Because DOD is one of the largest and most complex organizations in the world, overhauling its business operations represents a huge management challenge. In fiscal year 2004, DOD reported that its operations involved $1.2 trillion in assets, $1.7 trillion in liabilities, over 3.3 million military and civilian personnel, and over $605 billion in net cost of operations. For fiscal year 2005, the department received appropriations of about $417 billion. Execution of DOD’s operations spans a wide range of defense organizations, including the military services and their respective major commands and functional activities, numerous large defense agencies and field activities, and various combatant and joint operational commands that are responsible for military operations for specific geographic regions or theaters of operation. To support DOD’s operations, the department performs an assortment of interrelated and interdependent business processes, including logistics management, procurement, health care management, and financial management. Transformation of DOD’s business systems and operations is critical to the department providing Congress and DOD management with accurate and timely information for use in the decision-making process. This effort is an essential part of the Secretary of Defense’s broad initiative to “transform the way the department works and what it works on.” Secretary Rumsfeld has estimated that successful improvements to DOD’s business operations could save the department 5 percent of its budget a year, which equates to over $20 billion a year in savings. For several years, we have reported that DOD faces a range of financial management and related business process challenges that are complex, long-standing, pervasive, and deeply rooted in virtually all business operations throughout the department. As the Comptroller General testified in November 2004, DOD’s financial management deficiencies, taken together, continue to represent the single largest obstacle to achieving an unqualified opinion on the U.S. government’s consolidated financial statements. To date, none of the military services has passed the test of an independent financial audit because of pervasive weaknesses in internal controls and processes and fundamentally flawed business systems. In identifying improved financial performance as one of its five governmentwide initiatives, the President’s Management Agenda recognized that obtaining a clean (unqualified) financial audit opinion is a basic prescription for any well-managed organization. At the same time, it recognized that without sound internal controls and accurate and timely financial and performance information, it is not possible to accomplish the President’s agenda and secure the best performance and highest measure of accountability for the American people. The Joint Financial Management Improvement Program (JFMIP) Principals have defined certain measures, in addition to receiving an unqualified financial statement audit opinion, for achieving financial management success. These additional measures include (1) being able to routinely provide timely, accurate, and useful financial and performance information; (2) having no material internal control weaknesses or material noncompliance with laws and regulations; and (3) meeting the requirements of the Federal Financial Management Improvement Act of 1996 (FFMIA). DOD does not meet any of these conditions. In September 2004, the DOD Comptroller identified 11 major deficiencies that would affect the department’s ability to prepare accurate and reliable financial statements for fiscal year 2004. Subsequently, the DOD Inspector General issued a disclaimer of opinion on DOD’s fiscal year 2004 financial statements, citing material weaknesses in internal controls and noncompliance with FFMIA requirements. Pervasive weaknesses in DOD’s financial management and related business processes and systems have (1) resulted in a lack of reliable information needed to make sound decisions and report on the status of DOD activities, including accountability of assets, through financial and other reports to Congress and DOD decision makers; (2) hindered its operational efficiency; (3) adversely affected mission performance; and (4) left the department vulnerable to fraud, waste, and abuse, as the following examples illustrate. Mobilized Army National Guard soldiers have experienced significant problems getting accurate, timely, and consistent reimbursement for out-of-pocket travel expenses. These weaknesses were more glaring in light of the sustained increase in mobilizations for Army National Guard soldiers over the last 3 years. Our case study units experienced a broad range of travel reimbursement problems, including disputed amounts for meals that remained unpaid at the end of our review and vouchers that were submitted five or more times before being paid. One of the primary causes for these problems is rooted in the paper-intensive process used by DOD to reimburse Army National Guard soldiers for their travel expenses. Manual processes and nonintegrated pay and personnel systems affect the Army’s ability to generate timely active duty medical extension orders and ensure that soldiers are paid correctly. The current stovepiped, nonintegrated systems are labor-intensive and require extensive error-prone manual entry and reentry. The inadequate control resulted in some soldiers being removed from active duty status in the automated systems that control pay and access to benefits, including medical care. In addition, because these soldiers no longer had valid active duty orders, they did not have access to the commissary and post exchange—which allows soldiers and their families to purchase groceries and other goods at a discount. In one case we reviewed, during a 12-month period, while attempting to obtain care for injuries sustained from a helicopter crash in Afghanistan, one Special Forces soldier fell out of active duty status four times. During the times he was not recorded in the system as being on active duty, he was not paid and he and his family experienced delays in receiving medical treatment. In all, he missed payments for 10 pay periods—totaling $11,924. The processes and automated systems relied on to provide active duty payments to mobilized Army Reserve soldiers are so error-prone, cumbersome, and complex that neither DOD nor, more importantly, the Army Reserve soldiers themselves could be reasonably assured of timely and accurate payments. Specifically, at eight Army Reserve units that we reviewed, 332 of 348 soldiers (95 percent) experienced at least one problem with the active duty pay and allowances they were entitled to receive. Many of the soldiers experienced multiple pay problems associated with their active duty mobilizations. Some of the pay problems soldiers experienced often lingered unresolved for considerable lengths of time, some for over a year. Of the $375,000 in active duty pay and allowance problems identified in our case studies, the majority were overpayments. We referred one individual for criminal investigation because he did not mobilize with his unit, but he erroneously received over $36,000 in active duty pay and did not report this overpayment. We also identified 294 soldiers who were underpaid a total of about $51,000 in active duty pay and allowances. Transformation of DOD’s business systems and operations is critical to the department having the ability to provide Congress and DOD management with accurate and timely information for use in the decision-making process. One of the key elements we have reported as necessary to successfully execute the transformation is establishing and implementing a business enterprise architecture (BEA). In this regard, the department has undertaken a daunting challenge to modernize its existing business systems environment through the development, maintenance, and implementation of the BEA, or modernization blueprint. As previously noted, the department has designated six domain owners to be responsible for implementing the BEA. The importance of developing, maintaining, and implementing an enterprise architecture is a basic tenet of both organizational transformation and IT management. Managed properly, an enterprise architecture can clarify and help optimize the interdependencies and relationships among an organization’s business operations and the underlying IT infrastructure and applications that support these operations. Employed in concert with other important management controls, such as portfolio-based capital planning and investment control practices, architectures can greatly increase the chances that organizations’ operational and IT environments will be configured to optimize mission performance. Our experience with federal agencies has shown that investing in IT without defining these investments in the context of an architecture often results in systems that are duplicative, not well integrated, and unnecessarily costly to maintain and interface. A key element of an enterprise architecture is the development and implementation of a transition plan. According to relevant guidance and best practices, the transition plan should provide a road map for moving from the “As Is” to the “To Be” environment. An important step in the development of a well-defined transition plan is an analysis that compares the “As Is” and “To Be” architectures to identify differences. Options are explored and decisions are made regarding which legacy systems to retain, modify, or retire, and which new systems either to introduce on a temporary basis or to pursue as strategic solutions. Accordingly, transition plans identify legacy, migration, and new systems, and sequence them to show, for example, the phasing out and termination of systems and capabilities and the timing of the introduction of new systems and capabilities. Furthermore, they do so in light of resource constraints, such as budget, people, acquisition/development process maturity, and associated time frames. To improve DOD’s control and accountability over business systems investments, Congress included provisions in the Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005. The act directs that a management structure be put in place that (1) makes domains responsible for the control and accountability over business systems investments, (2) requires domains to establish a hierarchy of investment review boards from across the department, and (3) directs the boards to use a standard set of investment review and decision-making criteria to ensure compliance and consistency with the BEA. The act also directs the establishment of a departmental review board called the Defense Business Systems Management Committee that is to be chaired by the Deputy Secretary of Defense. Until DOD has complete, reliable information on the costs and number of business systems operating within the department, its ability to effectively control the money it spends on these systems will be limited. DOD’s fiscal year 2005 budget request for its business systems was $13.3 billion, which on its face is about $6 billion, or 29 percent, less than its fiscal year 2004 budget request.