Defense Acquisitions: DOD's Research and Development Budget Requests to Congress Do Not Provide Consistent, Complete, and Clear Information
Published: 2007-09-05T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Department of Defense (DOD) asked Congress for $73.2 billion in fiscal year 2007 for research, development, testing, and evaluation (RDT&E). DOD organized this request using program element (PE) codes, which are designed to convey key information about the budget request. DOD also provides documents called budget exhibits detailing the activities for which funds are being requested. The National Defense Authorization Act for Fiscal Year 2006 mandated that GAO examine the program elements and budget exhibits. GAO assessed (1) whether the RDT&E program element code structure and the associated budget exhibits provide accurate, consistent, complete, and clear information, and (2) what factors contribute to any problems found. In conducting this review GAO analyzed all of the fiscal year 2007 program element codes and 47 budget exhibits. GAO also interviewed key DOD officials.
section_title: What GAO Found
paragraphs: Neither the RDT&E program element code structure nor the budget exhibits consistently provide accurate, clear, and complete information on the nature of DOD's proposed research and development efforts. First, one-third of the requested RDT&E funding is for efforts that are not identified as research and development in their program element codes. In addition, a majority of the remaining funding request misidentifies the budget activity (which is a classification of the stage of development and ranges from BA 1 for basic research to BA 6 for management support) as it is stated in program element codes. Second, some of the budget exhibits justifying the programs' funding requests do not provide consistent, complete, and clear information with suitable levels of detail needed to understand DOD's research and development efforts. GAO found that DOD budget exhibits were difficult to understand, frequently lacked information about the accomplishments and planned efforts of each project, lacked appropriate cross-references between efforts, and were frequently missing key schedule data. The RDT&E program element codes are not always accurate nor are the budget exhibits always accurate, clear, consistent and complete for two major reasons. First, DOD's regulation does not require identification of any RDT&E effort as such in its program element code if it is taking place on a weapon system that is approved for production or already fielded. This affects over a third of all RDT&E funds. Second, the regulation governing the structuring of the coding and the content of the exhibits is vague. For example, the regulation does not require the coding to be updated from one year to the next to ensure the correct stage of development has been accurately identified. The regulation also does not provide sufficiently detailed guidance to ensure consistency in the format and content of the budget exhibits. This results in budget exhibits being insufficient as decision-making tools, according to DOD officials.

section_title: Letter
paragraphs: In fiscal year 2007, the Department of Defense (DOD) asked Congress for  $73.2 billion for research, development, testing, and evaluation (RDT&E).  DOD organized this request for funds for more than 1,000 projects by using  the long-standing program element (PE) code structure. This system  produces a code that is structured to give decision makers key information  such as the development stage of the project. The PE code, for example,  describes whether the effort is for basic research in a laboratory on  directed energies, integration of weapon system prototypes, or upgrades  to long-fielded weapon systems such as the B-52 bomber. PE codes are the  building blocks of the defense programming and budgeting system, and  can be aggregated to display total resources assigned to specific programs,  to specific military services, or in other ways for analytical purposes. For  example, decision makers use the reported stages of development to  assess how much is being invested in fundamental science and technology.  These efforts determine the future capabilities of U.S. military forces.
Each development effort that is assigned a unique PE code has its  activities detailed in accompanying documents known as budget exhibits.  DOD directs that these documents include such information as a  description of the effort, an assessment of progress, and the expected  accomplishments.
Although other sources of information are also available to Congress  about some of these RDT&E programs, the decision to authorize and  appropriate funds for many programs is based primarily on budget  exhibits. Accurate classifications of programs and projects by budget  activity are needed for decision-makers to readily understand how  projects are progressing and on what money is being spent. The National  Defense Authorization Act for Fiscal Year 2006 required that we examine  the program element codes and budget exhibits. We responded with a  briefing to the committees in February 2007. In this follow-on report,  which summarizes the briefing, we assess:  1.  Whether the RDT&E program element code structure and the  associated budget exhibits provide accurate, consistent, complete and  clear information, and  2.  What factors contribute to any problems found.
In conducting our evaluation, we reviewed pertinent program element and  budget justification policies and guidance; analyzed all of the fiscal year  2007 program elements and the associated budget exhibits for over 47 of  these programs; and interviewed officials from the offices of the Secretary  of Defense and each of the military services. We conducted our review  from June 2006 to July 2007 in accordance with generally accepted  government auditing standards. Additional information about our  methodology is contained in appendix I.
subsections: section_title: Background
paragraphs: Under the DOD Financial Management Regulation (FMR), all major new  systems are to be identified with a unique PE code. PE codes have   10 positions. In general, each position conveys information, as seen in  figure 1.
The first and second positions of the PE code illustrated above define the  Major Force Program (MFP), which contain the resources necessary to  achieve a broad objective or plan. In figure 1, for example, the “06” in the  first positions indicate this is a research and development effort. Because  it is a research and development effort beginning with “06,” under the  FMR, the third and fourth positions must define the budget activity. In  general, the budget activity codes that fill positions three and four are  intended to describe the current nature of the research and development  effort for each PE code. For example, budget activities 1 through 3 cover  initial development efforts and should describe activities that take place in  what is often called the science and technology realm. Research and  development efforts in these first three budget activities may produce  scientific studies and experimentation, develop paper studies of  alternative concepts, or test integration of subsystems and components.  Budget activities 4 and 5 cover efforts used to fully develop and acquire  integrated weapon systems respectively. Programs in these budget  activities may perform efforts necessary to further mature a technology or  conduct engineering and manufacturing development tasks. Budget  activity 6 funds efforts to sustain or modernize the installations or  operations required for general RDT&E. Test ranges, military construction,  maintenance support of laboratories, studies and analysis, and operations  and maintenance of test aircraft and ships are funded with this budget  activity.
Budget activity 7 is used to designate R&D efforts for systems that have  already been approved for production or those that have already been  fielded. Unlike budget activities 1 through 6, budget activity 7 is not  indicated in a PE code. This information is seen in the accompanying  budget exhibits. Despite the fact that these are research and development  efforts, their program element code does not contain any indication that  they are for research and development.
The FMR also requires that DOD justify the annual RDT&E budgets  requests in budget exhibit documents. These accompanying budget  exhibits are the primary information source for Congress and analysts  throughout the government. Generally, there are six sections in each  budget exhibit that are used to justify each funding request made using an  RDT&E PE code. These include a mission description and budget item  justification section; an accomplishments and planned program section; a  program change summary section showing total funding, schedule, and  technical changes to the program element that have occurred since the  previous budget submission; a performance measures section to justify  100 percent of resources requested; a section that shows connections and  dependencies among projects, which should also include information such  as the appropriation, budget activity, line item, and program element  number of the related efforts; and, a section providing a schematic display  of major program milestones that reflect engineering milestones,  acquisition approvals, test and evaluation events, and other key milestones  for the program events.
section_title: Program Element Codes and Budget Exhibits Do Not Consistently Provide Key Information
paragraphs: The program element code structure and budget exhibits do not  consistently provide accurate, clear, and complete information regarding  RDT&E budget requests. The PE codes given for many programs do not  indicate that they are for an R&D effort at all or do not accurately reflect  the reported nature of the development. Budget exhibits sometimes omit  required information about programs and their links to other programs,  and may provide only minimal information.
section_title: One-Third of the Requested RDT&E Funding Is Not Identified as RDT&E Programs
paragraphs: Programs that were requested in budget activity 7—RDT&E efforts for  fielded systems and programs approved for production—presented the  greatest visibility problem. Under DOD’s current regulation, programs in  this budget activity are not required to report in the code itself that the  funds are for research and development, nor are they required to report  the nature of the development effort. This budget activity was used to  request $23.5 billion in fiscal year 2007, or about a third of DOD’s entire  RDT&E funding request. Instead, the information available about these  funding requests is contained in their budget exhibits.
Programs classified as budget activity 7 do not begin their PE code with  06, which would identify them as RDT&E requests. Instead, budget activity  7 RDT&E efforts use PE codes that begin with the major force program  code established for the system being modified. For example, PE  0102419A, the Joint Land Attack Cruise Missiles Defense Elevated Netted  Sensor System (JLENS) program, provides no indication that the effort  uses RDT&E funds, nor does it identify the nature of the development. It  begins with 01, indicating it is for strategic forces and ends with A,  indicating that it is an Army request.
In addition, we found that nature of the efforts funded in budget activity   7 overlap with the nature of the efforts undertaken in other budget  activities, making it difficult to determine the amounts requested for the  different stages of development across the entire RDT&E budget. While  the definition for budget activity 7 describes efforts that are fielded or  approved for production, several defense acquisition efforts covered under  budget activity 7 are involved in phases ranging from technology  development to production, as shown in figure 2. The JLENS program, for  example, is currently developing an aerostat for cruise missile defense, but  its code does not indicate that it is in system development and  demonstration. There is a separate code, budget activity 5, which also  funds efforts in system development and demonstration.
section_title: Program Element Codes also Misidentified the Specific Nature of R&D Efforts
paragraphs: We found that 65 percent of the RDT&E PE codes for budget activities   1 through 6 misidentified the nature or stage of the development in fiscal  year 2007. While the early development efforts described by budget  activities 1 through 3 generally properly identified the nature of the effort  in their codes, budget activities 4 through 6 generally did not, as seen in  figure 3. Programs reported in budget activities 4 through 6 requested  more than half of the total RDT&E funding.
The challenge of clearly identifying the nature of the development efforts  is actually much worse when the budget activity 7 programs are  considered along with the misidentified programs in budget activities   1 through 6. As a result of these combined problems, the PE code provides  only limited visibility into 85 percent of the requested funding, as seen in  figure 4.
section_title: Budget Exhibits Were Sometimes Inconsistent, Incomplete, or Unclear
paragraphs: While reviewing a set of 47 RDT&E budget exhibits from fiscal years 2006  and 2007, we observed that some of the exhibits omitted key information.  While DOD presents some valuable information in these exhibits, we  found in many cases that the justification narratives were not clear or  provided little or no additional information from the previous year’s  justification. In a number of cases the narratives appeared to be “copy and  paste” descriptions of activities from prior years, making it difficult to  determine recent changes or program progress. We also observed that  information on accomplishments from the past year was provided for few  programs. In addition, few programs provided detailed narratives of  planned activities for the current budget year. For the few exhibits that did  contain narratives on planned activities, the level of detail was minimal.  For example, the Air Force Global Positioning System (GPS) Block III  program requested $315 million for fiscal year 2007 and had requested  $119 million combined in the previous 2 fiscal years. In this section, the  accomplishments were described as “Continue Program Support and  Modernization Development for GPS III,” and the planned program was  described as “Begin Modernization Segment.”
Furthermore, funding changes from year to year were inconsistently  reported. In some cases they were provided at the PE code level and in  other cases at the project level, when the PE code involved multiple  projects. These funding change summaries also routinely provide limited  detail on the reasons for the changes. For example, the Navy’s EA-18G and  DD(X) programs had funding changes of millions of dollars to their  previous and current budgets but failed to provide details of why these  changes had occurred.
Additionally, the budget exhibits did not always identify the connections  and dependencies among related projects consistently as required by the  FMR. In general, these connections can be vital to the successful  development of some programs. In some instances, key components to a  system under development are being developed in other programs. A delay  or failure in one program can mean delay and failure in the related  program. For example:    C-130 Avionics Modernization Program (AMP) exhibit did not identify  all of the required information for related programs in the Navy and  Special Forces nor did it identify C-130 Talon II procurement, which  included C-130 AMP upgrades.
DDG-1000 (formerly the DD(X)) destroyer program is developing dual- band radar that will be used on the CVN-21 aircraft carrier. No  reference is made to this link/dependency in the exhibit.
Expeditionary Fire Support System is being developed to be  transported by the V-22 aircraft, but makes no reference to the V-22  program.
Warrior UAV (unmanned aerial vehicle) is being developed in two  PEs—one for the system and one to weaponize. Only one program  references the other.
Our review found the schedule profiles in the budget exhibits were  generally provided but sometimes did not provide a detailed display of  major program milestones such as engineering milestones, acquisition  approvals, or test and evaluation events. Also, we could not find the  standard program milestones in a number of the schedule profiles we  reviewed. In some cases we found it difficult to determine the program’s  phase of development. For example, in two cases the development  schedule showed “continue development” across all fiscal years displayed.  In another example, a program simply reported “S/W Development” with a  bar covering all fiscal years.
section_title: DOD Guidance and Practices Contribute to Reduced Visibility
paragraphs: We found the RDT&E program element code and the budget exhibits are  not always accurate, clear, consistent, and complete for two major  reasons. First, DOD’s own regulation for constructing program element  codes does not require a large part of the RDT&E effort to be reflected in  program element codes. Second, the regulation governing the structuring  of the coding and the content of the exhibits is vague. For example, it does  not require the coding to be updated from one year to the next to ensure  the correct stage of development has been accurately identified. The  regulation also does not provide sufficiently detailed guidance to ensure  consistency in the format and content of the budget exhibits. This leads to  inconsistencies in how it is applied by different organizations and officials  within DOD.
The FMR requires that once a weapon system is fielded or approved for  production that it be identified not as R&D efforts in the program element  code, but rather under a different code. These PE codes are required to  carry the Major Force Program code of the fielded systems. As a result,  these PE codes, accounting for one-third of the requested RDT&E budget,  do not identify the efforts as R&D activities and do not indicate the nature  of the R&D effort.
In addition, the regulation is unclear on how or when program element  coding should change over time as the development progresses into a  different stage. As a result, even if the program element code is accurate  when a program is assigned a code, without updating the code, the  programs that successfully mature will automatically develop inaccurate  coding over time.
Several DOD officials said that one of the reasons that the budget exhibits  are insufficient as decision-making tools is the lack of clear and consistent  guidance for the budget exhibits in the FMR. For example, while the FMR  requires a “Program Schedule Profile” exhibit, it is not standardized. The  FMR provides examples of the budget exhibits that include an  “Accomplishment/Planned Program” section. However, it is unclear  whether this section has to contain specific information about both the  accomplishments achieved from previous funds and the activities to be  achieved with requested funds.
section_title: Conclusion
paragraphs: Congress has the difficult task of choosing which RDT&E efforts to fund  from the many competing demands. These RDT&E efforts are critical to  the national interest. However, they must be balanced within the other  fiscal pressures facing the government, including the large and growing  structural deficit. These factors make it especially important that Congress  get the justifications for these R&D efforts in a clear, consistent, and  readily useable form.
However, the department’s policies and practices are not providing this  key information to congressional decision makers. The RDT&E  justification material often obscures rather than reveals the nature of the  efforts under way and prevents a determination of the specifics regarding  why the money is needed.
A number of opportunities exist for DOD to provide Congress with clearer  justifications for the funds requested for these efforts. Congress needs a  structure that will (1) properly identify the development status of projects  for which funds are requested, (2) bring complete visibility to all of the  activities for which funds are requested, and (3) provide consistent  information about how well these projects are progressing in order to  make efficient decisions.
More specific guidance could improve the ability of the program element  codes and budget exhibits to aid Congress in focusing oversight where it is  needed, facilitate early corrective action, and improve accountability.
section_title: Recommendations for Executive Action
paragraphs: This report makes two recommendations. To provide Congress with  greater understanding of the nature of developmental activities proposed,  as well as to improve the consistency and completeness of the justification  material provided for the RDT&E funds requested, the Secretary of  Defense should ensure that the DOD Comptroller:    Revises the Financial Management Regulation to, (1) in the case of  programs approved for production or fielded, ensure that the code or  the budget exhibit indicates which stage of development—from basic  research through system development and demonstration—the effort is  undertaking, and (2) ensure that the program element codes reflect the  stage of development—that is from basic research through system  development and demonstration—of the requested research and  development effort.
Develops more specific guidance for budget exhibits to ensure that  they are accurate, consistent, clear, and complete, and enforce a  disciplined process for ensuring proper reporting of program progress  and planned efforts.
section_title: Matter for Congressional Consideration
paragraphs: Congress may wish to have DOD’s Comptroller work with relevant  committees to reach agreement on how to revise budget exhibits and the  program element code structure to meet congressional oversight needs as  well as serve the needs of DOD. In these discussions, consideration could  be given to:
The value and cost of modifying or replacing the current PE code  structure so that it more readily informs Congress as to the nature  of the R&D effort for systems in development as well as fielded  systems and systems approved for production.
The best means to inform Congress of the state of development of  the requested effort as it progresses toward production.
The changes needed to the format and content of the budget  exhibits to more effectively communicate the purpose for which  funding is sought, the progress made with prior funding, and other  key funding justification information.
The time frames and funding needed to develop and implement any  changes.
section_title: Agency Comments and Our Evaluation
paragraphs: DOD partially concurred with both of our recommendations. However, it  is unclear from DOD’s response what specific actions the department will  take in response to our recommendations other than to put additional  emphasis on properly reporting program progress and planned efforts.
In partially concurring with our first recommendation, DOD commented  that in the case of systems that have been approved for production and  fielded, specifically capturing RDT&E funding would be  counterproductive to how the departmental leadership makes decisions.  We recognize the importance to the department of enabling the  department’s leadership to make decisions on the full scope of a program;  however, we note that program element codes also have the purpose of  providing important oversight information to Congress and the current  practice significantly lacks the clarity of the RDT&E funding justifications  to Congress. As we reported, RDT&E funds for programs approved for  production and fielded systems currently represents one-third of the total  RDT&E budget. As a result, we believe this level of investment warrants  improved clarity. We have modified the wording in the recommendation to  focus on providing clearer information to Congress either through the  program element code structure or the budget exhibits.
DOD fully concurred with the second part of that recommendation to  ensure that the program element codes reflect the state of development of  the requested effort as it progresses toward production. DOD noted that  the program element structure accommodates this progression. However,  our analysis found that a significant amount of funding is misidentified in  the coding. DOD has not identified any proposed actions to correct this  misidentification.
DOD partially concurred with our second recommendation and will place  greater emphasis on proper reporting of program progress and planned  efforts as reported in its budget exhibits. However, DOD took issue with  developing a template, stating that it is doubtful any single template would  be feasible or desirable given the complexity of the RDT&E activity. We  believe more specific guidance is needed to ensure that DOD is more  effectively communicating the purpose for which funding is sought, the  progress made with prior funding, as well as the other key funding  justification information. We have modified the wording of the  recommendation to remove the term “template.” We still believe that  greater standardization is called for, but recognize that templates are but  one means among many to achieve that end.
We are sending copies of this report to interested congressional  committees; the Secretary of Defense; the Secretaries of the Air Force,  Navy, Army, and the Commandant of the Marine Corps; and the Director,  Office of Management and Budget. We will provide copies to others on  request. This report will also be available at no charge on GAO’s Web site  at http://www.gao.gov.
Should you or any of your staff have any questions on matters discussed in  this report, please contact me on (202)512-4841 or by e-mail at  sullivanm@gao.gov. Contact points for our offices of Congressional  Relations and Public Affairs may be found on the last page of this report.  Principal contributors to this report were David Best (Assistant Director),  Jerry Clark, Chris Deperro, Greg Campell, Anna Russell, Julie Hadley, and  Noah Bleicher.
section_title: Appendix I: Scope & Methodology
paragraphs: To assess whether DOD’s RDT&E program element code structure  provides Congress consistent, complete and clear information, we  reviewed relevant guidance while analyzing all 696 program elements  contained in the fiscal year 2007 RDT&E budget request. We assessed  program elements by budget activity, dollar value, number of projects, and  phase of development. We also determined the number of program  elements that properly matched their assigned budget activity to  determine if guidance contained in the Financial Management Regulation  was properly followed. To determine the actual phase of development for  programs requesting funding in budget activity 07, we reviewed both their  budget exhibits and other documents, such as their Selected Acquisition  Reports. For this analysis, we reviewed the Global Hawk Unmanned  Aircraft System, Aerial Common Sensor, Warrior Unmanned Aircraft  System, Mobile User Objective System, Joint Land Attack Cruise Missile  Defense Elevated Netted Sensor System, and Navstar Global Positioning  System.
We assessed the information contained the RDT&E budget justification  documents by reviewing the content, structure, clarity, and completeness  of all components of the budget exhibits, including sections related to the  program’s description and budget item justification, schedule profile, and  funding summaries. We reviewed multiple budget justification documents  from 47 program element codes reported in February 2005 and 2006. We  ensured that this review encompassed all military services and covered  multiple fiscal years. This review focused on budget exhibits for programs  in budget activities 4, 5, and 7 to identify any differences in the  consistency, completeness and clarity of information presented. To assess  connections and dependency information, we included additional  programs that GAO has recently reported on because a more detailed  understanding of the programs involved is required to identify these  connections. To assess consistency, we compared the level of detail  reported from year to year and compared the treatment of funding  changes from program to program. To assess completeness, we compared  the information in the budget exhibits to the requirements of the FMR. To  assess the clarity of the information, we reviewed the details provided in  the narrative language in the exhibits.
To determine the factors that contribute to any problems found, we also  reviewed the Department of Defense Financial Management Regulation  and the Future Years Defense Planning Handbook policies and guidance  related to developing program elements and budget justification  documents. To better understand the processes involved with developing  program elements and budget justification documents, we interviewed  officials from the offices of the Under Secretary of Defense for  Acquisition, Technology, and Logistics Director, Defense Research and  Engineering; Under Secretary of Defense (Comptroller); Principal Deputy  Under Secretary of Defense (Comptroller); Director, Program Analysis and  Evaluation; Assistant Secretary of the Army for Financial Management and  Comptroller; Office of the Assistant Secretary of the Navy Financial  Management and Comptroller; Office of the Secretary of the Air Force; and  the Air Force Office for the Deputy Chief of Staff for Strategic Plans and  Programs.
We conducted our review from June 2006 to January 2007 in accordance  with generally accepted government auditing standards.
section_title: Appendix II: Comments from the Department of Defense