DOD is one of the largest and most complex organizations in the world. In fiscal year 2003, DOD reported that its operations involved over $1.1 trillion in assets, over $1.5 trillion in liabilities, approximately 3.3 million military and civilian personnel—including guard and reserve components, and disbursements of over $416 billion. Execution of these 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 operations. To execute these military operations, the department performs an assortment of interrelated and interdependent business functions, including logistics management, procurement, health care management, and financial management. To support its business functions, DOD reported in April 2003 that it relied on about 2,274 business systems, including accounting, acquisition, logistics, and personnel systems. To support its existing systems environment, DOD requests billions of dollars annually. The Assistant Secretary of Defense for Networks and Information Integration—DOD’s CIO—is responsible for compiling and submitting the department’s IT budget reports to Congress and the Office of Management and Budget (OMB). According to a DOD CIO official, the information in the IT budget request is initially prepared by various DOD components and processed through their respective CIOs and comptrollers. The information is then forwarded to the DOD CIO office, where it is consolidated before being sent to OMB and Congress. The DOD component CIOs and comptrollers are responsible for, and are required to certify, the reliability of the information about their respective initiatives that is included in the IT budget request. DOD continues to confront pervasive, decades-old financial and business 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; and (3) left the department vulnerable to fraud, waste, and abuse. For example: Of the 481 mobilized Army National Guard soldiers from six GAO case study Special Forces and Military Police units, 450 had at least one pay problem associated with their mobilization. DOD’s inability to provide timely and accurate payments to these soldiers, many of whom risked their lives in recent Iraq or Afghanistan missions, distracted them from their missions, imposed financial hardships on the soldiers and their families, and has had a negative impact on retention. Some DOD contractors have been abusing the federal tax system with little or no consequence and DOD is not collecting as much in unpaid taxes as it could. Under the Debt Collection Improvement Act of 1996, DOD is responsible—along with the Department of the Treasury—for offsetting payments made to contractors to collect funds owed, such as unpaid federal taxes. However, we found that DOD had collected only $687,000 of unpaid taxes as of September 2003. We estimated that at least $100 million could be collected annually from DOD contractors through effective implementation of the levy and debt collection program. Our review of fiscal year 2002 data revealed that about $1 of every $4 in contract payment transactions in DOD’s MOCAS system was for adjustments to previously recorded payments—$49 billion of adjustments out of $198 billion in disbursement, collection, and adjustment transactions. According to DOD, the cost of researching and making adjustments to accounting records was about $34 million in fiscal year 2002, primarily to pay hundreds of DOD and contractor staff. Tens of millions of dollars are not being collected each year by military treatment facilities from third-party insurers because key information required to effectively bill and collect from third-party insurers is often not properly collected, recorded, or used by the military treatment facilities. The long-standing problems continue despite the significant investments made in DOD business systems each year. The challenges continue, in part, because of DOD’s inability to effectively modernize its business systems. For example, our March 2003 report and testimony concluded that DOD had not effectively managed and overseen its planned investment of over $1 billion in four DFAS systems modernization efforts. DOD has terminated two of the four DFAS systems modernization projects—the Defense Procurement Payment System (DPPS) and the Defense Standard Disbursing System (DSDS). The DOD Comptroller terminated DPPS in December 2002 after more than 7 years of effort and an investment of over $126 million, citing poor program performance and increasing costs. DFAS terminated DSDS in December 2003 after approximately 7 years of effort and an investment of about $53 million, noting that a valid business case for continuing the effort could not be made. These two projects were planned to provide DOD the capability to address some of its long-standing contract and vendor payment problems. Since 1990, we have identified DOD’s management of secondary inventories (spare and repair parts, clothing, medical supplies, and other items to support the operating forces) as a high-risk area. One primary factor contributing to DOD’s inventory management weaknesses is its outdated and ineffective systems. These system deficiencies have hindered DOD’s ability to (1) support its reported inventory balances; (2) provide inventory visibility; and (3) provide accurate financial and management information related to its property, plant, and equipment. For example: DOD incurred substantial logistical support problems as a result of weak distribution and accountability processes and controls over supplies and equipment shipments in support of Operation Iraqi Freedom activities, similar to those encountered during the prior Gulf War. These weaknesses resulted in (1) supply shortages, (2) backlogs of materials delivered in theater but not delivered to the requesting activity, (3) a discrepancy of $1.2 billion between the amount of materiel shipped and that acknowledged by the activity as received, (4) cannibalization of vehicles, and (5) duplicate supply requisitions. Inadequate asset visibility and accountability resulted in DOD selling new Joint Service Lightweight Integrated Suit Technology—the current chemical and biological protective garment used by our military forces—on the Internet for $3 each (coat and trousers) while at the same time buying them for over $200 each. DOD has acknowledged that these garments should have been restricted to DOD use only and therefore should not have been available to the public. Our analysis of data on more than 50,000 maintenance work orders opened during the deployments of six battle groups indicated that about 29,000 orders (58 percent) could not be completed because the needed repair parts were not available on board ship. This condition was a result of inaccurate ship configuration records and incomplete, outdated, or erroneous historical parts demand data. Such problems not only have a detrimental impact on mission readiness, they may also increase operational costs due to delays in repairing equipment and holding unneeded spare parts inventory. 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 an enterprise architecture. In this regard, the department has undertaken a daunting challenge to modernize its existing business systems environment through the development and implementation of a BEA or modernization blueprint. 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.” As previously noted, the department has designated seven domain owners to be responsible for implementing the BEA, which includes (1) performing system reviews and approving initiative funding as part of investment management and (2) enforcing compliance with the BEA. In April 2003, DOD reported that its business systems environment consisted of 2,274 systems and systems acquisition projects spanning numerous business operations that were divided into the seven domains and established a domain leader for each area. DOD’s efforts to manage the modernization initiative include a strategy to vest the domains with the authority, responsibility, and accountability for business transformation, extension and implementation of the architecture, and investment management. We have also recommended that DOD establish an investment management structure to gain control over business system investments by (1) establishing a hierarchy of investment review boards from across the department, (2) establishing a standard set of investment review and decision-making criteria for its ongoing IT system projects, and (3) directing the boards to perform a comprehensive review of all ongoing business system investments. Two of the business systems modernization efforts DOD has under way to address some of its inventory problems are DLA’s BSM and the Army’s LMP. These two business systems represent approximately 19 percent of the $770 million of the modernization funding requested in fiscal year 2004 for logistics systems. DLA and the Army are using the same commercial-off- the-shelf (COTS) enterprise resource planning software package. DLA and the Army are using the inventory management portion of the package. BSM. In November 1999, DLA initiated an effort to replace its materiel management systems—the Standard Automated Materiel Management System (SAMMS) and the Defense Integrated Subsistence Management System—with BSM. DLA has used the two existing systems for over 30 years to manage its inventory. BSM is intended to transform how DLA conducts its operations in five core business processes: order fulfillment, demand and supply planning, procurement, technical/quality assurance, and financial management.