Defense Business Transformation: Sustaining Progress Requires Continuity of Leadership and an Integrated Approach
Published: 2008-02-07T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Department of Defense (DOD) has stewardship over an unprecedented amount of taxpayer money--with about $546 billion in discretionary budget authority provided thus far in fiscal year 2008, and total reported obligations of about $492 billion to support ongoing operations and activities related to the Global War on Terrorism from September 11, 2001, through September 2007. Meanwhile, DOD is solely responsible for 8 high-risk areas identified by GAO and shares responsibility for another 7 high-risk areas. GAO designated DOD's approach to business transformation as high risk in 2005. DOD's business systems modernization and financial management have appeared on the list since 1995. Deficiencies in these areas adversely affect DOD's ability, among other things, to assess resource requirements; control costs; ensure accountability; measure performance; prevent waste, fraud, and abuse; and address pressing management issues. Based on previously issued GAO reports and testimonies, this testimony focuses on the progress DOD has made and the challenges that remain with respect to overall business transformation, business systems modernization, and financial management capabilities improvements. GAO has made recommendations to improve DOD's business transformation efforts and DOD's institutional and program-specific management controls. DOD has largely agreed with these recommendations.
section_title: What GAO Found
paragraphs: DOD's senior leadership has shown a commitment to transforming DOD's business operations and taken steps that have yielded progress in many respects, especially during the past two years. To sustain its efforts, DOD still needs (1) a strategic planning process and a comprehensive, integrated, and enterprisewide plan or set of plans to guide transformation and (2) a full-time, term-based, senior management official to provide focused and sustained leadership. Congress has clearly recognized the need for executive-level attention and, through the National Defense Authorization Act for fiscal year 2008, has designated the Deputy Secretary of Defense as DOD's Chief Management Officer (CMO), created a Deputy CMO position, and designated a CMO for each military department. Among other things, DOD will need to clearly define roles and responsibilities, accountability, and performance expectations. However, DOD still faces the challenge of ensuring that its CMO can give the position full-time focus and continuity of leadership. In that respect, GAO continues to believe the CMO should be codified in statute as a separate position with the appropriate term to span administrations. To comply with legislative requirements aimed at improving business systems modernization, DOD continues to update its business enterprise architecture and has established and begun to implement corporate investment review structures and processes. However, DOD has not achieved the full intent of the legislative requirements. The business enterprise architecture updates are not complete enough to effectively and efficiently guide and constrain business system investments across all levels of DOD. Although DOD issued a strategy for "federating" or extending its architecture to the DOD components, the components' architecture programs are not fully mature to support this. With respect to investment review structures and processes, DOD lacks policies and procedures for aligning investment selection decisions and relevant corporate- and component-level guidance. For example, DOD's business systems investment policies and procedures do not link investment selection decisions with investment funding decisions. Meanwhile, DOD components continue to invest billions of dollars in thousands of new and existing business system programs. DOD has taken steps towards developing and implementing a framework for improving its capability to provide timely, reliable, and relevant financial information for analysis, decisionmaking, and reporting. Specifically, DOD is defining and implementing a standard DOD-wide financial management data structure and enterprise-level capabilities to facilitate reporting and comparison of financial data across DOD. In 2007, DOD refined its strategy for achieving auditable financial statements, emphasizing verification and validation of sustained improvements and assessments of new systems to identify risks that, if not mitigated, may impede the achievement of clean financial statement audit opinions. While these efforts may improve the consistency and comparability of DOD's financial reports, a great deal of work to ensure the reliability of the data itself remains before financial management transformation will be achieved.

section_title: Letter
paragraphs: I am pleased to be here today to discuss the status of the Department of  Defense’s (DOD) efforts to transform DOD’s business operations and the  actions that DOD needs to take to maintain continuity of effort, change the  status quo, and achieve sustainable success, both at the enterprisewide  level and within DOD’s many components. Before I go further, I also want  to commend the Subcommittee for its continued focus, oversight, and  legislative initiatives to address these critical issues.
Since the first financial statement audit of a major DOD component was  attempted almost 20 years ago, we have reported that weaknesses in  business operations not only adversely affect the reliability of reported  financial data, but also the economy, efficiency, and effectiveness of these  operations. DOD continues to dominate our list of high-risk programs  designated as vulnerable to waste, fraud, abuse, and mismanagement,  bearing responsibility, in whole or in part, for 15 of 27 high-risk areas.  Eight of these areas are specific to DOD and include DOD’s overall  approach to business transformation, as well as business systems  modernization and financial management, which are the focus of this  hearing. Collectively, these high-risk areas relate to DOD’s major business  operations that directly support the warfighters, including how they are  paid, the benefits provided to their families, and the availability and  condition of equipment they use both on and off the battlefield.
Given the current security environment and growing long-range fiscal  imbalance facing our nation, DOD, like other federal agencies, will need to  ensure prudent and proper stewardship of the resources it is provided to  perform its mission. Commitments are clearly growing both abroad, with  our involvement in ongoing operations in Iraq and Afghanistan, as well as  at home, with efforts to provide homeland security. However, our nation is  threatened not only by external security threats, but also from within by  large and growing fiscal imbalances, due primarily to our aging population  and rising health care costs. Absent policy changes to cope with rising  health care costs and known demographic trends, a growing imbalance  between expected federal spending and revenues will mean escalating and  ultimately unsustainable federal deficits and debt levels. As I have stated  previously, our nation is on an imprudent and unsustainable fiscal path.  Given this scenario, DOD cannot afford to continue to rely on ineffective  and inefficient business processes, controls, and technology to support its  mission. With about $546 billion in discretionary budget authority  provided thus far in fiscal year 2008, along with total reported obligations  of about $492 billion to support ongoing operations and activities related  to the Global War on Terrorism since the September 11, 2001, attacks  through September 2007, the department has been given stewardship of  unprecedented amounts of taxpayer money. DOD must do more to ensure  proper stewardship and accountability of the resources it is given.
Transforming business operations in any organization is a long-term,  difficult process, especially in an organization as large and complex as  DOD. Congress, under the leadership of this Subcommittee and others, has  been instrumental in transforming DOD through oversight and through  legislation that has codified many of our prior recommendations,  particularly with respect to the modernization of DOD’s business systems.  While transformation will never be easy, our work shows that DOD will  certainly continue to face difficulty in achieving better outcomes in its  business operations and, ultimately, optimizing support to the warfighters  until it adopts a better leadership approach to guide its business  transformation efforts. My testimony today will provide perspectives on  the progress DOD has made and the challenges it faces in its approaches  to overall business transformation, business systems modernization, and  financial management capabilities improvements. In particular, I will focus  on the progress DOD has made in developing its business enterprise  architecture (BEA), enterprise transition plan (ETP), and Financial  Improvement and Audit Readiness (FIAR) Plan; DOD’s investment  controls for new business systems; the extent to which DOD is complying  with applicable legislation; and the degree to which the department has  integrated the roles of the military services in these efforts. My statement  is based largely on previous reports and testimonies; however, some  portions are based upon ongoing work. All of this work was performed in  accordance with generally accepted government auditing standards.
subsections: section_title: Background
paragraphs: DOD is one of the largest and most complex organizations in the world.  Overhauling its business operations will take many years to accomplish  and represents a huge and possibly unprecedented management challenge.  Execution of DOD’s operations spans a wide range of defense  organizations, including the military departments and their respective  major commands and functional activities, numerous large defense  agencies and field activities, and various combatant and joint operational  commands that are responsible for military operations in specific  geographic regions or theaters of operation. To support DOD’s operations,  the department performs an assortment of interrelated and interdependent  business functions—using thousands of business systems—related to  major business areas such as weapon systems management, supply chain  management, procurement, health care management, and financial  management. The ability of these systems to operate as intended affects  the lives of our warfighters both on and off the battlefield.
To address long-standing management problems, we began our high-risk  series in 1990 to identify and help resolve serious weaknesses in areas that  involve substantial resources and provide critical services to the public.  Historically, high-risk areas have been designated because of traditional  vulnerabilities related to their greater susceptibility to fraud, waste, abuse,  and mismanagement. As our high-risk program has evolved, we have  increasingly used the high-risk designation to draw attention to areas  associated with broad-based transformation needed to achieve greater  economy, efficiency, effectiveness, accountability, and sustainability of  selected key government programs and operations. DOD has continued to  dominate the high-risk list, bearing responsibility, in whole or in part, for  15 of our 27 high-risk areas. Of the 15 high-risk areas, the 8 DOD-specific  high-risk areas cut across all of DOD’s major business areas. Table 1 lists  the 8 DOD-specific high-risk areas and the year in which each area was  designated as high risk. In addition, DOD shares responsibility for 7  governmentwide high-risk areas.
GAO designated DOD’s approach to business transformation as high risk  in 2005 because (1) DOD’s improvement efforts were fragmented, (2) DOD  lacked an enterprisewide and integrated business transformation plan, and  (3) DOD had not appointed a senior official at the right level with an  adequate amount of time and appropriate authority to be responsible for  overall business transformation efforts. Collectively, these high-risk areas  relate to DOD’s major business operations, which directly support the  warfighter, including how servicemembers get paid, the benefits provided  to their families, and the availability of and condition of the equipment  they use both on and off the battlefield.
DOD’s pervasive business systems and related financial management  deficiencies adversely affect its ability to assess resource requirements;  control costs; ensure basic accountability; anticipate future costs and  claims on the budget; measure performance; maintain funds control;  prevent and detect fraud, waste, and abuse; and address pressing  management issues. Over the years, DOD initiated numerous efforts to  improve its capabilities to efficiently and effectively support management  decisionmaking and reporting, with little success. Therefore, we first  designated DOD’s business systems modernization and financial  management as high-risk areas in 1995, followed by its approach to  business transformation in 2005.
subsections: section_title: Overview of DOD Business Systems Modernization High-Risk Area
paragraphs: The business systems modernization high-risk area is large, complex, and  integral to each of the other high-risk areas, as modernized systems are  pivotal enablers to addressing longstanding transformation, financial, and  other management challenges. DOD reportedly relies on approximately  3,000 business systems to support its business functions. For fiscal year  2007, Congress appropriated approximately $15.7 billion to DOD, and for  fiscal year 2008, DOD has requested about $15.9 billion in appropriated  funds to operate, maintain, and modernize these business systems and the  associated infrastructures, of which approximately $11 billion was  requested for the military departments. For years, DOD has attempted to  modernize its many systems, and we have provided numerous  recommendations to help it do so. For example, in 2001, we provided the  department with a set of recommendations to help in developing and using  an enterprise architecture (modernization blueprint) and establishing  effective investment management controls to guide and constrain how the  billions of dollars each year are spent on business systems. We also made  numerous project-specific and DOD-wide recommendations aimed at  ensuring that the department follows proven best practices when it  acquires IT systems and services.
section_title: Enterprise Architecture and IT Investment Management Are Two Keys to Successfully Modernizing Systems
paragraphs: Effective use of an enterprise architecture, or modernization blueprint, is a  hallmark of successful public and private organizations. For more than a  decade, we have promoted the use of architectures to guide and constrain  systems modernization, recognizing them as a crucial means to a  challenging goal: agency operational structures that are optimally defined  in both the business and technological environments. Congress has also  recognized the importance of an architecture-centric approach to  modernization: the E-Government Act of 2002, for example, requires the  Office of Management and Budget (OMB) to oversee the development of  enterprise architectures within and across agencies.
In brief, an enterprise architecture provides a clear and comprehensive  picture of an entity, whether it is an organization (e.g., a federal  department) or a functional or mission area that cuts across more than  one organization (e.g., financial management). This picture consists of  snapshots of both the enterprise’s current or “As Is” environment and its  target or “To Be” environment. These snapshots consist of “views,” which  are one or more architecture products (models, diagrams, matrices, text,  etc.) that provide logical or technical representations of the enterprise.  The architecture also includes a transition or sequencing plan, based on an  analysis of the gaps between the “As Is” and “To Be” environments; this  plan provides a temporal road map for moving between the two that  incorporates such considerations as technology opportunities,  marketplace trends, fiscal and budgetary constraints, institutional system  development and acquisition capabilities, the dependencies and life  expectancies of both new and “legacy” (existing) systems, and the  projected value of competing investments. Our experience with federal  agencies has shown that investing in IT without defining these investments  in the context of an architecture often results in systems that are  duplicative, not well integrated, and unnecessarily costly to maintain and  interface.
A corporate approach to IT investment management is also characteristic  of successful public and private organizations. Recognizing this, Congress  developed and enacted the Clinger-Cohen Act in 1996, which requires  OMB to establish processes to analyze, track, and evaluate the risks and  results of major capital investments in information systems made by  executive agencies. In response to the Clinger-Cohen Act and other  statutes, OMB developed policy for planning, budgeting, acquisition, and  management of federal capital assets and issued guidance. We have also  issued guidance in this area, in the form of a framework that lays out a  coherent collection of key practices that when implemented in a  coordinated manner, can lead an agency through a robust set of analyses  and decision points that support effective IT investment management. This  framework defines institutional structures, such as investment review  boards, and associated processes, such as common investment criteria.  Further, our investment management framework recognizes the  importance of an enterprise architecture as a critical frame of reference  for organizations making IT investment decisions. Specifically, it states  that only investments that move the organization toward its target  architecture, as defined by its sequencing plan, should be approved  (unless a waiver is provided or a decision is made to modify the  architecture). Moreover, it states that an organization’s policies and  procedures should describe the relationship between its architecture and  its investment decision-making authority. Our experience has shown that  mature and effective management of IT investments can vastly improve  government performance and accountability, and can help to avoid  wasteful IT spending and lost opportunities for improvements.
section_title: Financial Management
paragraphs: A major component of DOD’s business transformation strategy is its FIAR  Plan, issued in December 2005 and updated annually in June and  September. The FIAR Plan was issued pursuant to section 376 of the  National Defense Authorization Act for Fiscal Year 2006. Section 376  limited DOD’s ability to obligate or expend funds for fiscal year 2006 on  financial improvement activities until the department submitted a  comprehensive and integrated financial management improvement plan to  congressional defense committees. Section 376 required the plan to   (1) describe specific actions to be taken to correct deficiencies that impair  the department’s ability to prepare timely, reliable, and complete financial  management information and (2) systematically tie such actions to  process and control improvements and business systems modernization  efforts described in the business enterprise architecture and transition  plan. The John Warner National Defense Authorization Act for Fiscal Year  2007 continued to limit DOD’s ability to obligate or expend funds for  financial improvement until the Secretary of Defense submits a  determination to the committees that the activities are consistent with the  plan required by section 376.
DOD intends for the FIAR Plan to provide DOD components with a road  map for resolving problems affecting the accuracy, reliability, and  timeliness of financial information, and obtaining clean financial statement  audit opinions. As such, the FIAR Plan greatly depends on the actions  taken by DOD components, including efforts to (1) develop and implement  systems that are in compliance with DOD’s BEA, (2) implement sustained  improvements in business processes and controls to address material  weaknesses, and (3) achieve clean financial statement audit opinions. The  FIAR Plan uses an incremental approach to structure its process for  examining operations, diagnosing problems, planning corrective actions,  and preparing for audit. Although the FIAR Plan provides estimated  timeframes for achieving auditability in specific areas or components, it  does not provide a specific target date for achieving a clean audit opinion  on the departmentwide financial statements. Rather, the FIAR Plan  recognizes that its ability to fully address DOD’s financial management  weaknesses and ultimately achieve clean audit opinions will depend  largely on the efforts of its components to successfully implement new  business systems on time, within budget, and with the intended capability.
section_title: DOD Has Made Progress in Addressing Its Business Transformation Efforts, but Critical Actions Are Needed to Provide Comprehensive, Integrated, and Strategic Planning and Focused, Sustained Leadership
paragraphs: DOD’s leaders have demonstrated a commitment to making the  department’s business transformation a priority and made progress in  establishing a management framework for these efforts. For example, the  Deputy Secretary of Defense has overseen the establishment of various  management entities and the creation of plans and tools to help guide  business transformation at DOD. However, our analysis has shown that  these efforts are largely focused on business systems modernization and  that ongoing efforts across the department’s business areas are not  adequately integrated. In addition, DOD lacks two crucial features that are  integral to successful organizational transformation: (1) a strategic  planning process that results in a comprehensive, integrated, and  enterprisewide plan or interconnected plans and (2) a senior leader who is  responsible and accountable for business transformation and who can  provide full-time focus and sustained leadership.
subsections: section_title: DOD Has Made Progress in Addressing Its Business Transformation Challenges
paragraphs: DOD’s senior leadership has shown commitment to transforming the  department’s business operations, and DOD has taken a number of  positive steps to begin this effort. Because of the impact of the  department’s business operations on its warfighters, DOD recognizes the  need to continue working toward transforming its business operations and  providing transparency in this process. The department has devoted  substantial resources and made important progress toward establishing  key management structures and processes to guide business systems  investment activities, particularly at the departmentwide level, in response  to legislation that codified many of our prior recommendations related to  DOD business systems modernization and financial management.
Specifically, in the past few years, DOD has established the Defense  Business Systems Management Committee, investment review boards, and  the Business Transformation Agency to manage and guide business  systems modernization. The Defense Business Systems Management  Committee and investment review boards were statutorily required by the  Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005  to review and approve the obligation of funds for defense business  systems modernization, depending on the cost and scope of the system in  review. The Business Transformation Agency was created to support the  top-level management body, the Defense Business Systems Management  Committee, and to advance DOD-wide business transformation efforts.
Additionally, DOD has developed a number of tools and plans to enable  these management entities to help guide business systems modernization  efforts. The tools and plans include the BEA and the ETP. The ETP is  currently considered the highest-level plan for DOD business  transformation. According to DOD, the ETP is intended to summarize all  levels of transition planning information (milestones, metrics, resource  needs, and system migrations) as an integrated product for communicating  and monitoring progress, resulting in a consistent framework for setting  priorities and evaluating plans, programs, and investments.
Our analysis of these tools, plans, and meeting minutes of the various  transformational management entities shows that these efforts are largely  focused on business systems modernization, and that this framework has  yet to be expanded to encompass all of the elements of overall business  transformation. Furthermore, DOD has not clearly defined or  institutionalized in directives the interrelationships, roles and  responsibilities, or accountability for the various entities that make up its  management framework for overall business transformation. For example,  opinions differ within DOD as to which senior governance body will serve  as the primary body responsible for overall business transformation. Some  officials stated that the Defense Business Systems Management  Committee would serve as the senior-most governance entity, while others  stated that the Deputy’s Advisory Working Group, a group that provides  departmentwide strategic direction on various issues, should function as  the primary decision-making body for business transformation.
Additionally, opinions differ between the two entities regarding the  definition of DOD’s key business areas, with the Defense Business  Systems Management Committee and the Business Transformation  Agency using a broader definition of business processes than that of the  Deputy’s Advisory Working Group and its supporting organizations. Until  such differences are resolved and the department institutionalizes a  management framework that spans all aspects of business transformation,  DOD will not be able to integrate related initiatives into a sustainable,  enterprisewide approach and to resolve weaknesses in business  operations.
section_title: Critical Actions Are Needed to Provide Comprehensive, Integrated, and Strategic Planning and Focused, Sustained Leadership for DOD’s Overall Business Transformation Efforts
paragraphs: As we have testified and reported for years, a successful, integrated,  departmentwide approach to addressing DOD’s overall business  transformation requires two critical elements: a comprehensive,  integrated, and enterprisewide plan and an individual capable of providing  full-time focus and sustained leadership both within and across  administrations, dedicated solely to the integration and execution of the  overall business transformation effort.
subsections: section_title: DOD Lacks a Strategic Planning Process That Results in a Comprehensive, Integrated, and Enterprisewide Plan or Set of Plans
paragraphs: DOD continues to lack a comprehensive, integrated, and enterprisewide  plan or set of linked plans for business transformation that is supported by  a comprehensive planning process and guides and unifies its business  transformation efforts. Our prior work has shown that this type of plan  should help set strategic direction for overall business transformation  efforts and all key business functions; prioritize initiatives and resources;  and monitor progress through the establishment of performance goals,  objectives, and rewards. Furthermore, an integrated business  transformation plan would be instrumental in establishing investment  priorities and guiding the department’s key resource decisions.
While various plans exist for different business areas, DOD’s various  business-related plans are not yet integrated to include consistent  reporting of goals, measures, and expectations across institutional, unit,  and individual program levels. Our analysis shows that plan alignment and  integration currently focus on data consistency among plans, meaning that  plans are reviewed for errors and inconsistencies in reported information,  but there is a lack of consistency in goals and measurements among plans.  Other entities such as the Institute for Defense Analyses, the Defense  Science Board, and the Defense Business Board have similarly reported  the need for DOD to develop an enterprisewide plan to link strategies  across the department for transforming all business areas and thus report  similar findings.
DOD officials recognize that the department does not have an integrated  plan in place, although they have stated that their intention is to expand  the scope of the ETP so that it becomes a more robust enterprisewide  planning document and to evolve this plan into the centerpiece strategic  document. DOD updates the ETP twice a year, once in March as part of  DOD’s annual report to Congress and once in September, and DOD has  stated the department’s goal is to evolve the plan into a comprehensive,  top-level planning document for all business functions. DOD released the  most recent ETP update on September 28, 2007, and we will continue to  monitor developments in this effort.
The National Defense Authorization Act for Fiscal Year 2008 requires the  Secretary of Defense, acting through the CMO, to develop a strategic  management plan to include detailed descriptions of such things as  performance goals and measures for improving and evaluating the overall  efficiency and effectiveness of the business operations of the department,  key initiatives to achieve these performance goals, procedures to monitor  progress, procedures to review and approve plans and budgets for changes  in business operations, and procedures to oversee the development,  review, and approval of all budget requests for defense business systems.  While these provisions are extremely positive, their impact will depend on  DOD’s implementation. We continue to believe that the key to success of  any planning process is the extent to which key stakeholders participate,  and whether the ultimate plan or set of plans is linked to the department’s  overall strategic plan, reflects an integrated approach across the  department, identifies performance goals and measures, shows clear  linkage to budgets, and ultimately is used to guide business  transformation.
section_title: Recent Legislation Takes Important Step to Provide Executive-Level Attention to Business Transformation Matters
paragraphs: We have long advocated the importance of establishing CMO positions in  government agencies, including DOD, and have previously reported and  testified on the key characteristics of the position necessary for success.  In our view, transforming DOD’s business operations is necessary for DOD  to resolve its weaknesses in the designated high-risk areas and to ensure  that the department has sustained leadership to guide its business  transformation efforts. Specifically, because of the complexity and long- term nature of business transformation, DOD needs a CMO with  significant authority, experience, and a term that would provide sustained  leadership and the time to integrate its overall business transformation  efforts. Without formally designating responsibility and accountability for  results, DOD will face difficulties reconciling competing priorities among  various organizations, and prioritizing investments will be difficult and  could impede the department’s progress in addressing deficiencies in key  business areas.
Clearly, Congress has recognized the need for executive-level attention to  business transformation matters and has taken specific action in the  National Defense Authorization Act for Fiscal Year 2008 to codify CMO  responsibilities at a high level in the department—assigning them to the  Deputy Secretary of Defense—as well as other provisions, such as  establishing a full-time Deputy CMO and designating CMO responsibilities  within the military departments. From a historical perspective, this action  is unprecedented and represents significant steps toward giving business  transformation high-level management attention. Now that this legislation  has been enacted, it will be important for DOD to define the specific roles  and responsibilities for the CMO, Deputy CMO, and the service CMOs;  ensure clearly delineated reporting relationships among them and other  department and service officials; foster good executive-level working  relationships for maximum effectiveness; establish appropriate integration  and transformation structures and processes; promote individual  accountability and performance; and provide for continuity.
Further, in less than 1 year, our government will undergo a change in  administrations, which raises questions about continuity of effort and the  sustainability of the progress that DOD has made to date. As we have said  before, business transformation is a long-term process, and continuity is  key to achieving true transformation. One of the challenges now facing  DOD, therefore, is establishing this continuity in leadership to sustain  progress that has been made to date. In the interest of the department and  the American taxpayers, we continue to believe the department needs a  full-time CMO over the long term in order to devote the needed focus and  continuity of effort to transform its key business operations and avoid  billions more in waste each year. As such, we believe the CMO position  should be codified as a separate position from the Deputy Secretary of  Defense in order to provide full-time attention to business transformation  and subject to an extended term appointment. The CMO’s appointment  should span administrations to ensure that transformation efforts are  sustained across administrations. Because business transformation is a  long-term and complex process, a term of at least 5 to 7 years is  recommended to provide sustained leadership and accountability.
Moreover, the fact that the National Defense Authorization Act for Fiscal  Year 2008 modifies politically appointed positions by codifying a new  designation for the Deputy Secretary of Defense, creating a new Deputy  Chief Management Officer of DOD, and adding a new designation to the  military departments’ under secretary positions to serve as the military  departments’ CMOs raises larger questions about succession planning and  how the executive branch fills appointed positions, not only within DOD,  but throughout the government. Currently, there is no distinction in the  political appointment process among the different types of responsibilities  inherent in the appointed positions. Further, the positions generally do not  require any particular set of management qualifications, even though the  appointees may be responsible for non-policy-related functions. For  example, appointees could be categorized by the differences in their roles  and responsibilities, such as by the following categories:  those appointees who have responsibility for various policy issues; those appointees who have leadership responsibility for various  operational and management matters; and  those appointees who require an appropriate degree of technical  competence or professional certification, as well as objectivity and  independence (for example, judges, the Comptroller General, and  inspectors general).
We have asked for a reexamination of the political appointment process to  assess these distinctions as well as which appointee positions should be  presidentially appointed and Senate confirmed versus presidentially  appointed with advance notification to Congress. For example, those  appointees who have policy leadership responsibility could be  presidentially appointed and Senate confirmed, while many of those with  operational and management responsibility could be presidentially  appointed, with a requirement for appropriate congressional notification  in advance of appointment. In addition, appropriate qualifications for  selected positions, including the possibility of establishing specific  statutory qualifications criteria for certain categories of appointees, could  be articulated. Finally, the use of term appointments and different  compensation schemes for these appointees should be reviewed.
section_title: DOD Is Continuing to Improve Its Approach to Modernizing Business Systems, but Challenges Remain
paragraphs: Despite noteworthy progress in establishing institutional business system  and management controls, DOD is still not where it needs to be in  managing its departmentwide business systems modernization. Until DOD  fully defines and consistently implements the full range of business  systems modernization management controls (institutional and program- specific), it will not be positioned to effectively and efficiently ensure that  its business systems and IT services investments are the right solutions for  addressing its business needs, that they are being managed to produce  expected capabilities efficiently and cost effectively, and that business  stakeholders are satisfied.
For decades, DOD has been attempting to modernize its business systems.  We designated DOD’s business systems modernization program as high  risk in 1995. Since then, we have made scores of recommendations aimed  at strengthening DOD’s institutional approach to modernizing its business  systems, and reducing the risks associated with key business system  investments. In addition, in recent legislation, Congress included  provisions that are consistent with our recommendations, such as in the  Ronald W. Reagan National Defense Authorization Act for Fiscal Year  2005. In response, the department has taken, or is taking, important  actions to implement both our recommendations and the legislative  requirements and as a result has made noteworthy progress on some  fronts in establishing corporate management controls, such as developing  a corporate-level BEA, including an ETP, establishing corporate  investment management structures and processes, increasing business  system life cycle management discipline and leveraging highly skilled staff  on its largest business system investments.
However, much more remains to be accomplished to address this high-risk  area, particularly with respect to ensuring that effective corporate  approaches and controls are extended to and employed within each of  DOD’s component organizations (military departments and defense  agencies). To this end, our recent work has highlighted challenges that the  department still faces in “federating” (i.e., extending) its corporate BEA to  its component organizations’ architectures, ensuring that the scope and  content of the department’s business systems transition plan addresses  DOD’s complete portfolio of IT investments, as well as establishing  institutional structures and processes for selecting, controlling, and  evaluating business systems investments within each component  organization. Beyond this, ensuring that effective system acquisition  management controls are actually implemented on each business system  investment also remains a formidable challenge, as our recent reports on  management weaknesses associated with individual programs have  disclosed. Among other things, these reports have identified program- level weaknesses relative to architecture alignment, economic  justification, performance management, requirements management, and  testing.
subsections: section_title: DOD Continues to Improve Its Corporate BEA and ETP, but Component Architectures Remain a Challenge
paragraphs: In May 2007, we reported on DOD’s efforts to address a number of  provisions in the Fiscal Year 2005 National Defense Authorization Act.  Among other things, we stated that the department had adopted an  incremental strategy for developing and implementing its architecture,  including the transition plan, which was consistent with our prior  recommendation and a best practice. We further stated that DOD had  addressed a number of the limitations in prior versions of its architecture.  However, we also reported that additional steps were needed. Examples  of these improvements and remaining issues with the BEA and the ETP  are summarized below:    The latest version of the BEA contained enterprise-level information about  DOD’s “As Is” architectural environment to support business capability  gap analyses. As we previously reported, such gap analyses between the  “As Is” and the “To Be” environments are essential for the development of  a well-defined transition plan.
The latest version included performance metrics for the business  capabilities within enterprise priority areas, including actual performance  relative to performance targets that are to be met. For example, currently  26 percent of DOD assets are reported by using formats that comply with  the Department of the Treasury’s United States Standard General  Ledger, as compared to a target of 100 percent. However, the architecture  did not describe the actual baseline performance for operational activities,  such as for the “Manage Audit and Oversight of Contractor” operational  activity. As we have previously reported, performance models are an  essential part of any architecture and having defined performance  baselines to measure actual performance provides the means for knowing  whether the intended mission value to be delivered by each business  process is actually being realized.
The latest version identified activities performed at each  location/organization and indicates which organizations are or will be  involved in each activity. We previously reported that prior versions did  not address the locations where specified activities are to occur and that  doing so is important because the cost and performance of implemented  business operations and technology solutions are affected by the location  and therefore need to be examined, assessed, and decided on in an  enterprise context rather than in a piecemeal, systems-specific fashion.
The March 2007 ETP continued to identify more systems and initiatives  that are to fill business capability gaps and address DOD-wide and  component business priorities, and it continues to provide a range of  information for each system and initiative in the plan (e.g., budget  information, performance metrics, and milestones). However, this version  still does not include system investment information for all the defense  agencies and combatant commands. Moreover, the plan does not sequence  the planned investments based on a range of relevant factors, such as  technology opportunities, marketplace trends, institutional system  development and acquisition capabilities, legacy and new system  dependencies and life expectancies, and the projected value of competing  investments. According to DOD officials, they intend to address such  limitations in future versions of the transition plan as part of their plans  for addressing our prior recommendations. In September 2007, DOD  released an updated version of the plan which, according to DOD,  continues to provide time-phased milestones, performance metrics, and  statement of resource needs for new and existing systems that are part of  the BEA and component architectures, and includes a schedule for  terminating old systems and replacing them with newer, improved  enterprise solutions.
As we have also reported, the latest version of the BEA continues to  represent the thin layer of DOD-wide corporate architectural policies,  capabilities, rules, and standards. Having this layer is essential to a well- defined federated architecture, but it alone does not provide the total  federated family of DOD parent and subsidiary architectures for the  business mission area that are needed to comply with the act. The latest  version had yet to be augmented by the DOD component organizations’  subsidiary architectures, which are necessary to meeting statutory  requirements and the department’s goal of having a federated family of  architectures. Under the department’s tiered accountability approach, the  corporate BEA focuses on providing tangible outcomes for a limited set of  enterprise-level (DOD-wide) priorities, while the components are to define  and implement their respective component-level architectures that are  aligned with the corporate BEA.
However, we previously reported that well-defined architectures did not  yet exist for the military departments, which constitute the largest  members of the federation, and the strategy that the department had  developed for federating its BEA needed more definition to be  executable. In particular, we reported in 2006, that none of the three  military departments had fully developed architecture products that  describe their respective target architectural environments and developed  transition plans for migrating to a target environment, and none was  employing the full range of architecture management structures,  processes, and controls provided for in relevant guidance. Also, we  reported that the federation strategy did not address, among other things,  how the component architectures will be aligned with the latest version of  the BEA and how it will identify and provide for reuse of common  applications and systems across the department.
According to DOD, subsequent releases of the BEA will continue to reflect  this federated approach and will define enforceable interfaces to ensure  interoperability and information flow to support decision making at the  appropriate level. To help ensure this, the BTA plans to have its BEA  independent verification and validation contractor examine architecture  federation when evaluating subsequent BEA releases. Use of an  independent verification and validation agent is an architecture  management best practice for identifying architecture strengths and  weaknesses. Through the use of such an agent, department and  congressional oversight bodies can gain information that they need to  better ensure that DOD’s family of architectures and associated transition  plan(s) satisfy key quality parameters, such as completeness, consistency,  understandability, and usability, which the department’s annual reports  have yet to include.
We made recommendations aimed at improving the management and  content of the military departments’ respective architectures; ensuring  that DOD’s federated BEA provides a more sufficient frame of reference to  guide and constrain DOD-wide system investments; and facilitating  congressional oversight and promoting departmental accountability  through the assessment of the completeness, consistency,  understandability, and usability of its federated family business mission  area architectures. DOD agreed with these recommendations and has  since taken some actions, such as developing an updated version of its  federation strategy, which according to DOD officials, addresses some of  our recommendations. We have ongoing work for this Subcommittee on  the military departments’ architecture programs, and plan to issue a report  in early May 2008.
section_title: DOD Has Largely Established Key Investment Management Structures, but Related Policies and Procedures at Both the Corporate and Component Levels Are Missing
paragraphs: The department has established and has begun to implement legislatively  directed corporate investment review structures and processes needed to  effectively manage its business system investments, but it has yet to do so  in a manner that is fully consistent with relevant guidance, both at a  corporate and component level. To its credit, the department has, for  example, established an enterprisewide investment board (Defense  Business Systems Management Committee (DBSMC)) and subordinate  boards (investment review boards (IRB)) that are responsible for business  systems investment governance, documented policies and procedures for  ensuring that systems support ongoing and future business needs through  alignment with the BEA, and assigned responsibility for ensuring that the  information collected about projects meets the needs of DOD’s investment  review structures and processes.
However, the department has not developed the full range of project- and  portfolio-level policies and procedures needed for effective investment  management. For example, policies and procedures do not outline how  the DBSMC and IRB investment review processes are to be coordinated  with other decision-support processes used at DOD, such as the Joint  Capabilities Integration and Development System; the Planning,  Programming, Budgeting, and Execution system; and the Defense  Acquisition System. Without clear linkages among these processes,  inconsistent and uninformed decision making may result. Furthermore,  without considering component and corporate budget constraints and  opportunities, the IRBs risk making investment decisions that do not  effectively consider the relative merits of various projects and systems  when funding limitations exist.
Examples of other limitations include not having policies and procedures  for (1) specifying how the full range of cost, schedule, and benefit data  accessible by the IRBs are to be used in making selection decisions; (2)  providing sufficient oversight and visibility into component-level  investment management activities, including component reviews of  systems in operations and maintenance; (3) defining the criteria to be used  for making portfolio selection decisions; (4) creating the portfolio of  business system investments; (5) evaluating the performance of portfolio  investments; and (6) conducting post implementation reviews of these  investments. According to best practices, adequately documenting both  the policies and the associated procedures that govern how an  organization manages its IT investment portfolio(s) is important because  doing so provides the basis for having rigor, discipline, and repeatability in  how investments are selected and controlled across the entire  organization. Accordingly, we made recommendations aimed at improving  the department’s ability to better manage the billions of dollars it invests  annually in its business systems and DOD largely agreed with these  recommendations but added that while it intends to improve departmental  policies and procedures for business system investments, each component  is responsible for developing and executing investment management  policies and procedures needed to manage the business systems under its  tier of responsibility.
According to DOD’s tiered accountability approach, responsibility and  accountability for business investment management is tiered, meaning that  it is allocated between the DOD corporate level (i.e., Office of the  Secretary of Defense) and the components based on the amount of  development/modernization funding involved and the investment’s  designated tier.
However, as our recent reports show the military departments also have  yet to fully develop many of the related policies and procedures needed to  execute both project-level and portfolio-level practices called for in  relevant guidance for their tier of responsibility. For example, they have  developed procedures for identifying and collecting information about  their business systems to support investment selection and control, and  assigned responsibility for ensuring that the information collected during  project identification meets the needs of the investment management  process. However, they have yet, for example, to fully document business  systems investment policies and procedures for overseeing the  management of IT projects and systems and for developing and  maintaining complete business systems investment portfolio(s).  Specifically, policies and procedures do not specify the processes for  decision making during project oversight and do not describe how  corrective actions should be taken when the project deviates or varies  from the project management plan. Without such policies and procedures,  the agency risks investing in systems that are duplicative, stovepiped,  nonintegrated, and unnecessarily costly to manage, maintain, and operate.  Accordingly, we made recommendations aimed at strengthening the  military departments’ business systems management capability, and they  largely agreed with these recommendations. Department officials stated  that they are aware of the absence of documented policies and procedures  in certain areas of project and portfolio-level management, and are  currently working on new guidance to address these areas.
Until DOD fully defines departmentwide and component-level policies and  procedures for both individual projects and portfolios of projects, it risks  selecting and controlling these business systems investments in an  inconsistent, incomplete, and ad hoc manner, which in turn reduces the  chances that these investments will meet mission needs in the most cost- effective manner.
The department has recently undertaken several initiatives to strengthen  business system investment management. For example, it has drafted and  intends to shortly begin implementing a new Business Capability Lifecycle  approach that is to consolidate management of business system  requirements, acquisition, and compliance with architecture disciplines  into a single governance process. Further, it has established an Enterprise  Integration Directorate in the Business Transformation Agency to support  the implementation of enterprise resource planning systems by ensuring  that best practices are leveraged and BEA-related business rules and  standards are adopted.
section_title: Implementing Effective Modernization Management Controls on All Business System Investments Remains a Key Challenge
paragraphs: Beyond establishing the above discussed institutional modernization  management controls, such as the BEA, portfolio-based investment  management, and system life cycle discipline, the more formidable  challenge facing DOD is how well it can implement these and other  management controls on each and every business system investment and  information technology services outsourcing program. In this regard, we  have continued to identify program-specific weaknesses as summarized  below.
With respect to taking an architecture-centric and portfolio-based  approach to investing in programs, for example, we recently reported that  the Army’s approach for investing about $5 billion over the next several  years in its General Fund Enterprise Business System, Global Combat  Support System-Army Field/Tactical, and Logistics Modernization  Program (LMP) did not include alignment with Army enterprise  architecture or use of a portfolio-based business system investment review  process. Moreover, we reported that the Army did not have reliable  processes, such as an independent verification and validation function, or  analyses, such as economic analyses, to support its management of these  programs. We concluded that until the Army adopts a business system  investment management approach that provides for reviewing groups of  systems and making enterprise decisions on how these groups will  collectively interoperate to provide a desired capability, it runs the risk of  investing significant resources in business systems that do not provide the  desired functionality and efficiency.
With respect to providing DOD oversight organizations with reliable  program performance and progress information, we recently reported that  the Navy’s approach for investing in both system and information  technology services, such as the Naval Tactical Command Support System  (NTCSS) and Navy Marine Corps Intranet (NMCI), had not always met  this goal. For NTCSS, we reported that, for example, earned value  management, which is a means for determining and disclosing actual  performance against budget and schedule estimates, and revising  estimates based on performance to date, had not been implemented  effectively. We also reported that complete and current reporting of  NTCSS progress and problems in meeting cost, schedule, and performance  goals had not occurred, leaving oversight entities without the information  needed to mitigate risks, address problems, and take corrective action. We  concluded that without this information, the Navy cannot determine  whether NTCSS, as it was defined and was being developed, was the right  solution to meet its strategic business and technological needs. For NMCI,  we reported that performance management practices, to include  measurement of progress against strategic program goals and reporting to  key decision makers on performance against strategic goals and other  important program aspects, such as examining service-level agreement  satisfaction from multiple vantage points and ensuring customer  satisfaction, had not been adequate. We concluded that without a full and  accurate picture of program performance, the risk of inadequately  informing important NMCI investment management decisions was  increased.
Given the program-specific weaknesses that our work has and continues  to reveal, it is important for DOD leadership and the Congress to have  clear visibility into the performance and progress of the department’s  major business system investments. Accordingly, we support the  provisions in section 816 of the John Warner National Defense  Authorization Act for Fiscal Year 2007 that provide for greater disclosure  of business system investment performance to both department and  congressional oversight entities, and thus increased accountability for  results. More specifically, the legislation establishes certain reporting and  oversight requirements for the acquisition of major automated information  systems (MAIS) that fail to meet cost, schedule, or performance criteria. In  general, a MAIS is a major DOD IT program that is not embedded in a  weapon system (e.g., a business system investment). Going forward, the  challenge facing the department will be to ensure that these legislative  provisions are effectively implemented. To the extent that they are, DOD  business systems modernization transparency, oversight, accountability,  and results should improve.
We currently have ongoing work for this subcommittee looking at the  military departments implementation of a broad range of acquisition  management controls, such as architectural alignment, economic  justification, and requirements management, on selected business systems  at the Departments of the Air Force and Navy.
section_title: DOD Has Made Progress in Establishing a Framework for Improving Financial Management Capabilities, but More Work Remains
paragraphs: DOD has taken steps toward developing and implementing a framework  for addressing the department’s long-standing financial management  weaknesses and improving its capability to provide timely, reliable, and  relevant financial information for analysis, decisionmaking, and reporting,  a key defense transformation priority. Specifically, this framework, which  is discussed in both the department’s ETP and the FIAR Plan is intended  to define and put into practice a standard DOD-wide financial  management data structure as well as enterprise-level capabilities to  facilitate reporting and comparison of financial data across the  department. While these efforts should improve the consistency and  comparability of DOD’s financial reports, a great deal of work remains  before the financial management capabilities of DOD and its components  are transformed and the department achieves financial visibility. Examples  of work remaining that must be completed as part of DOD component  efforts to support the FIAR Plan and ETP include data cleansing;  improvements in current policies, processes, procedures, and controls;  and implementation of integrated systems. We also note DOD has other  financial management initiatives underway, including efforts to move  toward performance-based budgeting and to continually improve the  reliability of Global War on Terrorism cost reporting.
In 2007, DOD also introduced refinements to its approach for achieving  financial statement auditability. While these refinements reflect a clearer  understanding of the importance of the sustainability of financial  management improvements and the department’s reliance on the  successful completion of component (including military services and  defense agencies) and subordinate initiatives, they are not without risk.  Given the department’s dependency on the efforts of its components to  address DOD’s financial management weaknesses, it is imperative that  DOD ensure the sufficiency and reliability of (1) corrective actions taken  by DOD components to support management attestations as to the  reliability of reported financial information; (2) activities taken by DOD  components and other initiatives to ensure that corrective actions are  directed at supporting improved financial visibility capabilities, beyond  providing information primarily for financial statement reporting, and are  sustained until a financial statement audit can be performed; and (3)  accomplishments and progress reported by DOD components and  initiatives.
subsections: section_title: Key DOD Financial Management Transformation Efforts Recognize the Need for an Integrated Approach
paragraphs: Successful financial transformation of DOD’s financial operations will  require a multifaceted, cross-organizational approach that addresses the  contribution and alignment of key elements, including strategic plans,  people, processes, and technology. DOD uses two key plans, the DOD ETP  and the FIAR Plan, to guide transformation of its financial management  operations. The ETP focuses on delivering improved capabilities,  including financial management, through the deployment of system  solutions that comply with DOD and component enterprise architectures.  The FIAR Plan focuses on implementing audit-ready financial processes  and practices through ongoing and planned efforts to address policy  issues, modify financial and business processes, strengthen internal  controls, and ensure that new system solutions support the preparation  and reporting of auditable financial statements. Both plans recognize that  while successful enterprise resource planning system implementations are  catalysts for changing organizational structures, improving workflow  through business process reengineering, strengthening internal controls,  and resolving material weaknesses, improvements can only be achieved  through the involvement of business process owners, including financial  managers, in defining and articulating their operational needs and  requirements and incorporating them, as appropriate, into DOD and  component business enterprise architectures. DOD officials have  acknowledged that integration between the two initiatives is a continually  evolving process. For example, the June 2006 FIAR Plan update stated that  some of the department’s initial subordinate plans included only limited  integration with Business Transformation Agency initiatives and solutions.  According to DOD officials, the use of end-to-end business processes (as  provided by its segment approach) to identify and address financial  management deficiencies will lead to further integration between the FIAR  Plan and ETP.
Two key transformation efforts that reflect an integrated approach toward  improving DOD’s financial management capabilities are the Standard  Financial Information Structure (SFIS) and the Business Enterprise  Information System (BEIS), both of which are discussed in DOD’s ETP  and FIAR Plan.
SFIS. Key limitations in the department’s ability to consistently provide  timely, reliable, accurate, and relevant information for analysis,  decisionmaking, and reporting are (1) its lack of a standard financial  management data structure and (2) a reliance on numerous nonautomated  data transfers (manual data calls) to accumulate and report financial  transactions. In fiscal year 2006, DOD took an important first step toward  addressing these weaknesses through publication of its SFIS Phase I data  elements and their subsequent incorporation into the DOD BEA. In March  2007, the department issued a checklist for use by DOD components in  evaluating their systems for SFIS compliance. SFIS is intended to provide  uniformity throughout DOD in reporting on the results of operations,  allowing for greater comparability of information. While the first phase of  SFIS was focused on financial statement generation, subsequent SFIS  phases are intended to provide a standardized financial information  structure to facilitate improved cost accounting, analysis, and reporting.  According to DOD officials, the department has adopted a two-tiered  approach to implement the SFIS data structure. Furthermore, they stated  that SFIS is a mandatory data structure that will be embedded into every  new financial management system, including enterprise resource planning  systems, such as the Army’s General Fund Enterprise Business System and  the Air Force’s Defense Enterprise Accounting and Management System  (DEAMS). Further, recognizing that many of the current accounting  systems will be replaced in the future, the department will utilize a  common crosswalk to standardize the data reported by the legacy  systems.
BEIS. A second important step that the department took toward  improving its capability to provide consistent and reliable financial  information for decisionmaking and reporting was to initiate efforts to  develop a DOD-level suite of services to provide financial reporting  services, cash reporting, and reconciliation services. As an interim  solution, financial information obtained from legacy component systems  will be cross-walked from a component’s data structure into the SFIS  format within BEIS. Newer or target systems, such as DEAMS, will have  SFIS imbedded so that the data provided to BEIS will already be in the  SFIS format.
According to DOD’s September 2007 FIAR Plan update, the department  prepared financial statement reports using SFIS data standards for the  Marine Corps general and working capital funds, the Air Force general and  working capital funds, and the Navy working capital funds. The  department plans to implement SFIS-compliant reporting for the Army  working capital funds, the Navy general funds, and its defense agencies in  fiscal year 2008. The development and implementation of SFIS and BEIS  are positive steps toward standardizing the department’s data structure  and expanding its capability to access and utilize data for analysis,  management decisionmaking, and reporting, including special reports  related to the Global War on Terrorism.
However, it is important to keep in mind that a great deal of work remains.  In particular, data cleansing; improvements in policies, processes,  procedures, and controls; as well as successful enterprise resource  planning system implementations are needed before DOD components and  the department fully achieve financial visibility. Our previous reviews of  DOD system development efforts have identified instances in which the  department faced difficulty in implementing systems on time, within  budget, and with the intended capability. For example, as previously  noted, the Army continues to struggle in its efforts to ensure that LMP will  provide its intended capabilities. In particular, we reported that LMP  would not provide the intended capabilities and benefits because of  inadequate requirements management and system testing. Further, we  found that the Army had not put into place an effective management  process to help ensure that the problems with the system were resolved.  Until the Army has completed action on our recommendations, it will  continue to risk investing billions of dollars in business systems that do  not provide the desired functionality or efficiency.
section_title: DOD Refines Its Audit Strategy
paragraphs: In fiscal year 2007, DOD introduced key refinements to its strategy for  achieving financial statement auditability. These refinements include the  following:    Requesting audits of entire financial statements rather than attempting to  build upon audits of individual financial statement line items.
Focusing on improvements in end-to-end business processes, or  segments that underlie the amounts reported on the financial statements.
Using audit readiness validations and annual verification reviews of  segment improvements rather than financial statement line item audits to  ensure sustainability of corrective actions and improvements.
Forming a working group to begin auditability risk assessments of new  financial and mixed systems, such as enterprise resource planning  systems, at key decision points in their development and deployment life  cycle to ensure that the systems include the processes and internal  controls necessary to support repeatable production of auditable financial  statements.
To begin implementing its refined strategy for achieving financial  statement auditability, DOD modified its business rules for achieving audit  readiness to reflect the new approach. Recognizing that a period of time  may pass before an entity’s financial statements are ready for audit, the  revised business rules provide for an independent validation of  improvements with an emphasis on sustaining improvements made  through corrective actions. Sustainability of improvements will be verified  by DOD components through annual internal control reviews, using OMB’s  Circular No. A-123, Appendix A, as guidance.
The department’s move to a segment approach provides greater flexibility  in assessing its business processes and in taking corrective actions, if  necessary, within defined areas or end-to-end business processes that  individually or collectively supports financial accounting and reporting.  However, DOD officials recognize that additional guidance is needed in  several key areas. For example, DOD has acknowledged that it needs to  establish a process to ensure the sufficiency of segment work in providing,  individually or collectively, a basis for asserting the reliability of reported  financial statement information. DOD officials indicated that they intend  to provide additional guidance in this area by March 2008. Additionally,  DOD officials acknowledged that a process is needed to ensure that DOD’s  annual internal control reviews, including its OMB No. A-123, Appendix A  reviews, are properly identifying and reporting on issues, and that  appropriate corrective actions are taken when issues are identified during  these reviews. To its credit, the department initiated the Check It  Campaign in July 2006 to raise awareness throughout the department on  the importance on effective internal controls.
Ultimately, DOD’s success in addressing its financial management  deficiencies, resolving the long-standing weaknesses that have kept it on  GAO’s high-risk list for financial management, and finally achieving  financial visibility will depend largely on how well its transformation  efforts are integrated throughout the department. Both the ETP and FIAR  Plan recognize that successful transformation of DOD’s business  operations, including financial management, largely depends on successful  implementation of enterprise resource planning systems and processes  and other improvements occurring within DOD components. Such  dependency, however, is not without risk. To its credit, DOD recently  established a working group to begin auditability risk assessments of new  financial and mixed systems, such as enterprise resource planning  systems. The purpose of these planned assessments is to identify  auditability risks that, if not mitigated during the development of the  system, may impede the component’s ability to achieve clean audit  opinions on its financial statements.
Furthermore, the department has implemented and continually expands  its use of a Web-based tool, referred to as the FIAR Planning Tool, to  facilitate management, oversight, and reporting of departmental and  component efforts. According to DOD officials, the tool is used to monitor  progress toward achieving critical milestones identified for each focus  area in component initiatives, such as financial improvement plans or  accountability improvement plans, or departmentwide initiatives. Given  that the FIAR Planning Tool is used to report results to OMB through  quarterly update reports to the President’s Management Agenda and to  update accomplishments in the FIAR Plan, it is critical that the FIAR  Directorate ensure the reliability of reported progress. During a recent  meeting with DOD officials, we discussed several areas where FIAR Plan  reporting appeared incomplete. Our observations included the following.
FIAR Plan updates, including the 2007 update, do not mention or include  the results of audit reports and studies that may have occurred within an  update period and how, if at all, any issues identified were addressed. For  example, the DOD Inspector General has issued reports in recent years  that raise concerns regarding the reliability of the military equipment  valuation methodology and the usefulness of the valuation results for  purposes beyond financial statement reporting. In 2007, the Air Force  Audit Agency also issued reports expressing concerns regarding the  reliability of reported military equipment values at Air Force. These audit  reports and actions, if any, taken in response to them have not been  mentioned to date in updates to the FIAR Plan. Further, although both the  June and September 2006 FIAR Plan updates report that an internal  verification and validation (IV&V) study was completed to test the military  equipment valuation methodology, including completeness and existence  of military equipment assets, neither of these reports disclosed the results  of the review or corrective actions taken, if any. The absence of relevant  audit reports or study results may mislead a reader into believing that no  issues have been identified that if not addressed, may adversely affect the  results of a particular effort, such as the department’s military equipment  valuation initiative. For example, the IV&V study identified several  improvements that were needed, in varying degrees, at all the military  services and the Special Operations Command in the following areas:   (1) documentation of waivers; (2) documentation of support for  authorization, receipt, and payment; (3) estimated useful life; and (4)  existence of the asset. In its conclusion statement, the IV&V study  reported that if the weaknesses identified by the IV&V review are  pervasive throughout DOD, the department will have a significant  challenge to establish control over its resources and get its military  equipment assets properly recorded for a financial statement audit.  Recognition of audits and other reviews in the FIAR and subordinate plans  would add integrity to reported accomplishments and further demonstrate  the department’s commitment to transforming its financial management  capabilities and achieving financial visibility.
While the FIAR Plan clearly identifies its dependency on component  efforts to achieve financial management improvements and clean financial  statement audit opinions, it does not provide a clear understanding of  further links or dependency between its subordinate plans, such as  between the financial improvement plans, accountability improvement  plans, and departmentwide initiatives, such as the military equipment  valuation effort. For example, while the 2007 FIAR Plan updates indicate  that Army, Navy, and Air Force developed accountability improvement  plans that detail steps required for asserting audit readiness on military  equipment, they do not clearly articulate the relationship of these plans to  other plans, such as component financial improvement plans or the  department’s plan to value military equipment. Clear linking of individual  plans and initiatives is important to ensuring that efforts occurring at all  levels within the department are directed at achieving improved financial  visibility in the most efficient and effective manner.
While we are encouraged by DOD’s efforts to implement capabilities that  improve comparability of reported financial information, a significant  amount of work remains before the department or its components have  the capability to provide timely, reliable, and relevant information for all  management operations and reporting. We caution the department that  going forward it will be important to ensure that its financial management  modernization efforts do not become compliance-driven activities  resulting in little to no benefit to DOD managers. It is critical that the  department ensure that its oversight, management, implementation, and  reporting of transformation efforts and accomplishments are focused on  the implementation of sustained improvements in DOD’s capability to  provide immediate access to accurate and reliable financial information  (planning, programming, budgeting, accounting, and cost information) in  support of financial accountability and efficient and effective decision  making throughout the department.
Mr. Chairman and Members of the Subcommittee, this concludes my  statement. I would be happy to answer any questions you may have at this  time.
section_title: GAO Contact
paragraphs: For questions regarding this testimony, please contact Sharon L. Pickup at  (202) 512-9619 or pickups@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this statement.
section_title: Related GAO Products
paragraphs: Organizational Transformation: Implementing Chief Operating  Officer/Chief Management Officer Positions in Federal Agencies. GAO-08- 322T. Washington, D.C.: December 13, 2007.
Business Systems Modernization: Air Force Needs to Fully Define  Policies and Procedures for Institutionally Managing Investments. GAO- 08-52. Washington, D.C.: October 31, 2007.
Business Systems Modernization: Department of the Navy Needs to  Establish Management Structure and Fully Define Policies and  Procedures for Institutionally Managing Investments. GAO-08-53.  Washington, D.C.: October 31, 2007.
Defense Business Transformation: A Full-time Chief Management  Officer with a Term Appointment Is Needed at DOD to Maintain  Continuity of Effort and Achieve Sustainable Success. GAO-08-132T.  Washington, D.C.: October 16, 2007.
Defense Business Transformation: Achieving Success Requires a Chief  Management Officer to Provide Focus and Sustained Leadership. GAO- 07-1072. Washington, D.C.: September 5, 2007.
DOD Business Transformation: Lack of an Integrated Strategy Puts the  Army’s Asset Visibility System Investments at Risk. GAO-07-860  Washington, D.C.: July 27, 2007.
DOD Business Systems Modernization: Progress Continues to Be Made  in Establishing Corporate Management Controls, but Further Steps Are  Needed. GAO-07-733. Washington, D.C.: May 14, 2007.
Business Systems Modernization: DOD Needs to Fully Define Policies  and Procedures for Institutionally Managing Investments. GAO-07-538.  Washington, D.C.: May 11, 2007.
High-Risk Series: An Update. GAO-07-310. Washington, D.C.: January  2007.
Information Technology: DOD Needs to Ensure That Navy Marine Corps  Intranet Program Is Meeting Goals and Satisfying Customers. GAO-07- 51. Washington, D.C.: December 8, 2006.
Defense Business Transformation: A Comprehensive Plan, Integrated  Efforts, and Sustained Leadership Are Needed to Assure Success. GAO- 07-229T. Washington, D.C.: November 16, 2006.
Enterprise Architecture: Leadership Remains Key to Establishing and  Leveraging Architectures for Organizational Transformation. GAO-06- 831. Washington, D.C.: August 14, 2006.
Department of Defense: Sustained Leadership Is Critical to Effective  Financial and Business Management Transformation. GAO-06-1006T.  Washington, D.C.: August 3, 2006.
Business Systems Modernization: DOD Continues to Improve  Institutional Approach, but Further Steps Needed. GAO-06-658.  Washington, D.C.: May 15, 2006.
DOD Systems Modernization: Planned Investment in the Navy Tactical  Command Support System Needs to be Reassessed. GAO-06-215.  Washington, D.C.: December 5, 2005.
DOD Business Systems Modernization: Important Progress Made in  Establishing Foundational Architecture Products and Investment  Management Practices, but Much Work Remains. GAO-06-219.  Washington, D.C.: November 23, 2005.
Defense Management: Additional Actions Needed to Enhance DOD’s  Risk-Based Approach for Making Resource Decisions. GAO-06-13.  Washington, D.C.: November 15, 2005.
Defense Management: Foundational Steps Being Taken to Manage DOD  Business Systems Modernization, but Much Remains to be Accomplished  to Effect True Business Transformation. GAO-06-234T. Washington, D.C.:  November 9, 2005.  21st Century Challenges: Transforming Government to Meet Current  and Emerging Challenges. GAO-05-830T. Washington, D.C.: July 13, 2005.
DOD Business Transformation: Sustained Leadership Needed to Address  Long-standing Financial and Business Management Problems. GAO-05- 723T. Washington, D.C.: June 8, 2005.
Defense Management: Key Elements Needed to Successfully Transform  DOD Business Operations. GAO-05-629T. Washington, D.C.: April 28,  2005.
Information Technology Investment Management: A Framework for  Assessing and Improving Process Maturity. GAO-04-394G. Washington,  D.C.: March 2004.
Information Technology: A Framework for Assessing and Improving  Enterprise Architecture Management (Version 1.1). GAO-03-584G.  Washington, D.C.: April 2003.
This is a work of the U.S. government and is not subject to copyright protection in the  United States. It may be reproduced and distributed in its entirety without further  permission from GAO. However, because this work may contain copyrighted images or  other material, permission from the copyright holder may be necessary if you wish to  reproduce this material separately.