DOD Business Systems Modernization: Continued Investment in Key Accounting Systems Needs to be Justified
Published: 2003-03-28T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Department of Defense's (DOD) long-standing financial management and business systems modernization problems result in a lack of information needed to make sound decisions, hinder the efficiency of operations, and leave the department vulnerable to fraud, waste, and abuse. Such problems led us in 1995 to put financial management and business systems modernization at DOD on our list of high risk areas in the federal government, a designation that continues today. GAO was asked to (1) provide information on the number and cost of DOD's current business systems and (2) determine if DOD is effectively managing and overseeing selected accounting system investments.
section_title: What GAO Found
paragraphs: DOD estimated that it had 1,731 business systems for its day-to-day operations as of October 2002. As GAO previously reported, these systems have evolved over time into the overly complex, error prone, duplicative, stovepiped environment that exists today. To support the operation, maintenance, and modernization of its business systems, the department requested approximately $18 billion for fiscal year 2003. Funding is only part of the solution to improving DOD's current system environment. A key ingredient to success is effectively managing and overseeing these investments. DOD has invested approximately $316 million in four key Defense Finance and Accounting Service (DFAS) projects. However, DOD has not demonstrated that this substantial investment will markedly improve DOD financial management information needed for decision-making and financial reporting purposes. In fact, the DOD Comptroller terminated one project in December 2002, after an investment of over $126 million, citing poor program performance and increasing costs. Continued investment in the other three projects has not been justified because requisite analyses of the costs, benefits, and risks of each one do not reflect cost increases and/or schedule delays. DOD oversight of the four DFAS projects has not been effective. Collectively, DFAS, the DOD Comptroller, and the DOD Chief Information Officer share investment management responsibility for these four projects. However, these DOD oversight entities have not questioned the impact of the cost increases and schedule delays and allowed the projects to proceed absent the requisite analytical justification.

section_title: Letter
paragraphs: The Department of Defense’s (DOD) long-standing financial management  and business systems modernization problems result in a lack of  information needed to make sound decisions, hinder the efficiency of  operations, and leave the department vulnerable to fraud, waste, and  abuse.  Such problems led us in 1995 to put financial management and  business systems modernization at DOD on our list of high-risk areas in  the federal government, a designation that continues today.  DOD’s  financial management problems are the result of challenges in the area of  human capital, processes (internal controls), and its inability to effectively  modernize its business systems.
The President has made financial management and the use of technology  integral to his fiscal year 2002 Management Agenda for making the federal  government more focused on results.  The President’s Management  Agenda states, “Without accurate and timely information it is not possible  to accomplish the President’s agenda to secure the best performance and  the highest measure of accountability for the American people.”   Additionally, in September 2002, the Secretary of Defense identified the  modernization of DOD’s financial management and business operations as  one of his top 10 priorities.
This report responds to your request for information about DOD’s current  and planned business systems environment and its management of certain  key accounting system projects.  As agreed with your office, our objectives  were to (1) identify the number of existing business systems and the  estimated cost to operate, maintain, and modernize systems and (2)  determine if DOD is effectively overseeing selected business system  investments made by the Defense Finance and Accounting Service  (DFAS)—the centralized accounting agency for DOD.
To evaluate the effectiveness of information technology (IT) investment  management and oversight practices, we selected four DFAS system  acquisition projects as case studies.  We selected these projects because all  four were intended to benefit the entire department by addressing DOD’s  financial management weaknesses in the areas of data accuracy, financial  reporting, and problem disbursements.  In reviewing these four system  projects, we relied on documentation, including cost estimates, provided  by DFAS.  We did not verify the accuracy and completeness of the cost  information provided by DFAS.  Our work was performed from November  2001 to January 2003 in accordance with U.S. generally accepted  government auditing standards.  Details on our scope and methodology are  included in appendix I.  We requested comments on a draft of this report  from the Secretary of Defense or his designee.  Written comments from the  Under Secretary of Defense (Comptroller) are reprinted in appendix II.
subsections: section_title: Background
paragraphs: DFAS, as DOD’s central accounting agency, is responsible for recording and  processing accounting transactions; paying vendors, contractors, and  military and civilian employees; preparing reports used by DOD managers  and by the Congress; and preparing DOD-wide and service-specific  financial statements required by the Chief Financial Officers Act.   Organizationally, DFAS is under the direction of the Under Secretary of  Defense (Comptroller).  Table 1 illustrates the enormous scope and  importance of DFAS’s reported fiscal year 2002 financial operations.
DFAS’s fiscal year 2003 IT budgetary request was approximately $494  million.  Of that amount, $353 million relates to the operation and  maintenance of existing DFAS systems and the remaining $141 million is  for the modernization of systems.  The purpose of each DFAS project we  reviewed is highlighted below.
DFAS Corporate Database/DFAS Corporate Warehouse (DCD/DCW).  DCD  and DCW were originally separate initiatives.  DCD was initiated in October  1998, and was to be the single DFAS database, meaning it was to contain all  DOD financial information required by DFAS systems and would be the  central point for all shared data within DFAS.  To accomplish this goal,  DCD would crosswalk detailed transaction data from nonstandard finance  and feeder systems into a standard format.  Further, once the department  implemented standard systems, the need to perform these crosswalks  would be eliminated.  In February 2001, the project’s scope was revised  after DFAS realized that crosswalks of detail transaction data were  cumbersome and cost prohibitive.  DFAS is planning to crosswalk detailed  transaction data only when information from multiple systems must be  aggregated to satisfy a cross-service need such as the working capital fund  activities.
DCW was initiated in July 2000 to provide a historical database to store and  manage official DFAS information for analysis and generation of  operational reports and queries.  In November 2000, the DFAS CIO  combined DCD/DCW into one program.  In March 2001, DCD/DCW was  designated as a major automated information system.
Defense Procurement Payment System (DPPS). DFAS determined the need  for DPPS in April 1995.  DPPS was intended to be the standard, automated  information system for contract and vendor pay authorization and  addressing deficiencies associated with overpayments, negative  unliquidated obligations, and unmatched disbursements—all of which  are long-standing problems in DOD.  DPPS also was to incrementally  replace eight contract and vendor systems.   In October 1995, the DFAS  Director approved proceeding with defining and evaluating the feasibility  of alternative concepts and assessing the relative merits of these concepts.  In November 1996, the Office of the Assistant Secretary of Defense  (Command, Control, Communications, and Intelligence)—DOD’s CIO— designated DPPS a major automated information system. DFAS awarded a  contract in June 1998 for the acquisition of a system that was intended to  address DOD’s contract and vendor pay deficiencies.
Defense Standard Disbursing System (DSDS).  Disbursing activities for  DOD are largely accomplished through systems that were designed 15-20  years ago.  In 1997, DFAS launched DSDS to be the single, standard DFAS  automated information system for collecting, processing, recording, and  reporting disbursement data and transactions for the military services and  defense agencies.  These disbursing functions are currently being provided  by multiple automated information systems and manual activities at  various DFAS locations.
Defense Departmental Reporting System (DDRS).  In April 1997, DFAS  initiated DDRS to be the standardized departmental reporting system.   DDRS has two phases.   The first phase—DDRS-AFS (Audited Financial  Statements)—is intended to be a departmentwide financial reporting  system.  The second phase—DDRS-Budgetary—is intended to establish a  departmentwide budgetary reporting system.  Among other things, DDRS is  intended to reduce the number of departmental reporting systems and  standardize departmental general ledger processes.
These four projects are part of the DFAS Corporate Information  Infrastructure (DCII) program.  According to DFAS, DCII is intended to  facilitate cross-functional, integrated processes; promote standardized data  and reporting; facilitate standardized business practices; reduce cost of  operations; and provide timely information for decision making.  Figure 1  depicts a high-level view of the interrelationships among these four system  projects.
subsections: section_title: Overview of DFAS and DOD System Acquisition Management and Oversight Process
paragraphs: DOD and DFAS have an established acquisition management and oversight  process for acquiring, operating, and maintaining business systems. Among  other things, this process requires project managers to provide cost,  schedule, and performance data to the DFAS Chief Information  Officers/Business Integration Executive (CIO/BIE) Council—DFAS’s IT  investment board—prior to scheduled milestone reviews. These  milestones are intended to be decision points for determining whether a  project should continue in the current phase of the system life-cycle,  proceed to the next phase, be modified, or be terminated.  The results of  these reviews are to be set forth in a system decision memorandum which  is to be signed by the milestone decision authority.  The milestone decision  authority for DSDS and DDRS is the Director, DFAS.  The DOD CIO is the  milestone decision authority for DCD/DCW and DPPS.
section_title: Prior Reviews Have Identified Problems With DOD’s Management and Oversight of System Acquisitions
paragraphs: We and the DOD Inspector General have continued to report on a variety of  long-standing management problems for modernizing DOD’s IT systems.   Three recent system endeavors that have fallen short of their intended  goals illustrate these problems.  They are the Standard Procurement  System, the Defense Travel System, and the Defense Joint Accounting  System.  These efforts were aimed at improving the department’s financial  management and related business operations.  Significant resources—in  terms of dollars, time, and people—have been invested in these three  efforts.
Standard Procurement System (SPS).  In November 1994, DOD began the  SPS program to acquire and deploy a single automated system to perform  all contract management-related functions within DOD’s procurement  process for all DOD organizations and activities.  The laudable goal of SPS  was to replace 76 existing procurement systems with a single departmental  system.  DOD estimated that SPS had a life-cycle cost of approximately $3  billion over a 10-year period.  According to DOD, SPS was to support about  43,000 users at over 1,000 sites worldwide and was to interface with key  financial management functions, such as payment processing.   Additionally, SPS was intended to replace the contract administration  functions currently performed by the Mechanization of Contract  Administration Services, a system implemented in 1968.  Our July 2001  report and February 2002 testimony identified weaknesses in the  department’s management of its investment in SPS.  Specifically:  The department had not economically justified its investment in the  program because its latest (January 2000) analysis of costs and benefits  was not credible. Further, this analysis showed that the system, as  defined, was not a cost-beneficial investment.
The department had not effectively addressed the inherent risks  associated with investing in a program as large and lengthy as SPS  because it had not divided the program into incremental investment  decisions that coincided with incremental releases of system  capabilities.
Although the department committed to fully implementing the system  by March 31, 2000, this target date had slipped by over 3 ½ years to  September 30, 2003, and program officials have recently stated that this  date will also not be met.
Defense Travel System (DTS).  In July 2002, the DOD Inspector General  raised concerns that DTS remained a program at high risk of not being an  effective solution in streamlining the DOD travel management process.   The report stated that “The Defense Travel System was being substantially  developed without the requisite requirements, cost, performance, and  schedule documents and analyses needed as the foundation for assessing  the effectiveness of the system and its return on investment.”  The report  further noted there was increased risk that the $114.8 million and 6 years of  effort already invested will not fully realize all goals to reengineer  temporary duty travel, make better use of IT, and provide an integrated  travel system. Additionally, the DOD Inspector General reported that DTS  was to cost approximately $491.9 million (approximately 87 percent more  than the original contract cost of $263.7 million) and DOD estimates that  deployment will not be completed until fiscal year 2006, approximately 4  years behind schedule.
Defense Joint Accounting System (DJAS).  In 1997, DOD selected DJAS to  be one of three general fund accounting systems.  The other two general  fund systems were the Standard Accounting and Reporting System and the  Standard Accounting and Budgetary Reporting System.  As originally  envisioned, DJAS would perform the accounting for the Army and the Air  Force as well as the DOD transportation and security assistance areas.   Subsequently, in February 1998, DFAS decided that the Air Force could  withdraw from using DJAS, because either the Air Force processes or the  DJAS processes would need significant reengineering to permit use of a  joint accounting system.  As a result, the Air Force started its own general  fund accounting system—General Fund and Finance System—which  resulted in the development of a fourth general fund accounting system.
In June 2000, the DOD Inspector General reported that DFAS was  developing DJAS at an estimated life-cycle cost of about $700 million  without demonstrating that the program was the most cost-effective  alternative for providing a portion of DOD’s general fund accounting. More  specifically, the report stated that DFAS had not developed a complete or  fully supportable feasibility study, analysis of alternatives, economic  analysis, acquisition program baseline, or performance measures, and had  not reengineered business processes.
section_title: DOD Is Investing Billions of Dollars Annually to Operate, Maintain, and Modernize Its Business Systems
paragraphs: As part of its ongoing business systems modernization program, and  consistent with our past recommendation, DOD is creating a repository of  information about its existing systems environment.  As of October 2002,  DOD reported that its current business systems environment consisted of  1,731 systems and system acquisition projects.  In particular, DOD reported  that it had 374 systems to support civilian and military personnel matters,  335 systems to perform finance and accounting functions, and 310 systems  that produce information for management decision making.  Table 2  presents the composition of DOD business systems by functional area.
As we have previously reported, these numerous systems have evolved  into the overly complex and error prone operation that exists today,  including (1) little standardization across DOD components, (2) multiple  systems performing the same tasks, (3) the same data stored in multiple  systems, (4) manual data entry into multiple systems, and (5) a large  number of data translations and interfaces that combine to exacerbate  problems with data integrity.  The department has recognized the  uncontrolled proliferation of systems and the need to eliminate as many  systems as possible and integrate and standardize those that remain.  In  fact, three of the four DFAS projects we reviewed were intended to reduce  the number of systems or eliminate a portion of different systems that  perform the same function.  For example,   DPPS was intended to consolidate eight contract and vendor pay   DDRS is intended to reduce the number of departmental reporting  systems from seven to one; and   DSDS is intended to eliminate four different disbursing systems.
Similarly, DTS is intended to be the DOD-wide travel system.  According to  data reported by DOD, currently there are 32 travel systems operating  within the department.
For fiscal year 2003, DOD has requested approximately $26 billion in IT  funding to support a wide range of military operations as well as DOD  business system operations.  As shown in figure 2, the $26 billion is spread  across the military services and defense agencies.  Each receives its own  funding for IT investments.
The $26 billion supports three categories of IT—business systems, business  systems infrastructure, and national security systems (NSS)—the first two  of which comprise the 1,731 business systems.  DOD defines these three  categories as follows:  Business systems—used to record the events associated with DOD’s  functional areas.  Such areas include finance, logistics, personnel, and  transportation.
Business systems infrastructure—represents the costs associated with  the operations of the department’s business systems.  Such costs would  include transmission lines, network management, and information  security.
National Security System (NSS)—intelligence systems, cryptologic  activities related to national security, military command and control  systems, and equipment that is an integral part of a weapon or weapons  system, or is critical to the direct fulfillment of military or intelligence  mission.
As shown in table 3, approximately $18 billion—the nearly $5.2 billion for  business systems and the $12.8 billion for business systems  infrastructure—relates to the operation, maintenance, and modernization  of DOD’s 1,731 business systems.
As we have reported, while DOD plans to invest billions of dollars in  modernizing its financial management and other business support systems,  it does not yet have an overall blueprint—or enterprise architecture—in  place to guide and direct these investments.  Our review of practices at  leading organizations showed they were able to provide reasonable  assurance that their business systems addressed corporate—rather than  individual business units—objectives by using enterprise architectures to  guide and constrain investments.
Consistent with our recommendation, DOD is now working to develop a  financial management enterprise architecture, which is a positive step.   Further, Section 1004 of the National Defense Authorization Act for Fiscal  Year 2003 directs DOD to develop an enterprise architecture not later than  May 1, 2003, and that a transition plan accompany the architecture that  delineates how the architecture will be implemented.  The act also directs  that we provide an assessment to the congressional defense committees as  to whether DOD has complied with the provisions of Section 1004.
section_title: Investment Management and Oversight of Key DFAS Accounting Systems Has Not Been Effective
paragraphs: DOD management and oversight authorities for the four case study  projects are DFAS, the DOD Comptroller, and the DOD CIO.  They  permitted each project to proceed despite the absence of the requisite  analysis to demonstrate that the projects will produce value commensurate  with the costs being incurred.  For example, an economic analysis has yet  to be prepared for DCD/DCW and the other three projects did not have  economic analyses that reflected the fact that project costs, schedules,  and/or expected benefits had changed materially.  Table 4 highlights these  cost increases and schedule delays.
In the case of DPPS, the estimated costs had increased by $274 million and  the schedule had slipped by almost 4 years.  In December 2002, following  our discussions with DOD Comptroller officials, the DOD Comptroller  terminated DPPS after 7 years of effort and an investment of over $126  million.  In making this decision, the DOD Comptroller noted that the  project was being terminated due to poor program performance and  increasing costs.
The Clinger-Cohen Act of 1996 and Office of Management and Budget  (OMB) guidance provide an effective framework for IT investment  management.  They emphasize the need to have investment management  processes and information to help ensure that IT projects are being  implemented at acceptable costs and within reasonable and expected time  frames and that they are contributing to tangible, observable improvements  in mission performance.  DOD policy also reflects these investment  principles by requiring that investments be justified by an economic  analysis. More specifically, the policy states that the economic analysis is  to reflect both the life-cycle cost and benefit estimates, including a return- on-investment calculation, to demonstrate that the proposed investment is  economically justified before it is made.
subsections: section_title: DCD/DCW Has Not Been Economically Justified
paragraphs: After 4 years of effort and an investment of approximately $93 million,  DOD has yet to economically justify that its investment in DCD/DCW will  result in tangible improvement in DOD financial management operations.   Consistent with the Clinger-Cohen Act, DOD and DFAS systems acquisition  guidance requires that certain documentation be prepared at each  milestone within the system life-cycle.  This documentation is intended to  provide relevant information for management oversight and in making  decisions as to whether the investment of resources is cost beneficial.
A key piece of information—the economic analysis—was never completed  for the DCD/DCW project.  In May 2000, the Director, DFAS, granted  approval to continue with development of DCD with a condition that a cost  benefit analysis be completed by June 2000. DFAS completed a draft cost  benefit analysis for DCD in October 2000. This document was not finalized  and in November 2000, DCD/DCW were combined into one program.  Since  that time, DCD/DCW has continued without a valid, well-supported  economic justification to support continued investment in DCD/DCW.   DCD project management officials stated that the economic analysis has  not been finalized because they were unable to agree on how to compute  the return on investment and demonstrate that benefits exceeded costs.
In March 2001, DCD/DCW was designated a Major Automated Information  System, and as such, DOD’s Office of Program Analysis and Evaluation  (PA&E) is required to assess the economic analysis and provide any  recommendations to the DOD CIO. However, after approximately 2 years,  the economic analysis still has not been developed and PA&E officials  stated that it did not anticipate receiving the economic analysis until May  2003.   At the same time, as highlighted in figure 3, the cost and schedule of  this project have continued to increase over the years.
Additionally, the planned functionality of DCD has been drastically reduced  since the original concept was set forth.  Originally, DCD was to contain all  DOD financial information required by DFAS systems, making it the central  point for all shared data within DFAS.  To accomplish this goal, DCD was to  crosswalk detailed transactions from nonstandard finance and feeder  systems into a standard format, pending the acquisition and  implementation of standard feeder systems. In February 2001, the scope of  the DCD project was revised after DFAS realized, through testing of Air  Force detailed transactions from feeder systems, that the planned  crosswalks were cumbersome and cost prohibitive.  Currently, DFAS is  planning to crosswalk detailed transaction data only when information  from multiple systems must be aggregated to satisfy a cross-service need  such as the working capital fund activities.  This will result in the originally  envisioned capability not being provided.  Additionally, DCD/DCW will  continue to rely on the error-plagued data in the feeder systems and will not  produce financial records that are traceable to transaction-level data.   According to the DOD Inspector General, DCD was a high-risk effort  because there was no assurance that DCD and other financial management  systems would standardize DOD business processes; reduce the number of  finance, accounting, and feeder systems; reduce costs; and produce  accurate and auditable financial information.
Until the economic analysis is finalized, DOD does not know if its  investment in DCD/DCW is justified and the decision to move to the next  milestone will continue to be delayed.  Nevertheless, DOD continues to  spend funds to perform tasks in anticipation of milestone approval being  received.  In fiscal year 2002, according to DFAS officials, approximately  $36 million was spent on DCD/DCW.
section_title: Economic Justification for the Other Three Projects Is Not Current
paragraphs: DOD had developed an economic analysis for each of the remaining three  projects.  However, these analyses had not been updated to reflect  schedule delays, cost increases, and changes in scope that have occurred— each of which has an impact on the projected benefits that were originally  justified.  Nevertheless, as shown in table 5, investment in each project  continues.
The investment of resources in a system project should be conditional  upon analytical justification that the proposed investment will produce  commensurate value.  As called for in OMB guidance, analyses of  investment costs, benefits, and risks should be (1) updated throughout a  project’s life cycle to reflect material changes in project scope and  estimates and (2) used as a basis for ongoing investment selection and  control decisions. To do less presents the risk of continued investment in  projects on the basis of outdated and invalid economic justification.
In the case of DPPS, PA&E questioned the validity of the economic analysis  developed by DFAS.  Since DPPS is classified as a major automated  information system, the economic analysis is to be reviewed by PA&E.  In  its May 1998 assessment of the economic analysis, PA&E questioned areas  such as the validity of the estimated savings and the ability to implement  DPPS within the original estimated cost and schedule. According to DOD  officials, these issues were resolved, but they could not provide any  documentation to substantiate their position. The DOD CIO subsequently  granted permission to continue the project.
Over the years, as shown in figure 4, the DPPS effort has been marked by  significant increases in cost and schedule delays.
The original full operational capability date of April 2002 slipped to  December 2005—a delay of almost 4 years—with the estimated cost almost  doubling to $552 million.  In December 2002, following our discussion with  DOD Comptroller officials of DPPS cost increases and schedule slippages,  the DOD Comptroller terminated DPPS.  In making this decision, the DOD  Comptroller noted that the project was being terminated due to poor  program performance and increasing costs.
With regard to DDRS, the economic analysis used to justify this initiative  was developed in October 1998—over 4 years ago.  At that time, it was  estimated that DDRS would cost $111 million and be fully operational by  April 2000. However, based upon information provided by DFAS, and as  shown in figure 5, DDRS has experienced increased cost and schedule  delays.  However, the economic analysis has not been updated to reflect the  known changes in the project’s costs and schedule.
Moreover, the intended capability of DDRS as originally envisioned has  been reduced.  For example, DDRS is no longer intended to provide the  capability to build an audit trail so that financial data can be tracked back  to its transaction-based support, as originally planned.  The Federal  Financial Management Improvement Act of 1996 requires that agency  financial management systems comply with federal financial management  systems requirements, applicable federal accounting standards, and the  U.S. Government Standard General Ledger at the transaction level.   Systems meeting these requirements should be able to produce auditable  financial statements and otherwise have audit trail capability.  However,  DDRS system users will have to rely on the audit trail capabilities of feeder  systems in order to trace individual transactions to their source  documents.  As we have previously reported, the data from the feeder  systems, which are outside the control of DFAS and provide approximately  80 percent of the data that DOD needs for financial reporting purposes, are  not reliable.  Additionally, until DCD is operational, DDRS will be receiving  data from the feeder systems in order to prepare the department’s financial  reports on the results of its operations.  Therefore, DOD’s financial reports  produced by DDRS will (1) continue to be incomplete and inaccurate and  thus not useful for decision-making purposes and (2) remain unable to  withstand the scrutiny of a financial audit.
For DSDS, an economic analysis was prepared in September 2000.   However, it has not been updated to reflect material changes in the project.   For example, as shown in figure 6, the full operational capability (FOC)  date at the time the economic analysis was prepared was February 2003.  However, according to information provided by DFAS, the current FOC  date is December 2005—a schedule slippage of almost 3 years. Such  delays postpone the delivery of promised benefits.  DFAS has stated that  the cost information is being updated to support a Milestone C decision,  which they anticipate will occur in early fiscal year 2004.
Additionally, DSDS delivery of promised benefits depends upon the  DCD/DCW being implemented on time.  However, as previously discussed,  DCD/DCW implementation has been fraught with difficulties, which has a  corresponding adverse effect on DSDS schedule delays. For example,  DCD/DCW project management officials are in the process of addressing  102 requests for requirement changes.   According to the DCD/DCW  program manager, the date for resolving these changes and approving the  Operational Requirements Document is November 2003.  Until this process  is completed, affected systems integration testing for other DCD/DCW  dependent systems, such as DSDS, cannot be finalized.   Further, according  to DFAS officials, the continued operation of existing legacy systems may  result in an increase to the DSDS life-cycle cost estimate by approximately  $14 million for each 6-month delay.  This would quickly erode the savings of  $171 million that DFAS estimated in September 2000, and reconfirmed in  January 2003.
Without an updated economic analysis to justify continued investment in  DDRS and DSDS, DOD does not have reasonable assurance that continued  investment will result in commensurate improvement in the financial  management operations of the department.
section_title: DOD Oversight of DFAS IT Projects Has Not Been Effective
paragraphs: DOD’s oversight over the four DFAS projects we reviewed has been  ineffective.  Investment management responsibility for the four projects  rests with DFAS, the DOD Comptroller, and the DOD CIO.  In discharging  this responsibility, each has allowed project investments to continue year  after year, even though the projects have been marked by cost increases,  schedule slippages, and capability changes.  As a result, DOD has invested  approximately $316 million in the four projects without adequately  knowing if these efforts will resolve some of DOD’s financial management  difficulties—the rationale upon which each initiative was undertaken.  In  fact, as previously noted, after an investment of over $126 million and 7  years of effort, the DOD Comptroller terminated DPPS in December 2002.
GAO’s Information Technology Investment Management (ITIM) maturity  framework defines critical processes pertaining to IT investment  management and oversight. Among other things these processes provide  for establishing investment decision-making bodies responsible for  selecting and controlling IT investments by (1) understanding, for example,  each project’s expected return on investment and associated costs,  schedule, and performance commitments, (2) regularly determining each  project’s progress toward these expectations and commitments, and (3)  taking corrective actions to address deviations.  Additionally, the Clinger- Cohen Act and OMB guidance similarly emphasize the need to have  investment management processes and information to help ensure that IT  projects are being implemented at acceptable costs and within reasonable  and expected time frames and that they are contributing to tangible,  observable improvements in mission performance (i.e., that projects are  meeting the cost, schedule, and performance commitments upon which  their approval was justified).
Organizationally, within DOD, the Comptroller has overall management  and oversight responsibility for DFAS’s activities—including system  investments.  However, DOD Comptroller officials told us that they were  unaware of the cost increases and schedule slippages on the projects until  we brought them to their attention.  Further, these officials said that they  do not review DFAS’s system investments to ensure that they are meeting  cost, schedule, and performance commitments, stating that DFAS is  responsible for ensuring that projects stay on target in terms of cost,  schedule, and performance.  Additionally, they told us that their review is  limited to a review of budgetary information and budget exhibits, and that  they compare the current year budget request to the previous year’s request  to determine if any significant funding increases are being requested for the  coming fiscal year.  If the budget request is generally consistent from year  to year, they said that they do not raise questions about the project.   According to these officials, the review of DFAS’s fiscal year 2003 budget  did not result in the identification of issues that warranted further review.
While the DOD Comptroller is the responsible authority for DFAS  activities, DFAS is also responsible for ensuring that its proposed  investments will result in systems that are implemented at acceptable costs  and within reasonable and expected time frames.  To fulfill this  responsibility, DFAS established the CIO/BIE Council to oversee system  investments.  As outlined in the CIO/BIE Council charter, members of the  council are responsible for, among other things, advising the Leadership  Council—DFAS’s senior decision-making body—on IT investment  decisions. The CIO/BIE Council membership includes representatives of  DFAS’s business lines, such as accounting services and commercial pay, as  well as IT management.
In order to assure that the roles, responsibilities, and authorities of the IT  investment board are well defined and that board processes are clear, the  ITIM Framework states that an IT investment process guide should be  created to direct IT investment board operations. While DFAS has  endeavored to give the CIO/BIE a role in the acquisition management and  oversight process, it has not provided clear, consistent guidance to  describe that role and the associated operating procedure. Though the  council charter does mention the CIO/BIE Council’s responsibilities, it does  not adequately describe them, address the council’s authority, or describe  how the council is to fulfill its responsibilities. The DFAS 8000 series also  addresses CIO/BIE responsibilities (DFAS 8000.1-R, Part C). However, the  8000 series does not describe how the CIO/BIE is expected to execute its  responsibilities, including providing corporate oversight and reviewing  capital budget proposals.  The lack of clear definition of responsibilities  and authority limits the council’s ability to effectively perform oversight- related activities.  For the four IT investment projects we reviewed, we  found no evidence that the CIO/BIE effectively monitored the cost,  schedule, or performance goals of the four projects.
As previously noted, the DOD CIO is responsible for overseeing major  automated information systems.  As such, this office is responsible for  ensuring that the investments being made in DCD/DCW and DPPS are  justified.  However, the DOD CIO did not effectively exercise this authority.   In regard to DPPS, the DOD CIO was designated the milestone decision  authority in November 1996.  While DOD CIO officials told us that they  were aware of the problems with DPPS, they were unable to provide any  documentation that indicated they had raised concerns with the DPPS  effort.
DCD/DCW was not brought under the purview of the DOD CIO until March  2001— approximately 2½ years after the project began.  DOD CIO officials  expressed concerns about the viability of DCD/DCW and questioned  DFAS’s decision to move forward absent an economic analysis.  However,  they were unable to provide us with documentation that indicated they had  carried out their oversight responsibilities and independently determined  whether DCD/DCW was a viable investment.
According to DOD CIO officials, despite being the milestone decision  authority for major projects, they have little practical authority in  influencing component agency IT projects.  As such, they said they try to  work with the program managers to ensure that all of the required  documentation for passing the next milestone is prepared, but the  department’s culture, which rests organizational authority and funding  control with the components, precludes them from exercising effective IT  investment oversight.  The comments of the DOD CIO officials support the  fact that the current stovepiped, parochial management of DOD’s IT  investments has led to the previously discussed proliferation of business  systems.  As we previously reported, DOD’s organizational structure and  embedded culture have made it difficult to implement departmentwide  oversight or visibility over information resources.
Similarly, we recently reported that DOD does not yet have the  departmental investment governance structure and process controls  needed to adequately align ongoing investments with DOD’s architectural  goals and direction. Instead, DOD continues to allow its component  organizations to make their own investment decisions, following different  approaches and criteria. We reported that this stovepiped decision-making  process has contributed to the department’s current complex, error prone  environment of over 1,700 systems.  In particular, DOD has not yet  established and applied common investment criteria to its ongoing IT  system projects using a hierarchy of investment review and funding  decision-making bodies, each composed of representatives from across the  department. DOD also has not yet conducted a comprehensive review of its  ongoing IT investments to ensure that they are consistent with its  architecture development efforts.  Until it does these things, DOD will  likely continue to lack effective control over the billions of dollars it is  currently spending on IT projects.  To address this problem we  recommended that DOD establish a series of investment review boards,  each responsible and accountable for selecting and controlling investments  that meet defined threshold criteria, and each composed of the appropriate  level of executive representatives, depending on the threshold criteria,  from across the department.  We also reiterated our open  recommendations governing limitations in business system investments  pending development of the architecture.
section_title: Conclusions
paragraphs: DOD is investing billions of dollars annually in hundreds of systems that  perform the same function spread across numerous DOD components. As  we have previously reported, this proliferation of systems has resulted in  part because DOD’s embedded culture and parochial operations have  permitted each of the military services and DOD agencies to manage and  oversee their IT investments apart from one another.  It has also occurred  because DOD has not effectively managed its investments in IT business  systems, as our past work and the DOD Inspector General work have  demonstrated.  As a result, DOD runs a high risk that hundreds of millions  of dollars will continue to be invested annually in modernization efforts  that will not result in improvements in the department’s operations.
In each of the four system projects we discuss in the report, DOD has  invested millions of dollars without economically justifying its investments,  in large part because those entities responsible for managing and  overseeing these investments have not required such justification despite  schedule slippages, cost overruns, and reductions in planned capability.   Urgent need for effective investment control is exemplified by DPPS—$126  million for a terminated project. More vigorous oversight of DPPS could  have precluded the substantial investment in this failed effort.  Until it has  effective investment management and oversight, DOD will not have  reasonable assurance that its continued investment in the remaining three  projects discussed in this report, as well as its other system projects, are  justified.
section_title: Recommendations for Executive Action
paragraphs: We recommend that the Secretary of Defense direct the Under Secretary of  Defense (Comptroller) to limit funding in the DFAS Corporate Database/  Corporate Warehouse, the Defense Standard Disbursing System, and the  Defense Departmental Reporting System until the DOD Comptroller, in  collaboration with the Assistant Secretary of Defense (Command, Control,  Communications & Intelligence), and the Director, Program Analysis and  Evaluation, demonstrates on the basis of credible analysis and data that  continued investment in these three projects will produce benefits that  exceed costs.
We further recommend that the Secretary of Defense, in light of the  department’s ongoing efforts to modernize its business systems, direct the  Under Secretary of Defense (Comptroller) to evaluate all remaining DFAS  IT projects and ensure that each project is being implemented at  acceptable costs, within reasonable time frames, and is contributing to  tangible, observable improvements in mission performance.
section_title: Agency Comments and Our Evaluation
paragraphs: DOD provided written comments on a draft of this report.  DOD concurred  with our recommendations and identified actions it planned to take to  ensure that future investments in DFAS’s systems are justified.  For  example, the Under Secretary of Defense (Comptroller) noted that the  review of DCD/DCW, DDRS, and DSDS would be completed by June 15,  2003.  Additionally, the Under Secretary of Defense (Comptroller) stated  that all systems would be reviewed as part of the department’s effort to  establish a financial management enterprise architecture governance  structure.  As discussed in our February 2003 report, the governance  structure is intended to provide DOD the means to gain control over its IT  investments.  However, as noted in our report, we have not verified or  evaluated the extent to which the planned governance structure will  address our recommendation.  DOD comments are reprinted in appendix  II.
As agreed with your office, unless you announce the contents of this report  earlier, we will not distribute this report until 30 days from its date.  At that  time, we will send copies to the Chairman and Ranking Minority Member,  Senate Committee on Armed Services; Chairman and Ranking Minority  Member, Senate Appropriations Subcommittee on Defense; Chairman and  Ranking Minority Member, House Armed Services Committee; Chairman  and Ranking Minority Member, House Appropriations Subcommittee on  Defense; Chairman and Ranking Minority Member, Senate Committee on  Governmental Affairs; Chairman and Ranking Minority Member, House  Committee on Government Reform; the Director, Office of Management  and Budget; the Under Secretary of Defense (Comptroller); the Assistant  Secretary of Defense (Command, Control, Communications &  Intelligence); and the Director, Defense Finance and Accounting Service.   Copies of this report will be made available to others upon request. The  report will also be available on GAO's Web site at http://www.gao.gov.
If you or your staff have any questions on matters discussed in this report,  please contact Gregory D. Kutz at (202) 512-9505 or kutzg@gao.gov or  Randolph C. Hite at (202) 512-3439 or hiter@gao.gov. Major contributors to  this report are acknowledged in appendix III.
section_title: Scope and Methodology
paragraphs: To obtain an overview of DOD’s current business systems environment we  met with representatives of the then Financial Management Modernization  Program Office to obtain information on the number of systems that are  part of the current systems environment.  We also reviewed DOD’s $26  billion fiscal year 2003 IT budget request to determine what portion of the  budget relates to DOD business systems.  Additionally, we reviewed the IT  budget to determine the reported operations, maintenance, development,  and infrastructure costs for DOD’s business systems.
To determine if DOD was effectively managing and overseeing its IT  investments, we focused on the four system projects previously noted.  To  assist us in our evaluation, we used our Information Technology  Investment Management (ITIM) framework.  The ITIM identifies critical  processes for successful IT investment and organizes these processes into  a framework of increasingly mature stages.  We focused on the Stage 2  critical processes of IT project oversight and IT investment board practices  based on DFAS’s self assessment that it was at Stage 2.  Figure 7 shows  ITIM’s five stages of maturity.
In addition, we also evaluated DOD’s and DFAS’s guidance on systems  acquisition, as it relates to life-cycle management and milestones for  proceeding to the next phase of the system acquisition process.  To verify  application of the critical processes and practices, we selected projects  that (1) were in different life-cycle phases of systems development  (2) required oversight by a DOD authority outside of the DOD Comptroller,  such as the Office of the Assistant Secretary of Defense (Command,  Control, Communications & Intelligence)—DOD’s CIO, and (3) supported  different DFAS business areas such as disbursements and departmental  reporting.  For these four projects we reviewed documentation, such as  mission needs statements, acquisition program baseline updates, and  project management plans.  According to DOD, it provided estimates for  DCD/DCW and DDRS in constant dollars and DPPS and DSDS in escalated  dollars.  We also reviewed and analyzed charters and meeting minutes of  the DFAS investment oversight boards and working groups.  To supplement  our document reviews, we interviewed senior DFAS officials in the CIO and  Systems Integration Offices, as well as the program managers for the four  projects. We also met with officials in the offices of the DOD Comptroller  and DOD CIO to obtain an understanding of their specific duties and  responsibilities in approving, reviewing, and overseeing investments in the  four DFAS systems modernization projects.
We conducted our work at DFAS Headquarters; the Office of the Under  Secretary of Defense (Comptroller); the Office of the Secretary of Defense  Program Analysis and Evaluation; and the Office of the Assistant Secretary  of Defense (Command, Control, Communications & Intelligence) from  November 2001 through January 2003, in accordance with U.S. generally  accepted government auditing standards.  We did not verify the accuracy  and completeness of the cost information provided by DFAS for the four  projects we reviewed. We requested comments on a draft of this report  from the Secretary of Defense or his designee.  We received written  comments on a draft of this report from the Under Secretary of Defense  (Comptroller), which are reprinted in appendix II.
section_title: Comments From the Under Secretary of Defense
section_title: GAO Contacts and Staff Acknowledgments
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section_title: Acknowledgments
paragraphs: In addition to the individuals named above, key contributors to this report  included Beatrice Alff, Joseph Cruz, Francine DelVecchio, Lester Diamond,  Jason Kelly, J. Christopher Martin, Stacey Smith, and Robert Wagner.
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