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Testimony: 

Before the Subcommittee on Federal Financial Management, Government 
Information, and International Security, Committee on Homeland Security 
and Governmental Affairs, U.S. Senate: 

United States Government Accountability Office: 

GAO: 

For Release on Delivery Expected at 2:30 p.m. EDT: 

Thursday, August 3, 2006: 

Department of Defense: 

Sustained Leadership Is Critical to Effective Financial and Business 
Management Transformation: 

Statement of David M. Walker Comptroller General of the United States: 

GAO-06-1006T: 

GAO Highlights: 

Highlights of GAO-06-1006T, a testimony before the Subcommittee on 
Federal Financial Management, Government Information and International 
Security, Committee on Homeland Security and Governmental Affairs, U.S. 
Senate 

Why GAO Did This Study: 

The Department of Defense (DOD) bears sole responsibility for eight DOD-
specific high-risk areas and shares responsibility for six 
governmentwide high-risk areas. These high-risk areas reflect the 
pervasive weaknesses that cut across all of DODís major business 
operations. Several of the high-risk areas are inter-related, 
including, but not limited to, financial management, business systems 
modernization, and DODís overall approach to business transformation. 
Billions of dollars provided to DOD are wasted each year because of 
ineffective performance and inadequate accountability. DOD has taken 
some positive steps to successfully transform its business operations 
and address these high-risk areas, but huge challenges remain. 

This testimony discusses 
(1) pervasive, long-standing financial and business management 
weaknesses that affect DODís efficiency; (2) some examples that 
highlight a need for improved business systems development and 
implementation oversight; (3) DODís key initiatives to improve 
financial management, related business processes, and systems; and (4) 
actions needed to enhance the success of DODís financial and business 
transformation efforts. 

What GAO Found: 

DODís pervasive financial and business management problems adversely 
affect the economy, efficiency, and effectiveness of its operations, 
and have resulted in a lack of adequate accountability across all major 
business areas. These problems have left the department vulnerable to 
billions of dollars of fraud, waste, and abuse annually, at a time of 
increasing fiscal constraint. Further evidence of DODís problems is the 
long-standing inability of any military service or major defense 
component to pass the test of an independent financial audit because of 
pervasive weaknesses in financial management systems, operations, and 
controls. The following examples indicate the magnitude and severity of 
the problems. 

Table: Illustrative Weaknesses in DOD's Financial Management and 
Business Operations: 

Business area: Military personnel; 
Problem identified: Hundreds of separated battle-injured soldiers were 
pursued for collection of military debts incurred through no fault of 
their own. Overpayment of pay and allowances (entitlements), pay 
calculation errors, and erroneous leave payments caused 73 percent of 
the reported debts. 

Business area: Inventory; 
Problem identified: The Army had not maintained accurate accountability 
over inventory shipped to repair contractors. 

Business area: Financial management; 
Problem identified: DODís processes for recording and reporting costs 
for the Global War on Terrorism were inadequate, raising significant 
concerns about the overall reliability of DODís reported cost data. 

Source: GAO. 

[End of table] 

To support its business operations, DOD invests billions of dollars 
each year to operate, maintain, and modernize its business systems. But 
despite this significant annual investment, GAO has continued to 
identify business system projects that have failed to be implemented on 
time, within budget, and with the promised capability. For example, in 
January 2006, GAO reported on problems with the implementation of the 
Defense Travel Systemóa project that was initiated in September 1998. 

DODís many high-risk challenges are years in the making and will take 
time to effectively address. Top management has demonstrated a 
commitment to transforming the departmentís business processes. In 
December 2005, DOD issued its Financial Improvement and Audit Readiness 
Plan to guide its financial management improvement efforts. Also, DOD 
has developed an initial Standard Financial Information Structure, 
which is DODís enterprisewide data standard for categorizing financial 
information. Because of the complexity and long-term nature of DOD 
transformation efforts, GAO would like to reiterate two missing 
critical elements that need to be in place if DODís transformation 
efforts are to be successful. First, DOD should develop and implement a 
comprehensive, integrated, and enterprisewide business transformation 
plan. Second, GAO continues to support the creation of a chief 
management officer, with the right skills and at the right level within 
the department, to provide the needed sustained leadership to oversee 
the departmentís overall business transformation process. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-1006T]. 

To view the full product, click on the link above. For more 
information, contact McCoy Williams at (202) 512-9095 or 
williamsm1@gao.gov. 

[End of Section] 

Mr. Chairman and Members of the Subcommittee: 

It is a pleasure to be here to discuss key aspects of business 
transformation efforts at the Department of Defense (DOD). At the 
outset, I would like to thank the Subcommittee for having this hearing 
and acknowledge the important role hearings such as this one serve. The 
involvement of this Subcommittee is critical to ultimately ensuring 
public confidence in DOD as a steward that is accountable for its 
finances. DOD continues to confront pervasive, decades-old financial 
management and business problems related to its systems, processes 
(including internal controls), and people (human capital). Of the 26 
areas on GAO's governmentwide "high-risk" list, 8 are DOD program 
areas, and the department shares responsibility for 6 other high-risk 
areas that are governmentwide in scope.[Footnote 1] These problems 
serve to, among other things, preclude the department from producing 
accurate, reliable, and timely information with which to make sound 
decisions and accurately report on its trillions of dollars of assets 
and liabilities. Further, DOD's financial management deficiencies 
continue to represent the single largest obstacle to achieving an 
unqualified opinion on the U.S. government's consolidated financial 
statements. In an effort to better manage DOD's resources, the 
Secretary of Defense has appropriately placed a high priority on 
transforming key business processes to improve their efficiency and 
effectiveness in supporting the department's military mission. 

As per your request, my testimony will touch on three of the high-risk 
areas--financial management, business systems modernization, and DOD's 
overall approach to business transformation. I will provide 
perspectives on (1) some of the pervasive, long-standing financial and 
business management weaknesses that affect DOD's efficiency; (2) some 
examples that highlight a need for improved business systems 
development and implementation oversight; (3) DOD's key initiatives to 
improve financial management, related business processes, and systems; 
and (4) actions needed to enhance the success of DOD's financial and 
business transformation efforts. My statement is based on our previous 
reports and testimonies. Our work was performed in accordance with 
generally accepted government auditing standards. 

Summary: 

DOD's pervasive financial and business management problems adversely 
affect the economy, efficiency, and effectiveness of its operations, 
and have resulted in a lack of adequate accountability across all major 
business areas. These problems have left the department vulnerable to 
billions of dollars of fraud, waste, and abuse annually, at a time of 
increasing fiscal constraint. Further evidence of DOD's problems is the 
long-standing inability of any military service or major defense 
component to pass the test of an independent financial audit because of 
pervasive weaknesses in financial management systems, operations, and 
controls. The following examples indicate the magnitude and severity of 
the problems. 

* We found that hundreds of separated battle-injured soldiers were 
pursued for collection of military debts incurred through no fault of 
their own, including 74 soldiers whose debts had been reported to 
credit bureaus, private collection agencies, and the Treasury Offset 
Program. Overpayment of pay and allowances (entitlements), pay 
calculation errors, and erroneous leave payments caused 73 percent of 
the reported debts.[Footnote 2] 

* We found numerous problems with DOD's processes for recording and 
reporting costs for the Global War on Terrorism (GWOT), raising 
significant concerns about the overall reliability of DOD's reported 
cost data. As noted in our September 2005 report, neither DOD nor 
Congress know how much the war was costing and how appropriated funds 
were spent, or have historical data useful in considering future 
funding needs.[Footnote 3] In at least one case, the reported costs may 
have been materially overstated. Specifically, DOD's reported 
obligations for mobilized Army reservists in fiscal year 2004 were 
based primarily on estimates rather than actual information and 
differed from related payroll information by as much as $2.1 billion, 
or 30 percent of the amount DOD reported in its cost report. 

Additionally, the department invests billions of dollars each year to 
operate, maintain, and modernize its business systems. But despite this 
significant annual investment, the department has been continually 
confronted with the difficult task of implementing business systems on 
time, within budget, and with the promised capability. For example, in 
December 2005,[Footnote 4] we reported that the Army had not 
economically justified its investment in the Transportation 
Coordinators' Automated Information for Movement System (TC-AIMS) II, 
on the basis of reliable estimates of costs and benefits. TC-AIMS II 
was intended to be the single integrated system to automate 
transportation management function areas for the military services. As 
noted in our report, the most recent economic justification included 
cost and benefit estimates based on all four military services using 
the system. However, the Air Force and the Marine Corps have stated 
that they do not intend to use TC-AMIS II. Even with costs and benefits 
for all four services included, the analysis showed a marginal return 
on investment; that is, for each dollar spent on the system, slightly 
less than one dollar of benefit would be returned. The Army estimates 
the total life cycle cost of TC-AIMS II to be $1.7 billion over 25 
years, including $569 million for acquisition and $1.2 billion for 
operation and maintenance. The Army reports that it has spent 
approximately $751 million on TC-AIMS II since its inception in 1995. 

This example and others highlight the need for improved oversight of 
the billions of dollars DOD invests annually in the operation, 
maintenance, and modernization of its business systems. Further, in the 
past the department has also struggled with developing a business 
enterprise architecture to guide its business system development 
efforts. We reported in July 2005, that DOD, after almost 4 years and 
investing approximately $318 million, the architecture was not 
sufficient to effectively guide and constrain ongoing and planned 
systems investments.[Footnote 5] To its credit, DOD has recognized 
these weaknesses and taken actions to improve its management control 
and accountability over business system investments. 

Successful reform of DOD's fundamentally flawed financial and business 
management operations must simultaneously focus on its systems, 
processes, and people. DOD's top management has demonstrated a 
commitment to transforming the department and has launched key 
initiatives to improve its financial management processes and related 
business systems. For example, in December 2005, DOD issued its 
Financial Improvement and Audit Readiness (FIAR) Plan, to guide 
financial improvement and financial audit efforts within the 
department. Also, DOD has developed an initial Standard Financial 
Information Structure (SFIS), which is DOD's enterprisewide data 
standard for categorizing financial information. While DOD has made 
some encouraging progress in addressing specific challenges, it is 
still in the very early stages of a departmentwide reform that will 
take many years to accomplish. 

DOD continues to make progress in several areas in its overall business 
transformation efforts. For example, DOD established the Defense 
Business System Management Committee (DBSMC) as DOD's primary 
transformation leadership and oversight mechanism, and created the 
Business Transformation Agency (BTA) to support the DBSMC. However, I 
believe that DOD still lacks several key elements that are needed to 
ensure a successful and sustainable transformation effort. In this 
regard, I would like to reiterate two critical elements needed if DOD 
is to succeed. First, as we have previously recommended, DOD should 
develop and implement an integrated and strategic business 
transformation plan. The lack of a comprehensive, integrated, 
enterprisewide action plan linked with performance goals, objectives, 
and rewards has been a continuing weakness in DOD's business management 
transformation. Second, we continue to support the creation of a chief 
management officer (CMO) at the right level of the organization to 
provide the sustained leadership needed to achieve a successful and 
sustainable transformation effort. The CMO would serve as a strategic 
integrator to elevate and institutionalize the attention essential for 
addressing key stewardship responsibilities, such as strategic 
planning, enterprise architecture development and implementation, 
business systems, and financial management, while facilitating the 
overall business management transformation within DOD. 

Background: 

DOD is a massive and complex organization. Overhauling its business 
operations will take years to accomplish and represents a huge 
management challenge. In fiscal year 2005, the department reported that 
its operations involved $1.3 trillion in assets and $1.9 trillion in 
liabilities, more than 2.9 million military and civilian personnel, and 
$635 billion in net cost of operations. For fiscal year 2005, the 
department was appropriated approximately $525 billion.[Footnote 6] 

Large differences between the net cost of operations and amounts 
appropriated for any given fiscal year are not unusual in DOD. For the 
most part, they are attributed to timing differences. For example, net 
cost is calculated using an accrual basis of accounting (revenues and 
expenses are recorded when earned and owed, respectively) whereas 
appropriations are recorded on a cash basis (revenues and expenses are 
recorded when cash is received or paid.) Using the accrual basis versus 
the cash basis can result in DOD's reporting of revenues and expenses 
in different periods. For instance, DOD may have received in 2005 an 
appropriation for the acquisition of a weapon system but may not incur 
expenses or make payments from the appropriation until several years 
later. Also, DOD's net cost of operations includes non-cash expenses, 
such as depreciation related to buildings and equipment that will not 
require cash outlays until several years after the funds were 
appropriated. In addition, the department's recording of expenses 
related to environmental cleanups and pension and retiree health cost 
liabilities can occur many years before the appropriations to fund 
payment of those liabilities are received. 

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 functions--using more than 3,700 business 
systems--related to major business areas such as weapon systems 
management, supply chain management, procurement, health care 
management, and financial management. The ability of these systems to 
operate as intended affects the lives of our warfighters both on and 
off the battlefield. For fiscal year 2006, Congress appropriated 
approximately $16 billion to DOD to operate, maintain, and modernize 
these business systems, and for fiscal year 2007, DOD has requested 
another $16 billion for this purpose. 

To assist DOD in addressing its modernization management challenges, 
Congress included provisions in the Ronald W. Reagan National Defense 
Authorization Act for Fiscal Year 2005 [Footnote 7] that were 
consistent with our recommendations for establishing and implementing 
effective business system investment management structures and 
processes. During the past year, DOD has embarked on a series of 
efforts to transform its business operations and further comply with 
the act. In February 2005, DOD chartered the DBSMC to oversee 
transformation. As the senior most governing body overseeing business 
transformation, the DBSMC consists of senior leaders who meet monthly 
under the personal direction of the Deputy Secretary of Defense to set 
business transformation priorities and recommend policies and 
procedures required to attain DOD-wide interoperability of business 
systems and processes. 

In October 2005, DOD also established the BTA that is intended to 
advance DOD-wide business transformation efforts in general, but 
particularly with regard to business systems modernization. DOD 
believes it can better address agencywide business transformation-- 
which includes planning, management, organizational structures, and 
processes related to all key business areas--by first transforming 
business operations that support the warfighter while also enabling 
financial accountability across DOD. The BTA reports directly to the 
vice chair of the DBSMC--the Under Secretary of Defense for 
Acquisition, Technology and Logistics--and includes an acquisition 
executive who is responsible for 28 DOD-wide business projects, 
programs, systems, and initiatives. The BTA is responsible for 
integrating and supporting the work of the Office of the Secretary of 
Defense principal staff assistants, some of whom function as the 
approval authorities and who chair the business system investment 
review boards (IRB). The IRBs serve as the oversight and investment 
decision-making bodies for those business capabilities that support 
activities in their designated areas of responsibility. 

Pervasive Financial and Business Management Problems Affect DOD's 
Efficiency and Effectiveness: 

Since the first GAO report on the financial statement audit of a major 
DOD component over 16 years ago,[Footnote 8] we have repeatedly 
reported that weaknesses in business management systems, processes, and 
internal controls not only adversely affect the reliability of reported 
financial data, but also the management of DOD operations. In March 
2006,[Footnote 9] I testified that 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. These issues were also discussed in 
the latest consolidated financial audit report.[Footnote 10] To date, 
none of the military services or major DOD components has passed the 
test of an independent financial audit because of pervasive weaknesses 
in internal control and processes and fundamentally flawed business 
systems. 

DOD's financial management problems are pervasive, complex, long- 
standing, deeply rooted in virtually all of its business operations, 
and challenging to resolve. The nature and severity of DOD's financial 
management, business operations, and system deficiencies not only 
affect financial reporting, but also impede the ability of DOD managers 
to receive the full range of information needed to effectively manage 
day-to-day operations. Such weaknesses have adversely affected the 
ability of DOD to control costs, ensure basic accountability, 
anticipate future costs and claims on the budget, measure performance, 
maintain funds control, and prevent fraud, as the following examples 
illustrate. 

* We found that hundreds of separated battle-injured soldiers were 
pursued for collection of military debts incurred through no fault of 
their own, including 74 soldiers whose debts had been reported to 
credit bureaus, private collection agencies, and the Treasury Offset 
Program. Overpayment of pay and allowances (entitlements), pay 
calculation errors, and erroneous leave payments caused 73 percent of 
the reported debts.[Footnote 11] 

* We identified numerous problems with DOD's processes for recording 
and reporting costs for the Global War on Terrorism raising significant 
concerns about the overall reliability of DOD's reported cost data. As 
discussed in our September 2005 report, neither DOD nor Congress know 
how much the war was costing and how appropriated funds were spent, or 
have historical data useful in considering future funding needs. 
[Footnote 12] In at least one case, the reported costs may have been 
materially overstated. Specifically, DOD's reported obligations for 
mobilized Army reservists in fiscal year 2004 were based primarily on 
estimates rather than actual information and differed from related 
payroll information by as much as $2.1 billion, or 30 percent of the 
amount DOD reported in its cost report. 

* In March 2006, we reported that DOD's policies and procedures for 
determining, reporting, and documenting cost estimates associated with 
environmental cleanup or containment activities were not consistently 
followed. Further, none of the military services had adequate controls 
in place to help ensure that all identified contaminated sites were 
included in their environmental liability cost estimates. DOD's 
reported liability of $64 billion is primarily for the cleanup of 
hazardous wastes at training ranges, military bases, and former defense 
sites; disposal of nuclear ships and submarines; and disposal of 
chemical weapons. These weaknesses not only affected the reliability of 
DOD's environmental liability estimate, but also that of the federal 
government as a whole. Uncertainties in environmental liabilities could 
materially affect the ultimate cost and timing of cleanup 
activities.[Footnote 13] 

* In December 2005, we reported that the Army had not maintained 
accurate accountability over inventory shipped to repair contractors, 
thereby placing these assets at risk of loss or theft. Although DOD 
policy requires the military services to confirm receipt of all assets 
shipped to contractors, we found that the Army did not consistently 
record shipment receipts in its inventory management systems. In an 
analysis of fiscal year 2004 shipment data obtained from two Army 
inventory control points, we could not reconcile shipment records with 
receipt records for 42 percent of the unclassified secondary repair 
item shipments, with a value of $481.7 million, or for 37 percent of 
the classified secondary repair item shipments, with a value of $8.1 
million. These weaknesses in the Army's ability to account for 
inventory shipped to repair contractors increase the risk of undetected 
loss or theft because the Army cannot ensure control over assets after 
they have been shipped from its supply system. Moreover, inaccurate and 
incomplete receipt records diminish asset visibility and can distort on-
hand inventory balances, leading to unnecessary procurement of 
items.[Footnote 14] 

* Over the years, DOD recorded billions of dollars of disbursements and 
collections in suspense accounts because the proper appropriation 
accounts could not be identified and charged. Because documentation 
needed to resolve these payment recording problems could not be found 
after so many years, DOD requested and received authority to write off 
certain aged suspense transactions. While DOD reported that it wrote 
off an absolute value of $35 billion or a net value of $629 million 
using the legislative authority, neither of these amounts accurately 
represents the true value of all the individual transactions that DOD 
had not correctly recorded in its financial records. Many of DOD's 
accounting systems and processes routinely offset individual 
disbursements, collections, adjustments, and correction entries against 
each other and, over time, amounts might even have been netted more 
than once. This netting and summarizing misstated the total value of 
the write-offs and made it impossible for DOD to identify what 
appropriations may have been under-or overcharged or to determine 
whether individual transactions were valid.[Footnote 15] 

* In May 2006, we reported that some DOD inventory management centers 
had not followed DOD-wide and individual policies and procedures to 
ensure they were retaining the right amount of contingency retention 
inventory. While policies require the centers to (1) use category codes 
to describe why they are retaining items in contingency inventory, (2) 
hold only those items needed to meet current and future needs, and (3) 
perform annual reviews of their contingency inventory decisions, one or 
more centers had not followed these policies. For example, the Army's 
Aviation and Missile Command was not properly assigning category codes 
that described the reasons they were holding items in contingency 
inventory because the inventory system was not programmed to use the 
codes. We found that items valued at $193 million did not have codes to 
identify the reasons why they were being held, and therefore we were 
unable to determine the items' contingency retention category. We also 
found that some inventory centers have held items such as gears, 
motors, and electronic switches, even though there have been no 
requests for some of them by the services in over 10 years. By not 
following policies for managing contingency inventory, DOD's centers 
may be retaining items that are needlessly consuming warehouse space, 
and they are unable to know if their inventories most appropriately 
support current and future operational needs.[Footnote 16] 

* In June 2006, we reported that the military services had not 
consistently implemented DOD's revised policy in calculating 
carryover.[Footnote 17] Instead, the military services used different 
methodologies for calculating the reported actual amount of carryover 
and the allowable amount of carryover since DOD changed its carryover 
policy in December 2002. Specifically, (1) the military services did 
not consistently calculate the allowable amount of carryover that was 
reported in their fiscal year 2004, 2005, and 2006 budgets because they 
used different tables (both provided by DOD) that contained different 
outlay rates for the same appropriation; (2) the Air Force did not 
follow DOD's regulation on calculating carryover for its depot 
maintenance activity group, which affected the amount of allowable 
carryover and actual carryover by tens of millions of dollars as well 
as whether the actual amount of carryover exceeded the allowable amount 
as reported in the fiscal year 2004, 2005, and 2006 budgets; and (3) 
the Army depot maintenance and ordnance activity groups' actual 
carryover was understated in fiscal years 2002 and 2003 because 
carryover associated with prior year orders was not included in the 
carryover calculation as required. As a result, year-end carryover data 
provided to decision makers who review and use the data for budgeting 
were erroneous and not comparable across the three military 
services.[Footnote 18] 

Improved Oversight of DOD Business Systems Needed: 

The department is provided billions of dollars annually to operate, 
maintain, and modernize its stovepiped, duplicative, legacy business 
systems. Despite this significant investment, the department is 
severely challenged in implementing business systems on time, within 
budget, and with the promised capability. The Clinger-Cohen Act of 
1996[Footnote 19] and Office of Management and Budget guidance provide 
an effective framework for information technology (IT) investment 
management. They emphasize the need to have investment management 
processes and information to help ensure that IT projects are being 
implemented at acceptable costs and within reasonable and expected time 
frames and that they are contributing to tangible, observable 
improvements in mission performance. Effective project management and 
oversight will be critical to the department's success in transforming 
its business management systems and operations. Many of the problems 
related to DOD's inability to effectively implement its business 
systems on time, within budget, and with the promised capability can be 
attributed to its failure to implement the disciplined 
processes[Footnote 20] necessary to reduce the risks associated with 
these projects to acceptable levels.[Footnote 21] Disciplined processes 
have been shown to reduce the risks associated with software 
development and acquisition efforts and are fundamental to successful 
systems acquisition. While the department invests billions of dollars 
annually in its business systems, the following examples highlight the 
continuing problem faced by the department in successfully implementing 
business systems. 

* Logistics Modernization Program (LMP). In May 2004, we first reported 
our concerns with the requirements management and testing processes 
used by the Army in the implementation of LMP and the problems being 
encountered after it became operational in July 2003.[Footnote 22] At 
the time of our initial report, the Army decided that future 
deployments would not occur until it had reasonable assurance that the 
system would operate as expected for a given deployment. However, as we 
reported in June 2005, the Army's inability to effectively address the 
requirements management and testing problems hampered its ability to 
field LMP to other locations.[Footnote 23] Our analysis disclosed that 
LMP could not properly recognize revenue or bill customers. 
Furthermore, data conversion problems resulted in general ledger 
account balances not being properly converted when LMP became 
operational in July 2003. These differences remained unresolved almost 
18 months later. These weaknesses adversely affected the Army's ability 
to set the prices for the work performed at the Tobyhanna Army Depot. 
In addition, data conversion problems resulted in excess items being 
ordered and shipped to Tobyhanna. As noted in our June 2005 report, 
three truckloads of locking washers (for bolts) were mistakenly ordered 
and received and subsequently returned because of data conversion 
problems. At the request of the Chairman and Ranking Minority Member of 
the Subcommittee on Readiness and Management Support, Senate Committee 
on Armed Services, we have initiated an audit of the Army's efforts to 
achieve financial management visibility over its assets. One aspect of 
this audit will be to ascertain the Army's progress in resolving the 
previously identified problems with LMP. 

* Navy Enterprise Resource Planning (ERP). We reported in September 
2005 that the Navy had invested approximately $1 billion in four pilot 
ERP efforts, without marked improvement in its day-to-day 
operations.[Footnote 24] The four pilots were limited in scope and were 
not intended to be a corporate solution for resolving any of the Navy's 
long-standing financial and business management problems. The lack of a 
coordinated effort among the pilots led to a duplication of efforts in 
implementing many business functions and resulted in ERP solutions that 
carry out similar functions in different ways from one another. In 
essence, the pilots resulted in four more DOD stovepiped systems that 
did not enhance DOD's overall efficiency and resulted in $1 billion 
being largely wasted. While the current Navy ERP effort has the 
potential to address some of the Navy's financial management 
weaknesses, its planned functionality will not provide an all- 
inclusive, end-to-end corporate solution for the Navy. For example, the 
scope of the ERP project does not provide for real-time asset 
visibility of shipboard inventory. Asset visibility has been and 
continues to be a long-standing problem within the department. 
Furthermore, the project has a long way to go, with a current estimated 
completion date of 2011, at an estimated cost of $800 million. 

* Defense Travel System (DTS). As we reported in January 2006,[Footnote 
25] DTS continues to face implementation challenges, particularly with 
respect to testing key functionality to ensure that the system will 
perform as intended. Our analysis of selected requirements for one key 
area disclosed that system testing was not effective in ensuring that 
the promised capability was delivered as intended. For example, we 
found that DOD did not have reasonable assurance that flight 
information was properly displayed.[Footnote 26] This problem was not 
detected prior to deployment of DTS because DOD did not properly test 
the system interfaces through which the data are accessed for display. 
As a result, those travelers using the system may not have received 
accurate information on available flights, which could have resulted in 
higher travel costs. Our report also identified key challenges facing 
DTS in becoming DOD's standard travel system, including the development 
of needed interfaces and underutilization of DTS at sites where it has 
been deployed. While DTS has developed 36 interfaces with various DOD 
business systems, it will have to develop interfaces with at least 18 
additional business systems--not a trivial task. Additionally, the 
continued use of the existing legacy travel systems at locations where 
DTS is already deployed results in underutilization of DTS and affects 
the savings that DTS was planned to achieve. 

* Naval Tactical Command Support System (NTCSS). The Navy initiated the 
NTCSS program in 1995 to enhance the combat readiness of ships, 
submarines, and aircraft. To accomplish this, NTCSS was to provide unit 
commanding officers and crews with information about maintenance 
activities, parts inventories, finances, technical manuals and 
drawings, and personnel. According to the Navy, it spent approximately 
$1.1 billion for NTCSS from its inception through fiscal year 2005 and 
expects to spend another $348 million from fiscal years 2006 through 
2009, for a total of approximately $1.45 billion. As discussed in our 
December 2005 report,[Footnote 27] the Navy has not economically 
justified its ongoing and planned investment in NTCSS on the basis of 
reliable estimates of future costs and benefits. The most recent 
economic justification's cost estimates were not reliably derived, and 
return on investment was not properly calculated. In addition, 
independent reviews of the economic justification to determine its 
reliability did not occur, and the Navy has not measured whether 
already deployed and operating components of the system are producing 
expected value. 

* TC-AIMS II. In December 2005, we reported that the Army had not 
economically justified its investment in TC-AIMS II on the basis of 
reliable estimates of costs and benefits. TC-AIMS II was intended to be 
the single integrated system to automate transportation management 
function areas for the military services.[Footnote 28] As noted in our 
report, the most recent economic justification included cost and 
benefit estimates predicated on all four military services using the 
system. However, the Air Force and the Marine Corps have stated that 
they do not intend to use TC-AMIS II. Even with costs and benefits for 
all four services included, the analysis showed a marginal return on 
investment; that is, for each dollar spent on the system, slightly less 
than one dollar of benefit would be returned. The Army estimates the 
total life cycle cost of TC-AIMS II to be $1.7 billion over 25 years, 
including $569 million for acquisition and $1.2 billion for operation 
and maintenance. The Army reports that it has spent approximately $751 
million on TC-AIMS II since its inception in 1995. 

To effectively and efficiently modernize its nonintegrated and 
duplicative business operations and systems, it is essential for DOD to 
develop and use a well-defined business enterprise architecture. In 
July 2001, the department initiated a business management modernization 
program to, among other things, develop the architecture. We have 
previously reported on DOD's long-standing architecture management 
weaknesses.[Footnote 29] Despite spending almost 4 years and about $318 
million, the architecture did not provide sufficient content and 
utility to effectively guide and constrain ongoing and planned business 
systems investments. DOD recognized the weaknesses that needed to be 
addressed and assigned a new business transformation leadership team in 
2005. More specifically, as previously noted, in October 2005, DOD 
established BTA to advance DOD-wide business transformation efforts in 
general, but particularly with regard to business systems 
modernization. 

DOD's Key Initiatives to Improve Financial Management Processes and 
Business Systems: 

DOD's complex and pervasive weaknesses cannot be fixed with short-term 
solutions, but require ongoing and sustained top management attention 
and resources. DOD's top management has demonstrated a commitment to 
transforming the department and has launched key initiatives to improve 
its financial management processes and related business systems, as 
well as made important progress in complying with legislation 
pertaining to its business systems modernization and financial 
management improvement efforts. For example, we reported in May 
2006[Footnote 30] that DOD released an update to its business 
enterprise architecture on March 15, 2006, developed an updated 
enterprise transition plan, and issued its annual report to Congress 
describing steps taken and planned with regard to business 
transformation, among other things. These steps address several of the 
missing elements we previously identified relative to the legislative 
provisions concerning the architecture, transition plan, budgetary 
reporting of business system investments, and investment review. 
Further, we testified[Footnote 31] that in December 2005 DOD had issued 
its FIAR Plan, a major component of its business transformation 
strategy, to guide financial management improvement and audit efforts 
within the department. In addition, DOD developed SFIS that will be its 
enterprisewide data standard for categorizing financial information to 
support financial management and reporting functions. While this 
progress better positions the department to address the business 
systems modernization and financial management high-risk areas, 
significant challenges remain, particularly in implementing its tiered 
accountability investment approach. 

DOD Issued Its Financial Improvement and Audit Readiness Plan: 

A major component of DOD's business transformation strategy is its FIAR 
Plan, issued in December 2005. The FIAR Plan was issued pursuant to 
section 376 of the National Defense Authorization Act for Fiscal Year 
2006,[Footnote 32] which for fiscal year 2006 limited DOD's ability to 
obligate or expend funds for financial improvement activities until the 
department submitted a comprehensive and integrated financial 
management improvement plan to congressional defense committees that 
(1) described specific actions to be taken to correct deficiencies that 
impair the department's ability to prepare timely, reliable, and 
complete financial management information; and (2) systematically tied 
such actions to process and control improvements and business systems 
modernization efforts described in the business enterprise architecture 
and transition plan. Further, section 376 required a written 
determination that each financial management improvement activity 
undertaken be (1) consistent with the financial management improvement 
plan and (2) likely to improve internal controls or otherwise result in 
sustained improvement in DOD's ability to produce timely, reliable, and 
complete financial management information. The act also required that 
each written determination be submitted to the congressional defense 
committees. 

The FIAR Plan is intended to provide DOD components with a road map for 
achieving the following objectives: (1) resolving problems affecting 
the accuracy, reliability, and timeliness of financial information, and 
(2) obtaining clean financial statement audit opinions. Similar to the 
Financial Improvement Initiative, an earlier DOD improvement effort, 
the FIAR Plan uses an incremental approach to structure its process for 
examining operations, diagnosing problems, planning corrective actions, 
and preparing for audit. However, unlike the previous initiative, the 
FIAR Plan does not establish a specific target date for achieving a 
clean audit opinion on the departmentwide financial statements. Target 
dates under the prior plan were not credible. Rather, the FIAR Plan 
recognizes that it will take several years before DOD is able to 
implement the systems, processes, and other changes necessary to fully 
address its financial management weaknesses. This plan is an important 
and positive step that will help key department personnel to better 
understand and address its financial management deficiencies. 

As outlined in its FIAR Plan, DOD has established business rules and an 
oversight structure to guide improvement activities and audit 
preparation efforts. In December 2005, the U.S. Army Corps of 
Engineers, Civil Works, became the first major DOD component to assert, 
under DOD's new process and business rules, that its fiscal year 2006 
financial statement information was reliable. An independent public 
accounting firm has been hired to perform this component's financial 
statement audit, under the oversight and direction of the DOD Inspector 
General. However, the effectiveness of DOD's FIAR Plan, as well as the 
department's leadership and business rules, in addressing DOD's 
financial management deficiencies will be ultimately measured by the 
department's ability to provide timely, reliable, accurate, and useful 
information for day-to-day management and decision making. 

DOD Developed an Initial Standard Financial Information Structure: 

Another key initiative is SFIS, which is DOD's enterprisewide data 
standard for categorizing financial information to support financial 
management and reporting functions. DOD has recently completed phase I 
of the SFIS initiative, which focused on standardizing general ledger 
and external financial reporting requirements. SFIS includes a standard 
accounting classification structure that can allow DOD to standardize 
financial data elements necessary to support budgeting, accounting, 
cost management, and external reporting; it also incorporates many of 
the Department of the Treasury's U. S. Standard General Ledger 
attributes. Additional SFIS efforts remain under way, and the 
department plans to further define key data elements, such as those 
relating to the planning, programming, and budgeting business process 
area. 

DOD intends to implement SFIS using three approaches. One approach 
requires legacy accounting systems to submit detail-level accounting 
transactions that are to be converted to SFIS-equivalent data elements. 
The second approach applies to business feeder systems and will require 
incorporation of SFIS data elements within systems that create the 
business transactions. Lastly, accounting systems under development, 
including new enterprise resource planning systems, are required to 
have the ability to receive SFIS data as part of source transactions 
and generate appropriate general ledger entries in accordance with the 
U.S. Standard General Ledger. 

DOD Efforts to Control Business Systems Investments: 

To help improve the department's control and accountability over its 
business systems investments, provisions in the fiscal year 2005 
national defense authorization act directed DOD to put in place a 
specifically defined structure that is responsible and accountable for 
controlling business systems investments to ensure compliance and 
consistency with the business enterprise architecture. More 
specifically, the act directs the Secretary of Defense to delegate 
responsibility for review, approval, and oversight of the planning, 
design, acquisition, deployment, operation, maintenance, and 
modernization of defense business systems to designated approval 
authorities or "owners" of certain business missions.[Footnote 33] DOD 
has satisfied this requirement under the act. On March 19, 2005, the 
Deputy Secretary of Defense issued a memorandum that delegated the 
authority in accordance with the criteria specified in the act, as 
described above. Our research and evaluation of agencies' investment 
management practices have shown that clear assignment of senior 
executive investment management responsibilities and accountabilities 
is crucial to having an effective institutional approach to IT 
investment management.[Footnote 34] 

The fiscal year 2005 national defense authorization act also required 
DOD to establish investment review structures and processes, including 
a hierarchy of IRBs, each with representation from across the 
department, and a standard set of investment review and decision-making 
criteria for these boards to use to ensure compliance and consistency 
with DOD's business enterprise architecture. In this regard, the act 
required the establishment of the DBSMC--which serves as the highest 
ranking governance body for business system modernization activities 
within the department. As of April 2006, DOD identified 3,717 business 
systems and assigned responsibility for these systems to IRBs. Table 1 
shows the systems by the responsible IRB and component. 

Table 1: DOD Systems by Investment Review Board and Component: 

Investment Review Board: Financial Management; 
Air Force: 67; 
Army: 161; 
Navy: 148; 
Defense Finance and Accounting Service: 72; 
Other defense agencies: 35; Total: 483. 

Investment Review Board: Human Resources Management; 
Air Force: 164; 
Army: 320; 
Navy: 174; 
Defense Finance and Accounting Service: 20; 
Other defense agencies: 114; Total: 792. 

Investment Review Board: Weapon System Life Cycle Management and 
Materiel Supply and Service Management; 
Air Force: 780; 
Army: 730; 
Navy: 406; 
Defense Finance and Accounting Service: 1; 
Other defense agencies: 168; Total: 2,085. 

Investment Review Board: Real Property and Installations Life Cycle 
Management; 
Air Force: 71; 
Army: 122; 
Navy: 44; 
Defense Finance and Accounting Service: 0; 
Other defense agencies: 17; Total: 254. 

Investment Review Board: Other; 
Air Force: 65; 
Army: 0; 
Navy: 26; 
Defense Finance and Accounting Service: 0; 
Other defense agencies: 12; Total: 103. 

Investment Review Board: Total; 
Air Force: 1,147; 
Army: 1,333; 
Navy: 798; 
Defense Finance and Accounting Service: 93; 
Other defense agencies: 346; Total: 3,717. 

Source: GAO analysis of DOD data. 

[End of table] 

A key element of the department's approach to reviewing and approving 
business systems investments is the use of what it refers to as tiered 
accountability. DOD's tiered accountability approach involves an 
investment control process that begins at the component level and works 
its way through a hierarchy of review and approval authorities, 
depending on the size and significance of the investment. Military 
service officials emphasized that the success of the process depends on 
them performing a thorough analysis of each business system before it 
is submitted for higher-level review and approval. Through this 
process, the department reported in March 2006 that 226 business 
systems, representing about $3.6 billion in modernization investment 
funding, had been approved by the DBSMC--the department's highest- 
ranking approval body for business systems. According to the 
department's March 2006 report, this process also identified more than 
290 systems for phaseout or elimination and approximately 40 business 
systems for which the requested funding was reduced and the funding 
availability periods were shortened to fewer than the number of years 
requested. For example, one business system investment that has been 
eliminated is the Forward Compatible Payroll (FCP) system. In reviewing 
the program status, the IRB determined that FCP would duplicate the 
functionality contained in the Defense Integrated Military Human 
Resources System, and it was unnecessary to continue investing in both 
systems. According to the department's fiscal year 2007 IT budget 
request, approximately $33 million was sought for fiscal year 2007 and 
about $31 million was estimated for fiscal year 2008 for FCP. 
Eliminating this duplicative system will enable DOD to use this funding 
for other priorities. The funding of multiple systems that perform the 
same function is one reason the department has thousands of business 
systems. Identifying and eliminating duplicative systems helps optimize 
mission performance and accountability and supports the department's 
transformation goals. 

Furthermore, based on information provided by BTA program officials, 
there was a reduction of funding and the number of years that funding 
will be available for 14 Army business systems, 8 Air Force business 
systems, and 8 Navy business systems. For example, the Army's Future 
Combat Systems Advanced Collaborative Environment program requested 
funding of $100 million for fiscal years 2006 to 2011, but the amount 
approved was reduced to approximately $51 million for fiscal years 2006 
to 2008. Similarly, Navy's Military Sealift Command Human Resources 
Management System requested funding of about $19 million for fiscal 
years 2006 to 2011, but the amount approved was approximately $2 
million for the first 6 months of fiscal year 2006. According to Navy 
officials, this system initiative will be reviewed to ascertain whether 
it has some of the same functionality as the Defense Civilian Personnel 
Data System. Funding system initiatives for shorter time periods can 
help reduce the financial risk by providing additional opportunities 
for monitoring a project's progress against established milestones and 
help ensure that the investment is properly aligned with the 
architecture and the department's overall goals and objectives. 

Besides limiting funding as part of the investment review and approval 
process, this process is also resulting in conditions being placed on 
system investments. These conditions identify specific actions to be 
taken and when the actions must be completed. For example, in the case 
of the Army's LMP initiative, one of the noted conditions was that the 
Army had to address the issues discussed in our previous 
reports.[Footnote 35] In our May 2004 report, we recommended that the 
department establish a mechanism that provides for tracking all 
business systems modernization conditional approvals to provide 
reasonable assurance that all specific actions are completed on 
time.[Footnote 36] The department's action is consistent with the 
intent of our recommendations. 

Notwithstanding the department's efforts to control its business system 
investments, formidable challenges remain. In particular, the reviews 
of those business systems that have modernization funding of less than 
$1 million, which represent the majority of the department's reported 
3,717 business systems, are only now being started on an annual basis. 
The extent to which the review structures and processes will be applied 
to the department's 3,717 business systems is still evolving. Given the 
large number of systems involved, it is important that an efficient 
system review and approval process be effectively implemented for all 
systems. As indicated in table 1, there are numerous systems across the 
department in the same functional area. Such large numbers of systems 
indicate a real possibility for eliminating unnecessary duplication and 
avoiding unnecessary spending on the department's multiple business 
systems. 

Key Elements Needed to Guide DOD Transformation Efforts: 

While DOD's recent efforts represent positive steps toward improving 
financial management and changing DOD's business systems environment, 
the department still lacks key elements that are needed to ensure a 
successful and sustainable business transformation effort. We reiterate 
two major elements necessary for successful business transformation: 
(1) a comprehensive, integrated, and enterprisewide business 
transformation plan and (2) a CMO with the right skills and at the 
right level of the department for providing the sustained leadership 
needed to achieve a successful and sustainable transformation effort. 

Comprehensive, Integrated, and Enterprisewide Business Transformation 
Plan Not Developed: 

Although some progress has been made in business transformation 
planning, DOD still has not developed a comprehensive, integrated, and 
enterprisewide strategy or action plan for managing its overall 
business transformation effort. The lack of a comprehensive, 
integrated, enterprisewide action plan linked with performance goals, 
objectives, and rewards has been a continuing weakness in DOD's 
business management transformation. 

Since 1999, GAO has recommended a comprehensive, integrated strategy 
and action plan for reforming DOD's major business operations and 
support activities.[Footnote 37] DOD's efforts to plan and organize 
itself to achieve business transformation are continuing to evolve. 
Critical to the success of these efforts will be top management 
attention and structures that focus on transformation from a broad 
perspective and a clear, comprehensive, integrated, and enterprisewide 
plan that at a summary level, addresses all of the department's major 
business areas. This strategic plan should cover all of DOD's key 
business functions; contain results-oriented goals, measures, and 
expectations that link institutional, unit, and individual performance 
goals and expectations to promote accountability; identify people with 
needed skills, knowledge, experience, responsibility, and authority to 
implement the plan; and establish an effective process and related 
tools for implementation. Such an integrated business transformation 
plan would be instrumental in establishing investment priorities and 
guiding the department's key resource decisions. 

DOD's leadership has recognized the need to transform the department's 
business operations. DOD released a major update to its business 
enterprise architecture in September 2005 and developed an updated 
transition plan in March 2006 for modernizing its business processes 
and supporting IT assets. The business enterprise architecture provides 
a foundational blueprint for modernizing business operations, 
information, and systems, while the enterprise transition plan provides 
a road map and management tool that sequences business systems 
investments in the areas of personnel, logistics, real property, 
acquisition, purchasing, and financial requirements. 

However, while the enterprise transition plan is an important step 
toward developing a strategic plan for the department's overall 
business transformation efforts, it is still focused primarily on 
business systems. Business transformation is much broader; it 
encompasses areas such as support infrastructure, human capital, 
financial management, planning and budgeting, and supply chain 
management. DOD officials acknowledge that the enterprise transition 
plan may not have all of the elements of an overarching business 
transformation plan as we envision it. However, they consider the plan 
to be evolving. 

Sustained Leadership Is Needed: 

DOD continues to lack the sustained leadership at the right level to 
achieve successful and lasting transformation. We have testified on the 
need for a CMO on numerous occasions.[Footnote 38] Because of the 
complexity and long-term nature of DOD's business transformation 
efforts, we reiterate the need for a CMO to provide sustained 
leadership and maintain momentum. Without formally designating 
responsibility and accountability for results, choosing among competing 
demands for scarce resources and resolving differences in priorities 
between various DOD organizations will be difficult and could impede 
DOD's ability to transform in an efficient, effective, and reasonably 
timely manner. In addition, it may be particularly difficult for DOD to 
sustain transformation progress when key personnel changes occur. The 
National Defense Authorization Act for Fiscal Year 2006[Footnote 39] 
directs the department to study the feasibility of a CMO position in 
DOD. In this regard, the Institute for Defense Analysis has initiated a 
study and the results are due by December 2006. Further, in May 2006, 
the Defense Business Board recommended the creation of a Principal 
Under Secretary of Defense, with a 5 year term appointment, to serve as 
CMO. Additionally, in July 2006, a major global consulting firm 
recommended the concept of a chief operating officer be instituted in 
many federal agencies as the means to help achieve the transformation 
that many agencies have undertaken.[Footnote 40] 

To provide for senior-level leadership, the CMO would serve as the 
strategic, enterprisewide integrator of DOD's overall efforts to 
transform its business operations. The CMO would be an executive level 
II appointment, with a tenure of 5 to7 years and serve as the Deputy 
Secretary or Principal Under Secretary of Defense for Management. This 
position would elevate integrate, and institutionalize the attention 
essential for addressing key stewardship responsibilities, such as 
strategic planning, enterprise architecture development and 
implementation, IT management, financial management reform, and human 
capital reform while facilitating the overall business management 
transformation effort within DOD. It is important to note that the CMO 
would not assume the responsibilities of the undersecretaries of 
defense, the service secretaries, or other DOD officials for the day- 
to-day management of the department. Rather, the CMO would be 
responsible and accountable for planning, integrating, and executing 
the overall business transformation effort. The CMO also would develop 
and implement a strategic plan for the overall business 
transformational efforts. 

The Secretary of Defense, Deputy Secretary of Defense, and other senior 
leaders have clearly shown a commitment to business transformation and 
addressing deficiencies in the department's business operations. During 
the past year, DOD has taken additional steps to address certain 
provisions and requirements of the fiscal year 2005 national defense 
authorization act, including establishing the DBSMC as DOD's primary 
transformation leadership and oversight mechanism, and creating the BTA 
to support the DBSMC, a decision-making body. However, these 
organizations do not provide the sustained leadership needed to 
successfully achieve business transformation. The DBSMC's 
representatives consist of political appointees whose terms expire when 
administrations change. Furthermore, it is important to remember that 
committees do not lead, people do. Thus, DOD still needs to designate a 
person to provide sustained leadership and have overall responsibility 
and accountability for this effort. 

Conclusion: 

DOD continues to face two formidable challenges. Externally, it must 
combat the global war on terrorism, and internally, it must address the 
long-standing problems of fraud, waste, and abuse. Pervasive, decades- 
old management problems related to its business operations affect all 
of DOD's major business areas. While DOD has taken several positive 
steps to address these problems, our previous work has uncovered a 
persistent pattern among DOD's reform initiatives that limits their 
overall impact on the department. These initiatives have not been fully 
implemented in a timely fashion because of the absence of 
comprehensive, integrated strategic planning; inadequate transparency 
and accountability; and the lack of sustained leadership. In this time 
of growing fiscal constraints, every dollar that DOD can save through 
improved economy and efficiency of its operations is important to the 
well-being of our nation and the legitimate needs of our warfighters. 
Until DOD resolves the numerous problems and inefficiencies in its 
business operations, billions of dollars will continue to be wasted 
every year. Furthermore, without strong and sustained leadership, both 
within and across administrations, DOD will likely continue to have 
difficulties in maintaining the oversight, focus, and momentum needed 
to implement and sustain the needed reforms to its business operations. 
In this regard, I would like to reiterate the need for a CMO to serve 
as the strategic and enterprisewide integrator to oversee the overall 
transformation of the department's business operations. 

Mr. Chairman and Members of the Subcommittee, this concludes my 
prepared statement. I would be happy to answer any questions you may 
have at this time. 

FOOTNOTES 

[1] GAO, GAO's High-Risk Program, GAO-06-497T (Washington, D.C.: Mar. 
15, 2006). DOD bears responsibility for the following eight high-risk 
areas: (1) DOD's overall approach to business transformation, (2) 
business systems modernization, (3) financial management, (4) the 
personnel security clearance process, (5) supply chain management, (6) 
support infrastructure management, (7) weapon systems acquisition, and 
(8) contract management. The department shares responsibility for the 
following six governmentwide high-risk areas: (1) disability programs, 
(2) interagency contracting, (3) information systems and critical 
infrastructure, (4) information sharing for homeland security, (5) 
human capital, and (6) real property. 

[2] GAO, Military Pay: Hundreds of Battle-Injured GWOT Soldiers Have 
Struggled to Resolve Military Debts, GAO-06-494 (Washington, D.C.: Apr. 
27, 2006). 

[3] GAO, Global War on Terrorism: DOD Needs to Improve the Reliability 
of Cost Data and Provide Additional Guidance to Control Costs, GAO-05-
882 (Washington, D.C.: Sept. 21, 2005). 

[4] GAO, DOD Systems Modernization: Uncertain Joint Use and Marginal 
Expected Value of Military Asset Deployment System Warrant Reassessment 
of Planned Investment, GAO-06-171 (Washington, D.C.: Dec. 15, 2005). 

[5] GAO, DOD Business Systems Modernization: Long-standing Weaknesses 
in Enterprise Architecture Development Need to Be Addressed, GAO-05-702 
(Washington, D.C.: July 22, 2005). 

[6] Of the fiscal year 2005 appropriation, approximately $78 billion 
was for the Global War on Terrorism and tsunami and hurricane relief 
efforts and about $39 billion was for permanent indefinite 
appropriations for retiree pensions and health care. 

[7] Ronald W. Reagan National Defense Authorization Act for Fiscal Year 
2005, Pub. L. No. 108-375, ß 332, 118 Stat. 1811, 1851-1856 (Oct. 28, 
2004) (codified in part at 10 U.S.C. ß 2222). 

[8] GAO, Financial Audit: Air Force Does Not Effectively Account for 
Billions of Dollars of Resources, GAO/AFMD-90-23 (Washington, D.C.: 
Feb. 23, 1990). 

[9] GAO, Fiscal Year 2005 U.S. Government Financial Statements: 
Sustained Improvement in Federal Financial Management Is Crucial to 
Addressing Our Nation's Financial Condition and Long-term Fiscal 
Imbalance, GAO-06-406T (Washington, D.C.: Mar. 1, 2006). 

[10] Department of the Treasury, 2005 Financial Report of the United 
States Government (Washington, D.C.: Dec. 15, 2005). 

[11] GAO-06-494. 

[12] GAO-05-882. 

[13] GAO, Environmental Liabilities: Long-Term Fiscal Planning Hampered 
by Control Weaknesses and Uncertainties in the Federal Government's 
Estimates, GAO-06-427 (Washington, D.C.: Mar. 31, 2006). 

[14] GAO, Defense Inventory: Army Needs to Strengthen Internal Controls 
for Items Shipped to Repair Contractors, GAO-06-209 (Washington, D.C.: 
Dec. 13, 2005). 

[15] GAO, DOD Problem Disbursements: Long-standing Accounting 
Weaknesses Result in Inaccurate Records and Substantial Write-offs, GAO-
05-521 (Washington, D.C.: June 2, 2005). 

[16] GAO, Defense Inventory: Actions Needed to Improve Inventory 
Retention Management, GAO-06-512 (Washington, D.C.: May 25, 2006). 

[17] Carryover is the dollar value of work that has been ordered and 
funded (obligated) by customers but not completed by working capital 
fund activities at the end of the fiscal year. Carryover consists of 
both the unfinished portion of work started but not completed as well 
as requested work that has not yet commenced. 

[18] GAO, Defense Working Capital Fund: Military Services Did Not 
Calculate and Report Carryover Amounts Correctly, GAO-06-530 
(Washington, D.C.: June 27, 2006). 

[19] Pub. L. No. 104-106, div. E, 110 Stat. 186, 679 (Feb. 10, 1996). 

[20] Disciplined processes include a wide range of activities, 
including project planning and management, requirements management, 
risk management, quality assurance, and testing. 

[21] Acceptable levels refer to the fact that any systems acquisition 
effort will have risks and will suffer the adverse consequences 
associated with defects in the processes. However, effective 
implementation of disciplined processes reduces the possibility of the 
potential risks actually occurring and prevents significant defects 
from materially affecting the cost, timeliness, and performance of the 
project. 

[22] GAO, DOD Business Systems Modernization: Billions Continue to Be 
Invested with Inadequate Management Oversight and Accountability, GAO-
04-615 (Washington, D.C.: May. 27, 2004). 

[23] GAO, Army Depot Maintenance: Ineffective Oversight of Depot 
Maintenance Operations and System Implementation Efforts, GAO-05-441 
(Washington, D.C.: June 30, 2005). 

[24] GAO, DOD Business Systems Modernization: Navy ERP Adherence to 
Best Business Practices Critical to Avoid Past Failures, GAO-05-858 
(Washington, D.C.: Sept. 29, 2005). 

[25] GAO, DOD Business Transformation: Defense Travel System Continues 
to Face Implementation Challenges, GAO-06-18 (Washington, D.C.: Jan. 
18, 2006). 

[26] Flight information includes items such as departure and arrival 
times, airports, and the cost of the airline ticket. 

[27] GAO, DOD Systems Modernization: Planned Investment in the Navy 
Tactical Command Support System Needs to Be Reassessed, GAO-06-215 
(Washington, D.C.: Dec. 5, 2005). 

[28] GAO-06-171. 

[29] GAO-05-702. 

[30] GAO, Business Systems Modernization: DOD Continues to Improve 
Institutional Approach, but Further Steps Needed, GAO-06-658. 
(Washington, D.C.: May 15, 2006). 

[31] GAO-06-406T. 

[32] Pub. L. No. 109-163, ß 376, 119 Stat. 3136, 3213 (Jan. 6, 2006). 

[33] Approval authorities, including the Under Secretary of Defense for 
Acquisition, Technology and Logistics; the Under Secretary of Defense 
(Comptroller); the Under Secretary of Defense for Personnel and 
Readiness; the Assistant Secretary of Defense for Networks and 
Information Integration/Chief Information Officer of the Department of 
Defense; and the Deputy Secretary of Defense or an Under Secretary of 
Defense, as designated by the Secretary of Defense, are responsible for 
the review, approval, and oversight of business systems and must 
establish investment review processes for systems under their 
cognizance. 

[34] GAO, Information Technology Investment Management: A Framework for 
Assessing and Improving Process Maturity, GAO-04-394G (Washington, 
D.C.: March 2004). 

[35] GAO-04-615 and GAO-05-441. 

[36] GAO-04-615. 

[37] GAO, Defense Reform Initiative: Organization, Status, and 
Challenges, GAO/NSIAD-99-87 (Washington, D.C.: Apr. 21, 1999). 

[38] GAO, Department of Defense: Long-standing Problems Continue to 
Impede Financial and Business Management Transformation, GAO-04-907T 
(Washington, D.C.: July 7, 2004); Department of Defense: Financial and 
Business Management Transformation Hindered by Long-standing Problems, 
GAO-04-941T, (Washington, D.C.: July 8, 2004); Department of Defense: 
Further Actions Are Needed to Effectively Address Business Management 
Problems and Overcome Key Business Transformation Challenges, GAO-05-
140T (Washington, D.C.: Nov. 18, 2004); and DOD's High-Risk Areas: 
Successful Business Transformation Requires Sound Strategic Planning 
and Sustained Leadership, GAO-05-520T (Washington, D.C.: Apr. 13, 
2005). 

[39] National Defense Authorization Act for Fiscal Year 2006, Pub. L. 
No. 109-163, ß 907, 119 Stat. 3136, 3403 (Jan. 6, 2006). 

[40] Tony Danker, Thomas Dohrmann, Nancy Killefer, and Lenny Mendonca, 
How can American government meet its productivity challenge? 
(Washington, D.C.: McKinsey & Company, 2006). 

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