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 recently testified and as discussed in our latest financial audit report, 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 control 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 control 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). Unfortunately, DOD does not meet any of these conditions. For example, for fiscal year 2003, the DOD Inspector General (DOD IG) issued a disclaimer of opinion on DOD’s financial statements, citing 11 material weaknesses in internal control and noncompliance with FFMIA requirements. Recent audits and investigations by GAO and DOD auditors continue to confirm the existence of pervasive weaknesses in DOD’s financial management and related business processes and systems. These problems 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. Four hundred and fifty of the 481 mobilized Army National Guard soldiers from six GAO case study Special Forces and Military Police units 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. (GAO-04-89, Nov. 13, 2003) 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. (GAO-04-305R, Dec. 18, 2003) Inadequate asset visibility and accountability resulted in DOD selling new Joint Service Lightweight Integrated Suit Technology (JSLIST)—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. (GAO-02-873T, June 25, 2002) Inadequate asset accountability also resulted in DOD’s inability to locate and remove over 250,000 defective Battle Dress Overgarments (BDOs)— the predecessor of JSLIST—from its inventory. Subsequently, we found that DOD had sold many of these defective suits to the public, including 379 that we purchased in an undercover operation. In addition, DOD may have issued over 4,700 of the defective BDO suits to local law enforcement agencies. Although local law enforcement agencies are most likely to be the first responders to a terrorist attack, DOD failed to inform these agencies that using these BDO suits could result in death or serious injury. (GAO-04-15NI, Nov. 19, 2003) 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. (GAO-04-322R, Feb. 20, 2004) 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. (GAO-03-887, Aug. 29, 2003) DOD sold excess biological laboratory equipment, including a biological safety cabinet, a bacteriological incubator, a centrifuge, and other items that could be used to produce biological warfare agents. Using a fictitious company and fictitious individual identities, we were able to purchase a large number of new and usable equipment items over the Internet from DOD. Although the production of biological warfare agents requires a high degree of expertise, the ease with which these items were obtained through public sales increases the risk that terrorists could obtain and use them to produce biological agents that could be used against the United States. (GAO-04-81TNI, Oct. 7, 2003) Based on statistical sampling, we estimated that 72 percent of the over 68,000 premium class airline tickets DOD purchased for fiscal years 2001 and 2002 was not properly authorized and that 73 percent was not properly justified. During fiscal years 2001 and 2002, DOD spent almost $124 million on premium class tickets that included at least one leg in premium class—usually business class. Because each premium class ticket cost the government up to thousands of dollars more than a coach class ticket, unauthorized premium class travel resulted in millions of dollars of unnecessary costs being incurred annually. (GAO-04-229T, Nov. 6, 2003) 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—working with the Treasury Department—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 levy and debt collection programs. (GAO-04- 95, Feb. 12, 2004) Our review of fiscal year 2002 data revealed that about $1 of every $4 in contract payment transactions in DOD’s Mechanization of Contract Administration Services (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. (GAO-03-727, Aug. 8, 2003) DOD’s information technology (IT) budget submission to Congress for fiscal year 2004 contained material inconsistencies, inaccuracies, or omissions that limited its reliability. For example, we identified discrepancies totaling about $1.6 billion between two primary parts of the submission—the IT budget summary report and the detailed Capital Investments Reports on each IT initiative. These problems were largely attributable to insufficient management attention and limitations in departmental policies and procedures, such as guidance in DOD’s Financial Management Regulation, and to shortcomings in systems that support budget-related activities. (GAO-04-115, Dec. 19, 2003) Since the mid 1980s, we have reported that DOD uses overly optimistic planning assumptions to estimate its annual budget request. These same assumptions are reflected in its Future Years Defense Program, which reports projected spending for the current budget year and at least 4 succeeding years. In addition, in February 2004 the Congressional Budget Office projected that DOD’s demand for resources could grow to about $490 billion in fiscal year 2009. DOD’s own estimate for that same year was only $439 billion. As a result of DOD’s continuing use of optimistic assumptions, DOD has too many programs for the available dollars, which often leads to program instability, costly program stretch-outs, and program termination. Over the past few years, the mismatch between programs and budgets has continued, particularly in the area of weapons systems acquisition. For example, in January 2003, we reported that the estimated costs of developing eight major weapons systems had increased from about $47 billion in fiscal year 1998 to about $72 billion by fiscal year 2003.