Department of Defense: Status of Financial Management Weaknesses and Progress Toward Reform
Published: 2003-06-25T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: As seen again in Iraq, the excellence of our military forces is unparalleled. This same level of excellence is not yet evident in the Department of Defense's (DOD) financial management and other business areas, impeding DOD's ability to provide complete, reliable, and timely information to the Congress, DOD managers, and other decision makers. Congress asked GAO to testify on the status of DOD's financial management and business process reform efforts. Specifically, GAO was asked to provide an overview of the long-standing financial management weaknesses facing DOD and a summary of the underlying causes of DOD's financial management challenges. In addition, GAO's testimony focused on (1) key actions necessary to correct DOD's financial management problems and (2) the progress DOD is making toward business process reform.
section_title: What GAO Found
paragraphs: Overhauling DOD's financial management represents a major challenge that goes far beyond financial accounting to the very fiber of the department's range of business operations and management culture. Of the 25 areas on GAO's governmentwide "high risk" list, 6 are DOD program areas, and the department shares responsibility for 3 other high-risk areas that are governmentwide in scope. Key financial management weaknesses include the lack of effective and efficient asset management and accountability; unreliable estimates of environmental and disposal liabilities; lack of accurate budget and cost information; nonintegrated and proliferating financial management systems; and fundamental flaws in DOD's overall control environment. GAO has identified four underlying causes for DOD's inability to resolve its long-standing financial management problems: (1) a lack of sustained top-level leadership and management accountability for correcting problems; (2) deeply embedded cultural resistance to change, including military service parochialism and stovepiped operations; (3) a lack of results-oriented goals and performance measures and monitoring; and (4) inadequate incentives for seeking change. The following are elements that GAO has identified as key to a successful approach to financial management and business process reform: (1) addressing financial management challenges as part of a comprehensive, integrated, DOD-wide business reform; (2) providing for sustained leadership by the Secretary of Defense and resource control to implement needed financial management reforms; (3) establishing clear lines of responsibility, authority, and accountability for such reform tied to the Secretary; (4) incorporating results-oriented performance measures and monitoring tied to financial management reforms; (5) providing appropriate incentives or consequences for action or inaction; (6) establishing and implementing an enterprise architecture to guide and direct financial management modernization investments; and (7) ensuring effective executive and congressional oversight and monitoring. DOD has taken positive steps in many of these key areas. For example, the Secretary of Defense has included improving DOD's financial management as one of his top 10 priorities, and DOD has already taken a number of actions under its Business Transformation Program, including its efforts to develop an enterprise architecture to guide operational and technological changes. However, these are beginning steps and formidable challenges remain in each of the key reform areas.

section_title: Letter
paragraphs: I appreciate the opportunity to discuss the status of financial management  and business process reform efforts at the Department of Defense (DOD).    DOD faces financial and related management problems that are pervasive,  complex, long standing, and deeply rooted in virtually all business  operations throughout the department.  These problems have impeded the  department’s ability to provide complete, reliable, and timely business  operations information to the Congress, DOD managers, and other decision  makers.  In addition, DOD’s financial management weaknesses have  resulted in the failure of the department, its military services, and its major  components from passing the test of an independent financial audit and are  a significant obstacle to achieving an unqualified opinion on the U.S.  government’s consolidated financial statements.  Overhauling DOD’s  financial management represents a major challenge that goes far beyond  financial accounting to the very fiber of the department’s range of business  operations and management culture.  Of the 25 areas on GAO’s  governmentwide “high risk” list, 6 are DOD program areas, and the  department shares responsibility for 3 other high-risk areas that are  government wide in scope.  Central to effectively addressing DOD’s  financial management problems will be understanding that these 9 areas  are interrelated and cannot be addressed in an isolated, stovepiped, or  piecemeal fashion. While Secretary of Defense Rumsfeld has initiated a  program to transform DOD’s business processes, including establishing a  new management structure to oversee reform efforts, DOD has not yet  developed an overarching plan tying key reform efforts together in an  integrated program.
DOD’s size, structure, and diversity of activities increase the difficulty and  complexity of reform efforts.  For example, DOD is the nation’s largest  employer, with   1.4 million men and women currently on active duty,  1.2 million serving in the Reserve and Guard components, and   675,000 civilians.
DOD operates more than 600,000 individual buildings and structures  located at more than 6,000 different locations and using more than 30  million acres.  For fiscal year 2002, DOD expended approximately $371  billion to operate and maintain about 250,000 vehicles, over 15,000 aircraft,  more than 1,000 oceangoing vessels, and some 550 public utility systems.
DOD’s financial management problems are the result of long-standing  deficiencies related to its systems, processes, and people.  Therefore, to be  successful, reform efforts will need to address all three factors.  In  recognition of the far-reaching nature of DOD’s financial management  problems, on September 10, 2001, Secretary Rumsfeld announced a broad,  top-priority initiative intended to “transform the way the department works  and what it works on.”  This new broad-based business transformation  initiative, led by DOD’s Senior Executive Council and the Business  Initiative Council, incorporates a number of defense reform initiatives  begun under previous administrations but also encompasses additional  fundamental business reform proposals.  In announcing his initiative,  Secretary Rumsfeld recognized that transformation would be difficult and  expected that needed changes would take 8 or more years to complete.
As we have seen again in Iraq, the excellence of our military forces is  unparalleled.  This same level of excellence is not yet evident in the  department’s financial management and other business areas.  This is  particularly problematic because effective financial and related  management operations are critical to achieving the department’s mission  in a reasonably economical, efficient, and effective manner and to  providing reliable, timely financial information on a routine basis to  support management decision making at all levels throughout DOD.   Transforming DOD’s business operations would free up resources that  could be used to enhance readiness, improve the quality of life for our  troops and their families, and reduce the gap between “wants” and  available funding in connection with major weapon systems.   In fact,  Secretary Rumsfeld has estimated that successful business process reform  could save DOD 5 percent of its budget or $20 billion a year.
Today, I will focus mainly on the key actions necessary to correct DOD’s  financial management problems and the progress DOD is making toward  business process reform.  But first, I want to provide you with an overview  of the long-standing financial management weaknesses facing DOD—as  highlighted by the results of audit work performed over the past few  years—and a summary of the underlying causes of DOD’s financial  management challenges.  My statement is based on previous GAO reports  as well as on our review of DOD Inspector General (IG) reports and recent  DOD reports and studies.
subsections: section_title: Long-standing Financial Management Weaknesses
paragraphs: DOD continues to confront pervasive, decades-old financial management  problems related to its systems, processes (including internal controls),  and people (human capital).  These problems have (1) resulted in a lack of  reliable information needed to make sound decisions and report the status  of DOD’s activities through financial and other reports, (2) hindered its  operational efficiency, (3) impacted mission performance, and (4) left the  department vulnerable to fraud, waste, and abuse.
DOD’s serious financial management and related business systems  problems led us in 1995 to put both DOD financial management and  systems modernization on our list of high-risk areas in the federal  government, a designation that continues today.  As discussed in the  results of our audit of the fiscal year 2002 Financial Statements of the U.S.  Government, DOD’s financial management deficiencies, taken together,  continue to represent one of the largest obstacles to achieving an  unqualified opinion on the U.S. government’s consolidated financial  statements.  To date, none of the military services or major DOD  components has passed the test of an independent financial audit because  of pervasive weaknesses in financial management systems, processes, and  controls.  These weaknesses not only hamper the department’s ability to  produce timely and accurate financial management information but also  impact mission performance and make mission costs unnecessarily high.   Ineffective asset accountability and the lack of effective controls continue  to adversely affect visibility over its estimated $1 trillion investment in  inventories and property, plant, and equipment (including weapon systems  and other property).  Such information is key to meeting military objectives  and readiness goals. Further, unreliable cost and budget information  related to a reported $700 billion of liabilities, particularly $59 billion of  reported environmental liabilities, and about $380 billion of reported costs  negatively affects DOD’s ability to effectively project funding needs,  maintain adequate funds control, reduce costs, and measure performance.   DOD has invested, and continues to invest, significant resources—in terms  of dollars, time, and people—in its systems without demonstrated  improvement in its business operations and adequate management and  oversight, thereby continuing to perpetuate a proliferation of systems that  do not adequately address the department’s needs.  Finally, DOD’s weak  overall control environment has left the department vulnerable to fraud,  waste, and abuse.  As the results of the department’s fiscal year 2002  financial audit and other audit work demonstrate, DOD continues to  confront serious weaknesses in these areas.
subsections: section_title: Asset Management and Accountability
paragraphs: Of the $776 billion of inventory and related property and general property,  plant, and equipment (PP&E) assets reported by federal entities for fiscal  year 2002, DOD is responsible for about half—approximately $146 billion in  inventory and related property and $226 billion of general PP&E,  comprised of $162 billion in real property (land, buildings, facilities, capital  leases, and improvements to those assets); $37 billion in personal property  (such as vehicles, equipment, telecommunications systems, computers,  and software); and $27 billion in construction-in-progress, the largest  amount of which belongs to the Corps of Engineers. While DOD is not  presently required to report dollar values for its weapons systems and  support PP&E used in the performance of military missions, such reporting  will be required beginning October 1, 2002.  The amount subject to  reporting will likely be significant considering that DOD has estimated an  acquisition cost of over $64 billion for only three of its major weapons  systems acquisition programs.
Effective and efficient asset management and accountability is crucial to  DOD’s defense of our national interests.  While the department has  undertaken several initiatives over the years to improve its asset  management and accountability systems, processes, and controls, material  weaknesses persist.  As a result, DOD lacks reliable information about the  quantity, location, condition, and value of inventory and property— including military equipment—critical to the department’s ability to  effectively meet military objectives and readiness goals. Ineffective and  inefficient asset management and accountability leave the department  vulnerable to fraud, waste, and abuse. Over the past 2 years, the DOD  Inspector General (IG) and we have issued numerous reports detailing  problems with asset management and accountability, including the  following examples.
DOD and its military services and units did not know how many Joint  Service Lightweight Integrated Suit Technology (JSLIST)—commonly  referred to as “chem-bio suits”— they had, their condition, and where  they were located.  This lack of visibility was due to several factors,  including the use of nonstandard, nonintegrated, stovepiped systems.   Nonintegrated systems are unable to share data across business  applications and therefore, multiple manual data entries must be made  into numerous stand-alone systems, which result in errors, add  significantly to administrative costs, and generally exacerbate asset  visibility problems.  The methods used to control and maintain visibility  over JSLIST ranged from stand-alone automated systems, to  spreadsheet applications, to pen and paper, to nothing at all.  For  JSLIST, the result was that DOD was excessing and selling these suits on  the Internet for pennies on the dollar, while at the same time procuring  hundreds of thousands of new garments annually.  Similarly, a few years  ago, the Defense Logistics Agency (DLA) had problems identifying and  removing from its inventory defective Battle Dress Overgarments  (BDO)—the JSLIST predecessor.  As a result, some of the defective suits  were shipped to U.S. forces in high-threat areas.  In a June 2000  testimony, the DOD IG pointed out that a physical count of BDOs could  not locate 420,000 protective suits that were recorded in DLA’s  accountability database.
DOD lacked effective processes and controls to ensure that easily  pilferable and sensitive items were properly recorded and safeguarded.    For example, we found that the military services failed to record all of  the pilferable and sensitive items acquired through purchase card  transactions, including the Navy’s failure to record a $757,000 purchase  comprised of 430 computers, 213 flat panel monitors, and other  computer hardware and software.  The Navy was unable to provide us  with evidence confirming the location of 187 of those computers and 87  of the flat panel monitors.  Similarly, in our recent review of property  controls at three military treatment facilities, we found that items such  as a laptop computer, a Sony monitor, and a sterilizer were not recorded  in the property records.  We also found that numerous recorded items  could not be located.  Most of these were lower priced (under $5,000) or  pilferable items such as a personal digital assistant, a cellular telephone,  computer monitors, color printers, a handheld radio, and various pieces  of medical equipment such as a stretcher, electric beds, and intravenous  pumps.
section_title: Environmental and Disposal Liabilities
paragraphs: Under federal, state, and international law, DOD faces a major funding  requirement associated with environmental cleanup and disposal resulting  from prior and current operations and from the production of weapons  systems.  In its fiscal year 2002 financial statements, DOD reported an  estimated liability of $59 billion to manage and clean up or contain a  diverse population of environmental contamination comprised of   $22 billion for closed and open sites where past and current waste  disposal practices, leaks, spills, and other activities have created a risk  to public health or the environment;  $14 billion for closed, transferring, and active military ranges where  contamination and unexploded ordnance create environmental hazards;  and   $23 billion for cleanup, demilitarization, and disposal of nuclear and  non-nuclear weapons systems, chemical weapons, and munitions.
DOD’s reported cost represents the current value of estimated future cash  outlays that will need to be paid from appropriations; therefore, the  Congress needs reliable information in order to plan how much and when  to provide funding for cleanup activities.  In past years, we and the DOD IG  have repeatedly reported that the environmental liability amounts  presented in DOD’s financial statements were not reliable because the  department did not have (1) sufficient guidance for identifying and  categorizing cleanup activities whose costs must be included in the liability  calculation, (2) complete inventories of the sites and weapons systems that  will require cleanup or containment, and (3) valid cost estimating models  that produce consistent and supportable liability estimates. These  deficiencies were not systems related but rather resulted from inadequate  policies and processes and a lack of leadership.
We have also issued individual reports on several environmental cleanup  categories, including training ranges and on-going operations.   In those  reports, we specifically cite weaknesses related to DOD’s lack of complete  site inventories, which means that the department’s reported liability  amount is likely understated.  In line with our findings, the Air Force has  recently confirmed that it is investigating possible radioactive waste buried  at more than 80 former and current air bases around the country.   According to the Air Force, it lost track of the waste burial sites because of  poor record keeping and is now trying to identify and inspect the lands for  safety concerns.  Costs for cleaning up these sites are not currently  included in the Air Force’s reported liability amounts.  In addition,  incomplete identification of cleanup sites on installations that are currently  being used by the military could have negative consequences for future  base reutilization, alignment, and closure decisions.
section_title: Budget and Cost Information
paragraphs: DOD’s appropriation for fiscal year 2002 represented 18 percent of the total  U.S. budget and 48 percent of discretionary funds.  For fiscal year 2002,  DOD reported disbursing $347 billion to, among other things, make  payments to 5.7 million military and civilian personnel and annuitants,  process and pay 11.2 million contractor invoices, and make 7.3 million  travel payments.  The magnitude of the dollars and number of transactions  involved makes it imperative that DOD maintain accurate fund balances  and properly account for costs; however, DOD financial management  systems and processes continue to be significant impediments to reporting  complete and accurate information with respect to budgetary and  disbursement activities.
Weaknesses in DOD’s accounting for its funds include (1) the inability to  reconcile its balances to Treasury’s, a process similar in concept to  individuals reconciling their checkbooks with their bank statements,   (2) payment recording errors, including disbursements that are not  properly matched to specific obligations recorded in the department’s  records, and (3) limited ability to track the use of funds appropriated for  contingency purposes. For example,  For fiscal year 2002, we found that DOD had at least $7.5 billion in  unexplained differences between Treasury and DOD fund activity  records.  Many of these differences represent disbursements made and  reported to Treasury that had not yet been properly matched to  obligations and recorded in DOD accounting records.  In addition to  these unreconciled amounts, DOD identified and reported an additional  $3.6 billion in payment recording errors.  These include disbursements  that DOD has specifically identified as containing erroneous or missing  information and that cannot be properly recorded and charged against  the correct, valid fund account.  DOD records many of these payment  problems in suspense accounts and made $1.6 billion in unsupported  adjustments to its fund balances at the end of fiscal year 2002 to account  for a portion of these payment recording errors.  These adjustments did  not resolve the related errors.
In June 2001, we reported that DOD’s financial systems could not  adequately track and report on whether the $1.1 billion in earmarked  funds that the Congress provided to DOD for spare parts and associated  logistical support were actually used for their intended purpose.  The  vast majority of the funds—92 percent—were transferred to the military  services operation and maintenance accounts.  Once transferred, the  department could not separately track the use of the funds.  As a result,  DOD lost its ability to assure the Congress that the funds it received for  spare parts purchases were used for, and only for, the designated  purpose.
In April 2003, we reported that DOD was not able to separately track  Emergency Response Funds provided under appropriations in fiscal  years 2002 and 2003 ($20.5 billion).  These funds were commingled in  DOD’s regular appropriations accounts with funds appropriated for  other purposes.  Because DOD’s accounting system only captures data  on total obligations and does not distinguish among original sources of  funds, DOD is not able to identify those obligations that are funded from  emergency response funds.
In December 2000, we reported that our review of DOD functions that  were studied over the past 5 years for potential outsourcing under OMB  Circular A-76 showed that while DOD reported that savings had  occurred as a result of these studies, we could not determine the precise  amount of any such savings because the department lacked actual cost  data.  Further, in March 2002, we testified that while significant savings  were being achieved, it has been difficult to determine the magnitude of  those savings.
DOD’s continuing inability to capture and report the full cost of its  programs represents one of the most significant impediments facing the  department.  DOD does not have the systems and processes in place to  capture the required cost information from the hundreds of millions of  transactions it processes each year.  Lacking complete and accurate overall  life-cycle cost information for weapon systems impairs DOD’s and  congressional decision makers’ ability to make fully informed judgments  about which weapons, or how many, to buy.  DOD has acknowledged that  the lack of a cost accounting system is its largest impediment to controlling  and managing weapon systems costs.
An April 2001 report on the results of an independent study of DOD’s  financial operations commissioned by the Secretary of Defense concluded  that DOD lacked the ability to routinely generate cost-based metrics to link  financial management to DOD’s goals.  For example, DOD’s reporting  under the Government Performance and Results Act of 1993 (GPRA)  often did not address the cost-based efficiency aspect of performance,  making it difficult for DOD to fully assess the efficiency of its performance.   DOD’s most recent performance plan (fiscal year 2001) included 45  unclassified metrics but only a few of those contained efficiency measures  based on costs.
section_title: Financial Management Systems
paragraphs: For fiscal year 2003, DOD estimated that it would spend approximately $18  billion to operate, maintain, and develop business systems.  Of that  amount, $5.2 billion relates directly to business systems and the remaining  $12.8 billion relates to the infrastructure that supports the systems.  While  funding system development and modernization activities is crucial, it is  only part of the solution needed to improve DOD’s current business  systems and operating environment.  Key ingredients to successful systems  development and modernization include effective management and  oversight of ongoing and planned investments.
However, in February 2003, we reported that DOD had yet to establish the  necessary departmental investment governance structure and process  controls needed to adequately align ongoing investments with its  architectural goals and direction.  An effective governance structure should  include  a hierarchy of investment review boards composed of representatives  from across the department who are assigned investment selection and  control responsibilities based on project threshold criteria;  a standard set of investment review and decision-making criteria for use  by all boards, including criteria to ensure compliance and consistency  with its newly developed enterprise architecture or “blueprint for  reform”; and  a specified, near term date by which ongoing investments have to be  subject to this standard investment review process, and by which  decisions should be made as to whether to proceed with each  investment.
DOD’s lack of effective oversight and process controls over IT investments  perpetuates the existence of an incompatible, duplicative, and overly costly  systems environment, which undermines its ability to optimally support  mission performance.  For example,   In March 2003, we reported that DOD did not effectively manage and  oversee its planned investment of over $1 billion in four Defense  Finance and Accounting Service (DFAS) systems modernization efforts.  DOD invested approximately $316 million in these projects without first  demonstrating that they would markedly improve the information  needed for decision-making and financial reporting purposes. The DOD  Comptroller terminated one of the four projects we reviewed after an  investment of over $126 million, citing poor program performance and  increasing costs.  Investments in the other three projects continue  despite the absence of the requisite analyses of costs, benefits, and risks  to demonstrate that the projects will produce value commensurate with  the cost being incurred.
In March 2002, the DOD IG reported that DOD’s Joint Total Asset  Visibility Program (JTAV) system provided incomplete asset visibility to  military commanders in chief (CINCs) and joint task force  commanders.  Required capabilities were not developed before the  program was placed into service, including asset and personnel visibility  for the warfighter, accurate and timely source data, and data links to  critical data in other DOD systems. As a result, CINCs and joint task  force commanders did not have access, through the program, to all  required data on the location, movement, status, and identity of military  units, personnel, equipment, and supplies as intended.
In June 2002, DOD reported that shortcomings in existing  nonintegrated personnel and pay systems caused delays in military  payroll payments (some as much as 6 or more months after the event  occurred) and resulted in errors (both under- and overpayments).  DOD  estimated that system input errors ranged from 5 to 15 percent and that  these errors necessitated complex retroactive computations, data  reconciliation and corrections, losses due to overpayments, debt  processing, and costs to recoup overpayments.
As of October 2002, DOD reported that its current business systems  environment consisted of 1,731 systems and system acquisition projects  (a number that has since risen to about 2,300 as DOD has identified  additional systems).  DOD reported that it had 374 systems to support  civilian and military personnel matters, 335 systems to support finance  and accounting functions, and 310 systems that produce information for  management decision making.
As we have previously reported, these numerous systems have evolved  into the overly complex and error-prone operation that exists today,  including (1) little standardization across DOD components, (2) multiple  systems performing the same tasks, (3) the same data stored in multiple  systems, (4) manual data entry into multiple systems, and (5) a large  number of data transactions and interfaces that combine to exacerbate the  problems of data integrity.  While the department recognizes the  uncontrolled proliferation of systems and the need to eliminate as many  systems as possible and to integrate and standardize those that remain,  DOD components continue to receive and control their own IT investment  funding.
section_title: Weak Control Environment
paragraphs: Fundamental flaws in DOD’s systems, processes, and overall control  environment leave the department at risk of fraud, waste, and abuse.  Over  the past few years, we have reported numerous instances of breakdowns  in—or lack of—internal control that have had serious economic and legal  consequences for the department, including     government travel card delinquency rates for the Army and the Navy  that were nearly double those of federal civilian agencies; pervasive purchase and travel card control breakdowns that resulted in  numerous instances of potentially fraudulent, improper, and abusive  transactions and increased DOD’s vulnerability to theft and misuse of  government property;   inadequate management and reporting on the funding associated with  the Air Force’s contracted depot maintenance that resulted in  understating the dollar value of year-end carryover work by tens of  millions of dollars;   adjustments to DOD’s closed appropriations that resulted in about $615  million in adjustments that should not have been made, including $146  million that was illegal; hundreds of millions of dollars of over- and underpayments to   lost opportunities to collect millions of dollars of reimbursements for  services performed in military treatment facilities because not all  patients with third party insurance coverage were identified or because  those insurers were not billed.
In general, DOD does not have the necessary control processes and  procedures in place to identify problem situations like the ones listed  above.  However, DOD usually takes action to try to correct and then  prevent these problems once they have been identified by auditors.
section_title: Underlying Causes of Financial and Related Business Process Reform Challenges
paragraphs: In the past, DOD initiated a number of departmentwide reform initiatives to  improve its financial operations as well as other key business support  processes.  While these initiatives produced some incremental  improvements, they did not result in the fundamental reform necessary to  resolve these long-standing management challenges.   For example, in 1989,  DOD began the Corporate Information Management (CIM) initiative, which  was expected to save billions of dollars by streamlining operations and  implementing standard information systems across the department to  support common business operations.  DOD intended CIM to reform all of  its functional areas—including finance, procurement, material  management, and human resources—through the consolidation,  standardization, and integration of its numerous, duplicative information  systems.  DOD spent billions of dollars on this initiative with little sound  analytical justification.  Rather than relying on a rigorous decision-making  process for information technology investments, as used in leading private  and public organizations we studied, DOD made systems decisions without  (1) appropriately analyzing cost, benefits, and technical risks,   (2) establishing realistic project schedules, or (3) considering how business  process improvements could affect information technology investments.   For one effort alone, DOD spent about $700 million trying to develop and  implement a single system for the material management business area— but this effort proved unsuccessful.  After 8 years and about $20 billion in  expenditures, DOD abandoned the CIM initiative.  However, some of the  conditions that led to its defeat remain today.
We first identified underlying causes for the department’s inability to  resolve its long-standing financial management problems, as well as the  other areas of its operations most vulnerable to waste, fraud, abuse, and  mismanagement, in our May 1997 testimony.   We have continued to  highlight in various testimonies what we believe are the underlying reasons  for the department’s inability to fundamentally reform its business  operations.  There are four underlying causes:  a lack of sustained top-level leadership and management accountability   deeply embedded cultural resistance to change, including military  service parochialism and stovepiped operations;  a lack of results-oriented goals and performance measures and   inadequate incentives for seeking change.
subsections: section_title: Lack of Leadership and Accountability
paragraphs: Historically, DOD has not routinely assigned accountability for  performance to specific organizations or individuals who have sufficient  authority to accomplish desired goals.  For example, under the Chief  Financial Officers Act (CFO) of 1990, it is the responsibility of the agency  CFO to establish the mission and vision for the agency’s future financial  management and to direct, manage, and provide oversight of financial  management operations.  However, at DOD, the Comptroller—who is by  statute the department’s CFO—has direct responsibility for only an  estimated 20 percent of the data relied on to carry out the department’s  financial management operations.  The other 80 percent comes from DOD’s  other business operations.  In addition, DOD’s past experience has  suggested that top management has not had a proactive, consistent, and  continuing role in building capacity, integrating daily operations for  achieving performance goals, and creating incentives.  Major improvement  initiatives must have the direct, active support and involvement of the  Secretary and Deputy Secretary of Defense to ensure that daily activities  throughout the department remain focused on achieving shared,  agencywide outcomes and success.  Furthermore, sustaining top  management commitment to performance goals is a particular challenge  for DOD because the average 1.7-year tenure of the department’s top  political appointees has served to hinder long-term planning and follow- through.  Based on our survey of best practices of world-class financial  management organizations, strong executive leadership is essential to   (1) making financial management an entitywide priority, (2) redefining the  role of finance, (3) providing meaningful information to decision makers,  and (4) building a team of people that delivers results.
section_title: Cultural Resistance and Parochialism
paragraphs: Cultural resistance to change, military service parochialism, and  stovepiped operations have also played a significant role in impeding  previous attempts to implement broad-based management reforms at DOD.  The department has acknowledged that it confronts decades-old problems  deeply grounded in the bureaucratic history and operating practices of a  complex, multifaceted organization.  For example, the effectiveness of the  Defense Management Council, established in 1997 to help break down  organizational stovepipes and overcome cultural resistance to change, was  impaired because members were not able to put their individual military  services’ or DOD agencies’ interests aside to focus on departmentwide  approaches to long-standing problems.  DOD’s stovepiped approach is  most evident in its current financial management systems environment,  which DOD recently estimated to include approximately 2,300 systems and  system development projects—many of which were developed in  piecemeal fashion and evolved to accommodate different organizations,  each with its own policies and procedures.
section_title: Unclear Goals and Performance Measures
paragraphs: Lack of clear, linked goals and performance measures has handicapped  DOD’s past reform efforts.  As a result, DOD managers lack straightforward  road maps showing how their work contributes to attaining the  department’s strategic goals, and they risk operating autonomously rather  than collectively.   According to its fiscal year 2002 Performance and  Accountability report, DOD is still in the process of developing measurable  annual performance goals and objectives.
In our assessment of DOD’s Fiscal Year 2000 Financial Management  Improvement Plan—its most recent plan—we found that it presented the  military services’ and DOD components’ individual improvement initiatives  for reforming financial management but did not clearly articulate how their  individual efforts would result in a collective, integrated DOD-wide  approach to financial management improvement.  In addition, the product  did not include performance measures that could be used to assess DOD’s  progress in resolving its financial management problems.  As a result, the  product was more a compilation of a data call than a strategic plan.   Furthermore, while DOD plans to invest billions of dollars in modernizing  its financial management systems, it currently does not have effective  management governance and controls in place to guide and direct these  investments.  We will discuss DOD’s work to develop an initial business  enterprise architecture later in our testimony.
section_title: Lack of Incentives for Change
paragraphs: The final underlying cause of the department’s long-standing inability to  carry out needed fundamental reform has been the lack of incentives for  making more than incremental change to existing “business-as-usual”  processes, systems, and structures.  Traditionally, DOD has focused on  justifying its need for more funding rather than on the outcomes its  programs have produced. DOD generally measures its performance by the  amount of money spent, people employed, or number of tasks completed.  Incentives for its decision makers to implement changed behavior have  been minimal or nonexistent.  Secretary Rumsfeld perhaps said it best in  announcing his planned transformation at DOD: “There will be real  consequences from, and real resistance to, fundamental change.”
The lack of incentive has been most evident in the department’s acquisition  area.  In DOD’s culture, the success of a manager’s career has depended  more on moving programs and operations through the DOD process than  on achieving better program outcomes.  The fact that a given program may  have cost more than estimated, taken longer to complete, and not  generated results or performed as promised was secondary to fielding a  new program.  To effect real change, actions are needed to (1) break down  parochialism and reward behaviors that meet DOD-wide and congressional  goals, (2) develop incentives that motivate decision makers to initiate and  implement efforts that are consistent with better program outcomes,  including saying “no” or pulling the plug on a system or program that is  failing, and (3) facilitate a congressional focus on results-oriented  management, particularly with respect to resource-allocation decisions.
section_title: Keys to Fundamental Financial Management Reform and Progress to Date
paragraphs: Successful reform of DOD’s fundamentally flawed financial management  operations must simultaneously focus on its systems, processes, and  people.  While DOD has made some encouraging progress in addressing  specific challenges, it is still in the very early stages of a departmentwide  reform that will take many years to accomplish.  As a result, it is not  possible to predict when—or even whether—the effort will be successful.
Our experience has shown there are several key elements that collectively  would enable the department to effectively address the underlying causes  of its inability to resolve its long-standing financial management problems.   For the most part, these elements, which should not be viewed as  independent actions but rather a set of interrelated and interdependent  actions, are consistent with those discussed in the department’s April 2001  financial management transformation report.  These elements, which we  believe are key to any successful approach to financial management  reform, include  addressing the department’s financial management challenges as part of  a comprehensive, integrated, DOD-wide business reform;  providing for sustained leadership by the Secretary of Defense and  resource control to implement needed financial management reforms;  establishing clear lines of responsibility, authority, and accountability  for such reform tied to the Secretary;  incorporating results-oriented performance measures and monitoring  tied to financial management reforms;  providing appropriate incentives or consequences for action or inaction;  establishing and implementing an enterprise architecture to guide and  direct financial management modernization investments; and  ensuring effective executive and congressional oversight and  monitoring.
While DOD still has a long way to go, it has made serious efforts to address  many of the key areas over the past 2 years.  We will discuss each of the  areas and provide examples of improvement actions—long-term and/or  short-term—where relevant.  Both long-term actions focused on the  Secretary’s envisioned business transformation and short-term actions  focused on improvements within existing systems and processes are  critical to forward movement.
subsections: section_title: Integrated Business Reform Strategy
paragraphs: As we previously reported, establishing the right goal is essential for  success. Central to effectively addressing DOD’s financial management  problems will be the recognition that they cannot be addressed in an  isolated fashion separate from the other high-risk areas and management  challenges facing the department.  Further, successfully reforming the  department’s operations—which consist of people, business processes, and  technology—will be critical if DOD is to effectively address the deep- rooted organizational emphasis on maintaining business-as-usual across  the department.  DOD has recently taken important steps to begin  improving its people, processes, and systems.
We have reported that many of DOD’s financial management  shortcomings were attributable in part to human capital issues.  In April  2002, DOD published a departmentwide strategic plan for its civilian  employees, which sets forth its vision to “design, develop and implement human resources policies, strategies, systems, and tools to ensure a  mission-ready civilian workforce that is motivated to excel.” Although a  positive step, the plan needs further refinement to achieve the Secretary of  Defense’s transformation initiatives, including (1) integration of  component-level plans with the department-level plan, (2) development of  key elements, such as results-oriented performance measures, and   (3) integration with military personnel planning and sourcing decisions.   Recently, DOD proposed a National Security Personnel System that would  provide for wide-ranging changes in DOD’s civilian personnel pay and  performance management.  While we strongly support the concept of  modernizing and making more flexible federal human capital policies, we  have warned that the appropriate infrastructure and adequate safeguards  need to be in place for successful implementation and to prevent abuse.   In addition, in its fiscal year 2003 Defense Authorization Act, DOD sought  and obtained authorization to prescribe certification and credential  standards for its professional accounting positions and is currently drafting  the relevant regulations.  These are important steps in DOD’s plans to  develop a human capital investment strategy and plan.
The department recently renamed its Financial Management Modernization  Program to the Business Management Modernization Program, a move that  recognizes that financial management is a crosscutting issue that affects  virtually all DOD business areas.  For example, improving its financial  management operations so that they can produce timely, reliable, and  useful cost information is essential to effectively measure its progress  towards achieving many key outcomes and goals across virtually the entire  spectrum of DOD’s business areas.  At the same time, the department’s  financial management problems—and, most importantly, the keys to their  resolution—are deeply rooted in and dependent upon developing solutions  to a wide variety of management problems across DOD’s various  organizations and business areas.   In line with this, DOD has designated owners of seven key department business lines, or domains, to transform  the department’s business operations and implement its enterprise  architecture.
As we mentioned earlier, and it deserves emphasis, the department has  reported that an estimated 80 percent of the data needed for sound  financial management comes not from the Comptroller’s operations but  from its other business operations, such as its acquisition and logistics  communities.  DOD’s vast array of costly, nonintegrated, duplicative, and  inefficient financial management systems reflects its lack of an integrated  approach to addressing management challenges.  DOD has acknowledged  that one of the reasons for the lack of clarity in its reporting under the  Government Performance and Results Act has been that most of the  program outcomes the department is striving to achieve are interrelated,  while its management systems are not integrated.  In fact, DOD is  redefining its performance metrics and program outcomes as they relate to  four risk areas: (1) force management, (2) operations, (3) future challenges,  and (4) institutional.
Secretary of Defense Rumsfeld recognized the far-reaching nature of DOD’s  financial management problems and, on September 10, 2001, he announced  a broad, top-priority initiative intended to “transform the way the  department works and what it works on.”  This new broad-based business  transformation program incorporates a number of defense reform  initiatives begun under previous administrations but also encompasses  additional fundamental business reform proposals.  However, like defense  reform initiatives begun under the previous administration, the  transformation program has not yet developed an overarching plan tying all  the individual reform efforts together.  The development of an overarching  plan could take on increased importance, particularly where initiatives are  interrelated and up-front investments are required.
DOD has already taken a number of actions under its business  transformation program.  In this context, the Secretary established a  number of top-level councils, committees, and boards, including the Senior  Executive Council, the Business Initiative Council, and the Defense  Business Practice Implementation Board.  The Senior Executive Council  was established to help guide efforts across the department to improve its  business practices.  This council—chaired by the Secretary of Defense, and  with membership to include the Deputy Secretary, the military service  secretaries, and the Under Secretary of Defense for Acquisition,  Technology and Logistics (AT&L)—was established to function as the  “board of directors” for the department.  The Business Initiative Council— comprised of senior DOD and military service officials and headed by the  Under Secretary of Defense for Acquisition, Technology and Logistics— was established to encourage the military services to explore new money- saving business practices to help offset funding requirements for  transformation and other initiatives. The Defense Business Practice  Implementation Board is an advisory board whose mission is to make  recommendations to the Senior Executive Committee on strategies for  implementing best business practices in matters relating to management,  acquisition, production, logistics, personnel leadership, and the defense  industrial base.
Our research of successful public and private sector organizations shows  that such entities, comprised of enterprisewide executive leadership,  provide valuable guidance and direction when pursuing integrated  solutions to corporate problems.  Inclusion of the department’s top  leadership could help to break down the cultural barriers to change and  result in an integrated DOD approach for business reform.
section_title: Sustained Leadership and Resource Control
paragraphs: The department’s successful Year 2000 effort illustrated, and our survey of  leading financial management organizations captured, the importance of  strong leadership from top management.  As we have stated many times  before, strong, sustained executive leadership is critical to changing a  deeply rooted corporate culture—such as the existing “business-as-usual”  culture at DOD—and to successfully implementing financial management  reform.  For example, in the case of the Year 2000 computer challenge, the  personal, active involvement of the Deputy Secretary of Defense played a  key role in building entitywide support and focus.  Given the long-standing  and deeply entrenched nature of the department’s financial management  problems—combined with the numerous competing DOD organizations,  each operating with varying, often parochial views and incentives—such  visible, sustained top-level leadership will be critical.
In discussing their April 2001 report to the Secretary of Defense on  transforming financial management, the authors stated that, “unlike  previous failed attempts to improve DOD’s financial practices, there is a  new push by DOD leadership to make this issue a priority.”  To demonstrate  his commitment towards reforming the department, Secretary Rumsfeld  designated improving financial management operations, which included  not only finance and accounting but also such business areas as logistics,  acquisition, and personnel management, as 1 of the department’s top 10  priorities for reform.  While the commitment of the Secretary is vital to  the success of any DOD-wide reform effort, strong, sustained executive  leadership—over a number of years and administrations—will be key to  changing a deeply rooted culture and to truly transforming DOD’s business  systems and operations so that the department can meet the mandate of  the CFO Act and achieve the President’s Management Agenda goal of  improved financial management performance.
Additionally, the tenure of the department’s top political appointees has  generally been short in duration and as a result, it is sometimes difficult to  maintain the focus and momentum that are needed to resolve the  management challenges facing DOD.  This is particularly evident with the  postwar reconstruction of Iraq along with DOD’s substantial commitment  to the continuing war on terrorism.  The resolution of the array of  interrelated business system management challenges that DOD faces is  likely to span several administrations.  As we have proposed in previous  congressional testimonies, one option to address the continuity issue  would be the establishment of the position of chief operating or  management officer.  This position could be filled by an individual  appointed for a set term of 5 to 7 years with the potential for  reappointment.  Such an individual should have a proven track record as a  business process change agent for large, diverse organizations— experience necessary to spearhead business process transformation across  the department and serve as an integrator for business reform.
section_title: Clear Lines of Responsibility and Accountability
paragraphs: Another key to reform is the establishment of clear lines of responsibility,  decision-making authority, and resource control for actions across the  department tied to the Secretary.  As we previously reported, such an  accountability structure should emanate from the highest levels and  include the secretary of each of the military services as well as heads of the  department’s various major business areas.
The Secretary of Defense has taken action to vest responsibility and  accountability for financial management modernization with the DOD  Comptroller.  In October 2001, the DOD Comptroller established the  Financial Management Modernization Executive and Steering  Committees as the governing bodies that oversee the activities related to  the modernization effort.  The Executive Committee is to advise the DOD  Comptroller on the modernization effort and provide strategic direction,  whereas the Steering Committee is to advise the Executive Committee on  the program’s performance and provide guidance to the program  management office.
section_title: Results-oriented Performance
paragraphs: As discussed in our January 2003 report on DOD’s major performance and  accountability challenges, establishing a results orientation is another key  element of any approach to reform.  Such an orientation should draw upon  results that could be achieved through commercial best practices,  including outsourcing and shared servicing concepts.  Personnel  throughout the department must share the common goal of establishing  financial management operations that not only produce financial  statements that can withstand the test of an audit but more importantly,  routinely generate useful, reliable, and timely financial information for day- to-day management purposes.  To its credit, DOD has initiated a number of  improvement actions to address accountability and financial information  deficiencies.
In its most recent performance and accountability report, DOD stated  that it had (1) validated cost-estimating models used in calculating  environmental liability costs, (2) developed a methodology for  estimating liabilities associated with nuclear powered ships and  submarines, and (3) issued improved guidance—for all areas except  ongoing operations—to help components compile complete, accurate,  and fully substantiated environmental liability data.  In addition, DOD  claimed that it is developing and maintaining supporting documentation  and audit trails for 30,000 closed contamination sites, including open  and closed installations and base reutilization and alignment sites.
Through training and implementation of more efficient and effective  processes, DOD is improving its fund accounting and disbursement  activities.  During fiscal year 2002, DOD improved its disbursement  activity reporting and its procedures for reconciling its fund balance  records with similar information maintained by the Department of  Treasury.  As a result, the number and amount of disbursement  disparities between DOD’s records and Treasury’s records decreased  from the previous year.  DOD is taking the necessary first steps to  identifying and eliminating payment recording problems.
DOD’s major components must now prepare quarterly financial  statements along with extensive footnotes that explain any improper  balances or significant variances from previous year quarterly  statements.  In addition, the midyear and end-of-year financial  statements must be briefed to the DOD Comptroller by the service  Assistant Secretary for Financial Management or the head of the  defense agency.  We have observed several of the midyear briefings and  have noted that the practice of preparing and explaining interim  financial statements is instilling discipline into DOD’s financial reporting  processes, which will help improve the reliability of DOD’s financial  data.
DOD has begun to develop methodologies for valuing and depreciating  the cost of its weapons systems and other equipment used to support its  military operations.  The department completed a similar effort to  obtain a baseline for the majority of its real property assets in fiscal year  1999.  These valuation efforts represent important steps toward  obtaining cost data for management decision making and financial  reporting.  However, in order for the department to reap the full benefits  of these and similar efforts, it must develop and implement efficient and  effective systems, processes, and controls—consistent with its  enterprise architecture—to sustain the calculated baselines and capture  subsequent additions, modifications, and deletions of property assets.
Since the Secretary has established an overall business process  transformation goal that will require a number of years to achieve, going  forward it is especially critical for managers throughout the department to  focus on specific metrics that, over time, collectively will translate to  achieving this overall goal.  It is important for the department to refocus its  annual accountability reporting on this overall goal of fundamentally  transforming the department’s financial management systems and related  business processes to include appropriate interim annual measures for  tracking progress toward this goal.
In the short term, it is important to focus on actions that can be taken using  existing systems and processes.  It is critical to establish interim measures  to both track performance against the department’s overall transformation  goals and facilitate near-term successes using existing systems and  processes.  The department has established an initial set of metrics  intended to evaluate financial performance and it has seen improvements.   For example,   With respect to closed appropriation accounts, during the first 6 months  of fiscal year 2002, DOD reported a reduction in the dollar value of  adjustments to closed appropriation accounts of about 80 percent from  the same 6-month period in fiscal year 2001.
For DOD individually billed travel cards, the delinquency rate dropped  from 8.9 percent in March 2002 to 5.7 percent in March 2003.
From March 2001 through March 2003, DOD reduced its commercial pay  backlogs (payment delinquencies) by 46 percent and its payment  recording errors by 43 percent.
While DOD’s metrics show significant improvements from 2001 to today,  statistics for the last few months show that progress has slowed or even  taken a step backward for payment recording errors and commercial pay  backlogs.  Our report on DOD’s metrics program included a caution that,  without modern integrated systems and the streamlined processes they  engender, reported progress may not be sustainable if workload is  increased.  It could be that DOD is experiencing problems accounting for  the additional volume of transactions resulting from contingency funding  and increased appropriations amounts.
We note that DOD is still formulating departmentwide performance goals  and measures to align with the outcomes described in its strategic plan— the September 2001 Quadrennial Defense Review.  We agree with the  department’s efforts to expand the use of appropriate metrics to guide its  financial management reform efforts.  However, it is important for DOD to  synchronize its development of these metrics with it efforts to develop  departmentwide goals and measures, including nonfinancial metrics, to  ensure consistency.
section_title: Incentives and Consequences
paragraphs: Another key to breaking down the parochial interests and stovepiped  approaches that have plagued previous reform efforts is establishing  mechanisms to reward organizations and individuals for behaviors that  comply with DOD-wide and congressional goals.  Such mechanisms should  be geared to providing appropriate incentives and penalties to motivate  decision makers to initiate and implement efforts that result in  fundamentally reformed financial management and other business support  operations.
In addition, such incentives and consequences are essential if DOD is to  break down the parochial interests that have plagued previous reform  efforts.  Incentives driving traditional ways of doing business, for example,  must be changed, and cultural resistance to new approaches must be  overcome.  Simply put, DOD must convince people throughout the  department that they must change from business-as-usual systems and  practices or they are likely to face serious consequences, organizationally  and personally.
If people are to be held more accountable for achieving desired outcomes,  then DOD must make sure that such outcomes are in fact, achievable.   Along these lines, DOD has taken a positive step to reform its acquisition  process by revising part of its acquisition regulations related to weapons  systems.  The revisions have focused primarily on (1) making sure  technologies are demonstrated to a high level of maturity before beginning  a weapon system program and (2) taking an evolutionary, or phased,  approach to developing a system.  Separating technology development  from a weapons system development program would help curb incentives  to over-promise the capabilities of a new weapon system and to rely on  immature technologies.  Also, an evolutionary approach to developing  requirements and making improvements to a system’s capabilities is  different from the historical approach of trying to deliver all desired  capabilities in one “big bang.”  In addition, it has been reported that DOD  plans to begin using program cost estimates from the Office of the  Secretary of Defense’s Cost Analysis Improvement Group, rather than  those prepared by the military services, which may lead to more realistic  cost estimates when pricing programs.
section_title: Enterprise Architecture
paragraphs: Enterprise architecture development, implementation, and maintenance  are a basic tenet of effective IT management.  Used in concert with other IT  management controls, an architecture can increase the chances for optimal  mission performance.  We have found that attempting to modernize  operations and systems without an architecture leads to operational and  systems duplication, lack of integration, and unnecessary expense.  Our  best practices research of successful public and private sector  organizations has similarly identified enterprise architectures as essential  to effective business and technology transformation.
Following our May 2001 report, the Secretary of Defense directed the  development and implementation of a departmentwide enterprise  architecture, and established a program to accomplish this.  In doing so,  the Secretary assigned responsibility for the program to the DOD  Comptroller, in coordination with the Under Secretary of Defense for AT&L  and the DOD Chief Information Officer. To assist in overseeing and guiding  the program, the DOD Comptroller established the Financial Management  Modernization Executive Committee to oversee the architecture and  systems modernization efforts, and the Financial Management  Modernization Steering Committee to advise and guide the program.  Efforts began in earnest in April 2002 when DOD hired a contractor to  develop the department’s enterprise architecture.
The Clinger-Cohen Act of 1996 requires major departments and agencies  to develop, implement, and maintain an integrated architecture.  As we  previously reported, such an architecture can help ensure that the  department invests only in integrated business system solutions and,  conversely, will help move resources away from non-value-added legacy  business systems and nonintegrated business system development efforts.  Without a complete enterprise architecture to guide information  technology investments, and adequate oversight of IT investments to  ensure compliance, DOD runs the serious risk that its investments will  perpetuate the existing systems environment that suffers from systems  duplication, limited interoperability, and unnecessarily costly operations  and maintenance.
The fiscal year 2003 National Defense Authorization Act (the Act),  enacted on December 2, 2002, required DOD to develop by May 1, 2003, a  financial management enterprise architecture and a transition plan for  implementing the architecture that meet certain requirements.  The Act  also requires DOD to control expenditures for financial system  improvements while the architecture and transition plan are being  developed and after they are completed.   According to DOD, the  Comptroller approved the initial version of the department’s business  enterprise architecture in May 2003.  Developing and implementing a  business enterprise architecture for an organization as large and complex  as DOD is a formidable challenge but it is key to achieving the Secretary’s  vision of relevant, reliable, and timely financial information needed to  support the department’s vast operations.  We plan to report on DOD’s  progress in developing its architecture and its transition efforts in the near  future.
As part of its ongoing business system modernization effort and consistent  with our past recommendations, DOD is creating a repository of  information about its existing systems environment.  To accomplish this,  DOD initiated an extensive effort to document its business systems  currently relied upon to carry out financial management operations  throughout the department.  To date, the department has identified  approximately 2,300 systems that support its business operations.  In  developing its systems inventory, DOD has recognized that financial  management is broader than just accounting and finance systems.  Rather,  it includes the department’s acquisition, budget formulation, inventory  management, logistics, personnel, and property management systems.
DOD is investing billions of dollars in financial management solutions and  business process reform.  In moving forward with the implementation of its  business enterprise architecture, DOD needs to ensure that the multitude  of systems efforts currently underway are designed as an integral part of  the architecture.  The effort to implement the architecture will be further  complicated as the department strives to develop multiple architectures  across its various business areas and organizational components.  In this  regard, it is critical that DOD has the management structure and processes  in place to effectively control the estimated $19 billion that will be spent on  its business systems in fiscal year 2004.  However, as we have previously  reported, the department has yet to establish the requisite investment  governance structure and process controls needed to adequately align  ongoing investments with its architectural goals and direction.  To its  credit, the department has recognized that it cannot continue with the  proliferation of duplicative, nonstandard, and nonintegrated systems and is  in the process of developing policies and procedures to obtain better  visibility and accountability over its IT business system investments.  A key  to success will be DOD’s ability to effectively manage and oversee its  investments in systems.  DOD can ill afford to invest billions of dollars in  systems that are not capable of providing DOD management and the  Congress with more accurate, timely, and reliable information on the  results of the department’s business operations.
section_title: Monitoring and Oversight
paragraphs: Ensuring effective monitoring and oversight of progress will also be key to  bringing about effective implementation of the department’s financial  management and related business process reform.  We have previously  testified that periodic reporting of status information to department top  management, the Office of Management and Budget, the Congress, and the  audit community is another key lesson learned from the department’s  successful effort to address its Year 2000 challenge.
Previous submissions of the department’s Financial Management  Improvement Plan have simply been compilations of data call information  on the stovepiped approaches to financial management improvements  received from the various DOD components.  It is our understanding that  DOD plans to change its approach and anchor the plan in the enterprise  architecture.  If the department’s future plans are upgraded to provide a  departmentwide strategic view of the financial management challenges  facing the department, along with planned corrective actions and  milestones, these plans can serve as an effective tool not only to help guide  and direct the department’s financial management reform efforts, but also  to help maintain oversight of the department’s financial management  operations.  Going forward, this Subcommittee’s oversight hearings, as well  as the active interest and involvement of the defense appropriations and  authorization committees, will continue to be key to effectively achieving  and sustaining DOD’s financial management and related business process  reform milestones and goals.
In conclusion, we support Secretary Rumsfeld’s vision for transforming the  department’s financial and business related operations.  The continued  leadership and support of the Secretary and other DOD top executives will  be essential to successfully change the DOD culture that has over time  perpetuated the status quo and been resistant to a transformation of the  magnitude envisioned by the Secretary.  As noted throughout this  testimony, DOD is taking steps to begin transformation; however, the  events of September 11, 2001, the continuing war on terrorism, and the  reconstruction of Iraq may dilute the focused attention and sustained  action that are necessary to fully realize the Secretary’s transformation  goal, a situation that is understandable given the circumstances.  At the  same time, with waste and inefficiencies potentially costing $20 billion or  more annually, true reform is needed to restore public confidence that  taxpayer dollars are well spent in meeting our national defense objectives.
Mr. Chairman, this concludes my statement.  I would be pleased to answer  any questions you or other members of the Subcommittee may have at this  time.
section_title: Contacts and Acknowledgments
paragraphs: For further information about this testimony, please contact Gregory D.  Kutz at (202) 512-9095 or kutzg@gao.gov or Molly Boyle at (202) 512-9524  or boylem@gao.gov.  Other key contributors to this testimony include  Evelyn Logue and Cherry Clipper.
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