Department of Defense: Further Actions Are Needed to Effectively Address Business Management Problems and Overcome Key Business Transformation Challenges
Published: 2004-11-18T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In March 2004, GAO testified before the Subcommittee on Readiness and Management Support, Senate Committee on Armed Services on the impact and causes of financial and related business weaknesses on the Department of Defense's (DOD) operations and the status of DOD reform efforts. GAO's reports continue to show that fundamental problems with DOD's financial management and related business operations result in substantial waste and inefficiency, adversely impact mission performance, and result in a lack of adequate transparency and appropriate accountability across all major business areas. Over the years, DOD leaders have initiated a number of efforts to address these weaknesses and transform the department. For years, GAO has reported that DOD is challenged in its efforts to effect fundamental financial and business management reform, and GAO's ongoing work continues to raise serious questions about DOD's chances of success. The Subcommittee asked GAO to provide a current status report on DOD's progress to date and suggestions for improvement. Specifically, GAO was asked to provide (1) an overview of the impact and causes of weaknesses in DOD's business operations, (2) the status of DOD reform efforts, (3) the impact of recent legislation pertaining to DOD's transformation and financial improvement initiatives, and (4) suggestions for improving DOD's efforts to improve the reliability of its financial information.
section_title: What GAO Found
paragraphs: Although senior DOD leaders have shown commitment to transformation as evidenced by key initiatives such as human capital reform, the Business Management Modernization Program, and the Financial Improvement Initiative, little tangible evidence of improvement has been seen in DOD's business operations. Overhauling the business operations of one of the largest and most complex organizations in the world represents a huge management challenge, especially given the increased demands on our military forces. However, this challenge can be met if DOD employs key elements, such as a comprehensive and integrated business transformation plan. Six DOD program areas are on GAO's high-risk list, and the department shares responsibility for three other governmentwide high-risk areas. Substantial weaknesses in DOD business operations adversely affect its ability to provide timely, reliable management information for DOD and Congress to use in making informed decisions. Further, the lack of adequate transparency and appropriate accountability across all of DOD's major business areas results in billions of dollars annually in wasted resources in a time of increasing fiscal challenges. Four underlying causes impede reform: (1) lack of clear and sustained leadership for overall business transformation efforts, (2) cultural resistance to change, (3) lack of meaningful metrics and ongoing monitoring, and (4) inadequate incentives and accountability mechanisms. To address these issues, GAO reiterates the key elements to successful reform that are embodied in our prior recommendations and two suggestions for legislative action. First, GAO suggests that a senior management position be established to provide strong and sustained leadership over all major transformation efforts. Second, GAO proposes that business systems modernization money be appropriated to designated approval authorities responsible and accountable for system investments within DOD business areas. Absent this unified responsibility, authority, accountability, and control of funding, the current transformation efforts are likely to fail.

section_title: Letter
paragraphs: It is a pleasure to be back before this Subcommittee to discuss financial  management and overall business transformation efforts at the Department  of Defense (DOD). At the outset, I would like to thank the Subcommittee  for having this hearing and acknowledge the important role hearings such  as this one serve in addressing DOD’s business transformation challenges.  DOD spends billions of dollars each year to sustain key business operations  that support our forces, including systems and processes related to  acquisition and contract management, financial management, supply chain  management, support infrastructure management, human capital  management, and other key areas. Recent and ongoing military operations  in Afghanistan and Iraq and new homeland defense missions have led to  higher demands on our forces in a time of growing fiscal challenges for our  nation. In an effort to better manage DOD’s resources, the Secretary of  Defense has appropriately placed a high priority on transforming key  business processes to improve their efficiency and effectiveness in  supporting the department’s military mission. However, as our reports  continue to show, fundamental problems with DOD’s financial management  and related business operations continue to result in substantial waste and  inefficiency, adversely impact mission performance, and result in a lack of  adequate transparency and appropriate accountability across all major  business areas. Of the 25 areas on GAO’s governmentwide high-risk list, 6  are DOD program areas, and the department shares responsibility for 3  other high-risk areas that are governmentwide in scope. The problems we  continue to identify relate to human capital challenges, ineffective internal  control and processes, and duplicative and nonintegrated business  information, systems, and operations. The seriousness of weaknesses in  DOD’s business operations underscores the importance of no longer  condoning the “status quo” at DOD.
Although, the Secretary and several key agency officials have shown  commitment to transformation, as evidenced by key initiatives such as  human capital reform, the Business Management Modernization Program  (BMMP), and the Financial Improvement Initiative, little tangible evidence  of significant broad-based and sustainable improvements has been seen in  DOD’s business operations to date. Improvements have generally been  limited to specific business process areas, such as DOD’s purchase card  program, and resulted in the incorporation of many key elements of reform,  such as increased management oversight and monitoring and results- oriented performance measures. It is important to note that current  business transformation initiatives are not integrated and lack many of the  key elements that contributed to the success of the narrowly defined  initiatives that I will highlight today.
For DOD to successfully transform its business operations, it will need a  comprehensive and integrated business transformation plan, people with  the skills, responsibility, and authority to implement the plan, an effective  process and related tools, such as a Business Enterprise Architecture  (BEA),  and results-oriented performance measures that link institutional,  unit, and individual personnel goals and expectations to promote  accountability for results. Over the last 3 years, we have made a series of  recommendations to DOD and suggested legislative changes that, if  implemented, could help DOD move forward in establishing the means to  successfully address the challenges it faces in transforming its business  operations.  The framework that we have proposed includes several key  elements for successful reform, recognizes the complexity of the  challenges facing DOD in its efforts to transform the department, and the  long-term nature of overcoming these challenges. Moreover, it recognizes  that the lack of clearly defined and sustained leadership, an enterprise  architecture to guide and direct business operational changes, cultural  resistance to change, and internal parochialism have impeded the success  of previous reform efforts.  DOD has agreed with our recommendations  and launched efforts intended to implement many of them, but progress  has been slow. Unless DOD can address the underlying causes that have  contributed to the failure of previous broad-based reform efforts,  improvements will remain marginal and confined to narrowly defined  business process areas and incremental improvements in human capital  policies, business processes, internal controls, and information technology  systems.
Today, I will provide my perspectives on (1) the impact that long-standing  weaknesses continue to have on the economy, efficiency, and effectiveness  of DOD’s business operations, (2) underlying causes that have impeded the  success of prior efforts,  (3) keys to successful reform, and (4) DOD  business transformation efforts and interim improvements. In addition,  while statutory requirements enacted recently as a part of the Ronald W.  Reagan National Defense Authorization Act for Fiscal Year 2005 are a  positive step towards improving leadership and accountability over DOD’s  systems transformation efforts, I will offer two suggestions for legislative  consideration related to sustained top-level leadership, responsibility, and  accountability that would better permit the effective use of transition  plans, processes, people, and tools and thereby increase the likelihood of  successful business transformation. My statement is based on previous  GAO reports and routine efforts to track the status of open  recommendations, as well as on our review of the work of other Supreme  Audit Institutions and DOD auditors, and recent DOD reports and studies.  Our work was performed in accordance with generally accepted  government auditing standards.
subsections: section_title: Impact of Financial Management and Related Business Process Weaknesses
paragraphs: As I previously stated, and we have reported on for several years, DOD  faces a range of challenges that are complex, long-standing, pervasive, and  deeply rooted in virtually all major business operations throughout the  department. As I testified last March and as discussed in our latest financial  audit report, DOD’s financial management deficiencies, taken together,  continue to represent the single largest obstacle to achieving an unqualified  (clean) audit opinion on the U.S. government’s consolidated financial  statements. While it is important to note that some DOD organizations,  such as the Defense Finance Accounting Service (DFAS), the Defense  Contract Audit Agency, and the Office of the Inspector General, have clean  audit opinions for fiscal year 2004, significant DOD components do not. To  date, none of the military services has passed the test of an independent  financial audit because of pervasive weaknesses in internal control and  processes and fundamentally flawed business systems. Moreover, the lack  of adequate transparency and appropriate accountability across DOD’s  major business areas results in billions of dollars of wasted resources  annually at a time of growing fiscal constraints.
In identifying improved financial performance as one of its five  governmentwide initiatives, the President’s Management Agenda  recognized that obtaining an unqualified financial audit opinion is a basic  prescription for any well-managed organization.  At the same time, it  recognized that without sound internal control and accurate and timely  financial and performance information, it is not possible to accomplish the  President’s agenda and secure the best performance and highest measure  of accountability for the American people. The Joint Financial Management  Improvement Program (JFMIP) principals have defined certain measures,  in addition to receiving an unqualified financial statement audit opinion, for  achieving financial management success. These additional measures  include (1) being able to routinely provide timely, accurate, and useful  financial and performance information, (2) having no material internal  control weaknesses or material noncompliance with laws and regulations,  and (3) meeting the requirements of the Federal Financial Management  Improvement Act of 1996 (FFMIA). Unfortunately, DOD does not meet any  of these conditions. For example, for fiscal year 2004, the DOD Inspector  General issued a disclaimer of opinion on DOD’s financial statements,  citing 11 material weaknesses in internal control and noncompliance with  FFMIA requirements.
Recent audits and investigations by GAO and DOD auditors continue to  confirm the existence of pervasive weaknesses in DOD’s financial  management and related business processes and systems.  These problems  have (1) resulted in a lack of reliable information needed to make sound  decisions and report on the status of DOD activities, including  accountability of assets, through financial and other reports to Congress  and DOD decision makers, (2) hindered its operational efficiency,   (3) adversely affected mission performance, and (4) left the department  vulnerable to fraud, waste, and abuse, of which I have a few examples.  782 of the 829 mobilized Army National Guard and Reserve soldiers  from 14 case study units we reviewed had at least one pay problem— including overpayments, underpayments, and late payments— associated with their mobilization. DOD’s inability to provide timely and  accurate payments to these soldiers, many of whom risked their lives in  dangerous combat missions in Iraq or Afghanistan, distracted them from  their missions, imposed financial hardships on the soldiers and their  families, and has negatively impacted retention. (GAO-04-89, Nov. 13,  2003 and GAO-04-911, Aug. 20, 2004)
DOD incurred substantial logistical support problems as a result of  weak distribution and accountability processes and controls over  supplies and equipment shipments in support of Operation Iraqi  Freedom, similar to those encountered during the prior gulf war. These  weaknesses resulted in (1) supply shortages, (2) backlogs of materials  delivered in-theater but not delivered to the requesting activity, (3) a  discrepancy of $1.2 billion between the amount of materiel shipped and  that acknowledged by the activity as received, (4) cannibalization of  vehicles, and (5) duplicate supply requisitions. (GAO-04-305R, Dec. 18,  2003)
Inadequate asset accountability also resulted in DOD’s inability to locate  and remove from its inventory over 250,000 defective chemical and  biological protective garments known as Battle Dress Overgarments  (BDOs)—the predecessor of the new Joint Service Lightweight  Integrated Suit Technology (JSLIST). Subsequently, we found that DOD  had sold many of these defective suits to the public, including 379 that  we purchased in an undercover operation. In addition, DOD may have  issued over 4,700 of the defective BDO suits to local law enforcement  agencies. Although local law enforcement agencies are most likely to be  the first responders to a terrorist attack, DOD failed to inform these  agencies that using these BDO suits could result in death or serious  injury. (GAO-04-15NI, Nov. 19, 2003)
Ineffective controls over Navy foreign military sales using blanket  purchase orders placed classified and controlled spare parts at risk of  being shipped to foreign countries that may not be eligible to receive  them. For example, we identified instances in which Navy country  managers (1) overrode the system to release classified parts under  blanket purchase orders without filing required documentation  justifying the release and (2) substituted classified parts for parts  ordered under blanket purchase orders, bypassing the control-edit  function of the system designed to check a country’s eligibility to  receive the parts. (GAO-04-507, June 25, 2004)
DOD and congressional decision makers lack reliable data upon which  to base sourcing decisions due to recurring weaknesses in DOD data- gathering, reporting, and financial systems. As in the past, we have  identified significant errors and omissions in the data submitted to  Congress on the amount of each military service’s depot maintenance  work outsourced or performed in-house.  As a result, both DOD and  Congress lack assurances that the dollar amounts of public-private  sector workloads reported by the military services are reliable. (GAO- 04-871, Sept. 29, 2004)
Ineffective controls over DOD’s centrally billed travel accounts led to  millions of dollars wasted on unused airline tickets, reimbursements to  travelers for improper and potentially fraudulent airline ticket claims,  and issuance of airline tickets based on invalid travel orders.  For  example, we identified 58,000 airline tickets—primarily purchased in  fiscal years 2001 and 2002—with a residual value of more than $21  million that were unused and not refunded as of October 2003. On the  basis of limited airline data, we determined that since 1997, the potential  magnitude of DOD’s unused tickets could be at least $115 million.   (GAO-04-825T, June 9, 2004 and GAO-04-398, Mar. 31, 2004)
The Navy’s lack of detailed cost information hinders its ability to  monitor programs and analyze the cost of its activities. For example, we  found that the Navy lacked the detailed cost and inventory data needed  to assess its needs, evaluate spending patterns, and leverage its  telecommunications buying power. As a result, we found that at the sites  reviewed, the Navy paid for telecommunications services it no longer  required, paid too much for services it used, and paid for potentially  fraudulent or abusive long-distance charges. For instance, we found that  DOD paid over $5,000 in charges for one card that was used to place 189  calls in one 24-hour period from 12 different cities to 12 different  countries. (GAO-04-671, June 14, 2004)
DOD continues to use overly optimistic planning assumptions to  estimate its annual budget request. These assumptions are reflected in  its Future Years Defense Program (FYDP), which reports projected  spending for the current budget year and at least 4 succeeding years.  Such overly optimistic assumptions limit the visibility of costs projected  throughout the FYDP period and beyond.  As a result, DOD has too  many programs for the available dollars, which often leads to program  instability, costly program stretch-outs, and program termination.  For  example, in January 2003, we reported that the estimated costs of  developing eight major weapons systems had increased from about $47  billion in fiscal year 1998 to about $72 billion by fiscal year 2003. In  addition, in September 2004 the Congressional Budget Office projected  that if the costs of weapons programs and certain other activities  continued to grow as they have historically rather than as DOD  currently projects, executing today’s defense plans would require  spending an average of $498 billion a year through 2009. Without  realistic projections, Congress and DOD will not have visibility over the  full range of budget options available to achieve defense goals. (GAO-03- 98, Jan. 2003 and GAO-04-514, May 7, 2004)
DOD did not know the size of its security clearance backlog at the end  of September 2003 and had not estimated this backlog since January  2000. Using September 2003 data, we estimated that DOD had a backlog  of roughly 360,000 investigative and adjudicative cases, but the actual  backlog size is uncertain. DOD’s failure to eliminate and accurately  assess the size of its backlog may have adverse affects. For example,  delays in updating overdue clearances for personnel doing classified  work may increase national security risks and slowness in issuing new  clearances can increase the costs of doing classified government work.   (GAO-04-344, Feb. 9, 2004)
These examples clearly demonstrate not only the severity of DOD’s current  problems, but also the importance of reforming the department’s business  operations to more effectively support DOD’s core mission, to improve the  economy and efficiency of its operations, and to provide for transparency  and accountability to Congress and American taxpayers.
section_title: Underlying Causes of Financial and Related Business Process Transformation Challenges
paragraphs: The underlying causes of DOD’s financial management and related  business process and system weaknesses are generally the same ones I  have outlined in my prior testimonies before this Subcommittee over the  last 3 years. Unfortunately, DOD has made little progress in addressing  these fundamental issues and thus is at high risk that its current major  reform initiatives will fail.  For each of the problems I cited previously, we  found that one or more of these long-standing causes were contributing  factors. Over the years, the department has undertaken many well-intended  initiatives to transform business operations departmentwide and improve  the reliability of information for decision making and reporting.  However,  many of these efforts resulted in costly failures because the department did  not fully address the following four underlying causes of transformation  challenges.
subsections: section_title: Lack of Sustained Leadership and Management Accountability
paragraphs: DOD has not routinely assigned accountability for performance to specific  organizations or individuals who have sufficient authority, resource  control, and continuity in their position to accomplish desired goals.  In  addition, top management has not had a proactive, consistent, and  continuing role in integrating daily operations with business  transformation-related performance goals. It is imperative that major  improvement initiatives have the direct, active support and involvement of  the Secretary and Deputy Secretary of Defense to ensure that daily  activities throughout the department remain focused on achieving shared,  agencywide outcomes and success.  However, sustaining top management  continuity and commitment to performance goals, long-term planning, and  follow-through that will necessarily span several years is particularly  challenging for DOD. For example, in fiscal year 2004, DOD’s Comptroller,  Deputy Under Secretary of Defense for Management Reform, and Deputy  Chief Financial Officer—to whom the Secretary delegated the leadership  role for key transformation initiatives—all resigned from the department  within a 5-month period. Moreover, the department’s primary  transformation program—BMMP—has had three different directors  responsible for leading the program since Secretary Rumsfeld initiated it a  little over 3 years ago. Given the importance of DOD’s business  transformation effort, it is imperative that it receives sustained, focused  departmentwide leadership needed to improve the economy, efficiency,  and effectiveness of DOD’s business operations. As I will discuss in more  detail later, we continue to advocate the establishment of a new executive  position to provide strong and sustained leadership to the entire spectrum  of DOD business transformation initiatives.
section_title: Cultural Resistance and Parochialism
paragraphs: The department has acknowledged that it confronts decades-old problems  deeply grounded in the bureaucratic history and operating practices of a  complex, multifaceted organization. Many of DOD’s current operating  practices and systems were developed piecemeal to accommodate  different organizations, each with its own policies and procedures. As we  have reported over the last 3 years, DOD has continued to use a stovepiped  approach to develop and fund its business system investments. The  existing systems environment evolved over time as DOD components— each receives its own system funding and follows decentralized acquisition  and investment practices—developed narrowly focused parochial  solutions to their business problems. While the Ronald W. Reagan National  Defense Authorization Act for Fiscal Year 2005 more clearly defines the  roles and responsibilities of business system investment approval  authorities, control over the budgeting for and execution of funding for  system investment activities remains at the component level. As I will  discuss later, unless business systems modernization money is  appropriated to those who are responsible and accountable for reform,  DOD is at risk for continuing its current stovepiped approach to developing  and funding system investments and failing to fundamentally improve its  business operations. DOD’s ability to address its current “business-as- usual” approach to business system investments is further hampered by its  lack of an effective methodology and process for obtaining a complete  picture of its current business systems environment—a condition we first  highlighted in 1997. In September 2004, DOD reported that the  department had identified over 4,000 business systems—up from the 1,731  the department reported in October 2002. Unfortunately, due to its lack of  an effective methodology and process for identifying business systems,  including a clear definition of what constitutes a business system, DOD  continues to lack assurance that its systems inventory is reliable. This lack  of visibility over business systems in use throughout the department  hinders DOD’s ability to identify and eliminate duplicate and nonintegrated  systems and transition to an integrated systems environment.
section_title: Lack of Results-Oriented Goals and Performance Measures
paragraphs: At a programmatic level, the lack of clear, comprehensive, and integrated  performance goals and measures has handicapped DOD’s past reform  efforts.  As a result, DOD managers lacked straightforward roadmaps  showing how their work contributed to attaining the department’s strategic  goals, and they risked operating autonomously rather than collectively. As  of March 2004, DOD had formulated departmentwide performance goals  and measures and continues to refine and align them with the outcomes  described in its strategic plan—the September 2001 Quadrennial Defense  Review (QDR). The QDR outlined a new risk management framework  consisting of four dimensions of risk—force management, operational,  future challenges, and institutional—to use in considering trade-offs among  defense objectives and resource constraints.  According to DOD’s Fiscal  Year 2003 Annual Report to the President and the Congress, these risk  areas are to form the basis for DOD’s annual performance goals. They will  be used to track performance results and will be linked to planning and  resource decisions. As of October 2004, the department was still in the  process of implementing this approach departmentwide. However, it  remains unclear how DOD will use this approach to measure progress in  achieving business reform.
As we reported in May 2004, DOD had yet to establish measurable, results- oriented goals for BMMP. BMMP is the department’s major business  transformation initiative encompassing defense policies, processes,  people, and systems that guide, perform, or support all aspects of business  management, including development and implementation of the BEA. A  key element of any major program is its ability to establish clearly defined  goals and performance measures to monitor and report its progress to  management.  The lack of BMMP performance measures has made it is  difficult to evaluate and track specific program progress, outcomes, and  results, such as explicitly defined performance measures to evaluate the  architecture’s quality, content, and utility of subsequent major updates.  Given that DOD had reported total obligations for BMMP of over $203  million since architecture development began 3 years ago, with little  tangible improvements in DOD operations, this is a serious performance  management weakness.
Further, DOD has not established measurable criteria that decision makers  must consider for its revised weapons system acquisition policy, issued in  May 2003.  The revisions make major improvements to DOD acquisition  policy by adopting knowledge-based, evolutionary practices used by  successful commercial companies. However, DOD has not provided the  necessary controls to ensure such an approach is followed.  For example,  the policy does not establish measures to gauge design and manufacturing  knowledge at critical junctures in the product development process,  allowing significant unknowns to be judged as acceptable risks. Without  controls in the form of measurable criteria that decision makers must  consider, DOD runs the risk of making decisions based on overly optimistic  assumptions.
section_title: Lack of Incentives for Change
paragraphs: The final underlying cause of the department’s long-standing inability to  carry out needed fundamental reform has been the lack of a clear linkage of  institutional, unit, and individual results-oriented goals, performance  measures, and reward mechanisms for making more than incremental  changes to existing “business-as-usual” operations, systems, and  organizational structures. Traditionally, DOD has focused on justifying its  need for more funding rather than on the outcomes its programs have  produced. DOD has historically measured its performance by resource  components, such as the amount of money spent, people employed, or  number of tasks completed. Incentives for its decision makers to  implement behavioral changes have been minimal or nonexistent.
The lack of incentives to change is evident in the business systems  modernization area. We have identified numerous business system  modernization efforts that were not economically justified on the basis of  cost, benefits, and risk; took years longer than planned; and fell far short of  delivering planned or needed capabilities. Despite this track record, DOD  continues to invest billions in business systems while at the same time it  lacks the effective management and oversight needed to achieve real  results. Without appropriate incentives and accountability mechanisms, as  well as more centralized control of systems modernization funding, DOD  components will continue to develop duplicative and nonintegrated  systems that are inconsistent with the Secretary’s vision for reform. To  effect real change, actions are needed to (1) develop a well-defined  blueprint for change, such as an enterprise architecture, that provides a  common framework of reference for making informed system investment  decisions,  (2) adopt an investment decision-making model that uses the  architecture to break down parochialism and reward behaviors that meet  DOD-wide goals, (3) establish incentives that motivate decision makers to  initiate and implement efforts that are consistent with better architecture  and program outcomes, including saying “no” or pulling the plug early on a  system or program that is failing, (4) address human capital issues, such as  the adequacy of staffing level, skills, and experience available to achieve  the institutional, unit, and individual objectives and expectations, and   (5) facilitate a congressional focus on results-oriented management,  particularly with respect to resource allocation decisions.
section_title: Keys to Successful Reform and Current Status of Reform Efforts
paragraphs: The success of DOD’s current broad-based business reform initiatives is  threatened, as prior initiatives were, by DOD’s continued failure to  incorporate key elements that are critical to achieve successful reform.  Any efforts at reform must include (1) a comprehensive, integrated  business transformation plan, (2) personnel with the necessary skills,  experience, responsibility, and authority to implement the plan,   (3) effective processes and related tools, such as a BEA and business  system investment decision making controls, and (4) results-oriented  performance measures that link institutional, unit, and individual personnel  goals, measures, and expectations.  Today, I would like to discuss three of  those broad-based initiatives. In addition, I will briefly highlight some of the  several smaller, more narrowly focused initiatives DOD has started in  recent years that, through incorporation of many of the key elements, have  been successful in making tangible improvements in DOD operations.   Furthermore, I would like to reiterate two suggestions for legislative  consideration that I believe are essential in order for DOD to be successful  in its overall business transformation effort.
Keys to Successful Reform As I have previously testified, and as illustrated by the success of the  more narrowly defined DOD initiatives I will discuss later, there are several  key elements that collectively would   enable the department to effectively address the underlying causes of its   long-standing business management problems. These elements, which  we believe are key to any   successful approach to transforming the department’s business   addressing the department’s financial management and related business  operational challenges as part of a comprehensive, integrated, DOD- wide strategic plan for business reform;  providing for sustained, committed, and focused leadership by top  management, including but not limited to the Secretary of Defense;  establishing resource control over business systems investments;  establishing clear lines of responsibility, authority, and accountability;  incorporating results-oriented performance measures that link key  institutional, unit, and individual personnel transformation objectives  and expectations, and monitoring progress;  addressing human capital issues, such as the adequacy of staff levels,  skills, and experience available to achieve the institutional, unit, and  individual personnel performance goals and expectations;  providing appropriate incentives or consequences for action or inaction;   establishing an enterprise architecture to guide and direct business  systems modernization investments; and   ensuring effective oversight and monitoring.
These elements, which should not be viewed as independent actions but  rather as a set of interrelated and interdependent actions, are reflected in  the recommendations we have made to DOD over the last 3 years and are  consistent with those actions discussed in the department’s April 2001  financial management transformation report. The degree to which DOD  incorporates them into its current reform efforts—both long and short  term—will be a deciding factor in whether these efforts are successful.  Thus far, the department’s progress in implementing our recommendations  pertaining to its broad-based initiatives has been slow. Further, while the  new legislation on business systems oversight directs DOD to take action  on some of these elements, we have not yet seen a comprehensive,  cohesive, and integrated strategy that details how some of the ongoing  efforts are being integrated.  For example, we have not seen how the  department plans to integrate its objective of obtaining an unqualified audit  opinion in fiscal year 2007 with the BMMP. It appears as if these two  efforts are being conducted without the degree of coordination that would  generally be expected between efforts that share similar objectives.
subsections: section_title: Human Capital Initiative
paragraphs: The first broad-based administrative initiative is effective implementation  of the National Security Personnel System (NSPS). In November 2003,  Congress authorized the Secretary of Defense to establish a new human  capital management system—NSPS—for its civilian employees, which is  modern, flexible, and consistent with the merit principles outlined by the  act.  This legislation requires DOD to develop a personnel system that is  consistent with many of the practices that we have identified as elements  of an effective human capital management system, including a modern and  results-oriented performance management system.  For several years, we  have reported that many of DOD’s business process and control  weaknesses were attributable in part to human capital issues. For example,  GAO audits of DOD’s Army Reserve and National Guard payroll and the  centrally billed travel card programs further highlight the adverse impact  that outdated and inadequate human capital practices, such as insufficient  staffing, training, and monitoring of performance, continue to have on DOD  business operations. If properly developed and implemented, NSPS could  result in significant improvements to DOD’s business operations.
I strongly support the need for modernizing federal human capital policies  both within DOD and for the entire federal government. Since April 2003 I  have testified on four different occasions, including before this  Subcommittee, on NSPS and related DOD human capital issues. In the  near future, we will issue a summary of the forum GAO and the National  Commission on the Public Service Implementation Initiative cohosted to  advance the discussion of how human capital reform should proceed.  Participants discussed whether there should be an overall governmentwide  framework for human capital reform and, if yes, what such a framework  should include. While the forum neither sought nor achieved consensus on  all of the issues identified in the discussion, there was broad agreement  that there should be a governmentwide framework to guide human capital  reform built on a set of timeless beliefs and boundaries. Beliefs entail the  fundamental principles that should govern all approaches to human capital  reform and should not be altered or waived by agencies seeking human  capital authorities. Boundaries include the criteria and processes that  establish the checks and limitations when agencies seek and implement  human capital authorities.
A modern, effective, credible, and integrated performance management  system can help improve DOD's business operations.  Specifically, such a  performance management system aligns individual performance  expectations with organizational goals and thus defines responsibility and  assures accountability for achieving them.  In addition, a performance  management system can help manage and direct a transformation process  by linking performance expectations to an employee’s role in the process.  Individual performance and contributions are evaluated on competencies  such as change management. Leaders, managers, and employees who  demonstrate these competencies are rewarded for their success in  contributing to the achievement of the transformation process.
There are significant opportunities to use the performance management  system to explicitly link senior executive expectations for performance to  results-oriented goals. There is a need to hold senior executives  accountable for demonstrating competencies in leading and facilitating  change and fostering collaboration both within and across organizational  boundaries to achieve results. Setting and meeting expectations such as  these will be critical to achieving needed  transformation changes.   Recently, Congress established a new performance-based pay system for  members of the Senior Executive Service (SES) that is designed to provide  a clear and direct link between SES performance and pay. An agency can  raise the pay cap for its senior executives if the agency's performance  management system makes meaningful distinctions based on relative performance. This visible step in linking pay to the achievement of  measurable performance goals within a context of a credible human capital  system that includes adequate safeguards is helpful in constructing a  results-oriented culture.
In my March 2004 testimony on DOD’s financial management and related  business management transformation efforts, I stated that as DOD  develops regulations to implement its new human capital management  system, the department needs to do the following:   Ensure the active involvement of the Office of Personnel Management in  the development process, given the significant implications that changes  in DOD regulations may have on governmentwide human capital  policies. In this regard, the Office of Personnel Management has  assigned a senior representative to support and advise DOD on the  development of jointly prescribed NSPS regulations and the  implementation of NSPS.
Ensure the involvement of civilian employees and unions in the design  and development of a new personnel system.  The law calls for DOD to  involve employees, especially in the design of its new performance  management system. Involving employees in planning helps to develop  agency goals and objectives that incorporate insights about operations  from a front-line perspective. It can also serve to increase employees’  understanding and acceptance of organizational goals and improve  motivation and morale. In this regard, DOD has launched a new Web site  to educate its employees about the new National Security Personnel  System. In addition, DOD leadership has indicated that it has sought  input from civilian employees through town hall meetings, focus groups,  and discussions with union leaders.
Use a phased approach to implement the system, recognizing that  different parts of the organization will have different levels of readiness  and different capabilities to implement new authorities.  A phased  approach allows for learning so that appropriate adjustments and  midcourse corrections can be made before the regulations are fully  implemented departmentwide.  In this regard, DOD had initially  indicated that it planned to implement its new human capital system for  300,000 civilian employees by October 1, 2004.  DOD has since indicated  that it has adjusted its timelines to reflect a more cautious, deliberative  approach involving more stakeholders.  DOD has now indicated that it  plans to phase in its new human capital system beginning in July 2005.
We are currently evaluating DOD’s NSPS design process and look forward  to sharing our findings with Congress upon completion of our review.
section_title: Business Management Modernization Program
paragraphs: While BMMP is vital to the department’s efforts to transform its business  operations, DOD has not effectively addressed many of the impediments to  successful reform that I mentioned earlier, including (1) a lack of sustained,  effective, and focused leadership, (2) a lack of results-oriented goals and  performance measures, and (3) long-standing cultural resistance and  parochialism. As a result, the program has yielded very little, if any, tangible  improvements in DOD’s business operations. We have made numerous  recommendations to DOD that center on the need to incorporate the key  elements to successful reform, which I discussed previously, into the  program.  In May 2004 we reported that no significant changes had been  made to the architecture since the initial version was released.  Further, we  reported that DOD had not yet adopted key architecture management best  practices, such as assigning accountability and responsibility for directing,  overseeing, and approving the architecture and explicitly defining  performance metrics to evaluate the architecture’s quality, content, and  utility. For these and other reasons, DOD’s verification and validation  contractor concluded that this latest version of the architecture retained  most of the critical problems of the initial version, such as how the  architecture should be used by the military services and other DOD  components in making acquisition and portfolio investment decisions. I  will now expand on the problems facing BMMP.
The purpose of BMMP is to provide world-class mission support to the war  fighter through transformation of DOD’s business processes and systems. A  key element of BMMP is the development and implementation of a well- defined BEA. Properly developed and implemented, a BEA can provide  assurance that the department invests in integrated enterprisewide  business solutions and, along with effective project management and  resource controls, it can be instrumental in developing corporatewide  solutions and moving resources away from nonintegrated business system  development efforts. As we reported in July 2003, DOD had developed an  initial version of BEA and had expended tremendous effort and resources  in doing so. However, we also reported that substantial work remains  before the architecture would be sufficiently defined to have a tangible  impact on improving DOD’s overall business operations. In May 2004, we  reported that after about 3 years of effort and over $203 million in  reported obligations for BMMP operations, BEA’s content and DOD’s  approach to investing billions of dollars annually in existing and new  systems had not changed significantly. Under a provision in the recently  enacted Ronald W. Reagan National Defense Authorization Act for fiscal  year 2005, DOD must develop an enterprise architecture to cover all  defense business systems and related business functions and activities that  is sufficiently defined to effectively guide, constrain, and permit  implementation of a corporatewide solution and is consistent with the  policies and procedures established by the Office of Management and  Budget. Further, the act requires the development of a transition plan that  includes not only an acquisition strategy for new systems, but also a listing  of the termination dates of current legacy systems that will not be part of  the corporatewide solution, as well as a listing of legacy systems that will  be modified to become part of the corporatewide solution for addressing  DOD’s business management deficiencies. Transforming DOD’s business  operations and making them more efficient through the elimination of  nonintegrated and noncompliant legacy systems would free up resources  that could be used to support the department’s core mission, enhance  readiness, and improve the quality of life for our troops and their families.
I cannot overemphasize the degree of difficulty DOD faces in developing  and implementing a well-defined architecture to provide the foundation  that will guide its overall business transformation. The department’s  business transformation depends on its ability to develop and implement  business systems that provide corporate solutions. Successful  implementation of corporate solutions through adherence to a well-defined  enterprise architecture and effective project management and fund control  would go a long way toward precluding the continued proliferation of  duplicative, stovepiped systems and reduce spending on multiple systems  that are supposed to perform the same function. Without these things, we  have continued to see that DOD is still developing systems that are not  designed to solve corporatewide problems.
For example, the Defense Logistics Agency’s  (DLA) Business Systems  Modernization (BSM) and the Army’s Logistics Modernization Program  (LMP), both of which were initiated prior to commencement of the BEA  effort, were not directed towards a corporate solution to the department’s  long-standing weaknesses in inventory and logistics management, such as  the lack of total asset visibility. Rather, both projects focused on their  respective entity’s inventory and logistics management operations. As a  result, neither project will provide asset visibility beyond the stovepiped  operation for which they were designed. For example, BSM is only  designed to provide visibility over the items within the DLA environment— something DLA has stated already exists within its current system  environment. As a result, DOD continues to lack the capability to identify  the exact location of items, such as defective chemical and biological  protective suits, that were distributed to end-users, such as the military  services, or sold to the public. The department would have to resort to  inefficient and ineffective data calls, as it has done in the past, to identify  and withdraw defective items from use.
Another major impediment to the successful transformation of DOD’s  business systems is funds control. DOD invests billions of dollars annually  to operate, maintain, and modernize its business systems. For fiscal year  2004, the department requested approximately $28 billion in IT funding to  support a wide range of military operations as well as DOD business  systems operations, of which DOD reported that approximately   $18.8 billion —$5.8 billion for business systems and $13 billion for  business systems infrastructure—relates to the operation, maintenance,  and modernization of the department’s reported thousands of business  systems. The $18.8 billion is spread across the military services and defense  agencies, with each receiving and controlling its own funding for IT  investments. Although the recently enacted Ronald W. Reagan National  Defense Authorization Act for fiscal year 2005 more clearly defines the  roles and responsibilities of business system investment approval  authorities, control over the budgeting for and execution of funding for  system investment activities remains at the component level. Under a  provision in the act, effective October 1, 2005, DOD must identify each  defense system for which funding is proposed in its budget, including the  identification of all funds, by appropriation, for current services (to operate  and maintain the system) and modernization. Further, DOD may not  obligate funds for a defense business system modernization that will have a  total cost in excess of $1 million unless specific conditions called for in the  act are met. The Defense Business Systems Management Committee, also  required by the act to be established, must then approve the designated approval authorities’ certification before funds can be obligated. Further,  obligation of funds for modernization programs without certification and  approval by the Defense Business Systems Management Committee is  deemed a violation of the Anti-Deficiency Act. Although proper  implementation of this legislation should strengthen oversight of DOD’s  systems modernization efforts, it is questionable whether DOD has  developed or improved its processes and procedures to identify and  control system investments occurring at the component level. Unless DOD  establishes effective processes and controls to identify and control system  investments occurring within DOD components and overcome parochial  interests when corporatewide solutions are more appropriate, it will lack  the ability to ensure compliance with the act.
We fully recognize that developing and implementing an enterprise  architecture for an organization as large and complex as DOD is a  formidable challenge. Nevertheless, a well-defined architecture is essential  to enabling some of the elements for successful reform that I discussed  earlier. Accordingly, we remain supportive of the need for BMMP, but are  deeply concerned about the program’s lack of meaningful progress and  inability to address management challenges.  Accordingly, we plan to  continue working constructively with the department to strengthen the  program and will report to this Subcommittee on DOD’s progress and  challenges in the spring of 2005.
section_title: Financial Improvement Initiative
paragraphs: While DOD’s former Comptroller started the financial improvement  initiative with the goal of obtaining an unqualified audit opinion for fiscal  year 2007 on its departmentwide financial statements, we found that the  initiative was simply a goal that lacked a clearly defined, well-documented,  and realistic plan to make the stated goal a reality.
In September 2004 we reported that DOD’s financial improvement  initiative lacked several of the key elements critical to success, including  (1) a comprehensive, integrated plan, (2) results-oriented goals and  performance measures, and (3) effective oversight and monitoring.   Specifically, we found that DOD had not established a framework to  integrate the improvement efforts planned by DOD components with  broad-based DOD initiatives such as human capital and BMMP. Rather,  DOD intended to rely upon the collective efforts of DOD components, as  shown in their discrete plans, to address its financial management  deficiencies while at the same time continuing its broad-based initiatives.  However, the component plans we reviewed did not consistently identify  whether a proposed corrective action included a manual work-around or  business system enhancement or replacement. Further, the component  plans lacked sufficient information regarding human capital needs, such as  the staffing level and skills required to implement and sustain the plans. In  addition, as we have previously reported, the department currently lacks  a mechanism to effectively identify, monitor, and oversee business system  investments, including enhancements, occurring within the department.  Because of this lack of visibility over how DOD components plan to  advance their financial management functionality, the DOD Comptroller  and BMMP may not have sufficient information to assess the feasibility of a  work-around or to review and approve all modifications to existing legacy  business systems to ensure that they (1) are sound investments,   (2) optimize mission performance and accountability, and (3) are  consistent with applicable requirements and key architectural elements in  DOD’s business enterprise architecture.
In addition, our review of key individual component plans revealed that the  plans varied in levels of detail, completeness, and scope, such that it will be  difficult for DOD Comptroller staff to use the departmental database of  component plans it was developing to oversee and monitor component  efforts. We found that the component plans did not consistently identify  how staff (human capital), processes, or business systems would be  changed to implement corrective actions. Such changes are key elements  in assessing the adequacy of a component’s plan and in monitoring  progress and sustainability.
Further, DOD lacked effective oversight and accountability mechanisms to  ensure that the plans are implemented and corrective actions are  sustainable. The database the department is currently using was not  integrated electronically with subordinate component plans and the  milestone dates identified in the component plans were generally based on  assertion dates prescribed by the DOD Comptroller and not on actual  estimates of effort required. Furthermore, task dependencies were not  clearly identified, including critical corrective tasks that would need to be  completed in order for the fiscal year 2007 audit opinion to be achieved.
On the positive side, DOD had developed business rules, which if  implemented as planned, should clearly establish a process for ensuring  that corrective actions, as described in the component plans, are  implemented and validated in order to minimize the department’s risk of  unsupported claims by DOD components that reported financial  information is auditable.  Further, the business rules clearly recognize that  management, not the auditor, is responsible for documenting business  processes, systems, and internal control for collecting and maintaining  transaction data. In addition, DOD’s involvement of its components in  developing and implementing solutions to long-standing deficiencies in  their business operations under this initiative is a critical and positive step  toward obtaining the commitment and buy-in that has not been readily  apparent in BMMP. Further, the recently enacted Ronald W. Reagan  National Defense Authorization Act for Fiscal Year 2005 has placed a  limitation on continued preparation or implementation of DOD’s financial  improvement initiative pending a report to congressional defense  committees containing the following: (1) a determination that BEA and the  transition plan have been developed, as required by section 332 of the act,  (2) an explanation of the manner in which fiscal year 2005 operation and  maintenance funds will be used by DOD components to prepare or  implement the midrange financial improvement plan, and (3) an estimate of  future year costs for each DOD component to implement the plan. DOD  Comptroller staff acknowledged that their goal was ambitious, but believed  that they were in the process of laying a framework, which they believe  would address our issues, to facilitate movement towards sustainable  financial management improvements and eventually obtain an unqualified  audit opinion.
section_title: Interim Initiatives
paragraphs: In contrast to its broad-based initiatives, DOD has incorporated many of  the key elements for successful reform in its interim initiatives. As the  following examples demonstrate, leadership, real incentives,  accountability, and oversight and monitoring were clearly key elements in  DOD’s efforts to improve its operations. For example, the former DOD  Comptroller developed  a Financial Management Balanced Scorecard that  is intended to align the financial community’s strategy, goals, objectives,  and related performance measures with the departmentwide risk  management framework established as part of DOD’s Quadrennial Defense  Review, and with the President’s Management Agenda.  To effectively  implement the balanced scorecard, the DOD Comptroller has cascaded the  performance measures down to the military services and defense agency  financial communities, along with certain specific reporting requirements.   At the departmentwide level, certain financial metrics are selected,  consolidated, and reported to the top levels of DOD management for  evaluation and comparison.  These “dashboard” metrics are intended to  provide key decision makers, including Congress, with critical  performance information at a glance, in a consistent and easily  understandable format.
DFAS has been reporting the metrics cited below for several years, which  under the leadership of DFAS’s Director and DOD’s Comptroller, have  reported improvements including the following.
From April 2001 to September 2004, DOD reduced its commercial pay  backlogs (payment delinquencies) by 72 percent.
From March 2001 to September 2004, DOD reduced its payment  recording errors by 77 percent.
From September 2001 to September 2004, DOD reduced its delinquency  rate for individually billed travel cards from 9.4 percent to 4.3 percent.
Using DFAS’s metrics, management can quickly see  when and where  problems are arising and can focus additional attention on those areas.  While these metrics show significant improvements from 2001 to today, our report last year on DOD’s metrics program included a caution that,  without modern integrated systems and the streamlined processes they  engender, reported progress may not be sustainable if workload is  increased.
DOD and the military services have also acted to improve their oversight  and monitoring of the department’s purchase card program and have taken  actions, that when fully implemented, should effectively address all of our  109 recommendations.  For example, they issued policy guidance on  monitoring charge card activity and disciplinary actions that will be taken  against civilian or military employees who engage in improper, fraudulent,  abusive, or negligent use of a government charge card.  In addition, they  substantially reduced the number of purchase cards issued. According to  the General Services Administration records, DOD had reduced the total  number of purchase cards from about 239,000 in March 2001 to about  131,875 in June 2004. These reductions have the potential to significantly  improve the management of this program.
Further, the DOD IG and the Navy have prototyped and are now expanding  a data-mining capability to screen for and identify high-risk transactions  (such as potentially fraudulent, improper, and abusive use of purchase  cards) for subsequent investigation. On April 28, 2004, the DOD IG  testified on ways the department could save money through the prudent  use of government purchase cards. The testimony highlighted  improvements made in the management of the department’s purchase card  program and areas for which additional improvements are needed.  Specifically, the testimony identified actions the DOD IG had taken to  partner with the DOD purchase card program management offices so that  DOD could more proactively identify and prevent potential fraud, waste,  and mismanagement. However, more still needs to be done because the  testimony also discussed more than $12 million in fraudulent, wasteful, or  abusive purchases identified by the DOD IG.
In addition to the oversight and monitoring performed by DOD over these  business areas, we believe that consistent congressional oversight played a  major role in bringing about these improvements in DOD’s purchase and  travel card programs. From 2001 through 2004, 10 separate congressional  hearings were held on DOD’s purchase and travel card programs.  Numerous legislative initiatives aimed at improving DOD’s management  and oversight of these programs also had a positive impact. Most recently,  the fiscal year 2005 Defense Appropriations Act reduced DOD’s  appropriation by $100 million to “limit excessive growth” in DOD’s travel  expenses.
Another important initiative under way at the department pertains to the  quarterly financial statement review sessions held by the DOD Comptroller,  which have led to the discovery and correction of numerous recording and  reporting errors. Under the leadership of DOD’s former Comptroller, and  continuing under its new leadership, DOD is working to instill discipline  into its financial reporting processes to improve the reliability of the  department’s financial data. Specifically, the DOD Comptroller requires  DOD’s major components to prepare quarterly financial statements along  with extensive footnotes that explain any improper balances or significant  variances from previous year quarterly statements. All of the statements  and footnotes are analyzed by Comptroller office staff and reviewed by the  Comptroller. In addition, the midyear and end-of-year financial statements  must be briefed to the DOD Comptroller by the military service Assistant  Secretary for Financial Management or the head of the defense agency.   Under DOD’s former Comptroller, GAO and the DOD IG were invited to  observe several of these briefings and noted that the practice of preparing  and explaining interim financial statements has improved the reliability of  reported information through more timely discovery and correction of  numerous recording and reporting errors. Although these meetings are  continuing under the current Comptroller, GAO and the DOD IG have not  been invited to attend.
section_title: Suggestions for Legislative Consideration
paragraphs: I would like to reiterate two suggestions for legislative consideration that I  discussed in my testimony last March, which I believe could further  improve the likelihood of successful business transformation at DOD. Most  of the key elements necessary for successful transformation could be  achieved under the current legislative framework; however, addressing  sustained and focused leadership for DOD business transformation and  funding control will require additional legislation. These suggestions  include the creation of a chief management official and the appropriation  of business system investment funding to the approval authorities  responsible and accountable for business system investments under  provisions enacted by the Ronald W. Reagan National Defense  Authorization Act for Fiscal Year 2005.
subsections: section_title: Chief Operating Officer/Chief Management Official
paragraphs: While the Secretary and other key DOD leaders have demonstrated their  commitment to the current business transformation efforts, in our view, the  complexity and long-term nature of these efforts requires the development  of an executive position capable of providing strong and sustained  executive leadership—over a number of years and various administrations.  The day-to-day demands placed on the Secretary, the Deputy Secretary, and  others make it difficult for these leaders to maintain the oversight, focus,  and momentum needed to resolve the weaknesses in DOD’s overall  business operations. This is particularly evident given the demands that the  Iraq and Afghanistan postwar reconstruction activities and the continuing  war on terrorism have placed on current leaders. Likewise, the breadth and  complexity of the problems preclude the under secretaries, such as the  DOD Comptroller, from asserting the necessary authority over selected  players and business areas while continuing to fulfill their other  responsibilities.
While sound strategic planning is the foundation upon which to build,  sustained and focused leadership is needed for reform to succeed. One way  to ensure sustained leadership over DOD’s business transformation efforts  would be to create a full-time executive-level II position for a chief  operating officer or chief management official (COO/CMO), who would  serve as the Principal Under Secretary of Defense for Management. This  position would elevate, integrate, and institutionalize the attention  essential for addressing key stewardship responsibilities, such as strategic  planning, human capital management, performance and financial  management, acquisition and contract management, and business systems  modernization, while facilitating the overall business transformation  operations within DOD.
The COO/CMO concept is consistent with the commonly agreed-upon  governance principle that there needs to be a single point within agencies  with the perspective and responsibility—as well as authority—to ensure  the successful implementation of functional management and  transformation efforts. Governments around the world, such as the United  Kingdom and Ireland, have established term appointed positions, similar to  the COO/CMO concept we propose, that are responsible for advancing and  continuously improving agency operations.
The DOD COO/CMO position could be filled by an individual, appointed by  the President and confirmed by the Senate, for a set term of 7 years with  the potential for reappointment. Articulating the roles and responsibilities  of the position in statute helps to create unambiguous expectations and  underscores Congress’ desire to follow a professional, nonpartisan  approach to the position.  In that regard, such an individual should have a  proven track record as a business process change agent in large, complex,  and diverse organizations—experience necessary to spearhead business  process transformation across the department and serve as an integrator  for the needed business transformation efforts. In addition, this individual  would enter into an annual performance agreement with the Secretary that  sets forth measurable individual goals linked to overall organizational goals  in connection with the department’s business transformation efforts.  Measurable progress towards achieving agreed-upon goals would be a  basis for determining the level of compensation earned, including any  related bonus.  In addition, this individual’s achievements and  compensation would be reported to Congress each year.
section_title: Funding Control over System Investments
paragraphs: DOD’s current systems investment process in which system funding is  controlled by DOD components has contributed to the evolution of an  overly complex and error-prone information technology environment  containing duplicative, nonintegrated, and stovepiped systems. We have  made numerous recommendations to DOD intended to improve the  management oversight and control of its business systems modernization  investments. However, as previously mentioned, progress in achieving this control has been slow. Recent legislation,consistent with the suggestion I  made in my prior testimony, established specific management oversight  and accountability with the “owners” of the various functional areas or  domains. The legislation defined the scope of the various business areas  (e.g., acquisition, logistics, finance and accounting) and established  functional approval authority and responsibility for management of the  portfolio of business systems with the relevant under secretary of defense  for the departmental domains and the Assistant Secretary of Defense for  Networks and Information Integration (information technology  infrastructure).  For example, the Under Secretary of Defense for  Acquisition, Technology, and Logistics is now responsible and accountable  for any defense business system intended to support acquisition activities,  logistics activities, or installations and environment activities for DOD.
The legislation also requires that the responsible approval authorities  establish a hierarchy of investment review boards with DOD-wide  representation, including the military services and Defense agencies. The  boards are responsible for reviewing and approving investments to  develop, operate, maintain, and modernize business systems for their  business area portfolio, including ensuring that investments are consistent  with DOD’s BEA.
Although the new legislation clearly assigns responsibility and  accountability for system modernization to designated approval  authorities, control over system investment funding remains at the DOD  component level. As a result, DOD continues to have little or no assurance  that its business systems modernization investment money is being spent in  an economical, efficient, and effective manner. Given that DOD spends  billions on business systems and related infrastructure each year, we  believe it is critical that funds for DOD business systems be appropriated to  those responsible and accountable for business system improvements.  However, implementation may require review of the various statutory  authorities for the military services and other DOD components. Control  over the funds would improve the capacity of DOD’s designated approval  authorities to fulfill their responsibilities and transparency over DOD  investments, and minimize the parochial approach to systems development  that exists today. In addition, to improve coordination and integration  activities, we suggest that all approval authorities coordinate their business  system modernization efforts with the chief management official who  would chair the Defense Business Systems Management Committee.  Cognizant business area approval authorities would also be required to  report to Congress through the chief management official and the Secretary  of Defense on applicable business systems that are not compliant with  review requirements and to include a summary justification for  noncompliance.
section_title: Conclusion
paragraphs: The United States is facing large and growing long-term fiscal pressures  created by the impending retirement of the baby boom generation, rising  health care costs, increased homeland security and defense commitments,  and a reduction in federal revenues. These pressures not only sharpen the  need to look at competing claims on existing federal budgetary resources  and emerging new priorities, they underscore the need for transparent and  reliable information upon which to base decisions at all levels within the  federal government. This includes timely, useful, and reliable financial and  management information that demonstrates what results are being  achieved and what risks are being incurred by various government  programs, functions, and activities. As I have discussed, DOD lacks the  efficient and effective financial management and related business  operations, including processes and systems, to support the war fighter,  DOD management, and Congress. With a large and growing fiscal  imbalance facing our nation, achieving tens of billions of dollars of annual  savings through successful DOD transformation is increasingly important.   DOD’s senior leaders have demonstrated a commitment to transforming  the department and improving its business operations. Recent legislation  pertaining to defense business systems, enterprise architecture,  accountability, and modernization, if properly implemented, should  improve oversight and control over DOD’s significant system investment  activities. However, DOD’s transformation efforts and legislation to date  have not adequately addressed key underlying causes of past reform  failures. Successful transformation will require an effective transformation  plan; adequate human capital; effective processes and transformation  tools, such as a BEA; and results-oriented performance measures that link  institutional, unit, and individual personnel goals and expectations.  Reforming DOD’s business operations is a monumental challenge and many  well-intentioned efforts have failed over the last several decades.  Lessons  learned from these previous reform attempts include the need for sustained  and focused leadership at the highest level, with appropriate authority over  all of DOD’s business operations, as well as centralized control of all  business transformation-related funding with the designated approval  authorities assigned responsibility for transformation activities within their  specific business process areas. This leadership could be provided through  the establishment of a Chief Operating Officer/Chief Management Official.  Absent this leadership, authority, and control of funding, the current  transformation efforts are likely to fail.
I commend the Subcommittee for holding this hearing and I encourage you  to use this vehicle, on an annual basis, as a catalyst for long overdue  business transformation at DOD.
Mr. Chairman, this concludes my statement. I would be pleased to answer  any questions you or other members of the Subcommittee may have at this  time.
section_title: Contacts and Acknowledgments
paragraphs: For further information about this testimony, please contact Gregory D.  Kutz at (202) 512-9095 or kutzg@gao.gov, Randolph C. Hite at (202) 512- 3439 or hiter@gao.gov, Sharon Pickup at (202) 512-9619 or  pickups@gao.gov, or Evelyn Logue at (202) 512-3881 or loguee@gao.gov.  Other key contributors to this testimony include Catherine Baltzell, Sandra  Bell, Molly Boyle, Peter Del Toro, Francine DelVecchio, Bill Doherty, Abe  Dymond, Cynthia Jackson, John Kelly, Neelaxi Lakhmani, Elizabeth Mead,  Chris Mihm, Mai Nguyen, John Ryan, Lisa Shames, Darby Smith, and  Marilyn Wasleski.
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