues to take steps to comply with legislative requirements to improve business systems modernization, designated as a high-risk area. It has updated its business enterprise architecture and enterprise transition plan and issued its annual report to Congress. This report describes steps taken and planned that address several of the missing elements GAO previously identified relative to legislative provisions concerning the architecture, transition plan, budgetary reporting of business system investments, and investment review. While these steps certainly reflect progress, DOD continues to face challenges relative to ensuring that the department's key business system investments are managed in a way to deliver promised system capabilities and benefits on time and within budget. Further, in late December 2005, DOD issued its Financial Improvement and Readiness Plan to guide its financial management improvement efforts. Ensuring effective transformation of other defense areas that GAO has identified as high risk will require continued attention over many years. These other high-risk areas include weapon systems acquisition, contract management, supply chain management, personnel security clearances, and support infrastructure management. In the area of weapons system acquisition, recurring problems with changing requirements, cost overruns, and schedule delays have resulted in a reduction of buying power of the defense dollar at a time when the nation is struggling with a large and growing structural deficit. While it has made some progress in addressing its supply chain management problems, DOD faces challenges in successfully implementing its planned changes and measuring progress. Problems with the personnel security clearance program continue, although DOD has taken steps to address the financial costs, delays, and other risks associated with the program. Finally, much work remains for DOD to transform its support infrastructure to improve operations and achieve efficiencies so that infrastructure costs adequately fund but no longer consume a larger than necessary portion of DOD's budget.

section_title: Letter
paragraphs: It is a pleasure to be back before this Subcommittee to discuss the  progress the Department of Defense (DOD) has made in transforming its  business processes. Since the first financial statement audit of a major  DOD component was attempted almost 20 years ago, we have reported  that weaknesses in business management systems, processes, and internal  controls not only adversely affect the reliability of reported financial data,  but also the economy, efficiency, and effectiveness of DOD’s and the  federal government’s operations. In fact, DOD currently bears  responsibility, in whole or in part, for 14 of our 25 high-risk areas. Eight of  these are specific to DOD and include DOD’s overall approach to business  transformation, business systems modernization, financial management,  the personnel security clearance process, supply chain management,  support infrastructure management, weapon systems acquisition, and  contract management. In addition, DOD shares responsibility for six  governmentwide high-risk areas. Collectively, these high-risk areas relate  to DOD’s major business operations which directly support the warfighter,  including how they get paid, the benefits provided to their families, and  the availability and condition of the equipment they use both on and off  the battlefield.
DOD’s business area weaknesses result in reduced efficiencies, ineffective  performance, and inadequate accountability to Congress and the American  people, wasting billions of dollars each year at a time when DOD is  competing for resources in an increasingly fiscally constrained  environment. As a result, it is important that DOD get the most from every  dollar it invests. Our nation is not only threatened by external security  threats, but also from within by growing fiscal imbalances due primarily to  our aging population and rising health care costs. These trends are  compounded by the near-term deficits arising from new discretionary and  mandatory spending as well as lower revenues as a share of the economy.  If left unchecked, these fiscal imbalances will ultimately impede economic  growth, have an adverse effect on our future standard of living, and in due  course affect our ability to address key national and homeland security  needs. These factors create the need to make choices that will only  become more difficult and potentially disruptive the longer they are  postponed. Among these difficult choices will be decisions about the  affordability and sustainability of the continued growth in defense  spending. We believe DOD’s recently issued Quadrennial Defense Review  (QDR) did not result in a long-term, integrated and resource constrained  investment strategy. In fact, the gap between wants, needs, affordability,  and sustainability seems to be greater than ever.
I continue to believe that DOD’s senior leadership is committed to  transforming the department and DOD has taken a number of positive,  albeit overdue steps to begin this effort. In fact, because of the impact of  the department’s business systems and processes on its warfighters, DOD  recognizes now, more than ever, the need to transform its business  operations and provide transparency in this process. Indeed, Secretary  Rumsfeld was very clear in his speech on September 10, 2001, when he  identified business transformation as a top priority. However, DOD’s  ability to focus on this priority was overshadowed by the events of  September 11, 2001, and the ensuing Global War on Terrorism, including  military operations in Iraq and Afghanistan. Clearly, these events have  required considerable emphasis and have become the department’s  primary focus. As a result, progress on the full range of DOD’s business  transformation challenges has been inconsistent.
Congress, under the leadership of this Subcommittee, passed legislation  that codified many of our prior recommendations related to DOD business  systems modernization. Since then, the department has devoted  substantial resources and made important progress toward establishing  key management structures and processes to guide business systems  investment activities. DOD’s current approach is clearly superior to its  prior approach; however, a number of challenges remain.
Today, I would like to provide my perspectives on actions DOD has taken  to date to address the eight high-risk areas for which it bears sole  responsibility. Specifically, I will provide my perspective on (1) DOD’s  progress in developing a comprehensive, integrated, enterprisewide  business transformation plan and its related leadership approach, (2) the  extent to which DOD has complied with legislation that addresses  business systems modernization and improving financial management  accountability, and (3) the five additional DOD-specific high-risk areas  related to business transformation that need continued attention. In  addition, you asked me to discuss two provisions contained in Senate Bill  2766 (the National Defense Authorization Act for Fiscal Year 2007), as  reported by the Senate Armed Services Committee.
My statement is based in large part on previous GAO reports and some of  our current, ongoing efforts. Our work was performed in accordance with  generally accepted government auditing standards.
subsections: section_title: Background
paragraphs: DOD is one of the largest and most complex organizations in the world.  Overhauling its business operations will take years to accomplish and  represents a huge management challenge. Execution of DOD’s operations  spans a wide range of defense organizations, including the military  services and their respective major commands and functional activities,  numerous large defense agencies and field activities, and various  combatant and joint operational commands that are responsible for  military operations for specific geographic regions or theaters of  operation. To support DOD’s operations, the department performs an  assortment of interrelated and interdependent business functions—using  more than 3,700 business systems—related to major business areas such  as weapon systems management, supply chain management, procurement,  health care management, and financial management. The ability of these  systems to operate as intended affects the lives of our warfighters both on  and off the battlefield. For fiscal year 2006, Congress appropriated  approximately $16 billion to DOD, and for fiscal year 2007, DOD has  requested another $16 billion in appropriated funds to operate, maintain,  and modernize these business systems.
Transformation of DOD’s business systems and operations is key to  improving the department’s ability to provide DOD management and  Congress with accurate, timely, reliable, and useful information for  analysis, oversight, and decision making. This effort is an essential part of  the Secretary of Defense’s broad initiative to “transform the way the  department works and what it works on.” The savings resulting from an  effective business transformation effort could be significant. The Secretary  himself estimated that the department could save 5 percent of its annual  budget, which for fiscal year 2006 would have been about $21 billion,  through effective business transformation. Until DOD can successfully  transform its operations, it will continue to confront the pervasive,  decades-old management problems that cut across all of DOD’s major  business areas.
During the past year DOD has embarked on a series of efforts to transform  its business operations, including issuing an enterprise transition plan for  implementing its business enterprise architecture. In addition, in February  2005, DOD chartered the Defense Business Systems Management  Committee (DBSMC) to oversee transformation and ensure it meets the  needs and priorities of the warfighter. As the senior most governing body  overseeing business transformation, the DBSMC is comprised of senior  leaders who meet monthly under the personal direction of the Deputy  Secretary of Defense to set business transformation priorities and  recommend policies and procedures required to attain DOD-wide  interoperability of business systems and processes. In October 2005, DOD  also established a Business Transformation Agency (BTA) intended to  advance defense-wide business transformation efforts in general but  particularly with regard to business systems modernization. DOD believes  it can better address managing defense-wide business transformation— which includes planning, management, organizational structures and  processes related to all key business areas—by first transforming business  operations that support the warfighter while also enabling financial  accountability across DOD. The BTA reports directly to the vice chair of  the DBSMC—the Under Secretary of Defense for Acquisition, Technology  and Logistics—and includes an acquisition executive who is responsible  for 28 DOD-wide business projects, programs, systems, and initiatives. The  BTA is responsible for integrating and supporting the work of the Office of  the Secretary of Defense principal staff assistants, who include the  approval authorities that chair the business system investment review  boards (IRB).
section_title: DOD Lacks a Comprehensive, Integrated, and Enterprisewide Approach to Decisionmaking and Sustained Leadership
paragraphs: While DOD has developed plans that address certain high-risk areas  related to business transformation, and is taking other steps to guide and  lead transformation efforts, I believe that the department still lacks several  key elements that are needed to ensure a successful and sustainable  business transformation effort. First, these efforts must include a  comprehensive, integrated, and enterprisewide business transformation  plan. Second, a chief management official with the right skills and at the  right level of the department is essential for providing the sustained  leadership needed to achieve a successful and sustainable transformation  effort.
subsections: section_title: Comprehensive, Integrated, and Enterprisewide Business Transformation Plan Not Developed
paragraphs: Although some progress has been made in business transformation  planning, DOD still has not developed a comprehensive, integrated, and  enterprisewide strategy or action plan for managing its overall business  transformation effort. The lack of a comprehensive, integrated, and  enterprisewide action plan linked with performance goals, objectives, and  rewards has been a continuing weakness in DOD’s business management  transformation. DOD’s efforts to plan and organize itself to achieve  business transformation are continuing to evolve. Critical to the success of  these efforts will be top management attention and structures that focus  on transformation from a broad perspective and a clear, comprehensive,  integrated and enterprisewide plan that, at a summary level, addresses all  of the department’s major business areas. This strategic plan should cover  all of DOD’s key business functions; contain results-oriented goals,  measures and expectations that link institutional, unit, and individual  performance goals and expectations to promote accountability; identify  people with needed skills, knowledge, experience, responsibility, and  authority to implement the plan; and establish an effective process and  related tools for implementation. Such an integrated business  transformation plan would be instrumental in establishing investment  priorities and guiding the department’s key resource decisions.
While DOD has not yet developed a comprehensive, integrated,  enterprisewide business transformation plan, its leaders have recognized  the need to transform its business operations. In September 2005, DOD  issued a business enterprise architecture and an enterprise transition plan  for modernizing its business processes and supporting information  technology assets. The business enterprise architecture provides a  foundational blueprint for modernizing business operations, information,  and systems, while the enterprise transition plan provides a roadmap and  management tool that sequences business system investments in the areas  of personnel, logistics, real property, acquisition, purchasing, and financial  requirements. However, the enterprise transition plan does not go far  enough to constitute a strategic plan for the overall business  transformation efforts since it is more focused on business systems.  Business transformation is much broader and encompasses not only the  supporting systems, but also the planning, management, organizational  structures, processes, and accountability mechanisms related to all of  DOD’s major business areas. Such areas include support infrastructure  management, human capital management, financial management, planning  and budgeting, and supply chain management. DOD officials acknowledge  that the enterprise transition plan may not have all of the elements of an  overarching business transformation plan as we envision it. However, they  consider the business enterprise plan to be an evolving plan.
DOD’s key strategic documents also highlight the need for business  transformation. For example, the National Defense Strategy issued in  March 2005 and the February 2006 Quadrennial Defense Review both state  that DOD must transform the way the department works and what it  works on, including its capabilities for defending the nation by  revolutionizing management, technology, and business practices to  support the needs of the combatant commanders. Nevertheless, these are  high level documents that do not contain supporting details such as key  metrics, milestones, and mechanisms to guide and direct business  transformation efforts. Further, the QDR and other DOD planning  documents do not address the ongoing gap between wants, needs,  affordability, and sustainability in what is likely to be a resource  constrained environment.
section_title: Sustained Leadership Is Needed
paragraphs: While DOD has established leadership and oversight mechanisms to  address transformation, DOD lacks the sustained leadership at the right  level needed to achieve successful and lasting transformation. Due to the  complexity and long-term nature of DOD’s business transformation  efforts, we continue to believe DOD needs a chief management officer  (CMO) to provide sustained leadership and maintain momentum. Without  formally designating responsibility and accountability for results, choosing  among competing demands for scarce resources and resolving differences  in priorities between various DOD organizations will be difficult and could  impede DOD’s ability to transform in an efficient, effective, and reasonably  timely manner. In addition, it may be particularly difficult for DOD to  sustain transformation progress when key personnel changes occur. The  CMO would serve as the Deputy Secretary of Defense or Principal Under  Secretary for Management and as the strategic integrator for DOD’s overall  business transformation effort. This position would elevate, integrate, and  institutionalize the attention essential for addressing key stewardship  responsibilities, such as strategic planning, enterprise architecture  development and implementation, information technology management,  and financial management, while facilitating the overall business  management transformation effort within DOD. I would also like to  articulate what this position would not do. The CMO would not assume  the responsibilities of the undersecretaries of defense, the service  secretaries, or other DOD officials for the day-to-day management of the  department. Instead, the CMO would be responsible and accountable for  planning, integrating, and executing the overall business transformation  effort. The CMO also would develop and implement a strategic plan for the  overall business transformation. I understand that DOD has been  legislatively mandated to study the feasibility of a chief management  official position in DOD. It is also my understanding that the Defense  Business Board has recommended the creation of a Principal Under  Secretary of Defense to serve as a CMO.
The Secretary of Defense, Deputy Secretary of Defense, and other senior  leaders have clearly shown a commitment to business transformation and  addressing deficiencies in the department’s business operations. During  the past year, DOD has taken additional steps to address certain  provisions and requirements of the Ronald W. Reagan National Defense  Authorization Act for Fiscal Year 2005, including establishing the DBSMC  as DOD’s primary transformation leadership and oversight mechanism,  and creating the Business Transformation Agency (BTA) to support the  DBSMC, a decision making body. However, these organizations do not  provide the sustained leadership needed to successfully achieve business  transformation. The DBSMC’s representatives consist of political  appointees whose terms expire when administrations change.  Furthermore, it is important to remember that committees do not lead,  people do. Thus, DOD still needs to designate a person to provide  sustained leadership and have overall responsibility and accountability for  this effort.
In addition, we testified in November 2005 that DOD’s BTA offers potential  benefits relative to the department’s business systems modernization  efforts if the agency can be properly organized, resourced, and  empowered to effectively execute its roles and responsibilities and is held  accountable for doing so. However, the department has faced challenges  in making the BTA operational. For example, we previously testified that  there are numerous key acquisition functions that would need to be  established and made operational for the BTA to effectively assume  responsibility for 28 DOD-wide projects, programs, systems, and  initiatives, and our experience across the government shows that these  functions can take considerable time to fully implement on each and every  program.  While we have reported that the department has established  certain system investments and processes that are consistent with recent  legislation and our prior recommendations, the fundamental question that  remains is the extent to which these management controls are actually  being implemented on both the 28 enterprise-level investments, but also  the hundreds of other system investments that are being managed at the  component level. We are working with this Subcommittee’s staffs to  answer this question.
Moreover, BTA has yet to fill a number of key positions for overseeing the  transformation process. According to DOD officials, BTA currently has  several unfilled leadership and expert positions. Moreover, BTA still does  not have an empowered senior level manager, such as a CMO, to ensure  the success of its transformation efforts. Without qualified individuals in  these positions, particularly at this formative stage of the BTA, its ability to  effectively support the DBSMC will be limited.
To assist the department, the Congress enacted a provision in the Fiscal  Year 2004 National Defense Authorization Act that gives DOD the  authority to hire up to 2,500 highly-qualified experts from outside the civil  service and uniformed services without going through the normal civil  service hiring system. Specifically, it is our understanding that since DOD  received this hiring authority, only 10 individuals have been hired across  the department to fill critical BTA positions under this authority.  According to DOD officials, this is due to internal DOD policy that restricts  the use of the new authority, such as a provision prohibiting experts hired  under the provision from performing “continuing department functions,  including work of a policy, decision-making, or management nature.” As a  result of these restrictions, the newly established agency remains  understaffed, and thus constrained in its ability to perform its  transformation mission.
According to the Deputy Secretary of Defense, the department is  reviewing its policy and plans to issue clarifying guidance that would  expand the use of the authority over the next several months. However,  the longer DOD takes to address this critical human capital issue and  provide sustained leadership for its business transformation efforts, the  greater the risk that these efforts will be severely undermined.
section_title: DOD Has Made Important Progress Complying With Business Systems Modernization and Financial Management Accountability Legislation, But Much Work Remains
paragraphs: As we testified and reported earlier this year, we believe DOD has made  important progress in complying with legislation pertaining to its business  systems modernization and financial management improvement efforts.  For example, we reported in May 2006 that DOD released a minor update  to its business enterprise architecture on March 15, 2006, developed an  updated enterprise transition plan, and issued its annual report to  Congress describing steps taken and planned, among other things. These  steps address several of the missing elements we previously identified  relative to the legislative provisions concerning the architecture, transition  plan, budgetary reporting of business system investments, and investment  review. Further we testified, that in late December 2005 DOD had issued  its Financial Improvement and Audit Readiness (FIAR) plan, a third major  component of its business transformation strategy, to guide financial  management improvement and clean audit opinion efforts within the  department. While this progress better positions the department to  address the business systems modernization and financial management  high-risk areas, many challenges remain relative to improving the  architecture, implementing its tiered accountability investment approach,  and actually acquiring and implementing modernized business systems on  time and within budget that provide promised capabilities and benefits.
Additional challenges include implementing sustainable process and  systems improvements that will provide timely, reliable, accurate, and  useful information for analysis, decisionmaking, and reporting.
subsections: section_title: DOD Continues to Address Limitations in Prior Version of Architecture
paragraphs: As part of DOD’s incremental strategy for developing and implementing its  architecture, the department has taken steps over the last 6 months to  address a number of the limitations in the prior version of the architecture  that we previously reported as falling short of the Fiscal Year 2005  National Defense Authorization Act’s requirements and related guidance.  For example, the architecture now has much of the information needed, if  properly implemented, to achieve compliance with the Department of the  Treasury’s United States Standard General Ledger, such as the data  elements or attributes that are needed to facilitate information sharing and  reconciliation with the Treasury. In addition, the architecture continues to  specify DOD’s Standard Financial Information Structure (SFIS) as an  enterprisewide data standard for categorizing financial information to  support financial management and reporting functions. Thus far, the  department has completed Phase I of the SFIS initiative, which is focused  on standardizing general ledger and external financial reporting  requirements, and has incorporated associated definitions in the  architecture. However, key SFIS data elements and attributes are not yet  in the architecture. For example, data elements for DOD’s planning,  programming, and budgeting business process area have yet to be defined.
Despite this progress, as we recently reported, the latest version of the  architecture does not comply with all of the legislative requirements and  related best practices. For example, it does not include a systems  standards profile to allow data sharing among departmentwide business  systems and interoperability with departmentwide information technology  (IT) infrastructure systems. Program officials acknowledged that the  architecture does not include this profile and stated that they are working  with the Assistant Secretary of Defense (Networks and Information  Integration)/Chief Information Officer (ASD(NII)/CIO) to address this in  future versions. Furthermore, the architecture does not address other  limitations we previously reported. For example, it is not yet adequately  linked to military service and defense agency component architectures  and transition plans, which is particularly important given the  department’s federated approach to developing and implementing the  architecture. In its March 15, 2006, report to Congress, the department  stated that integration with these component architectures will be an  ongoing goal. To accomplish this goal, program officials told us that a  federation strategy is being developed and will be implemented in future  versions of the architecture and transition plan.
We support DOD taking an incremental approach to developing the  business enterprise architecture, recognizing that adopting such an  approach is a best practice that we have advocated. In addition, we believe  that the current architecture provides an improved foundation on which to  continue to build a more complete architecture. However, the department  has yet to develop or establish milestones for developing a near- or long- term plan that will provide details on what will be included in these  incremental architecture developments and what will not be included,  with particular emphasis and clarity around the near-term increments.  Without such a plan, the department is less likely to accomplish intended  improvements. Once the missing scope, content, and related shortcomings  are added, the architecture will be a more sufficient frame of reference to  optimally guide and constrain DOD-wide system investment  decisionmaking.
section_title: DOD Continues to Improve Its Enterprise Transition Plan
paragraphs: DOD has taken a number of steps to improve its enterprise transition plan  and address some of the missing elements that we previously identified  relative to the Act’s requirements and related transition planning guidance.  In particular, the updated plan provides information on progress on major  investments over the last 6 months—including key accomplishments and  milestones attained, as well as new information on near-term activities  (i.e., within the next 6 months) at both the enterprise and component  levels. For example, in an effort to improve visibility into personnel  activities, DOD reported that, for the Defense Civilian Personnel Data  System, it met the milestone to deploy a data warehouse capability to  facilitate data sharing. It also reported that, for this system, it has set a  September 2008 milestone for developing an implementation strategy for  integrating modules supporting functionality that is currently provided by  stand-alone applications. In addition, DOD continues to validate the  inventory of ongoing IT investments that formed the basis for the prior  version of the transition plan. Specifically, DOD intends future updates to  the plan to continue to introduce the results of ongoing and planned  analyses of gaps between its current and target architectural  environments, in which capability and performance shortfalls are  described and investments (such as transformation initiatives and  systems) that are to address these shortfalls are clearly identified.
However, the transition plan does not identify, for example, all legacy  systems that will or will not be part of the target architecture, nor does it  include explicit strategies for modifying those legacy systems identified in  the plan’s system migration diagrams. In particular, the termination dates  for many legacy systems remain unknown, making it unclear whether they  will be part of the target environment. The plan also does not include  system and budget information for all of the department’s agencies and  combatant commands. For example, program officials stated that the  Defense Information Systems Agency’s IT infrastructure investments will  not be reflected in the enterprise transition plan because the capabilities  that these investments are intended to deliver are reflected in the Global  Information Grid rather than in the business enterprise architecture. As we  previously reported, exclusion of Defense Information Systems Agency  investments is particularly limiting, given that this agency and its  investments provide key IT infrastructure services that business systems  will use. Without including information on the timing and content of these  investments, the critical relationship between infrastructure and systems  becomes blurred in many ways. For example, it becomes unclear whether  a new business system will be able to reuse existing infrastructure  components or services—thereby leveraging established capabilities—or  whether it will have to introduce duplicative capabilities as part of the  business system investment.
Under the department’s incremental approach to developing its enterprise  transition plan, the latest plan is a clear improvement over the prior plan.  Program officials stated that many of the missing elements that we  identified will be included in future iterations of the plan. This incremental  approach is both a best practice and is consistent with our previous  recommendation. However, the content that the latest plan is missing is  important, and the department has yet to develop a plan showing what will  be included in each incremental iteration of the enterprise transition plan,  with particular emphasis and clarity focused on the near-term increments.  Without such a plan, the department is less likely to accomplish intended  improvements. Once missing content is added to the enterprise transition  plan and all system investments are validated by capability gap analyses,  the department will be better positioned to sequentially manage the  migration and disposition of existing business processes and systems— and the introduction of new ones.
section_title: DOD Has Taken Steps to Meet Budgetary Reporting Requirements for Business System Investments
paragraphs: DOD has taken steps to meet the Act’s requirements relative to the  identification of all business systems in its IT budget request. In particular,  program officials told us that the DOD Information Technology Portfolio  Repository (DITPR) has been established as the authoritative repository  for certain information about DOD’s systems, such as system names and  the responsible DOD components. Further, this repository is being  expanded to contain information required for the certification, approval,  and annual reviews of these business system investments. To ensure  consistency of DOD’s fiscal year 2007 IT budget submission with this  authoritative inventory, DOD has reconciled (and intends to continue  reconciling) DITPR with the database that it uses to prepare its IT budget  submissions, referred to as Select and Native Programming Data System– Information Technology (SNAP-IT). According to program and military  service officials, DOD is taking steps to ensure that it is entering each  system investment in DITPR and SNAP-IT, as appropriate, and it is  continually reconciling the information between the two to ensure  consistency.
Thus far, program officials told us that business system investments  greater than $1 million have been broken out individually and disclosed in  the fiscal year 2007 IT budget submission. However, smaller systems— those with modernization funding less than $1 million over the future  years’ defense program (fiscal years 2006-2011)—still need to be  individually visible in the budget. According to these officials, steps are  underway to make these smaller systems individually visible in the budget.  DOD’s actions relative to budgetary reporting should help ensure the  completeness and reliability of its IT budget submissions, and increase  compliance with the Act’s requirements.
section_title: DOD Has Efforts Under Way to Control its Business System Investments, but an Investment Review Board Has Not Been Established
paragraphs: In accordance with the Act, DOD has established and is beginning to  implement processes aimed at exercising greater control over its many  business system investments. The Act specifies two basic requirements,  effective October 1, 2005, for obligation of funds for business system  modernizations costing more than $1 million. First, it requires that these  modernizations be certified by a designated “approval authority” as  meeting specific criteria. Second, it requires that the DBSMC approve  each certification. The Act also states that failure to do so before the  obligation of funds for any such modernization constitutes a violation of  the Anti-deficiency Act. In this regard, the department reported in March  2006 that 226 business systems, representing about $3.6 billion in  modernization investment funding, had been approved by the DBSMC.
According to the department’s March 2006 report, the investment review  and approval process has identified more than 290 systems for phase-out  or elimination. For example, one business system investment that has  been eliminated is the Forward Compatible Payroll system (FCP). In  reviewing the program status, it was determined that FCP would duplicate  the functionality contained in DIMHRS, and it was unnecessary to  continue investing in both systems. According to the department’s fiscal  year 2007 IT budget request, approximately $33 million was sought for  fiscal year 2007 and about $31 million was estimated for fiscal year 2008  for FCP. Eliminating this duplicative system will enable DOD to use this  funding for other priorities.
The department’s March 2006 report to the congressional defense  committees also notes that the investment review process has identified  approximately 40 business systems for which the requested funding was  reduced and the funding availability periods were shortened to fewer than  the number of years requested. For example, the Navy requested funding  of about $19 million for fiscal years 2006 to 2011 for its Military Sealift  Command Human Resources Management System, but the amount  approved was approximately $2 million for the first 6 months of fiscal year  2006. According to Navy officials, this system will be reviewed to ascertain  whether it has some of the same functionality as the Defense Civilian  Personnel Data System. Funding system initiatives for shorter time periods  can help reduce the financial risk by providing additional opportunities for  monitoring a project’s progress against established milestones and help  ensure that the investment is properly aligned with the architecture and  the department’s overall goals and objectives.
The Act also directs that DOD establish five IRBs, each responsible and  accountable for controlling certain business system investments to ensure  compliance and consistency with the business enterprise architecture.  Four of the five designated IRBs have been established, the exception  being an IRB chaired by the ASD(NII)/CIO. According to the Act and the  Deputy Secretary of Defense’s March 19, 2005, memorandum, the  ASD(NII)/CIO-chaired IRB is to be responsible and accountable for any  business system that primarily supports IT infrastructure or information  assurance activities. According to ASD(NII)/CIO officials, this IRB has not  been established because the CIO does not have direct control and  accountability over any such business systems. CIO officials further noted  that since a representative of the ASD(NII)/CIO office is a participant in  each of the other four IRBs, any infrastructure related matters could be  addressed as part of these boards’ deliberations.
The Act’s requirement that modernizations costing more than $1 million  must be certified by a designated “approval authority” and subsequently  approved by the DBSMC prior to funds being obligated applies to both  business systems that deliver applications and functional capabilities in  each of the identified functional areas, as well as infrastructure that  support these systems. Our analysis of the department’s detailed fiscal  year 2007 budget request documents disclosed that 8 infrastructure  modernizations, costing more than $1 million, are designated by DOD in  those documents as in support of the business mission area. Investment  in infrastructure is an integral part of any enterprise architecture and  transition plan, and should, therefore, be subject to the same investment  management structures and processes as the application systems that they  support.
section_title: Key DOD Systems Still Face Challenges
paragraphs: We testified in November 2005 that DOD faced a number of challenges,  including ensuring that the department’s many business system  investments are managed in a way to deliver promised system capabilities  and benefits on time and within budget. Our work has shown that key  DOD business system investments continue to face formidable challenges.  Examples of these system investments are the Defense Integrated Military  Human Resources System (DIMHRS), Defense Travel System (DTS), the  Army Logistics Modernization Program (LMP), the Navy Tactical  Command Support System (NTCSS), and the Transportation Coordinators’  Automated Information for Movements System II (TC-AIMS II). The  challenges that the DBSMC and the BTA face relative to each of these  systems are discussed below.
Since our report, DOD has made some progress in addressing concerns,  however significant challenges remain. Specifically, the DBSMC  established a steering committee to ensure timely and cost effective  implementation of DIMHRS, and according to its charter, the committee  will include representatives from the services. The Defense Business  Systems Acquisition Executive (DBSAE) also recently hired a program  manager who has prior experience in implementing an integrated  personnel and payroll system. Further, the Army and the Air Force have  completed assessments of the commercial-off-the-shelf product selected  for DIMHRS that has resulted in both services concluding that the product  can be used to meet their needs under certain conditions. The Army and  the Air Force are currently working to identify all user requirements and  to identify functionality gaps within the product and potential solutions to  address these gaps. The Navy also recently completed its assessment, but  has yet to release the results. According to the DBSAE, the Marine Corps  will conduct a similar assessment in spring 2007. According to DOD  officials, the Army currently expects to deploy DIMHRS by April 2008 with  the Air Force to begin deploying a month later.
Nonetheless, much remains to be done before this can occur and before  DOD can be optimistic about the program’s outcome or success. Some of  the challenges that DOD has to overcome are ensuring that (1) the  department fully addresses our recommendation with respect to the  quality of DIMHRS’ requirements (e.g., ensuring that user requirements are  complete and unambiguous), (2) all the legacy systems DIMHRS will  replace and the termination dates for these systems are identified,            (3) system interfaces are defined and built, and (4) legacy system data are  ready to be converted in accordance with the deployment schedule. Until  DOD resolves these challenges, it will not be effectively positioned to  correct known weaknesses, including shortcomings in its ability to  properly pay military personnel and to monitor and track them to, from,  and within their duty stations.
As we reported in January 2006, DTS continues to face implementation  challenges, particularly with respect to testing key functionality to ensure  that the system will perform as intended. Our analysis of selected  requirements for one key area disclosed that system testing was not  effective in ensuring that the promised capability was delivered as  intended. For example, we found that DOD did not have reasonable  assurance that flight information was properly displayed. This problem  was not detected prior to deployment of DTS because DOD did not  properly test the system interfaces through which the data are accessed  for display. As a result, those travelers using the system may not have  received accurate information on available flights, which could have  resulted in higher travel costs. The report also identified key challenges  facing DTS in becoming DOD’s standard travel system, including  developing needed interfaces and underutilization of DTS at sites where it  has been deployed. While DTS has developed 36 interfaces with various  DOD business systems, it will have to develop interfaces with at least 18  additional business systems—not a trivial task. Additionally, the continued  use of the existing legacy travel systems at locations where DTS is already  deployed results in underutilization of DTS and affects the savings that  DTS had planned to achieve. Under the statutory authority of the  Comptroller General, we are performing additional audit work on DTS and  will provide you the results of our audit upon its completion.
We have reported that the Army faces challenges in developing and  implementing LMP. While LMP has not been designated an enterprise- level system, DOD considers this system to be extremely important to  achieving key enterprise priorities, such as asset visibility. For example,  we reported that LMP will not provide total asset visibility over DOD’s  billions of dollars of inventory. We also reported that implementation  problems precluded the Tobyhanna Army Depot from accurately reporting  on its financial operations, which, in turn, adversely affects the depot’s  ability to set prices for work performed. At your request, we will be  undertaking a series of audits directed at DOD’s efforts to resolve  longstanding financial management problems over the visibility of its  assets that will include follow-up work on LMP.
In December 2005, we reported that DOD needed to reassess its planned  investment in the NTCSS, which is a system intended to help Navy  personnel effectively manage ships, submarines, and aircraft support  activities. We reported that this program was not being managed in  accordance with key aspects of the department’s policies and related  guidance, including federal and recognized best practice guidance. For  example, the Navy had not economically justified its ongoing and planned  investment in NTCSS; invested in NTCSS within the context of a well- defined DOD or Navy enterprise architecture, which is necessary to guide  and constrain NTCSS in a way that promotes interoperability and reduces  redundancy with related and dependent systems; effectively performed  key measurement, reporting, budgeting, and oversight activities; and  adequately conducted requirements management and testing activities.  Without this information, we concluded that the Navy could not determine  whether NTCSS as defined, and as being developed, is the right solution to  meet its strategic business and technological needs.
We reported in December 2005 that TC-AIMS II—a joint services system  with the goal of helping to manage the movement of forces and equipment  within the United States and abroad—had not been defined and developed  in the context of a DOD enterprise architecture. Similar to DIMHRS and  DTS, TC-AIMS II is intended to be an enterprise-level system. However, the  Army—DOD’s acquisition agent for TC-AIMS II—had pursued the system  on the basis of an Army logistics-focused architecture. This means that TC- AIMS II, which is intended to produce a departmentwide military  deployment management system, is based on a service-specific  architecture and not a DOD-wide architecture, thus increasing the risk that  this program, as defined, will not properly fit within the context of future  DOD enterprisewide business operations and IT environments. In  addition, the Army had not economically justified the program on the basis  of reliable estimates of life-cycle costs and benefits, and as a result, the  Army does not know that investment in TC-AIMS II as planned is  warranted, represents a prudent use of limited DOD resources, and will be  interoperable with and not be duplicative of related systems.
section_title: Specific High-risk Program Areas Highlight the Need for Continued Attention to Ensure Effective Transformation
paragraphs: I would like to discuss the five remaining high-risk areas within DOD.  These include weapon systems acquisitions and contractor oversight;  supply chain management; personnel security clearance program; and  support infrastructure management.
subsections: section_title: Management of DOD’s Weapon Systems Acquisitions and Contractor Oversight
paragraphs: Two interrelated high-risk areas are the management of DOD’s major  weapon systems acquisitions and its contractors due to recurring  problems with cost overruns and scheduling delays. DOD’s new weapon  systems programs are expected to be the most expensive and complex  ever and will consume an increasingly large share of DOD’s budget. These  costly current and planned acquisitions are running head-on into the  nation’s unsustainable fiscal path. In the past 5 years, DOD has doubled its  commitment to major weapon systems from $700 billion to $1.4 trillion,  but this huge increase has not been accompanied by more stability, better  outcomes, or more increased buying power for the acquisition dollar.  Rather than showing appreciable improvement, programs are  experiencing recurring problems with cost overruns, missed deadlines,  and performance shortfalls. A large number of the programs included in  our annual assessment of weapon systems are costing more and taking  longer to develop than estimated. It is not unusual to see development  cost increases between 30 percent and 40 percent and attendant schedule  delays. The consequence of cost and schedule growth is manifested in a  reduction of buying power of the defense dollar, at a time when the nation  is struggling with a large and growing structural deficit. This causes DOD  to either cut back on planned quantities or capabilities, or to even scrap  multi-billion dollar programs, after years of effort. If these systems are  managed with the traditional margins of error, the financial consequences  can be dire, especially in light of a constrained discretionary budget.
It is within this context that we must engage in a comprehensive and  fundamental reexamination of new and ongoing investments in our  nation’s weapon systems. Success for acquisitions means making sound  decisions to ensure that program investments are getting promised  returns. In the commercial world, successful companies have no choice  but to adopt processes and cultures that emphasize basing decisions on  knowledge, reducing risks prior to undertaking new efforts, producing  realistic cost and schedule estimates, and building in quality to deliver  products to customers at the right price, time, and cost. However, this is  not happening within DOD. The department has tried to embrace best  practices in its policies and instill more discipline in requirements setting,  among numerous other actions, but it still has trouble distinguishing wants  from true needs. While DOD’s policy supports a knowledge-based,  evolutionary approach to acquiring new weapons, its practice of making  decisions on individual programs often sacrifices knowledge and  executability in favor of revolutionary solutions. In an important sense,  success has come to mean starting and continuing programs even when  cost, schedule, and quantities must be sacrificed.
Our reviews have identified a number of causes behind the acquisition  problems just described, but I would now like to discuss three of these  underlying causes. The first I would refer to as “big A”, or acquisition with  a capital “A.” What I mean by this is that DOD’s funding, requirements, and  acquisition processes are not working synergistically. DOD does not  clearly define and stabilize requirements before programs are started. Our  work has shown that DOD’s requirements process generates more demand  for new programs than fiscal resources can support. DOD compounds the  problem by approving many highly complex and interdependent programs.  Moreover, once a program is approved, requirements can be added along  the way—significantly stretching technology, creating design challenges,  exacerbating budget overruns, and accountability challenges. For  example, in the F-22A program, the Air Force added a requirement for air- to-ground attack capability. In its Global Hawk program, the Air Force  added both signals intelligence and imagery intelligence requirements.  Both programs have experienced schedule delays and significant unit cost  increases. Customers often demand additional requirements fearing there  may not be another chance to get new capabilities because programs can  take a decade or longer to complete. Yet, perversely, such strategies delay  delivery to the warfighter, often by years.
The second cause I would refer to as “little a” or the acquisition process  itself. DOD commits to individual programs before it obtains assurance  that the capabilities it is pursuing can be achieved within available  resources and time constraints. Funding processes encourage this  approach, since acquisition programs attract more dollars than efforts  concentrating solely on proving out technologies. Only 10 percent of the  programs in our latest annual assessment of weapon systems had  demonstrated critical technologies to best practice standards at the start  of development; and only 23 percent demonstrated them to DOD’s  standards. The cost effect of proceeding without completing technology  development before starting an acquisition can be dramatic. For example,  research, development, test and evaluation costs for the programs  included in our review that met best practice standards at program start  increased by a modest average of 4.8 percent more than the first full  estimate, whereas the costs for the programs that did not meet these  standards increased by a much higher average of 34.9 percent more than  the first full estimate. The bottom line is that these consequences are  predictable and, thus, preventable.
The third cause has to do with the lack of accountability. Contractors and  responsible DOD officials are not always held accountable when programs  go astray. In December 2005, we reported that DOD gives its contractors  the opportunity to collectively earn billions of dollars through monetary  incentives. Unfortunately, we found DOD programs routinely engaged in  practices that failed to hold contractors accountable for achieving desired  outcomes and undermined efforts to motivate contractor performance,  such as    evaluating contractor performance on award-fee criteria that are not  directly related to key acquisition outcomes (e.g., meeting cost and  schedule goals and delivering desired capabilities to the warfighter);   paying contractors a significant portion of the available fee for what  award-fee plans describe as “acceptable, average, expected, good, or  satisfactory” performance, which sometimes did not require meeting  the basic requirements of the contract; and   giving contractors at least a second opportunity to earn initially  unearned or deferred fees.
As a result, DOD has paid out an estimated $8 billion in award fees on  contracts in our study population, regardless of whether acquisition  outcomes fell short of, met, or exceeded DOD’s expectations. For  example, we found that DOD paid its contractor for a satellite program— the Space-Based Infrared System High—74 percent of the award fee  available, or $160 million, even though research and development costs  increased by more than 99 percent, and the program was delayed for many  years and was rebaselined three times. In another instance, DOD paid its  contractor for the F-22A aircraft more than $848 million, 91 percent of the  available award fee, even though research and development costs  increased by more than 47 percent, the program had been delayed by more  than 2 years and rebaselined 14 times. Despite paying billions of dollars in  award and incentive fees, DOD has not compiled data or developed  performance measures to evaluate whether the validity of its belief that  award and incentive fees improve contractor performance and acquisition  outcomes.
There are many factors that play a role in causing weapons programs to go  astray. They include workforce challenges, poor contractor oversight,  frequent turnover in key leadership, and a lack of systems engineering,  among others. Moreover, many of the business processes that support  weapons development—strategic planning and budgeting, human capital  management, infrastructure, financial management, information  technology, and contracting—are beset with pervasive, decades-old  management problems, including outdated organizational structures,  systems, and processes. In fact, all of these areas—along with weapon  systems acquisition—are on GAO’s high-risk list of major government  programs and operations.
Our work shows that acquisition problems will likely persist until DOD  provides a better foundation for buying the right things, the right way. This  involves making tough tradeoff decisions as to which programs should be  pursued and, more importantly, not pursued, making sure programs are  executable, locking in requirements before programs are started, and  making it clear who is responsible for what and holding people  accountable when these responsibilities are not fulfilled. These changes  will not be easy to make. They require DOD to reexamine the entirety of  its acquisition process and to make deep-seated changes to the setting,  funding, and execution of program requirements. In other words, DOD  would need to revisit who sets requirements, strategy, monitors  performance and what factors to consider in selecting and rewarding  contractors. It also involves changing how DOD views success, and what  is necessary to achieve success. I am encouraged by DOD’s recent efforts  to improve the collaboration and consultation between the requirements  and acquisition communities. The tests of these efforts will be whether  they produce better decisions. If they do, it is important that they are  sustained by more than the force of personality.
Buying major systems is not the only area where DOD needs to improve its  acquisition practices. In fact, DOD’s management of its contracts in  general has been on GAO’s high-risk list since 1992. Contract management  remains a high-risk area at DOD to this day, in part, because DOD is  unable to assure that it is using sound business practices to acquire the  goods and services needed to meet the warfighter’s needs, creating  unnecessary risks and paying higher prices than justified. In this regard, in  March 2005 we reported that deficiencies in DOD’s oversight of service  contractors placed DOD at risk of paying the contractors more than the  value of the services they performed. In other reports, we identified  numerous issues in DOD’s use of interagency contracting vehicles that  contributed to poor acquisition outcomes. Additionally, earlier this year,  we reported that the Army acquired guard services under authorized sole- source contract at 46 of 57 Army installations, despite the Army’s  recognition that it was paying about 25 percent more for its sole-source  contracts than for those it had previously awarded competitively.
Until the department devotes sufficient management attention to address  these longstanding issues, DOD remains at risk of wasting billions of  dollars and failing to get the goods and services it needs to accomplish its  missions.
section_title: DOD Supply Chain Management
paragraphs: Since the January 2005 update of the high-risk series, DOD has made some  progress toward addressing supply chain management problems. With the  encouragement of the Office of Management and Budget (OMB), DOD has  developed a plan to show progress toward the long-term goal of resolving  problems and removing supply chain management from our list of high- risk areas within the department. DOD issued the first iteration of the plan  in July 2005 and, since then, has regularly updated it. Based on our initial  review of the plan, we believe it is a solid first step toward improving  supply chain management in support of the warfighter. For example,  DOD’s plan identifies three key areas—supply requirements forecasting,  distribution of material, and asset visibility—that we believe are critical to  DOD’s efforts to improve supply chain management. The plan highlights  selected DOD supply chain initiatives, including key milestones in their  development. Within the last few months, for example, DOD has made  some progress in streamlining the storage and distribution of defense  inventory items on a regional basis as part of its Joint Regional Inventory  Materiel Management initiative. DOD has completed a pilot for this  initiative in the San Diego region and, in January 2006, began a similar  transition for inventory items in Oahu, Hawaii. Notwithstanding this  positive first step, the department faces challenges and risks in  successfully implementing its proposed changes across the department  and measuring progress. It will be important for DOD to sustain top  leadership commitment and long-term institutional support for the plan;  obtain necessary resource commitments from the military services, the  Defense Logistics Agency, and other organizations; implement its  proposed initiatives across the department; identify performance metrics  and valid data to use in monitoring the initiatives; and demonstrate  progress toward meeting performance targets. We have been holding  monthly meetings with DOD and OMB officials to receive updates on the  plan and gain a greater understanding of the ongoing initiatives. In  addition, we are continuing to review DOD’s progress in implementing its  supply chain management plan, the extent the plan is strategically linked  to other logistics strategies, and the performance measures DOD is using  to track the plan’s progress in resolving supply chain problems.
section_title: DOD Personnel Security Clearance Program
paragraphs: DOD’s personnel security clearance program is another area that we  continue to assess because of the risks it poses. For over 2 decades, we  have reported on problems with DOD’s personnel security clearance  program as well as the financial costs and risks to national security  resulting from these problems. For example, at the turn of the century, we  documented problems such as incomplete investigations, inconsistency in  determining eligibility for clearances, and a backlog of overdue clearance  reinvestigations that exceeded 500,000 cases. More recently in 2004, we  identified continuing and new impediments hampering DOD’s clearance  program and made recommendations for increasing the effectiveness and  efficiency of the program. These longstanding delays in competing  hundreds of thousands of clearance requests for servicemembers, federal  employees, and industry personnel as well as numerous impediments that  hinder DOD’s ability to accurately estimate and eliminate its clearance  backlog led us to declare DOD’s personnel security clearance program a  high-risk area in January 2005. Since then, we have participated in four  hearings that addressed issues related to DOD’s program. While positive  steps—such as (1) the development of an initial version of a plan to  improve security clearance processes governmentwide and (2) high-level  involvement from the Office of Management and Budget—have been taken  toward addressing the problems, other recent events such as DOD halting  the processing of all new clearance requests for industry personnel on  April 28, 2006, reveal continuing problems with DOD’s personnel security  clearance program. As part of our ongoing efforts to monitor and evaluate  this program, we are currently reviewing the timeliness and completeness  of the processes used to determine whether industry personnel are eligible  to hold a top secret clearance.
section_title: DOD Support Infrastructure Management
paragraphs: Since 1997, GAO has identified DOD’s management of its support  infrastructure as a high-risk area because infrastructure costs continue to  consume a larger than necessary portion of its budget. DOD officials have  been concerned for several years that much of the department’s  infrastructure is outdated, inadequately maintained, and that DOD has  more infrastructure than needed, which impacts its ability to devote more  funding to weapon systems modernization and other critical needs.  Inefficient management practices and outdated business processes have  also contributed to the problem.
While DOD has made progress and expects to continue making  improvements in its support infrastructure management, DOD officials  recognize they must achieve greater efficiencies. To its credit, the  department has given high-level emphasis to reforming its support  operations and infrastructure since we last reported on this high-risk area,  including efforts to reduce excess infrastructure, promote transformation,  and foster jointness through the 2005 base realignment and closure  (BRAC) process. Also, DOD is updating its Defense Installations Strategic  Plan to better address infrastructure issues, revise its installations  readiness reporting to better measure facility conditions, establish core  real property inventory data requirements to better support the needs of  real property asset management, and continues to modify its suite of  analytical tools to better forecast funding requirements for installation  management services. It has also achieved efficiencies through privatizing  military family housing and demolishing unneeded buildings at military  installations.
Our engagements examining DOD’s management of its facilities  infrastructure indicate that much work remains for DOD to fully  rationalize and transform its support infrastructure to improve operations,  achieve efficiencies, and allow it to concentrate its resources on the most  critical needs. For example  In July 2005, we reported on clear limitations associated with achieving  DOD’s projected $50 billion in savings from this BRAC round. While  DOD offered many proposed actions in the 2005 round, these actions  were more related to business process reengineering and realignment  of various functions and activities than base closures and actual facility  reductions. Moreover, sizable savings were projected from efficiency  measures and other actions, but many underlying assumptions had not  been validated and could be difficult to track over time. We have  ongoing work monitoring actions emanating from the 2005 BRAC  process and assessing costs and savings from those actions, and will be  able to comment further on the status of these initiatives over the next  several years as implementation actions progress.
In June 2005, we reported that hundreds of millions of operation and  maintenance dollars designated for facilities sustainment, restoration,  and modernization and other purposes were moved by the services to  pay for base operations support (BOS) due in part to a lack of a  common terminology across the services in defining BOS functions, as  well as the lack of a mature analytic process for developing credible  and consistent requirements. While such funding movements are  permissible, we found that they were disruptive to the orderly  provision of BOS services and contributed to the overall degradation of  facilities which adversely affects the quality of life and morale of  military personnel. In another report issued in June 2005, we reported  that many of DOD’s training ranges were in deteriorated condition and  lacked modernization which adversely affected training activities and  jeopardized the safety of military personnel.
In an April 2006 report, we identified several opportunities for DOD  and the services to improve their oversight and monitoring of the  execution and performance of awarded privatized housing projects.  We further reported that 36 percent of awarded privatization projects  had occupancy rates below expectations even though the services had  begun renting housing units to parties other than military families,  including units rented to single or unaccompanied servicemembers,  retired military personnel, civilians and contractors who work for  DOD, and civilians from the general public.
During our recent visits to installations in the United States and  overseas, service officials continued to report on inadequate funding to  provide both base operations support and maintain their facilities. They  expressed concern that unless this is addressed, future upkeep and  repair of many new facilities to be constructed as a result of BRAC,  overseas rebasing, and the Army’s move to the modular brigade  structure will suffer and the condition of their facilities will continue to  deteriorate.
We have also found that DOD’s outline of its strategic plan for  addressing this high-risk area had a number of weaknesses and  warranted further clarification and specification. We have met with  officials of the OMB and DOD periodically to discuss the department’s  efforts to address this high-risk area.
Through our monitoring of DOD activities between now and the next  several years for base closures and overseas basing, we will be able to  determine what other work needs to be done on issues associated with  DOD’s management of its support infrastructure, as well as provide a more  complete assessment of costs, savings, and overall benefits realized from  the department’s efforts to address these issues. Organizations throughout  DOD will need to continue reengineering their business processes and  striving for greater operational effectiveness and efficiency. DOD will also  need to develop a comprehensive, long-range plan for its infrastructure  that addresses facility requirements, recapitalization, and maintenance and  repair, as well as to provide adequate resources to meet these  requirements and halt the degradation of facilities and services.
section_title: Congress Proposed Legislation to Address DOD’s Financial Management Weaknesses and Information Technology Systems
paragraphs: Lastly, you asked for my comments on two provisions contained in Senate  Bill 2766 (the National Defense Authorization Act for Fiscal Year 2007),  that the full Senate Armed Services Committee has reported to the Senate.  The first provision, section 313, is intended to ensure that the department  pursues audit activities only in accordance with a comprehensive financial  management improvement plan that coordinates such activities with  improvements in its systems and controls. The second provision, section  804, establishes certain reporting and oversight requirements for the  acquisition of Major Automated Information Systems (MAIS).
subsections: section_title: Proposed Legislation Reiterates Need for Consistency Between DOD’s Financial and Business Transformation Plans
paragraphs: Section 313 of legislation proposed by the Senate Armed Services  Committee, is intended to limit DOD’s ability to obligate or expend any  funds for the purpose of financial management improvement activities  until DOD asserts that the activities are consistent with its financial  management improvement plan and likely to result in sustained  improvements. I fully support the intent of legislation aimed at focusing  DOD’s corrective actions on sustained improvements in its ability to  provide timely, reliable, complete, and useful information. This is  important not only for financial reporting purposes, but more importantly  for daily decision making and oversight. Section 313 is consistent with  existing legislation, as well as recent actions taken by the department.
For example, the National Defense Authorization Act for Fiscal Year 2002,  Section 1008, currently requires DOD to limit resources used to prepare  and audit unreliable financial information, thereby saving the taxpayers  millions of dollars annually. In addition, the Fiscal Year 2002 Act requires  DOD to report to congressional committees and others annually on the  reliability of DOD’s financial information and to provide a summary of  improvement activities, including priorities, milestones, measures of  success, and estimates of when each financial statement will convey  reliable information. In my opinion, Congress has clearly articulated its  expectation that DOD exercise prudence in its use of taxpayer money and  focus only on those activities that will result in sustained improvements in  its ability to produce timely and reliable financial management  information.
Moreover, DOD developed its FIAR Plan to provide DOD components with  a roadmap for achieving the following objectives: (1) resolving problems  affecting the accuracy, reliability, and timeliness of financial information  and (2) obtaining clean financial statement audit opinions. Similar to the  Financial Improvement Initiative, an earlier DOD improvement effort, the  FIAR Plan uses an incremental approach to structure its process for  examining operations, diagnosing problems, planning corrective actions,  and preparing for audit. However, unlike the previous initiative, the FIAR  Plan does not establish an overall goal of achieving a clean audit opinion  on its departmentwide financial statements by a specific date. Rather, the  FIAR Plan recognizes that it will take several years before DOD is able to  implement the systems, processes, and other changes necessary to fully  address its financial management weaknesses.
I believe the FIAR Plan is an important step for the department in better  understanding and addressing its financial management deficiencies.  Furthermore, I believe development of the FIAR Plan was a direct result of  the interest, oversight, and leadership that this Subcommittee and others  have continued to demonstrate, through testimonies, legislation, and  other actions.
As outlined in its FIAR Plan, DOD has established business rules and an  oversight structure to guide improvement activities and audit preparation  efforts and to ensure compliance with Section 1008 of the National  Defense Authorization Act for Fiscal Year 2002. As is true with most  initiatives, however, a comprehensive and integrated plan, sustained  leadership, results oriented performance measures, and effective  implementation will be key to successful reform. The effectiveness of  DOD’s FIAR Plan, leadership, and business rules in addressing DOD’s  financial management deficiencies will be measured by the department’s  ability to provide timely, reliable, accurate, and useful information for day- to-day management, analysis, decision-making, reporting, and oversight  rather than primarily for establishing dollar values for financial reporting  purposes.
section_title: Legislative Language Establishing Reporting Requirements for Major Automated Information Systems Could Provide an Important Oversight Mechanism
paragraphs: The proposed language in Section 804 of Senate Bill 2766 (the Fiscal Year  2007 National Defense Authorization Act) could provide an important  oversight mechanism because it would establish certain reporting and  oversight requirements for the acquisition of MAIS that fail to meet cost,  schedule, or performance criteria. In general, a MAIS is a major DOD IT  program that is not embedded in a weapon system (e.g., a business system  investment).
The reporting requirements proposed in Section 804 are in many ways  similar to those for Major Defense Acquisition Programs (MDAPs), which  are typically weapon systems, including the cost increase reporting  mechanism commonly referred to as Nunn-McCurdy. For example,  Section 804 specifies cost increase percentage ranges that would prompt  congressional reporting and, if applicable, certification. However, there  are some major differences in the reporting requirements proposed for  MAIS programs as compared to those for MDAPs. For example, the  proposed language in Section 804 includes schedule delay thresholds, and  provides more specificity regarding performance changes by creating  criteria for either a “significant” or a “critical” change. While subjective in  the case of performance parameters, this added guidance is a positive step  towards increased visibility into the performance and progress of DOD  MAIS programs.
Another difference is that the proposed amendment does not include  enforcement language similar to that contained in the Nunn-McCurdy  provision, which states that, should the required reports not be submitted  to Congress as required for an MDAP, appropriated funds may not be  obligated for a major contract under the program.
There are two other provisions in the proposed language that the  Subcommittee may want to review. First, the proposed language mentions  the original information submitted to Congress as the basis for assessing  program changes. That would seem to mean the initial cost, schedule, and  performance “baseline” submitted when the program is first reported to  Congress. However, there is a risk that any cost, schedule, and  performance variances would be reduced if the latest annual cost,  schedule, and performance information is instead used by DOD as the  “baseline.” In effect, unless the proposed language is clarified, an  argument could be made that, given the annual requirement to submit the  MAIS program estimates, such programs could effectively be rebaselined  every year.
Second, the terms “original estimate” or information “originally submitted”  would also seem to mean the initial cost, schedule, and performance  “baseline” for an entire MAIS program (i.e., total program estimate).  However, a best practice for acquiring large and complex business system  investments, preferred under the Clinger-Cohen Act and federal guidance,  is to define, design, develop, and deploy a given system in incremental  parts. Each increment should have its own set of cost, schedule, and  performance (and benefit) baselines that are used to justify investment in,  and measure performance and progress of, each increment. This practice  is intended to spread the risk of managing large and lengthy investments  across a progression of several smaller and shorter investments. The  proposed legislative language does not recognize this practice. Our work  has shown that even though major business system programs have known  shortfalls in meeting incremental baselines, shortfalls against total  program baselines are not similarly visible.
section_title: Concluding Observations
paragraphs: Let me close where I began. DOD’s senior leaders have demonstrated a  commitment to transforming the department and have taken several  positive steps to begin this effort. However, for a long time now, we’ve  been saying that DOD needs a comprehensive, integrated, and  enterprisewide approach to decisionmaking and more sustained  leadership at the top.
The long-term fiscal pressures we face as a nation and the size and trend  of our projected longer term deficits will intensify the need for DOD to  make disciplined and strategic investment decisions that identify and  balance risks across a wide range of programs, operations, and functions.  While DOD has established an enterprise architecture and transition plan  and governance organizations to facilitate transformation across the  department, we recognize that this is a large undertaking and we are still  monitoring DOD’s efforts in this area.
I continue to believe that DOD needs a chief management officer, because,  in part, no single individual, no matter how talented or experienced, can  effectively address all that needs to be addressed at DOD including  conducting the Global War on Terrorism, transforming the military and  tackling long-standing, systemic, business transformation challenges.  Without the strong and sustained leadership provided by a CMO, DOD will  likely continue to have difficulties in maintaining the oversight focus and  momentum needed to implement and sustain the reforms to its overall  business operations.
Mr. Chairman and Members of the Subcommittee, this concludes my  prepared statement. I would be happy to answer any questions you may  have at this time.
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