Defense Headquarters: Improved Data Needed to Better Identify Streamlining and Cost Savings Opportunities by Function
Released: 2016-06-30T00:00:00

Letter

Background

DOD Instruction 5100.73, Major DOD Headquarters Activities, establishes a system to identify and manage the number and size of major DOD headquarters activities. The instruction also provides an approved list of major DOD headquarters activities, including the Offices of the Secretary of the Army and Army Staff; the Office of the Secretary of the Navy and Office of the Chief of Naval Operations;

Headquarters, Marine Corps; and the Offices of the Secretary of the Air Force and Air Staff.

All personnel working within these headquarters organizations are considered to be performing major headquarters activities functions. According to the instruction, other headquarters organizations include portions of the defense agencies, DOD field activities, and the combatant commands, along with their subordinate unified commands and respective service component commands. For example, according to DOD Instruction 5100.73, only personnel performing major headquarters activities functions in the Defense Information Systems Agency and Air Combat Command’s Intelligence Squadron would be considered headquarters, while personnel performing other functions would be excluded.

Several DOD organizations have responsibilities related to major DOD headquarters activities, including those summarized below.

The Office of the Deputy Chief Management Officer (ODCMO) is responsible for ensuring that DOD components are accurately identifying and accounting for major DOD headquarters activities, according to criteria established in DOD Instruction 5100.73. In addition, the Deputy Chief Management Officer has primary responsibility set forth under department guidance related to improving the efficiency and effectiveness of operations across DOD’s business functions, and is authorized by the Chief Management Officer to act as the Principal Staff Assistant to issue policy and guidance regarding matters relating to the management and improvement of DOD business operations. This has included responsibilities related to identifying and monitoring implementation of cost savings opportunities and efficiencies across DOD’s business areas.

The Under Secretary of Defense for Personnel and Readiness, according to DOD Instruction 5100.73, is responsible for reviewing and issuing guidance over, and consolidating changes in, manpower authorizations and personnel levels for major DOD headquarters activities, among other things. In addition to these responsibilities, the Under Secretary of Defense for Personnel and Readiness also compiles the annual Defense Manpower Requirements Report, which provides DOD’s manpower requirements, to include manpower assigned to major headquarters activities, as reflected in the President’s budget request for the current fiscal year. The Under Secretary of Defense for Personnel and Readiness is also responsible for developing an annual guide for DOD components to use when compiling their IGCA Inventory submissions in response to statutory and regulatory reporting requirements. In addition, the Under Secretary of Defense for Personnel and Readiness shares responsibility—with the Under Secretary of Defense for Acquisition, Technology and Logistics and the Office of the Under Secretary of Defense (Comptroller)—for issuing guidance for compiling and reviewing the Inventory of Contracted Services. The Under Secretary of Defense for Personnel and Readiness in particular compiles the inventories prepared by the components.

The heads of DOD components, including the Secretaries of the military departments, the Chairman of the Joint Chiefs of Staff, and the heads of other DOD components have responsibility, according to this instruction, for maintaining a management information system that identifies the number of personnel and total operating costs of major DOD headquarters activities, and reporting on these data to the Under Secretary of Defense (Comptroller).

Since 2010, DOD has recognized that it must reduce the cost of doing business, including reducing the rate of growth in personnel costs and finding further efficiencies in overhead and headquarters, in its business practices, and in other support activities. Therefore, the department has pursued headquarters-related reduction efforts in recent years to realize cost savings. See appendix IV for additional details on these efforts.

Department-Wide Efficiency Initiatives That Include Headquarters Are Under Way

Since 2014, and in part to respond to congressional direction, DOD has undertaken initiatives intended to improve the efficiency of its business processes, which include headquarters organizations, and identify related cost savings, but it is unclear to what extent these initiatives will help the department achieve the savings it has identified. In May 2015, DOD concluded its Core Business Process Review, which was intended to apply lessons learned and information technology approaches from the commercial sector to the department’s six core business processes— management of human resources, healthcare, financial flow, acquisition and procurement, logistics and supply, and real property—in order to save money and resources while improving mission performance. Through this review, ODCMO identified $62 billion to $84 billion in potential cumulative savings opportunities across the six business processes for fiscal years 2016 through 2020. The review identified that these potential savings opportunities could be achieved through civilian personnel attrition and retirements to occur without replacements over the next 5 years, matching labor productivity in comparable industries or sectors, and improving core processes such as rationalizing organizational structures to reduce excessive layers, optimizing contracts, and using information technology to eliminate or reduce manual processes. According to ODCMO officials, DOD ultimately concluded that these potential savings opportunities could not entirely be achieved through these means.

Nevertheless, ODCMO officials noted that DOD is already engaging in initiatives that, in effect, address the opportunities highlighted by the Core Business Process Review. The four department-led initiatives we reviewed that include headquarters organizations are concurrent and have varied scopes. Two of the initiatives are focused on OSD and its related organizations—one of these initiatives consists of a series of business process and systems reviews and the other initiative is a review focused on reducing the number of layers in OSD. A third initiative is focused specifically on contracted services requirements for DOD organizations outside the military departments known as the Fourth Estate. Finally, the fourth initiative—the review of the organization and responsibilities of DOD—is focused on updating or adjusting organizational relationships and authorities across the entire department, with a final report to possibly be issued later in 2016. The four initiatives were not completed, or their results were not available, in time for us to assess their effect, and therefore it is unclear to what extent they will contribute toward the savings identified by the Core Business Process Review. The initiatives are described in more detail below.

Business Process and Systems Reviews

In August 2014, DOD announced Business Process and Systems Reviews (BPSR), which, according to BPSR implementation guidance, are intended to review business processes and the supporting information technology systems within selected organizations in OSD and associated defense agencies and DOD field activities. The purpose of these BPSRs is to provide senior officials with information to clarify whether their organizations are aimed at departmental outcomes, to identify resources allocated to outcomes and any obstacles to achieving those outcomes, and to identify activities that might be improved or eliminated. As of April 2016, DOD had completed BPSRs for five of nine organizations. In some cases, organizations have taken steps to implement potential improvement and savings opportunities identified by the BPSRs. For example, as a result of a review of the ODCMO, the Deputy Secretary of Defense approved the implementation of a single service provider for the Pentagon’s information technology operations in May 2015. In other cases, it is unclear whether organizations have begun taking steps to implement the opportunities identified by the BPSR reviews. For example, the Office of the Assistant Secretary of Defense for Energy, Installations, and Environment identified a potential opportunity to reduce military construction costs by up to 3 percent through revisions to antiterrorism standards for DOD-owned buildings, but noted that this potential opportunity must first be subject to thorough analysis to fully appreciate its validity and return on investment. The department is currently working to complete BPSR reviews for four other organizations. According to ODCMO officials, DOD may conduct more BPSRs in the future but currently has no specific plans to do so once these four are completed.

OSD Organizational Delayering Initiative

In July 2015, DOD announced an effort to reduce layers of management and staff—known as delayering—in the management structure of OSD and associated defense agencies and DOD field activities. According to OSD officials and DOD’s fiscal year 2017 budget request, the department intends to use this review to help respond to certain provisions in the National Defense Authorization Act for Fiscal Year 2016, namely, the 25 percent reduction to the headquarters baseline amount by fiscal year 2020 and the $10 billion in cost savings from headquarters, administrative, and support activities by fiscal year 2019. For this effort to reduce OSD organizational layers, the ODCMO has directed these organizations, with the support of an ODCMO team, to rationalize organizational layers and supervisory spans of control, as well as to identify redundant and obsolete workload and capture potential cost savings. ODCMO’s guidance to the organizations conducting the delayering reviews recommends, among other things, that the number of organizational layers in OSD should not be more than five, and that the capabilities and functional areas that have been historically assigned to an OSD organization will remain within the same organization, unless a functional assessment allows an opportunity for cross-organizational partnership and shared work activities. According to officials from ODCMO and the Office of the Under Secretary of Defense for Personnel and Readiness, the organizations have identified the civilian positions they intend to eliminate or restructure as part of the initiative. However, the results of the initiative are not yet publicly available. The Deputy Chief Management Officer stated that the department would issue a report, at an unspecified time, that will include the cost savings identified by this OSD Organizational Delayering initiative. According to the department’s budget request for fiscal year 2017, the objective of this OSD delayering review is to achieve $1.5 billion in cost savings from fiscal year 2018 through fiscal year 2021.

Services Requirements Review Board Initiative

Also in July 2015, DOD announced that it would seek to improve the outcomes of contracted services through standardized processes and governance structures. This initiative is intended, according to OSD officials, to help the department achieve the 25 percent headquarters reduction and the $10 billion in headquarters-related cost savings, which were directed by the National Defense Authorization Act for Fiscal Year 2016. In December 2015, the Deputy Chief Management Officer directed Fourth Estate organizations to convene internal review boards known as Services Requirements Review Boards to review their requirements for contracted services. These boards, which DOD has implemented for OSD, the defense agencies, and DOD field activities, are intended to assess every service contract within these organizations that is worth $10 million or more to determine whether a valid requirement for that contract remains or whether the funds could be better employed elsewhere within the same organization. The results of these reviews are then considered by DOD leadership using a senior review panel, comprising the Deputy Chief Management Officer, the Principal Deputy Under Secretary of Defense for Acquisition, Technology and Logistics, and the Principal Staff Assistant for the organization being reviewed. In March 2016, the Deputy Chief Management Officer reported that the objective of this effort would be to achieve savings of at least 5 percent in spending on such contracts, but did not specify the baseline from which the 5 percent would be measured. According to the department’s budget request for fiscal year 2017, DOD expects to realize savings through this initiative of $1.9 billion in direct appropriations by 2021 within OSD, the defense agencies, and DOD field activities, and additional savings in working capital-funded entities. The Deputy Chief Management Officer also stated that the department would issue a single report that will include the cost savings identified by the Services Requirements Review Board, as well as the OSD Organizational Delayering initiative, but did not specify a time frame for doing so.

Review of the Organization and Responsibilities of DOD

In January 2016, the Deputy Secretary of Defense noted that the Secretary of Defense, as part of his institutional reform agenda, directed the Deputy Chief Management Officer and the Director for Joint Force Development (J7) to lead a review of organizations and responsibilities of the DOD. The objective of this review is to make recommendations for updates or adjustments to organizational relationships and authorities, based on the department’s experiences operating under the Goldwater- Nichols Department of Defense Reorganization Act of 1986. The department intends to use this review, according to ODCMO officials, to address the provision in the National Defense Authorization Act for Fiscal Year 2016 that requires DOD to conduct a comprehensive review of headquarters and administrative and support activities for purposes of consolidating and streamlining headquarters functions. To conduct the review, ODCMO officials stated that the department has developed five working groups, led jointly by OSD and Joint Staff officials, with each working group addressing a different topic: optimization of command and control relationships to meet current and future security challenges; improved coordination and elimination of overlaps between OSD and the Joint Staff; the possible establishment of U.S. Cyber Command as a unified combatant command; potential improvements to the requirements and acquisition decision-making processes; and increased flexibility in law and policy governing joint duty qualifications. In addition, as part of this review of DOD’s organization and responsibilities, the military departments have established their own working groups to assess the structures of their respective secretariats and staffs to identify potential improvements. According to ODCMO officials, most of the working groups planned to complete their reviews and brief the Secretary of Defense by March 2016. The results of these reviews were not available at the time of our review. However, in a speech in April 2016, the Secretary of Defense provided an overview of some preliminary recommendations that may result from this review, such as clarification to the role of the Chairman of the Joint Chiefs of Staff, changes to joint personnel management, and adapting combatant commands to new functions. According to ODCMO officials, the department may issue a report with findings and recommendations on the overall review later in 2016.

DOD Does Not Have Reliable Data on Headquarters Functions and Costs, Which Hinders Assessment

DOD has taken steps to improve some available data on headquarters organizations, but does not have reliable data for assessing headquarters functions and associated costs. Consistent with a past GAO recommendation, DOD published a new framework describing major headquarters organizations and stated that it has established a new definition of major DOD headquarters activities (although the department has not yet updated its headquarters instruction to reflect this definition). In addition, DOD is working to identify which organizations or portions of organizations meet a new definition of major DOD headquarters activities that was included in the National Defense Authorization Act for Fiscal Year 2016, and intends to revise its headquarters instruction upon completion of this effort. Finally, the department plans to update a key resource database, the Future Years Defense Program (FYDP), to improve visibility of headquarters resources. However, the one department-wide data set that identifies specific DOD headquarters functions contains unreliable data because the department has not aligned these data with its definition of major headquarters activities, nor does it have plans to collect information on the costs associated with functions within headquarters organizations.

DOD Is Taking Steps to Improve Some Headquarters-Related Data

In 2015, the department began an effort to improve some available headquarters data, which addresses a fundamental problem that our prior reports have cited and DOD has acknowledged as a longstanding challenge. Specifically, in August 2015, DOD published a framework describing the major headquarters activities and stated that it has established a new definition for its major DOD headquarters, although the department has not yet updated its guiding instruction on headquarters to reflect this new definition. The National Defense Authorization Act for Fiscal Year 2016 was enacted in November 2015 and included a revised definition of major DOD headquarters activities. Since that time, according to ODCMO officials, DOD has been working to determine which organizations or portions of organizations meet the new definition in the act in order to establish a more accurate headquarters baseline. In March 2016, the Deputy Chief Management Officer reported that the department plans to complete this effort by June 2016, thereby institutionalizing an authoritative headquarters baseline for purposes of reporting and tracking. At this time, the department also plans to update its guiding instruction on headquarters with the new definition. According to ODCMO officials, tracking would include revising the headquarters- related coding of program elements in its key resource database—the FYDP—to ensure they are appropriately designated as headquarters according to the new definition, and, where necessary, to break down these program element codes into headquarters and nonheadquarters components to better reflect allocation of headquarters resources. According to DOD officials, they have begun updating the resource coding in the FYDP and plan to complete this effort by late 2016.

The re-baselining effort took on increased urgency when, in August 2015, the Deputy Secretary of Defense announced a new 25 percent cost- reduction target for major DOD headquarters activities (the military departments, OSD staff, the Joint Staff, defense agencies, DOD field activities, and combatant commands) in anticipation of a congressional mandate for additional reductions. In addition, the National Defense Authorization Act for Fiscal Year 2016 allows documented savings achieved pursuant to this 25 percent headquarters reduction to be counted toward another of the act’s requirements, namely, that the Secretary of Defense implement a plan to ensure the department achieves not less than $10 billion in cost savings from the headquarters, administrative, and support activities of the department by fiscal year 2019. According to ODCMO officials, DOD plans to meet this $10 billion savings requirement by identifying existing efficiency initiatives whose savings will be applied toward the savings total. For example, ODCMO officials stated that the ODCMO will apply the savings that were identified through an information technology consolidation initiative, through its OSD Organizational Delayering initiative, as well as through its efforts to streamline contracted services by means of the Services Requirements Review Board. In March 2016, the DCMO provided an interim response to Congress identifying that the fiscal year 2017 President’s Budget included $7.8 billion in new efficiencies over the next 5 years, but did not provide more specific information on when and from where in the budget these efficiencies would be realized or how the department would apply them to the $10 billion savings required by Congress. ODCMO’s interim response stated that the department will issue a report that provides a breakdown of the $10 billion cost savings by year, but did not provide a time frame for doing so.

DOD Does Not Have Reliable Data on Headquarters Functions or a Plan to Collect Costs Associated with Headquarters Functions

Part of the reason that DOD must undertake concurrent reviews and studies to achieve efficiencies is that the department does not have reliable data in two main areas. First, available DOD-wide data sources on headquarters functions are not aligned with the department-wide definition of headquarters. We attempted to conduct an independent review to assess headquarters functions, and we considered several department-wide data sources but found limitations in each. Second, DOD’s data on headquarters functions do not include information on costs associated with functions within headquarters organizations, nor, according to OSD officials, does the department have plans to collect such information. According to federal standards for internal control, an agency must have relevant, reliable, and timely information to run and control its operations. This information is required to make operating decisions, monitor performance, and allocate resources, among other things. The lack of reliable data may hinder DOD’s ability to conduct a comprehensive review for purposes of consolidating and streamlining headquarters functions, among other things, as DOD was directed to do in the National Defense Authorization Act for Fiscal Year 2016.

DOD-Wide Data Sources Are Not Aligned with Headquarters Definition

According to OSD officials, although DOD has several sources to organize and categorize its workforce, only one department-wide data set, known as the Inherently Governmental / Commercial Activities (IGCA) Inventory, identifies specific DOD headquarters functions in the form of authorized military and civilian positions. In the IGCA Inventory, each DOD position is assigned a function based on the type of work performed, and 38 of these 306 functions are headquarters-related. Examples of such headquarters-related functions include Operation Planning and Control, Military Education and Training, and Systems Acquisition. Navy guidance specifically notes that the IGCA Inventory may be used as a total force shaping tool and a starting point for future manpower reviews or initiatives. For an example of the type of information that reliable data on headquarters functions could produce, see appendix V, which provides our analysis of the headquarters functions with the highest number of positions for each military service and Fourth Estate component in fiscal year 2014.

However, we found that because the data in this data set were not aligned with headquarters definitions, they were not sufficiently reliable to assess these functions. IGCA Inventory guidance calls for components to assign headquarters-related DOD function codes to positions based on a headquarters definition that, while derived from DOD Instruction 5100.73, does not include all elements of the definition in that instruction. As a result, we found that the data on the number and functions of DOD’s military and civilian headquarters positions have varying levels of accuracy. For example, in fiscal year 2014, only 79 percent of authorized positions in OSD were considered headquarters within the IGCA Inventory, even though OSD is considered a headquarters organization in its entirety under both the definition provided in DOD Instruction 5100.73 and the new definition. Officials from all four military services informed us that, from fiscal year 2010 through fiscal year 2014, they discovered some positions that had been incorrectly coded as headquarters and undertook varying efforts to correct them. As a result, we have more confidence in data presented in the later years of the 2010 to 2014 period we reviewed, but data limitations in the earlier years covered by our review precluded us from assessing trends of these functions over time.

While service officials told us they had taken steps to improve consistency of the headquarters-related DOD function codes in the IGCA Inventory, DOD does not have plans to update the data set to ensure that the headquarters-related DOD function codes in the IGCA Inventory are also consistent with the new headquarters definition. According to OSD officials, they have no plans to do so because the IGCA Inventory is not the department’s authoritative source for headquarters data. However, DOD and service officials have noted that, over time, officials have inconsistently interpreted what should be counted as headquarters according to the instruction, resulting in varying counts of headquarters positions depending on the source of the data. For example, in its Fiscal Year 2015 Defense Manpower Requirements Report, DOD included an estimate for fiscal year 2014 of 108,073 headquarters positions across the department, that is, OSD, the military services, the Joint Staff and combatant command headquarters, and the defense agencies and DOD field activities. In contrast, for these same organizations, DOD reported a total of 74,221 headquarters positions in its IGCA Inventory for fiscal year 2014 and a total of 61,046 headquarters positions in a May 2015 headquarters-related report, known as the Section 904 report. We believe that alignment of data sets containing headquarters-related codes, such as the IGCA Inventory, with the department-wide headquarters definition will provide senior DOD officials with the relevant, reliable, and timely information they need to make operating decisions, monitor performance, and allocate resources. Without alignment of data on department-wide military and civilian positions that have headquarters- related DOD function codes with the authoritative, revised definition of major DOD headquarters activities, the department will not have reliable data to enable senior officials to accurately assess headquarters functions, target specific functional areas for further analysis, or identify potential streamlining opportunities.

DOD Does Not Plan to Collect Information on Functions with Headquarters Organizations

ODCMO officials stated that, once they have finalized the headquarters definition, they plan to complete an effort to improve the accuracy of the resource levels attached to headquarters organizations by ensuring that organizations are appropriately designated as headquarters in the FYDP and, as needed, breaking these organizations down into smaller headquarters and nonheadquarters program element codes. However, these actions will not provide reliable information on the costs associated with the various functions within those headquarters organizations. According to ODCMO officials, the department does not have plans to collect such information because it believes that improving the accuracy of the resources associated with headquarters organizations will be sufficient to support any future DOD assessments of headquarters. We believe, however, that, detailed information that provides visibility into the costs associated with functions within headquarters organizations would better facilitate identification of opportunities for consolidation or elimination across organizational boundaries.

Moreover, the defense committees have previously noted that, to achieve significant savings, the department must focus on consolidating and eliminating organizations and personnel that perform similar functions and missions. Army officials have also noted that being able to track the Army’s manpower by function could be useful to understand cost drivers in the budget, and could provide a starting point to help them determine the best application of structure and manpower. In addition, the National Defense Authorization Act for Fiscal Year 2016 directs the Secretary of Defense to conduct a comprehensive review of DOD headquarters, among other things, for purposes of consolidating and streamlining headquarters functions. This functional review is to address the extent to which certain groupings of DOD headquarters organizations—such as OSD, the military departments, the defense agencies, and other organizations—have duplicative staff functions and services and could therefore be consolidated, eliminated, or otherwise streamlined. We have previously identified key steps to help analysts and policymakers conduct reviews to identify and evaluate instances of duplication, fragmentation, and overlap. One step in conducting such a review is to identify the potential positive and negative effects of any duplication, fragmentation, or overlap by assessing program implementation, outcomes and impact, and cost-effectiveness. In particular, we found that assessing and comparing the performance and cost-effectiveness of programs can help analysts determine which programs, or aspects of programs, to recommend for actions such as consolidation or elimination.

In the absence of reliable data on the costs of functions with headquarters organizations, we obtained data from each of the military services’ manpower databases on all military and civilian headquarters positions for fiscal years 2010 through 2014. However, we could not reliably calculate the estimated costs to DOD of filling those positions due to inconsistencies and incomplete information in the pay grade data we collected from the Army and the Air Force. For example, the Army could not provide data to distinguish whether the 15 percent of its headquarters positions allocated to its reserve components in 2014 were full- or part- time—a factor needed to estimate costs. In the Air Force, we were unable to match civilian pay scales to 16 percent of Air Force civilian headquarters positions in 2014. For the Fourth Estate headquarters positions, DOD was unable to provide pay grade and location information from its Fourth Estate data system in time for our review due to other ongoing, headquarters-related initiatives. However, according to our analysis of data-reliability questionnaires sent to Fourth Estate organizations, 25 of the 38 Fourth Estate organizations, or 66 percent, reported that their data in the Fourth Estate data system for the period from fiscal year 2010 through fiscal year 2014 were incomplete or inaccurate.

Once the definition of major DOD headquarters activities is published in DOD guidance, without reliable information on the costs associated with functions within headquarters organizations—through revisions to the IGCA Inventory or another method—the department will not be able to accurately estimate resources associated with specific headquarters functions, which in turn could help senior officials identify streamlining opportunities, make decisions, monitor performance, and allocate resources.

Conclusions

As it faces a potentially extended period of fiscal constraints, DOD has concluded that reducing the resources it devotes to headquarters is an area where cost savings can be achieved. The defense committees agree, but have expressed concern about DOD’s ability to identify significant cost savings given the department’s poor visibility into the total resources being devoted across organizations to similar functions and missions. Further, Congress has recently directed the Secretary of Defense to ensure that the department achieves savings in the total funding available for major DOD headquarters activities by fiscal year 2020 that are not less than 25 percent of the baseline amount, and to implement a plan to ensure the department achieves not less than $10 billion in cost savings from its headquarters, administrative, and support activities by fiscal year 2019. Since 2014, DOD has undertaken concurrent initiatives of varying scope that include improving the efficiency of headquarters organizations and identifying related cost savings, but, because they are not yet completed, it is unclear to what extent these initiatives will help the department to achieve the $62 billion to $84 billion in cost savings opportunities that it has identified. DOD’s limited information on which positions perform which headquarters functions and their associated costs hinders its ability to identify potential cost savings associated with opportunities to consolidate and streamline these headquarters functions. While the department has taken steps to respond to a new headquarters definition and has begun to align its key resource database—the FYDP—to better reflect the new definition, these efforts are not yet completed and the department does not have plans to align these efforts with the existing data on department-wide military and civilian positions that have headquarters-related DOD function codes or to collect information on the costs associated with functions within headquarters organizations. Without such alignment and such information, the department will not be well-positioned to reliably conduct an assessment of its headquarters workforce by function to identify opportunities for streamlining and related cost savings. Conducting such functional analysis could allow DOD officials to raise questions about the number and types of positions with particular headquarters functions and to better understand cost drivers and identify efficiency-related opportunities within the department.

Recommendations for Executive Action

To further DOD’s efforts to identify opportunities for more efficient use of headquarters-related resources, we recommend that the Secretary of Defense direct the Deputy Chief Management Officer, in coordination with the Under Secretary of Defense for Personnel and Readiness, the Chairman of the Joint Chiefs of Staff, the Secretaries of the military departments, and the heads of the defense agencies and DOD field activities, to take the following two actions: align DOD’s data on department-wide military and civilian positions that have headquarters-related DOD function codes with the revised definition of major DOD headquarters activities in order to provide the department with reliable data to accurately assess headquarters functions and identify opportunities for streamlining or further analysis; and once this definition is published in DOD guidance, collect reliable information on the costs associated with functions within headquarters organizations—through revisions to the IGCA Inventory or another method—in order to provide the department with detailed information for use in estimating resources associated with specific headquarters functions, and in making decisions, monitoring performance, and allocating resources.

Agency Comments and Our Evaluation

We provided a draft of this report to DOD for review and comment. In written comments on a draft of this report, DOD concurred with our two recommendations. DOD’s comments are summarized below and reprinted in their entirety in appendix VI.

DOD concurred with our recommendations to (1) align DOD’s data on department-wide military and civilian positions that have headquarters- related DOD function codes with the revised definition of major DOD headquarters activities, and (2) once this definition is published in DOD guidance, collect reliable information on the costs associated with functions within headquarters organizations—through revisions to the IGCA Inventory or another method.

In its response, DOD stated that it is currently updating civilian and military manpower and total obligation authority baselines for major DOD headquarters activities to align with the new headquarters-related definition and framework. The department stated that this effort includes updating data architecture for coding major DOD headquarters activities, by program element code, in the Future Years Defense Program, and noted that this data architecture will serve as the authoritative methodology to account for headquarters manpower and resources in the future. Further, DOD stated that, once those efforts are complete and the new framework is codified in an update to DOD Instruction 5100.73, the department will determine how best to align the function code taxonomy, which is the source of data for the IGCA Inventory, with the revised framework and definitions. We agree that determining how to align the data set from the IGCA Inventory with the revised framework and definitions is an important first step and, if implemented, would address the intent of our first recommendation.

Finally, DOD stated in its comments that the updated data architecture will enable the department to collect consistent, comprehensive, and authoritative information on the costs associated with major DOD headquarters activities. We also agree that updating the data architecture for coding major DOD headquarters activities will help improve the department’s visibility of headquarters-related resources. As the department works to complete this effort, we believe that it should develop a means of collecting reliable information on the costs associated with functions within headquarters organizations. Doing so would provide the department with detailed information for use in estimating resources associated with specific headquarters functions, and, if implemented, would address the intent of our second recommendation.

We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, the Under Secretary of Defense for Personnel and Readiness, the Deputy Chief Management Officer, the Chairman of the Joint Chiefs of Staff, the Secretaries of the military departments, and the heads of the defense agencies and DOD field activities. In addition, the report is available at no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact me at (202) 512-3489 or pendletonj@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix VII.

Appendix I: Prior GAO Work on Accounting for Resources Devoted to Department of Defense Headquarters

We have issued several reports since 2012 on defense headquarters and on the Department of Defense’s (DOD) challenges in accounting for the resources devoted to headquarters.

In March 2012, we found that while DOD has taken some steps to examine its headquarters resources for efficiencies, additional opportunities for savings may exist by further consolidating organizations and centralizing functions. We also found that DOD’s data on its headquarters personnel lacked the completeness and reliability necessary for use in making efficiency assessments and decisions.

Recommendations: We recommended that the Secretary of Defense direct the Secretaries of the military departments and the heads of the DOD components to continue to examine opportunities to consolidate commands and to centralize administrative and command support services, functions, or programs. Additionally, we recommended that the Secretary of Defense revise DOD Instruction 5100.73, Major DOD Headquarters Activities, to include all headquarters organizations; specify how contractors performing headquarters functions will be identified and included in headquarters reporting; clarify how components are to compile the information needed for headquarters- reporting requirements; and establish time frames for implementing actions to improve tracking and reporting of headquarters resources. DOD concurred with the first recommendation and partially concurred with the second recommendation in this report.

Status: DOD officials have stated that, since 2012, several efforts have been made to consolidate or eliminate commands and to centralize administrative and command support services, functions, or programs. For example, Office of the Secretary of Defense (OSD) officials said that DOD has begun efforts to assess which headquarters organizations are not currently included in its guiding instruction on headquarters, and will update the instruction. However, as of June 2016, DOD has not completed its update of the instruction to include all major headquarters activity organizations. OSD officials stated that they would begin updating this instruction upon completion of the effort to assess headquarters organizations. In addition, DOD has not specified how contractors will be identified and included in headquarters reporting, and has not identified a time frame for action.

In May 2013, we found that authorized military and civilian positions at the geographic combatant commands—excluding U.S. Central Command— had increased by about 50 percent from fiscal year 2001 through fiscal year 2012, primarily due to the addition of new organizations, such as the establishment of U.S. Northern Command and U.S. Africa Command, and increased mission requirements for the theater special operations commands. We also found that DOD’s process for sizing its combatant commands had several weaknesses, including the absence of a comprehensive, periodic review of the existing size and structure of these commands and inconsistent use of personnel-management systems to identify and track assigned personnel.

Recommendations: We recommended that the Secretary of Defense direct the Chairman of the Joint Chiefs of Staff to revise its guiding instruction on managing joint personnel requirements—Chairman of the Joint Chiefs of Staff Instruction 1001.01A, Joint Manpower and Personnel Program—to require a comprehensive and periodic evaluation of whether the size and structure of the combatant commands meet assigned missions. DOD did not concur with this recommendation, but we continue to believe that institutionalizing a periodic evaluation of all authorized positions would help to systematically align manpower with missions and add rigor to the requirements process. The department concurred with the remaining three recommendations, namely, that the Secretary of Defense: (1) direct the Chairman of the Joint Chiefs of Staff to revise Chairman of the Joint Chiefs of Staff Instruction 1001.01A to require the combatant commands to identify, manage, and track all personnel and to identify specific guidelines and time frames for the combatant commands to consistently input and review personnel data in the system; (2) direct the Chairman of the Joint Chiefs of Staff, in coordination with the combatant commanders and Secretaries of the military departments, to develop and implement a formal process to gather information on authorized manpower and assigned personnel at the service component commands; and (3) direct the Under Secretary of Defense (Comptroller) to revise volume 2, chapter 1, of DOD’s Financial Management Regulation 7000.14R to require the military departments, in their annual budget documents for operation and maintenance, to identify the authorized military positions and civilian and contractor full-time equivalents at each combatant command and provide detailed information on funding required by each command for mission and headquarters-support, such as civilian pay, contract services, travel, and supplies.

Status: With regard to the recommendation to revise the instruction to require the commands to improve visibility over all combatant command personnel, DOD has established a new manpower tracking system, the Fourth Estate Manpower Tracking System, that is to track all personnel data, including temporary personnel, and identify specific guidelines and timelines to input/review personnel data. With regard to the recommendation to develop and implement a formal process to gather information on authorized manpower and assigned personnel at the service component commands, as of August 2015, the process outlined by DOD to gather information on authorized and assigned personnel at the service component commands is the same as the one identified during our prior work. With regard to the recommendation to revise DOD’s Financial Management Regulation, in December 2014 DOD indicated that the Office of the Under Secretary of Defense (Comptroller) had reinstituted an existing budgetary document, the President’s Budget 58, Combatant Command Direct Funding, and directed the military services to use this budget exhibit in its guidance on submission of the fiscal years 2016 through 2020 program and budget. The President’s Budget 58 provides the department’s justification and visibility for changes in the level of resources required for each combatant command. While the President’s Budget 58 does not provide detailed information on the number of authorized military or civilian positions and contractor full- time equivalents at each combatant command, it does identify the funding required by each combatant command for mission and headquarters support, which, in general, satisfies the intent of our recommendation.

In June 2014, we found that DOD’s functional combatant commands have shown substantial increases in authorized positions and costs to support headquarters operations since fiscal year 2004, primarily to support recent and emerging missions, including military operations to combat terrorism and the emergence of cyberspace as a warfighting domain. Further, we found that DOD did not have a reliable way to determine the resources devoted to management headquarters as a starting point for DOD’s planned 20 percent reduction to headquarters budgets, and thus we concluded that actual savings would be difficult to track. We recommended that DOD reevaluate the decision to focus reductions on management headquarters to ensure meaningful savings and set a clearly defined and consistently applied baseline starting point for the reductions. Further, we recommended that DOD track the reductions against the baselines in order to provide reliable accounting of savings and reporting to Congress.

Recommendations: We recommended that the Secretary of Defense reevaluate the decision to focus reductions on management headquarters to ensure the department’s efforts ultimately result in meaningful savings. DOD partially concurred, questioning, in part, the recommendation’s scope. We agreed that the recommendation has implications beyond the functional combatant commands, which was the scope of our review, but the issue we identified is not limited to these commands. We also recommended that the Secretary of Defense (1) set a clearly defined and consistently applied starting point as a baseline for reductions; and (2) track reductions against the baselines in order to provide reliable accounting of savings and reporting to Congress. DOD concurred with these two recommendations.

Status: To address the two recommendations with which it concurred, DOD said that it planned to use the Future Years Defense Program data to set the baseline going forward. DOD stated that it was enhancing data elements within a DOD resource database to better identify management headquarters resources to facilitate tracking and reporting across the department. A December 2014 Resource Management Decision directed DOD components to identify and correct inconsistencies in major headquarters activities in authoritative DOD systems and reflect those changes in the fiscal year 2017 program objective memorandums or submit them into the manpower management system, but this effort has not yet been completed.

In January 2015, we found that, over the previous decade, authorized military and civilian positions have increased within the DOD headquarters organizations we reviewed—OSD, the Joint Staff, and the Army, Navy, Marine Corps, and Air Force secretariats and staffs—but the size of these organizations has recently leveled off or begun to decline. In addition, we found that the DOD headquarters organizations we reviewed do not determine their personnel requirements as part of a systematic requirements-determination process, nor do they have procedures in place to ensure that they periodically reassess these requirements as outlined in DOD and other guidance. Current personnel levels for these headquarters organizations are traceable to statutory limits enacted in the 1980s and 1990s to force efficiencies and reduce duplication. However, we found that these limits have been waived since fiscal year 2002 and have little practical utility because of statutory exceptions for certain categories of personnel, and because the limits exclude personnel in supporting organizations that perform headquarters- related functions.

Recommendations: We recommended that the Secretary of Defense direct the following three actions: (1) conduct a systematic determination of personnel requirements for OSD, the Joint Staff, and the military services’ secretariats and staff, which should include analysis of mission, functions, and tasks, and the minimum personnel needed to accomplish those missions, functions, and tasks; (2) submit these personnel requirements, including information on the number of personnel within OSD and the military services’ secretariats and staffs that count against the statutory limits, along with any applicable adjustments to the statutory limits, to Congress, along with any recommendations needed to modify the existing statutory limits; and (3) establish and implement procedures to conduct periodic reassessments of personnel requirements within OSD and the military services’ secretariats and staffs. DOD partially concurred with all of these recommendations. In addition, we raised a matter for congressional consideration, namely, that Congress should consider using the results of DOD’s review of headquarters personnel requirements to reexamine the statutory limits. Such an examination could consider whether supporting organizations that perform headquarters functions should be included in statutory limits and whether the statutes on personnel limitations within the military services’ secretariats and staffs should be amended to include a prohibition on reassigning headquarters-related functions elsewhere.

Status: With regard to the recommendation that DOD conduct a systematic determination of personnel requirements for OSD, the Joint Staff, and the military services’ secretariats and staff, the department stated that it will continue to use the processes and prioritization that are part of the Planning, Programming, Budgeting, and Execution process, and will also investigate other methods for aligning personnel to missions and priorities. However, DOD did not specify whether any of these actions would include a workforce analysis. With regard to the recommendation related to conducting periodic reassessments of personnel requirements within OSD and the military service secretariats and staffs. DOD said that it supports the intent of the recommendation but that such periodic reassessments require additional resources and personnel, which would drive an increase in the number of personnel performing major DOD headquarters activities. Specifically, DOD stated it intends to examine the establishment of requirements determination processes across the department, to include the contractor workforce, but this will require a phased approach across a longer timeframe. In December 2014, the Secretary of Defense directed the Deputy Chief Management Officer to develop and implement a manpower requirements validation process for OSD, the defense agencies, and DOD field activities for military and civilian manpower, but, as of June 2016, this effort has not yet been completed. With regard to the recommendation related to the submission of the personnel requirements to Congress, along with any applicable adjustments and recommended modifications. DOD stated that it has ongoing efforts to refine and improve its reporting capabilities associated with these requirements, noting that the department has to update DOD Instruction 5100.73, Major DOD Headquarters Activities, before it can determine personnel requirements that count against the statutory limits. We previously recommended that the department update this instruction, and, according to DOD officials, they intend to begin updating the instruction in June 2016. In addition, we noted that DOD did not indicate whether the department would submit personnel requirements that count against the statutory limits in the Defense Manpower Requirements Report, as we recommend, once the instruction is finalized. We continue to believe that submitting these personnel requirements to Congress in this DOD report would provide Congress with key information to determine whether the existing statutory limits on military and civilian personnel are effective in limiting headquarters personnel growth. With regard to the matter for congressional consideration, the Senate Armed Services Committee markup of the National Defense Authorization Act for Fiscal Year 2017 includes a provision that would allow the OSD and the military departments to increase their number of military and civilian personnel by 15 percent in times of national emergency.

Appendix II: Descriptions of Headquarters- Related Department of Defense Function Codes

In the Inherently Governmental / Commercial Activities (IGCA) Inventory for fiscal years 2010 through 2014, there are 38 functions, each designated by a specific DOD function code, that have a headquarters designation; of these, 35 are labeled “Management Headquarters,” while 3 are labeled “Combatant Headquarters.” For the purposes of this report, we use the term “headquarters,” rather than “management headquarters” or “combatant headquarters,” when referring to the titles of these 38 functions in the body of the report. Table 1 lists the 38 headquarters functions with accompanying descriptions.

Appendix III: Objectives, Scope, and Methodology

House Report 113-446 and Senate Report 113-176 included provisions that we, among other things, identify the Department of Defense’s (DOD) headquarters reduction efforts to date and any trends in personnel and other resources being devoted to selected functional areas within and across related organizations. This report (1) describes the status of DOD’s initiatives since 2014 to improve the efficiency of headquarters organizations and identify related cost savings; and (2) assesses the extent to which DOD has reliable data to assess headquarters functions and their associated costs.

To describe the status of DOD’s initiatives to improve the efficiency of headquarters organizations and identify related cost savings, we identified and reviewed DOD headquarters-related efficiency efforts begun since 2014. We obtained documentary and testimonial evidence from senior officials in the Office of the Deputy Chief Management Officer to determine the scope and status of these headquarters-related efficiency efforts and what actions, if any, DOD has taken as a result of the efforts.

To assess the extent to which DOD has reliable data to assess headquarters functions and their associated costs, we took two main steps.

First, we identified and reviewed DOD-wide sources of information that would provide data on the department’s workforce in terms of whether the workforce is performing headquarters work and the specific headquarters functions that workforce is performing. We discussed with officials from the Office of the Deputy Chief Management Officer, the Office of the Under Secretary of Defense for Personnel and Readiness, and the Cost Analysis and Program Evaluation office, and reviewed data from, several department-wide sources, specifically, the Future Years Defense Program, the Defense Manpower Data Center, the Inherently Governmental / Commercial Activities (IGCA) Inventory, and the Inventory of Contracted Services. For this report, we analyzed data and information related to the IGCA Inventory because it was the only DOD-wide data set identified that allowed us to determine the military and civilian workforce—in the form of authorized positions—by both headquarters and function. However, we found that the data in the IGCA Inventory were submitted by the various DOD organizations at different points in a given fiscal year. To ensure that the data would be as close to the end of each fiscal year as possible, we obtained data from each of the military services’ manpower databases used to populate DOD’s IGCA Inventory for fiscal years 2010 through 2014, which was the most recent 5-year period available during our review. For each service database, we identified the subset of military and civilian positions considered headquarters according to IGCA guidance. We then analyzed these headquarters positions for each organization and for each fiscal year by number of military and civilian positions, function, grade, and location. We discussed the data, and the reasons for any patterns or changes we observed in them, with military service representatives. DOD was unable to provide similar data for organizations outside the military departments known as the Fourth Estate in time for our review, so we collected data on the Fourth Estate’s military and civilian positions directly from the IGCA Inventory for fiscal years 2012 to 2014. We assessed the data we received against federal standards for internal control, which call for an agency to have relevant, reliable, and timely information in order to run and control its operations.

Second, we attempted to calculate the approximate costs of the headquarters positions and associated functions. Because the IGCA Inventory does not contain estimated costs for positions, we used the service databases’ pay grade and location information assigned to the military and civilian positions in an attempt to determine the estimated cost to DOD of filling headquarters positions. Specifically, we applied DOD’s military composite standard pay rates and civilian fringe benefits rates to the pay grades we had collected for each position identified in the service databases. We were unable to do a similar calculation for the Fourth Estate because Fourth Estate data on positions came from the IGCA Inventory, which does not contain pay grade and location information needed for a cost calculation. We assessed our and DOD’s efforts to calculate headquarters-related costs against federal standards for internal control on having relevant, reliable, and timely information, and noted the importance of a key step that we have previously identified for conducting fragmentation, overlap, and duplication reviews. Specifically, one of the steps in conducting such a review is to identify the positive and negative effects of any fragmentation, overlap, and duplication by assessing program implementation, outcomes and impact, and cost- effectiveness.

We assessed the reliability of the IGCA-related data sets by reviewing responses to data questionnaires sent to knowledgeable service and Fourth Estate officials, discussing the data with these officials, and conducting our own cross-checks of the data to assess their reasonableness. We found the data to be insufficient for identifying trends in the number and type of headquarters positions and for estimating costs associated with headquarters positions. However, we found the data to be sufficiently reliable for presenting 1 year’s worth of data for purposes of illustrating the types of analyses of department-wide headquarters functions that could be conducted if DOD improved the reliability of these data. Finally, we were unable to obtain data on contracted services personnel, either their positions or associated costs, because DOD does not identify contracted services personnel by the type of headquarters function they perform.

We interviewed officials or, where appropriate, obtained documentation from the organizations listed below.

Office of the Secretary of Defense

Office of the Deputy Chief Management Officer

Office of Cost Assessment and Program Evaluation

Office of the Under Secretary of Defense (Comptroller)

Office of the Under Secretary of Defense for Personnel and Readiness

Office of the Under Secretary of Defense for Acquisition, J1, Manpower and Personnel Directorate

Department of the Army

Office of the Assistant Secretary of the Army for Manpower and

G1, Office of the Deputy Chief of Staff for Personnel

G3/5/7, Operations and Plans

Department of the Navy

Office of the Assistant Secretary of the Navy for Manpower

N1, Office of the Deputy Chief of Naval Operations, Manpower

Deputy Commandant for Combat Development and Integration,

Department of the Air Force

A1, Office of the Deputy Chief of Staff for Personnel

U.S. Special Operations Command

Defense Agencies / DOD Field Activities

Defense Acquisition University

Defense Advanced Research Projects Agency

Defense Contract Audit Agency

Defense Contract Management Agency

Defense Finance and Accounting Service

Defense Human Resource Activity

Defense Information Systems Agency

Defense Legal Services Agency

Defense POW/MIA Accounting Agency

Defense Security Cooperation Agency

Defense Technical Information Center

Defense Technology Security Administration

Defense Threat Reduction Agency

Department of Defense Education Activity

Department of Defense Inspector General

Office of Economic Adjustment

Pentagon Force Protection Agency

Test Resource Management Center We conducted this performance audit from January 2015 to June 2016 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Appendix IV: Department of Defense Headquarters-Related Reduction Efforts to Realize Cost Savings Since 2010

Department of Defense (DOD) officials identified the following efforts initiated between 2010 and 2014 to realize cost savings related to headquarters.

In a May 2010 speech, the Secretary of Defense expressed concerns about the dramatic growth in DOD’s headquarters and support organizations that had occurred since 2001, including increases in spending, staff, and numbers of senior executives and the proliferation of management layers. The Secretary of Defense then directed that DOD was to undertake a department-wide initiative to assess how the department is staffed, organized, and operated, with the goal of reducing excess overhead costs and reinvesting these savings toward sustainment of DOD’s current force structure and modernizing its weapons portfolio.

In March 2012, DOD identified additional efficiency initiatives, referred to as More Disciplined Use of Resources initiatives, in its fiscal year 2013 budget request. DOD identified additional More Disciplined Use of Resources initiatives for the fiscal year 2014 budget in April 2013. According to information accompanying its fiscal years 2013 and 2014 budget requests, DOD identified these initiatives by conducting a review of bureaucratic structures, business practices, modernization programs, civilian and military personnel levels, and associated overhead costs.

In March 2013, the Secretary of Defense directed the completion of a Strategic Choices Management Review to examine the potential effect of additional, anticipated budget reductions on the department and to develop options for performing DOD missions. According to the Secretary, a tenet of the review was the need to maximize savings from reducing DOD’s overhead, administrative costs, and other institutional expenses.

In July 2013, the Secretary of Defense set a target for reducing DOD components’ total management headquarters budgets by 20 percent for fiscal years 2014 through 2019, including costs for civilian personnel and contracted services, while striving for a goal of 20 percent reductions to authorized military and civilian personnel. This effort was designed to streamline DOD’s management of its headquarters through efficiencies and elimination of spending on lower-priority activities.

In August 2013, the Secretary and Deputy Secretary of Defense directed an organizational review of the Office of the Secretary of Defense, consistent with the Strategic Choices and Management Review, that was intended to assess and recommend specific adjustments to OSD’s organizational structure. The review resulted in several organizational alignments, such as realigning another office to the Office of the Deputy Chief Management Officer structure, and contributed to the 20 percent headquarters reductions that were captured in DOD’s fiscal year 2015 budget request.

Appendix V: Percentages of Department of Defense Headquarters Functions for Fiscal Year 2014

This appendix provides our analysis showing the five headquarters functions, in each military service and Fourth Estate component, with the highest number of headquarters positions for fiscal year 2014. Based on our review of the data and discussions with service officials, fiscal year 2014 data is the most reliable data available during the period of our review.

Military Services

The military services are the Army; the Navy; the Marine Corps; and the Air Force. To help meet their respective missions, each military service has both operational and nonoperational headquarters organizations. See table 2 for the percentage of the military services’ headquarters positions by headquarters function for fiscal year 2014.

Fourth Estate

The Fourth Estate is made up of the Department of Defense (DOD) organizations that are separate from the military services. Our review focused on four organizational components that make up the Fourth Estate: (1) the Office of the Secretary of Defense; (2) the Joint Staff, including the North Atlantic Treaty Organization; (3) the combatant commands; and (4) defense agencies and DOD field activities. See table 3 for the percentage of Fourth Estate headquarters positions by headquarters function for fiscal year 2014.

Appendix VI: Comments from the Department of Defense

Appendix VII: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the contact named above, Margaret A. Best (Assistant Director), Tracy Barnes, Timothy Carr, Gabrielle A. Carrington, Cynthia Grant, Mae Jones, Bethann E. Ritter Snyder, Benjamin Sclafani, Michael Silver, Amie Lesser, and Melissa Wohlgemuth made key contributions to this report.