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Testimony: 

Before the Subcommittee on Readiness and Management Support, Committee 
on Armed Services, U.S. Senate: 

United States Government Accountability Office: 

GAO: 

For Release on Delivery Expected at 9:30 a.m. EST: 

Thursday, November 16, 2006: 

Defense Business Transformation: 

A Comprehensive Plan, Integrated Efforts, and Sustained Leadership Are 
Needed to Assure Success: 

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

GAO-07-229T: 

GAO Highlights: 

Highlights of GAO-07-229T, a testimony to the Subcommittee on Readiness 
and Management Support, Committee on Armed Services, U.S. Senate 

Why GAO Did This Study: 

Of the 26 areas on GAO’s high-risk list of federal programs or 
activities that are at risk for waste, fraud, abuse, or mismanagement, 
8 are Department of Defense (DOD) programs or operations and another 6 
are governmentwide high-risk areas that also apply to DOD. These high-
risk areas relate to most of DOD’s major business operations. DOD’s 
failure to effectively resolve these high-risk areas has resulted in 
billions of dollars of waste each year, ineffective performance, and 
inadequate accountability. At a time when DOD is competing for 
resources in an increasingly fiscally constrained environment, it is 
critically important that DOD get the most from every defense dollar. 
DOD has taken several positive steps and devoted substantial resources 
toward establishing key management structures and processes to 
successfully transform its business operations and address its high-
risk areas, but overall progress by area varies widely and huge 
challenges remain. 

This testimony addresses DOD’s efforts to (1) develop a comprehensive, 
integrated, enterprisewide business transformation plan and its related 
leadership approach and (2) comply with legislation that addresses 
business systems modernization and improving financial management 
accountability. The testimony also addresses two sections included in 
recent legislation and other DOD high-risk areas. 

What GAO Found: 

In the past year, DOD has made progress in transforming its business 
operations, but continues to lack a comprehensive, enterprisewide 
approach to its overall business transformation effort. Within DOD, 
business transformation is broad, encompassing people, planning, 
management, structures, technology, and processes in many key business 
areas. While DOD’s planning and management continues to evolve, it has 
yet to develop a comprehensive, integrated, and enterprisewide plan 
that covers all key business functions, and contains results-oriented 
goals, measures and expectations that link organizational, unit, and 
individual performance goals, while also being clearly linked to DOD’s 
overall investment plans. Because of the complexity and long-term 
nature of business transformation, DOD also continues to need a chief 
management official (CMO) with significant authority, experience, and 
tenure to provide sustained leadership and integrate DOD’s overall 
business transformation effort. Without formally designating 
responsibility and accountability for results, reconciling competing 
priorities in investments will be difficult and could impede DOD’s 
progress in its transformation efforts. 

DOD is taking steps to comply with legislative requirements aimed at 
improving its business systems modernization and financial management; 
however, much remains to be accomplished. In particular, DOD recently 
issued updates to both the business enterprise architecture and the 
transition plan, which are still not sufficiently complete to 
effectively and efficiently guide and constrain business system 
investments across the department. Most notably, the architecture is 
not adequately linked to DOD component architectures, and the plan does 
not include business system information for all major DOD components. 
To address these shortfalls, DOD issued a strategy for “federating” or 
extending its architecture to the defense components. But much remains 
to be accomplished before a well-defined federated architecture is in 
place, given that GAO recently reported that select components’ 
architecture programs are not mature. However, DOD components continue 
to invest billions of dollars in thousands of new and existing business 
system programs. The risks associated with investing in systems ahead 
of having a well-defined architecture and transition plan are profound 
and must be managed carefully, as must the wide assortment of other 
risks that GAO’s work has shown to exist on specific DOD business 
system investments. While not a guarantee, GAO’s work and research has 
shown that establishing effective system modernization management 
controls, such as an architecture-centric approach to investment 
decision making, can increase the chances of delivering cost-effective 
business capabilities on time and within budget. Further, with regard 
to legislation pertaining to financial management improvement, DOD 
issued and updated its Financial Improvement and Audit Readiness Plan 
in fiscal year 2006 to provide components with a construct for 
resolving problems affecting the accuracy and timeliness of financial 
information and an improved audit strategy for obtaining financial 
statement audit opinions. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-229T]. 

To view the full product, click on the link above. For more 
information, contact Sharon Pickup at (202) 512-9619 or pickups@gao.gov 
or Randy Hite at (202) 512-6256 or hiter@gao.gov. 

[End of Section] 

Mr. Chairman and Members of the Subcommittee: 

It is a pleasure to be back before this Subcommittee to discuss the 
progress and challenges associated with the Department of Defense's 
(DOD) efforts to transform its business operations. Since the first 
financial statement audit of a major DOD component was attempted almost 
20 years ago, we have reported that weaknesses in business operations 
not only adversely affect the reliability of reported financial data, 
but also the economy, efficiency, and effectiveness of DOD's 
operations. In fact, DOD currently bears responsibility, in whole or in 
part, for 14 of our 26 high-risk areas. Eight of these are specific to 
DOD and include DOD's overall approach to business transformation, 
business systems modernization, financial management, the personnel 
security clearance process, supply chain management, support 
infrastructure management, weapon systems acquisition, and contract 
management. In addition, DOD shares responsibility for six 
governmentwide high-risk areas.[Footnote 1] Collectively, these high- 
risk areas relate to most of DOD's major business operations which 
directly support the warfighter, including how they get paid, the 
benefits provided to their families, and the availability and condition 
of the equipment they use both on and off the battlefield. 

DOD's business area weaknesses result in reduced efficiencies, 
ineffective performance, and inadequate accountability to Congress and 
the American people, wasting billions of dollars each year at a time 
when DOD is competing for resources in an increasingly fiscally 
constrained environment. As a result, it is important that DOD get the 
most from every dollar it invests. Our nation is not only threatened by 
external security threats, but also from within by growing fiscal 
imbalances due primarily to our aging population and rising health care 
costs. These trends are compounded by the near-term deficits arising 
from new discretionary and mandatory spending as well as lower revenues 
as a share of the economy. If left unchecked, these fiscal imbalances 
will ultimately impede economic growth, have an adverse effect on our 
future standard of living, and in due course affect our ability to 
address key national and homeland security needs. These factors create 
the need to make choices that will only become more difficult and 
potentially disruptive the longer they are postponed. Among these 
difficult choices will be decisions about the affordability and 
sustainability of the continued growth in defense spending. 
Furthermore, irrespective of the size of the defense budget, the 
taxpayers and warfighters deserve more effective management of DOD's 
overall resources. 

I continue to believe that DOD's senior leadership is committed to 
transforming the department and DOD has taken a number of positive 
steps to begin this effort. In fact, because of the impact of the 
department's business operations on its warfighters, DOD recognizes 
now, more than ever, the need to transform its business operations and 
provide transparency in this process. Indeed, Secretary Rumsfeld was 
very clear in his speech on September 10, 2001, when he identified 
business transformation as a top priority. However, DOD's ability to 
focus on this priority was overshadowed by the events of September 11, 
2001, and the ensuing Global War on Terrorism, including military 
operations in Iraq and Afghanistan. Clearly, these events have required 
considerable emphasis and have become the department's primary focus. 
As a result, progress on the full range of DOD's business 
transformation challenges has been inconsistent, focusing thus far on 
enterprisewide transformation, with many challenges remaining 
concerning the transformation of the various military services and 
defense agencies. 

Congress, in part through the leadership of this Subcommittee, passed 
legislation that codified many of our prior recommendations related to 
DOD business systems modernization.[Footnote 2] Since then, DOD has 
devoted substantial resources and made important progress toward 
establishing key management structures and processes to guide business 
systems investment activities, particularly at the enterprise, or 
departmentwide, level. DOD's current approach is clearly superior to 
its prior approach; however, a number of formidable challenges remain. 

Last year when we testified before this Subcommittee, we highlighted 
several of these formidable challenges.[Footnote 3] Today, I would like 
to provide my perspectives on actions DOD has taken to address these 
challenges and achieve business transformation through all levels of 
the department over the past year. Specifically, I will discuss DOD's 
efforts to (1) develop a comprehensive, integrated, enterprisewide 
business transformation plan and its related leadership approach and 
(2) comply with legislation that addresses business systems 
modernization and improving financial management accountability. I will 
also discuss two sections of the recently enacted John Warner National 
Defense Authorization Act for Fiscal Year 2007[Footnote 4] that address 
financial improvement and acquisition of all major automated 
information systems, and selected additional DOD high-risk areas that 
highlight the need for continued attention. 

My statement is based in large part on our previous reports and some of 
our current, ongoing efforts. Our work was performed in accordance with 
generally accepted government auditing standards. 

Summary: 

I have stated on many occasions that transforming DOD's business 
operations is an absolute necessity given our nation's current deficits 
and long-term fiscal outlook. In the past year, DOD has made progress 
in transforming its business operations, but continues to lack a 
comprehensive, enterprisewide approach to planning and decision making 
needed to ensure successful transformation and address systemic 
business challenges. Within DOD, business transformation is broad, 
encompassing people, planning, management, structures, technology, and 
processes in several key business areas. While DOD's planning and 
management continues to evolve, it has yet to develop a comprehensive, 
integrated, enterprisewide plan that covers all key business functions, 
and contains results-oriented goals, measures and expectations that 
link organizational and individual performance goals, while also being 
clearly linked to DOD's overall investment plans. Because of the 
complexity and long-term nature of business transformation, DOD also 
continues to need a chief management official (CMO) with significant 
authority, experience, and tenure to provide sustained leadership and 
integrate DOD's overall business transformation efforts. Without 
formally designating responsibility and accountability for results, 
reconciling competing priorities and prioritizing investments will be 
difficult and could impede DOD's progress in its transformation 
efforts. 

DOD continues to take steps to comply with legislative requirements 
aimed at improving its business systems modernization and financial 
management; however, much remains to be accomplished before the full 
intent of this legislation is achieved. In particular, DOD recently 
issued updates to both the business enterprise architecture and the 
transition plan, which while addressing several issues previously 
reported by us, are still not sufficiently complete to effectively and 
efficiently guide and constrain business system investments across all 
levels of the department. Most notably, the architecture does not 
include DOD component architectures, and the plan does not include most 
component business system investments. To address these shortfalls, DOD 
recently issued a strategy for "federating" or extending its 
architecture to the military services and defense agencies. In our 
view, much remains to be accomplished before a well-defined federated 
architecture is in place, particularly given that we recently reported 
that the respective military service architecture programs are not 
mature. Nevertheless, DOD components are continuing to invest billions 
of dollars in thousands of new and existing business system programs. 
As we previously stated, the risks associated with investing in systems 
ahead of having a well-defined architecture and accompanying transition 
plan are profound and must be managed carefully, as must the wide 
assortment of other risks that our work has shown to exist on specific 
DOD business system investments. While not a guarantee, our work and 
research has shown that establishing effective system modernization 
management controls, such as an architecture-centric approach to 
investment decision making, can increase the chances of delivering cost-
effective business capabilities on time and within budget. Further, 
with regard to legislation pertaining to its financial management 
improvement, DOD issued its Financial Improvement and Audit Readiness 
Plan and two updates in fiscal year 2006 to provide components with a 
construct for resolving problems affecting the accuracy and timeliness 
of financial information and an improved audit strategy for obtaining 
financial statement audit opinions. 

In addition, you asked for my comments on two sections of the recently 
enacted John Warner National Defense Authorization Act for Fiscal Year 
2007.[Footnote 5] The first provision, section 321, seeks to ensure 
that the department pursues financial management improvement activities 
only in accordance with a comprehensive financial management 
improvement plan that coordinates these activities with improvements in 
its systems and controls. I fully support the intent of this 
legislation, which is aimed at directing DOD's corrective actions 
toward achieving sustained improvements in its ability to provide 
timely, reliable, complete, and useful information. This is important 
not only for financial reporting purposes, but also, more importantly, 
for informed decision making and oversight. Section 321 is consistent 
with existing legislation, as well as recent actions taken by the 
department. The second provision, section 816, establishes certain 
reporting and oversight requirements for the acquisition of all major 
automated information systems (MAIS),[Footnote 6] which if properly 
implemented could strengthen oversight of and accountability for 
business system acquisitions that fail to meet cost, schedule, or 
performance criteria. Therefore, I also support the purpose of this 
legislation. 

Ensuring effective transformation of other areas within DOD that we 
have identified as high risk will require continued attention and 
sustained leadership over a number of years to be successful. These 
other high-risk areas include DOD's weapon systems acquisition, 
contract management, supply chain management, personnel security 
clearance program, and support infrastructure management. In the area 
of weapon systems acquisition, recurring problems with cost overruns 
and schedule delays have resulted in a reduction of buying power of the 
defense dollar at a time when the nation is struggling with a large and 
growing structural deficit. While DOD has made some progress in 
addressing its supply chain management problems, the department faces 
challenges in successfully implementing its changes and measuring 
progress. While positive steps have been taken to address the financial 
costs, delays, and other risks associated with DOD's personnel security 
clearance program, problems with this program continue. Finally, much 
work remains for DOD to transform its support infrastructure to 
adequately fund and improve operations and achieve efficiencies while 
ensuring that infrastructure costs no longer consume a larger than 
necessary portion of DOD's budget. 

Background: 

DOD is one of the largest and most complex organizations in the world. 
Overhauling its business operations will take many years to accomplish 
and represents a huge management challenge. 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 $15.5 billion to DOD, and for 
fiscal year 2007, DOD has requested another $16 billion in appropriated 
funds to operate, maintain, and modernize these business systems and 
associated infrastructure. 

Until DOD can successfully transform its operations, it will continue 
to confront the pervasive, decades-old management problems that cut 
across all of DOD's major business areas. Since our report on the 
financial statement audit of a major DOD component over 16 years 
ago,[Footnote 7] 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 8] 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 9] 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.[Footnote 10] 

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, prevent fraud, and address pressing management issues, 
including supporting warfighters and their families. 

Transformation of DOD's business systems and operations is key to 
improving the department's ability to provide DOD management and 
Congress with accurate, timely, reliable, and useful information for 
analysis, oversight, and decision making. 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." The savings resulting 
from an effective business transformation effort could be significant. 

DOD Lacks a Fully Developed, Comprehensive, Integrated, and 
Enterprisewide Approach to Decision Making and Sustained Leadership: 

I would like to take a few minutes to briefly discuss two critical 
elements that are still needed at DOD to ensure successful and 
sustainable business transformation before turning to DOD's business 
modernization and financial management accountability improvement 
efforts. First, DOD needs a comprehensive, integrated, and 
enterprisewide plan to guide its overall business transformation 
efforts. Second, a chief management official with the right skills and 
at the right level of the department is essential for providing the 
leadership continuity needed to sustain the momentum for business 
transformation efforts across administrations and ensure successful 
implementation. 

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

DOD has not fully developed a comprehensive, integrated, and 
enterprisewide strategy or action plan for managing its overall 
business transformation effort. The lack of a comprehensive, 
integrated, and enterprisewide action plan linked with performance 
goals, objectives, and rewards has been a continuing weakness in DOD's 
overall business transformation efforts that I have been testifying on 
for years.[Footnote 11] I recognize that DOD's efforts to plan and 
organize itself to achieve business transformation are continuing to 
evolve. However, I cannot emphasize enough how critical to the success 
of these efforts are 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 operations. This 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 and 
oversight. Such an integrated business transformation plan would be 
instrumental in establishing investment priorities and guiding the 
department's key resource decisions. 

While DOD has developed plans that address aspects of business 
transformation at different organizational levels, these plans have not 
been clearly aligned into a comprehensive, integrated, and 
enterprisewide approach to business transformation. As I will shortly 
discuss in more detail, DOD recently issued an enterprise transition 
plan (ETP) that is to serve as a road map and management tool for 
sequencing business system investments in the areas of personnel, 
logistics, real property, acquisition, purchasing, and financial 
management. As Business Transformation Agency (BTA) officials 
acknowledge, the ETP does not contain all of the components of a 
comprehensive and integrated enterprisewide transformation plan as we 
envision. BTA officials stated that, while the ETP is integrated with 
the Financial Improvement and Audit Readiness Plan,[Footnote 12] the 
ETP is not as integrated with other enterprisewide, high-risk area 
improvement plans, such as the Supply Chain Plan.[Footnote 13] However, 
BTA officials consider the ETP to be an evolving plan and are currently 
analyzing other enterprisewide plans aimed at improving and 
transforming DOD's business operations in order to improve the degree 
of alignment between those plans and the ETP. Finally, BTA officials 
indicate that the department is moving toward a family of linked plans 
that could be used to guide and monitor business transformation, rather 
than one comprehensive plan that addresses all aspects of DOD's 
business operations. 

To develop a family of linked plans, the enterprise transition plan 
would also need to be aligned with the high-level Quadrennial Defense 
Review (QDR) strategic plan and its initiatives, which so far is not 
the case. For example, the QDR highlights the need for transforming the 
way the department works and what it works on, but it does not contain 
supporting details such as key metrics, milestones, and mechanisms to 
guide and direct the business transformation effort. Moreover, the 
QDR's business transformation initiative, the Institutional Reform and 
Governance project, is not clearly aligned with the ETP. This 
initiative is intended to (1) establish a common and authoritative 
analytical framework to link strategic decisions to execution, (2) 
integrate core decision processes, (3) and align and focus the 
department's governance and management functions under an integrated 
enterprise model. Finally, the QDR and other DOD planning documents do 
not address the ongoing gap between wants, needs, affordability, and 
sustainability in what is likely to be a resource-constrained 
environment. 

Sustained Leadership Is Needed: 

While DOD has established leadership and oversight mechanisms to 
address transformation, DOD lacks the sustained leadership at the right 
level needed to achieve successful and lasting transformation. Due to 
the complexity and long-term nature of DOD's business transformation 
efforts, we continue to believe DOD needs a chief management officer 
(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 among 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. This position would elevate, integrate, 
and institutionalize the attention essential for addressing key 
stewardship responsibilities, such as strategic planning, enterprise 
architecture development and implementation, information technology 
management, and financial management, while facilitating the overall 
business management transformation effort within DOD. 

I would also like to articulate what this position would not do. The 
CMO would not be another layer in DOD's day-to-day management 
structure. Specifically, 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, nor 
would the CMO supervise those officials in connection with their 
ongoing responsibilities. Instead, 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 transformation 
effort. As required by Congress, DOD is studying the feasibility and 
advisability of establishing a CMO to oversee the department's business 
transformation process. As part of this effort, the Defense Business 
Board, an advisory panel, examined various options and, in May 2006, 
endorsed this concept. The Institute for Defense Analysis is scheduled 
to issue a report on this issue before the end of this year. In 
addition, McKinsey and Company recently endorsed the CMO concept. 

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 Ronald W. Reagan National Defense 
Authorization Act for Fiscal Year 2005, including establishing the 
Defense Business Systems Management Committee (DBSMC), which is 
intended to be 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 the needed overall 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. 

In addition, we testified in November 2005[Footnote 14] that DOD's BTA 
offers potential benefits relative to the department's business systems 
modernization efforts if the agency can be properly organized, given 
resources, and empowered to effectively execute its roles and 
responsibilities and is held accountable for doing so. However, the 
department has faced challenges in making the BTA operational. For 
example, we previously testified that there are numerous key 
acquisition functions that would need to be established and made 
operational for the BTA to effectively assume responsibility for 21 DOD-
wide projects, programs, systems, and initiatives, and our experience 
across the government shows that these functions can take considerable 
time to establish.[Footnote 15] 

To assist the department, the Fiscal Year 2004 National Defense 
Authorization Act gives DOD the authority to hire up to 2,500 highly 
qualified experts from outside the civil service and uniformed services 
without going through the normal civil service hiring system.[Footnote 
16] Earlier this year, the BTA had yet to take advantage of this 
authority because of certain departmental obstacles concerning, for 
example, the roles that these experts could perform. However, it is our 
understanding that this is no longer the case, and to date the BTA has 
hired 9 of these individuals. Moreover, we were told that the BTA has 
also obtained direct hiring authority from the Office of Personnel 
Management. The BTA's total projected end strength is 235 personnel. As 
of November 2006, the BTA had hired 128 personnel; agency officials 
anticipate hiring the remaining 107 personnel, including 16 additional 
highly qualified subject experts by September 30, 2007. 

While achieving the BTA's initial staffing goals would represent a 
major accomplishment and is extremely important to its ability to 
perform its business transformation and business systems modernization 
roles and responsibilities, BTA human capital management is not a one- 
time event but rather an essential BTA function that needs to be 
managed strategically. Our research shows that to be successful, 
organizations need to treat human capital as strategic assets-- 
continuously working to understand gaps between future needs and on- 
board capabilities and establish plans for filling gaps through a 
combination of, for example, training, retention incentives, hiring, 
and performance-related rewards. By employing such an approach, the BTA 
can be better positioned to make sure that it has the right people, 
with the right skills, when it needs them not only today but in the 
future. The Deputy Undersecretary of Defense for Financial Management 
stated that the BTA is currently developing a human capital strategy 
that is expected to be completed by January 2007. It will to (1) 
provide for rotating staff between BTA and the DOD components to infuse 
talent into the BTA and to develop a change-oriented culture, (2) align 
individual and team performance to already established organizational 
mission outcomes, and (3) employ OPM's Human Capital Assessment and 
Accountability Framework and the DOD Human Capital Strategy. 

DOD Has Made Progress in Complying with Business Systems Modernization 
and Financial Management Accountability Legislation, but Much Work 
Remains: 

The department has made important progress in complying with 
legislation pertaining to its financial management improvement and 
business systems modernization efforts. However, formidable challenges 
remain relative to extending the architecture and implementing its 
tiered accountability investment approach across the military services 
and defense agencies, and ensuring that the department's thousands of 
business system investments are implemented on time and within budget 
and provide promised capabilities and benefits. The Fiscal Year 2005 
National Defense Authorization Act contained provisions aimed at 
establishing some of the tools needed to accomplish this. As our 
evaluations of federal information technology (IT) management and our 
research of successful organizations show, other tools necessary for 
successfully modernizing systems will also be needed. 

As we reported earlier this year,[Footnote 17] DOD also made important 
progress in complying with the Fiscal Year 2005 National Defense 
Authorization Act pertaining to its business systems modernization. For 
example, on March 15, 2006, DOD released updates to its business 
enterprise architecture (Version 3.1) and its ETP. These updates added 
previously missing content to the architecture and transition plan, 
such as identifying an enterprisewide data standard to support 
financial management and reporting requirements. Other business system 
modernization management improvements were also apparent, such as 
increased budgetary reporting of business system investments and 
additional investment review controls. 

More recently, DOD issued Version 4.0 of its business enterprise 
architecture and ETP. These latest versions provide additional content 
and clarity. For example, the transition plan now includes the results 
of ongoing analyses of gaps between existing business capabilities and 
needed capabilities. However, enormous challenges, such as extending 
the architecture across the military services and defense agencies, 
remain. To this end, the department defined a conceptual strategy in 
September 2006, for federating the architecture[Footnote 18] and 
adopting a shared services orientation.[Footnote 19] While we believe 
that the concepts have merit and are applicable to DOD, much remains to 
be decided and accomplished before they can be implemented in a way to 
produce architectures and transition plans for each DOD component that 
are aligned with the department's corporate view and that can guide and 
constrain component-specific investments. 

At the same time, DOD components continue to invest billions of dollars 
in new and existing business systems each year. This means that the 
risks of investing in these programs ahead of the federated 
architecture need to be part of investment approval decisions. As we 
have previously reported,[Footnote 20] investment decision making based 
on architecture alignment is but one of many keys to success of any 
business system modernization. Other keys to the success in delivering 
promised system capabilities and benefits on time and within budget 
include having the right human capital team in place and following a 
range of essential program management and system and software 
acquisition disciplines. As I will discuss later, our experience in 
reviewing several DOD business system programs shows that these keys to 
success are not consistently practiced. While not a guarantee, our 
research of leading program management and system acquisition practices 
and evaluations of federal agencies shows that institutionalization of 
a family of well-defined management controls can go a long way in 
minimizing business system modernization risks. 

DOD Continues to Evolve Its Business Enterprise Architecture, but Much 
Remains to Be Accomplished: 

In May 2006,[Footnote 21] we reported on DOD's efforts to address a 
number of provisions in the Fiscal Year 2005 National Defense 
Authorization Act.[Footnote 22] Among other things, we stated that the 
department had adopted an incremental strategy for developing and 
implementing its architecture, which was consistent with our prior 
recommendation and a best practice. We further stated that DOD had 
addressed a number of the limitations in prior versions of its 
architecture. For example, we reported that Version 3.1 of the 
architecture had much of the information needed, if properly 
implemented, to achieve compliance with the Department of the 
Treasury's United States Standard General Ledger,[Footnote 23] such as 
the data elements or attributes that are needed to facilitate 
information sharing and reconciliation with the Treasury. In addition, 
we stated that the architecture continued to specify DOD's Standard 
Financial Information Structure (SFIS)[Footnote 24] as an 
enterprisewide data standard for categorizing financial information to 
support financial management and reporting functions. 

Despite this progress, we also reported[Footnote 25] that this version 
of the architecture did not comply with all of the legislative 
requirements[Footnote 26] and related best practices. For example, 
while program officials stated that analyses of the current 
architectural environment for several of the enterprise-level systems 
had occurred, the architecture did not contain a description of, or a 
reference to, the results of these analyses. The architecture also did 
not include a systems standards profile to support implementation of 
data sharing among departmentwide business systems and interoperability 
with departmentwide IT infrastructure. Program officials acknowledged 
that the architecture did not include this profile and stated that they 
were working with the Assistant Secretary of Defense (Networks and 
Information Integration) and Chief Information Officer to address this 
in future versions. We also reported that the architecture was not, for 
example, adequately linked to the military service and defense agency 
component architectures and transition plans, which we said was 
particularly important given the department's stated intention to adopt 
a federated approach to developing and implementing the architecture. 

In September 2006, DOD released Version 4.0 of its architecture, which 
according to the department, resolves several of the architecture gaps 
that were identified with the prior version. One example of a gap that 
DOD reports Version 4.0 is beginning to fill is the definition of a key 
business process area missing from prior versions--the planning, 
programming, and budgeting process area. In this regard, according to 
DOD, the architecture now includes departmental and other federal 
planning, programming, and budgeting guidance (e.g., OMB Circular A-11) 
and some high-level activities associated with this process area. In 
addition, DOD reports that Version 4.0 has restructured the business 
process models to reduce data redundancy and ensure adherence to 
process modeling standards (e.g., eliminated numerous process modeling 
standards violations and stand-alone process steps with no linkages). 
Despite these improvements, this version is still missing, for example, 
a depiction of the current environment (i.e., baseline of its current 
assets and current capabilities) that was analyzed against its target 
environment to identify capability gaps that the ETP is to address. 
Further, it does not include DOD component architectures (e.g., 
services and various DOD agencies) as distinct yet coherent members of 
a federated DOD business enterprise architecture. 

DOD Plans to Federate Its Business Enterprise Architecture to the 
Components: 

Recognizing the need to address component architectures, DOD released 
its business mission area federation strategy and road map in September 
2006, which is intended to define how DOD will extend its business 
enterprise architecture across the military services and defense 
agencies. According to DOD, the strategy will provide for 
standardization across the federation of architectures by, for example, 
introducing a consistent set of standards for determining the status 
and quality of the member (component and program) architectures, a 
standard methodology for linking member architectures to the 
overarching corporate architecture, the capability to search member 
architectures, and a common method to reuse capabilities described by 
these architectures. 

In the end, the strategy is intended to link related business mission 
area services or capabilities in the various architectures by 
establishing a set of configuration standards for architecture 
repositories. Further, the strategy is also intended to support the 
development of the interoperable execution of enterprise and component 
systems by defining and disclosing common services that can be shared 
and reused by these systems. (See fig. 1 for a simplified and 
illustrative conceptual depiction of DOD's federated business 
enterprise architecture.) 

Figure 1: Simplified and Illustrative Diagram of DOD's Federated 
Business Enterprise Architecture: 

[See PDF for image] 

Source: Business Transformation Agency. 

[End of figure] 

The importance of extending the DOD business enterprise architecture to 
the military services is underscored by our recent findings about the 
military services' management of their respective enterprise 
architecture programs.[Footnote 27] Specifically, in August 2006, we 
released an assessment of federal agency enterprise architecture 
programs' satisfaction of the elements in our Enterprise Architecture 
Management Maturity Framework (EAMMF).[Footnote 28] Our EAMMF is a five-
stage architecture framework for managing the development, maintenance, 
and implementation of an architecture and understanding the extent to 
which effective architecture management practices are being performed 
and where an organization is in its progression toward having a well-
managed architecture program. In short, the framework consists of 31 
core elements that relate to architecture governance, content, use, and 
measurement.[Footnote 29] These elements reflect research by us and 
others showing that architecture programs should be founded upon 
institutional architecture commitment and capabilities, and measured 
and verified products and results. 

With respect to the maturity of the military services' respective 
enterprise architecture programs, we found that the departments of the 
Air Force, the Army, and the Navy had not satisfied about 29, 55, and 
29 percent of the core elements in our framework, respectively. In 
addition, the Army had only fully satisfied 1 of the 31 core elements 
(3 percent). (See table 1 for the number and percentage of elements 
fully, partially, and not satisfied by each of the military services). 

Table 1: Number and Percentage of Framework Elements Fully, Partially, 
and Not Satisfied by the Military Services: 

Military services: Air Force; 
Fully satisfied: 14 (45%); 
Partially satisfied: 8 (26%); 
Not satisfied: 9 (29%). 

Military services: Army; 
Fully satisfied: 1 (03%); 
Partially satisfied: 13 (42%); 
Not satisfied: 17 (55%). 

Military services: Navy; 
Fully satisfied: 10 (32%); 
Partially satisfied: 12 (39%); 
Not satisfied: 9 (29%). 

Source: GAO. 

[End of table] 

By comparison, the other major federal departments and agencies that we 
reviewed had as a whole fully satisfied about 67 percent of the 
framework's core elements. Among the key elements that all three 
services had not fully satisfied were developing architecture products 
that describe their respective target architectural environments and 
developing transition plans for migrating to a target environment, in 
addition to the following. 

* The Air Force, for example, had not yet placed its architecture 
products under configuration management to ensure the integrity and 
consistency of these products and was not measuring and reporting on 
the quality of these products. 

* The Army, for example, had yet to develop effective architecture 
development plans and had not developed architecture products that 
fully described its current architectural environment. 

* The Navy, for example, had yet to describe its current architectural 
environment in terms of performance and had not explicitly addressed 
security in its architecture descriptions. 

Further, while the services had partially satisfied between 8 and 13 
core elements in our framework, it is important to note that even 
though certain core elements are partially satisfied, fully satisfying 
some of them will not be accomplished quickly and easily. It is also 
important to note the importance of fully, rather than partially, 
satisfying certain elements, such as those that address architecture 
content, which can have important implications for the quality of an 
architecture and thus its usability and results. 

To assist the military services in addressing enterprise architecture 
challenges and managing their architecture programs, we recommended 
that the services develop and implement plans for fully satisfying each 
of the conditions in our framework. The department generally agreed 
with our findings and recommendations and stated that it plans to use 
our framework as one of the benchmark best practices as DOD components 
continuously work to improve enterprise architecture management 
maturity. 

Clearly, much remains to be accomplished to implement the federated 
strategy and create DOD's federated business enterprise architecture. 
One key to making this happen, which we have previously 
recommended,[Footnote 30] is having a business enterprise architecture 
development management plan that defines what will be done, when, by 
whom, and how it will done to fully develop the architecture. Having 
and using such a plan is provided for in our EAMMF. Without one, the 
department is less likely to effectively accomplish its intended 
architecture evolution, extension, and improvement efforts. According 
to BTA officials, they are in the process of addressing this 
recommendation. We currently have ongoing work for this committee and 
others looking at, among other things, how the department plans to 
implement the federated strategy and the challenges that it faces in 
doing so. 

DOD Continues to Improve Its Enterprise Transition Plan, but Needed 
Improvements Remain: 

DOD has taken a number of steps to improve its ETP and address some of 
the missing elements that we previously identified[Footnote 31] 
relative to the Fiscal Year 2005 National Defense Authorization Act's 
requirements and related transition planning guidance. For example, in 
May 2006, we reported that the transition plan included an initiative 
aimed at identifying capability gaps between the current and target 
architectural environments, and provided information on progress on 
major investments--including key accomplishments and milestones 
attained, and more information about the termination of legacy systems. 
However, we reported that it still did not identify, among other 
things, all legacy systems that will not be part of the target 
architecture, and it did not include system investment information for 
all the military services, defense agencies, and combatant commands. 

In September 2006, DOD released an updated revision to its ETP, which 
continues to include major investments--such as key accomplishments and 
milestones attained, as well as new information on near-term activities 
(i.e., within the next 6 months) at both the enterprise and component 
levels. For example, in an effort to improve visibility into personnel 
activities, DOD reported that, for the Defense Civilian Personnel Data 
System, it met the September 2006 milestone to implement enterprisewide 
tools for use in advanced reporting and data warehousing, and that it 
has set a September 2008 milestone for developing an implementation 
strategy for integrating modules supporting functionality that is 
currently provided by stand-alone applications. In addition, the 
updated plan provides information on business priorities supported by 
systems and initiatives and aligns these priorities with a set of 
business value measures (e.g., on-time customer request, payroll 
accuracy). Specifically, for each business enterprise priority, the 
plan now identifies the business capability improvements (e.g., manage 
personnel and pay) necessary to achieve the business enterprise 
priority (e.g., personnel visibility) objectives and the metrics for 
measuring progress towards achieving these objectives. In addition, the 
plan now identifies the relationship between target systems, business 
capabilities, operational activities, and the system functions they 
provide and specific organizations that will or plan to use the system. 
Further, the transition plan now includes the initial results of 
ongoing analyses of gaps between its current and target environments 
for most of the business enterprise priorities, in which capability and 
performance shortfalls and their root causes are described and the 
architecture solution component (such as business rules and 
transformation initiatives and systems) that are to address these 
shortfalls are identified. 

However, the current transition plan is still missing important 
elements. Specifically, the plan does not yet include system investment 
information for all the defense agencies and combatant commands. In 
addition, the planned investments in the transition plan are not 
sequenced based on a range of activities that are critical to 
developing an effective transition plan. As we have previously 
reported,[Footnote 32] a transition or sequencing plan should provide a 
temporal investment road map for moving between the current and target 
environments, based on such considerations as technology opportunities, 
marketplace trends, institutional system development and acquisition 
capabilities, legacy and new system dependencies and life expectancies, 
and the projected value of competing investments. According to a BTA 
official responsible for the ETP, the transition plan investments have 
not been sequenced based on these considerations. Rather, the ETP is 
based on fiscal year budgetary constraints. 

Program officials stated that the next version of the plan will enhance 
performance metric tracking, improve the quality of system functional 
scope and organizational span information, better integrate component 
plans with enterprise plans, enhance federating plans for each business 
capability, and possibly add other components to the enterprise 
transition plan. As the transition plan evolves and all system 
investments are validated against the architecture via capability gap 
analyses, the department should be better positioned to sequentially 
define and manage the migration and disposition of existing business 
processes and systems--and the introduction of new ones. 

DOD Has Established Business Systems Investment Decision-Making 
Controls, but Full Implementation Remains Unclear: 

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 responsibility and accountability is 
crucial to having an effective institutional approach to IT investment 
management.[Footnote 34] 

The Fiscal Year 2005 National Defense National Authorization Act also 
required DOD to establish investment review structures and processes, 
including a hierarchy of investment review boards (IRB), 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 2 shows the systems and the 
responsible IRB and component. 

Table 2: DOD Systems and 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 phase out 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.[Footnote 35] A major reason the department has thousands of 
business systems is that it has historically failed to consistently 
employ the range of effective institutional investment management 
controls, such as an architecture-centric approach to investment 
decision making, that our work and research show are keys to successful 
system modernization programs. Such controls help to identify and 
eliminate duplicative systems and this helps to optimize mission 
performance, accountability, and transformation. They also help to 
ensure that promised system capabilities and benefits are delivered on 
time and within budget. 

Furthermore, the BTA reports that the tiered accountability approach 
has reduced the level 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 through 2011, but the 
amount approved was reduced to approximately $51 million for fiscal 
years 2006 through 2008. Similarly, Navy's Military Sealift Command 
Human Resources Management System requested funding of about $19 
million for fiscal years 2006 through 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, the investment review and approval process 
has resulted 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 Logistics 
Modernization Program (LMP) initiative, one of the noted conditions was 
that the Army had to address the issues discussed in our previous 
reports.[Footnote 36] 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 37] In response, the department has begun to track 
conditional approvals. 

Despite the department's efforts to control its investments to acquire 
new business systems or to enhance existing business systems, 
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, 
and thus the extent to which the review structures and processes will 
be applied to the department's 3,717 business systems is not clear. 
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 2, 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. In support of this Subcommittee, we have 
work planned to address the extent to which these management controls 
are actually being implemented for both the enterprise-level 
investments and the thousands of other system investments that are 
being managed at the component level. 

Key DOD Systems Still Face Challenges: 

As we have previously testified and reported,[Footnote 38] DOD has not 
effectively managed a number of business system programs. Among other 
things, our reviews of individual system investments have identified 
weaknesses in such things as architectural alignment and informed 
investment decision making, which are focus areas of the Fiscal Year 
2005 National Defense Authorization Act provisions. Our reviews have 
also identified weaknesses in other system acquisition and investment 
management areas--such as requirements management, testing, and 
performance management--where good management is crucial for the 
successful implementation of any given DOD business system. I will 
describe examples of the weaknesses that we have recently reported on 
for five system investments. The system investments are the Defense 
Integrated Military Human Resources System (DIMHRS), Defense Travel 
System (DTS), the Army Logistics Modernization Program (LMP), the Navy 
Tactical Command Support System (NTCSS), and the Transportation 
Coordinators' Automated Information for Movements System II (TC-AIMS 
II). The weaknesses that we have found raise questions as to the extent 
to which the structures, processes, and controls that DOD has 
established in response to the Fiscal Year 2005 National Defense 
Authorization Act are actually being implemented, and illustrate the 
range of system acquisition and investment management controls (beyond 
those provided for in the act) that need to be effectively implemented 
in order for a given investment to be successfully acquired and 
deployed. 

DIMHRS: 

In 2005 we reported that DIMHRS--a planned DOD-wide military pay and 
personnel system---was not being managed as a DOD-wide investment, to 
include alignment with a DOD-wide architecture and governance by a DOD- 
wide body.[Footnote 39] In addition, we reported that DIMHRS 
requirements had not been adequately defined, and not all acquisition 
best practices associated with commercial component-based systems were 
being followed. Accordingly, we made a number of recommendations. In 
response, DOD has elevated the system to an enterprise investment under 
the BTA, and established a DIMHRS steering committee that is chartered 
to include representation from the services. The BTA has also hired a 
DIMHRS program manager, and the Army and the Air Force, while 
continuing to evaluate their respective requirements, have determined 
that the commercial software product selected for DIMHRS can be used 
under certain conditions. The Army expects to deploy DIMHRS in April 
2008 and the Air Force plans to begin deployment in May 2008. The Navy, 
on the other hand, assessed both DIMHRS and the Marine Corps Total 
Force System (MCTFS)[Footnote 40] and determined that MCTFS would 
better meet its requirements. According to a Navy official, the DBSMC 
has directed the Navy to research MCTFS and to fully evaluate the cost 
implications of the MCTFS option, but has not granted the Navy 
permission to deploy MCTFS. We plan to evaluate DOD's implementation of 
our prior recommendations and the Navy's analysis of the merits of 
pursuing the MCTFS option. 

DTS: 

In September 2006, we reported[Footnote 41] on limitations in the 
economic justification underlying DOD's decision to invest in DTS, 
which is intended to be the standard departmentwide travel system. 
Specifically, we found that two key assumptions used to estimate cost 
savings in the September 2003 DTS economic analysis were not based on 
reliable information. Additionally, we reported that DOD did not have 
quantitative metrics to measure the extent to which DTS is actually 
being used. Moreover, we found that DOD had not adequately defined and 
tested the system's requirements, an area of concern that was also 
discussed in our January 2006 report.[Footnote 42] These system 
acquisition management weaknesses introduce considerable risk to DOD's 
ability to deliver promised DTS capabilities and benefits on time and 
within budget. Although the September 2003 economic analysis was not 
based on supportable data, the department's criteria do not require 
that a new economic analysis be prepared. DTS has already completed all 
of the major milestones related to a major automated system which 
require that an economic analysis be prepared or at least updated to 
reflect the current assumptions and the related costs and benefits. 
However, the Fiscal Year 2005 National Defense Authorization 
Act[Footnote 43] requires the periodic review, but not less than 
annually, of every defense business system investment. Further, the 
department's April 2006 guidance[Footnote 44] notes that the annual 
review process "provides follow-up assurance that information 
technology investments, which have been previously approved and 
certified, are managed properly, and that promised capabilities are 
delivered on time and within budget." If effectively implemented, this 
annual review process provides an excellent opportunity for DOD 
management to assess whether DTS is meeting its planned cost, schedule, 
and functionality goals. Going forward, such a review could serve as a 
useful management tool in making funding and other management decisions 
related to DTS. We made recommendations to DOD aimed at improving the 
management oversight of DTS, including periodic reports on DTS 
utilization and resolution of inconsistencies in DTS's requirements. 
DOD generally agreed with the recommendations and described its efforts 
to address them. 

LMP: 

In 2004 and 2005,[Footnote 45] we reported that the Army faced 
considerable challenges in developing and implementing LMP which is 
intended to transform the Army Materiel Command's logistics operations. 
In particular, we reported that LMP will not provide intended 
capabilities and benefits because of inadequate requirements management 
and system testing. These problems prevented the Tobyhanna Army Depot 
from accurately reporting on its financial operations, which, in turn, 
adversely impacts the depot's ability to accurately set prices. We 
found that the Army has not put into place an effective management 
process to help ensure that the problems with the system are resolved. 
While the Army developed a process that identified the specific steps 
that should be followed in addressing the problems identified, the 
process was not followed. We recommended improvements in the 
implementation of LMP as well as delaying implementation at the 
remaining four depots until problems encountered have been resolved. 
DOD concurred with all the recommendations. The Subcommittee has 
requested that we undertake a series of audits directed at DOD's 
efforts to resolve long-standing financial management problems over the 
visibility of its assets. Our first such audit is evaluating the Army's 
efforts in the area and will include follow-up work on LMP. 

NTCSS: 

In December 2005, [Footnote 46] we reported that DOD needed to reassess 
its planned investment in the NTCSS--a system intended to help Navy 
personnel effectively manage ships, submarines, and aircraft support 
activities. Among other things, we reported that the Navy had not 
economically justified its ongoing and planned investment in the NTCSS 
and had not invested in the NTCSS within the context of a well-defined 
DOD or Navy enterprise architecture. In addition, we reported that the 
Navy had not effectively performed key measurement, reporting, 
budgeting, and oversight activities, and had not adequately conducted 
requirements management and testing activities. We conclude that 
without this information, the Navy could not determine whether the 
NTCSS as defined, and as being developed, is the right solution to meet 
its strategic business and technological needs. Accordingly, we 
recommended that DOD develop the analytical basis to determine if 
continued investment in the NTCSS represents prudent use of limited 
resources and we also made recommendations to strengthen management of 
the program, conditional upon a decision to proceed with further 
investment in the program. In response, DOD generally concurred with 
the recommendations. 

TC-AIMS II: 

In December 2005,[Footnote 47] we reported that TC-AIMS II--a joint 
services system with the goal of helping to manage the movement of 
forces and equipment within the United States and abroad--had not been 
defined and developed in the context of a DOD enterprise architecture. 
Similar to DIMHRS and DTS, TC-AIMS II was intended to be an enterprise- 
level system. However, the Army--DOD's acquisition agent for TC-AIMS 
II--had pursued the system on the basis of an Army logistics-focused 
architecture. This means that TC-AIMS II, which was intended to produce 
a departmentwide military deployment management system, was based on a 
service-specific architecture, thus increasing the risk that this 
program, as defined, will not properly fit within the context of future 
DOD enterprisewide business operations and IT environments. In 
addition, the Army had not economically justified the program on the 
basis of reliable estimates of life-cycle costs and benefits, and as a 
result, the Army does not know if investment in TC-AIMS II, as planned, 
is warranted or represents a prudent use of limited DOD resources. 
Accordingly, we recommended that DOD, among other things, develop the 
analytical basis needed to determine if continued investment in TC-AIMS 
II, as planned, represents prudent use of limited defense resources. In 
response, DOD generally concurred with our recommendations and 
described efforts initiated or planned to bring the program into 
compliance with applicable guidance. 

DOD Issues Its Financial Improvement and Audit Readiness Plan: 

A major component of DOD's business transformation effort is the 
defense Financial Improvement and Audit Readiness Plan (FIAR), 
initially issued in December 2005 and updated in June 2006 and 
September 2006, pursuant to section 376 of the National Defense 
Authorization Act for Fiscal Year 2006.[Footnote 48] Section 376 
limited DOD's ability to obligate or expend funds for fiscal year 2006 
on financial improvement activities until the department submitted a 
comprehensive and integrated financial management improvement plan to 
the congressional defense committees. Section 376 required the plan to 
(1) describe 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 tie 
these 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 is consistent with the financial management improvement plan 
and likely to improve internal controls or otherwise result in 
sustained improvement in DOD's ability to produce timely, reliable, and 
complete financial management information. DOD had to submit each 
written determination to the congressional defense committees. Section 
321 of the National Defense Authorization Act for Fiscal Year 2007 
extended the written determination provision beyond fiscal year 
2006.[Footnote 49] 

DOD intends the FIAR Plan to provide DOD components with a framework 
for resolving problems affecting the accuracy, reliability, and 
timeliness of financial information, and obtaining clean financial 
statement audit opinions. The FIAR Plan states that it prioritizes 
DOD's improvement efforts based on the following criteria: (1) impact 
on DOD financial statements, (2) ability to resolve long-standing 
problems, (3) need for focused DOD leadership attention to resolve the 
problem, (4) dependency on business transformation initiatives and 
system solutions, and (5) availability of resources. The FIAR Plan 
outlines the business rules and oversight structure DOD has established 
to guide financial improvement activities and audit preparation 
efforts. According to DOD, its June and September 2006 FIAR Plan 
updates were intended to (1) begin identifying milestones that must be 
met for assertions about the reliability of reported financial 
statement information to occur on time, (2) develop greater consistency 
among components regarding their corrective actions and milestones, and 
(3) further describe how the FIAR Plan will be integrated with the 
enterprise transition plan. In addition, the September 2006 update 
outlines three key elements for achieving financial management 
transformation: accountability, integration, and prioritization. 
Although the FIAR Plan states that it is integrated with DOD component- 
level financial improvement plans and the ETP, DOD officials have 
acknowledged that the level of integration between the two efforts is 
not complete and is still evolving. 

The FIAR Plan is a high-level summary of DOD's plans and reported 
actions to comply with financial management legislation and achieve 
clean financial statement audit opinions. We have reviewed the FIAR 
Plan and its updates and discussed the FIAR Plan with DOD and OMB. We 
cannot comment on specific focus areas or milestones because we have 
not seen any of the underlying component or other subordinate plans on 
which the FIAR Plan is based. However, we believe the incremental line 
item approach, integration plans, and oversight structure outlined in 
the FIAR Plan for examining DOD's operations, diagnosing problems, 
planning corrective actions, and preparing for audit represents a vast 
improvement over prior financial improvement initiatives. 

We continue to stress that the effectiveness of DOD's FIAR Plan will 
ultimately be measured by the department's ability to provide timely, 
reliable, and useful information for day-to-day management and decision 
making. Nonetheless, I would like to see DOD place greater emphasis on 
achieving auditability by 2012. If DOD is able to achieve this date, 
and other impediments to an opinion on the consolidated financial 
statements of the U.S. government are also addressed, an opinion for 
the federal government may also be possible by 2012. We look forward to 
working with DOD and the new DOD inspector general, when appointed, in 
further developing DOD's audit strategy. 

Legislation Enacted to Address DOD's Financial Management Weaknesses 
and Strengthen Business Systems Accountability: 

Lastly, you asked for my comments on two sections of the recently 
enacted John Warner National Defense Authorization Act for Fiscal Year 
2007.[Footnote 50] The first provision, section 321, seeks to ensure 
that the department pursues financial management improvement activities 
only in accordance with a comprehensive financial management 
improvement plan that coordinates these activities with improvements in 
its systems and controls. The second provision, section 816, 
establishes certain reporting and oversight requirements for the 
acquisition of all major automated information systems (MAIS).[Footnote 
51] 

Legislation Reiterates Need for Consistency between DOD's Financial and 
Business Transformation Plans: 

Section 321 of the John Warner National Defense Authorization Act for 
Fiscal Year 2007 extends beyond fiscal year 2006 certain limitations 
and requirements placed on DOD's financial management improvement and 
audit initiatives in section 376 of the National Defense Authorization 
Act for Fiscal Year 2006. Specifically, section 321 of the act limits 
DOD's ability to obligate or expend any funds for the purpose of any 
financial management improvement activity relating to the preparation, 
processing, or auditing of financial statements until it has submitted 
to the congressional defense committees a written determination that 
each activity proposed to be funded is (1) consistent with the DOD 
financial management improvement plan required by section 376 of the 
National Defense Authorization Act for Fiscal Year 2006 and (2) is 
likely to improve internal controls or otherwise result in sustained 
improvements in the ability of the department to produce timely, 
reliable, and complete financial management information. 

I fully support the intent of legislation, such as section 321, which 
is aimed at directing DOD's corrective actions towards the 
implementation of sustained improvements in its ability to provide 
timely, reliable, complete, and useful information. This is imperative 
not only for financial reporting purposes, but more importantly for 
daily decision making and oversight. Section 321 is consistent with and 
builds on existing legislation, in addition to section 376 of the 
National Defense Authorization Act for Fiscal Year 2006. For example, 
section 1008 of the National Defense Authorization Act for Fiscal Year 
2002[Footnote 52] currently requires DOD to limit resources used to 
prepare and audit unreliable financial information, thereby saving the 
taxpayers millions of dollars annually. In addition, the fiscal year 
2002 act requires DOD to report to congressional committees and others 
annually on the reliability of DOD's financial information and to 
provide a summary of improvement activities, including priorities, 
milestones, measures of success, and estimates of when each financial 
statement will convey reliable information. In my opinion, Congress has 
clearly articulated its expectation that DOD exercise prudence in its 
use of taxpayer money and focus only on those activities that will 
result in sustained improvements in its ability to produce timely and 
reliable financial management information. 

It is evident that DOD intends to use its FIAR Plan, which it plans to 
update semiannually, as a tool for complying with legislative 
requirements regarding its financial improvement efforts. However, as 
is true with most large initiatives, a comprehensive and integrated 
plan, sustained leadership, results-oriented performance measures, and 
effective implementation will be key to successful reform. 

Legislative Language Establishing Reporting Requirements for Major 
Automated Information Systems Increases Oversight and Accountability: 

The provisions in section 816 of the John Warner National Defense 
Authorization Act for Fiscal Year 2007 provide for greater disclosure 
and accountability of business system investment performance, and thus 
facilitate greater oversight. More specifically, the legislation 
establishes certain reporting and oversight requirements for the 
acquisition of MAIS that fail to meet cost, schedule, or performance 
criteria. In general, a MAIS is a major DOD IT program that is not 
embedded in a weapon system (e.g., a business system investment). As 
such, we believe that the provisions can increase oversight and 
accountability. Therefore, I also support this legislation. 

Specific High-risk Program Areas Highlight the Need for Continued 
Attention to Ensure Effective Transformation: 

I would like to discuss the five remaining high-risk areas within DOD. 
These include weapon systems acquisitions and contract management; 
supply chain management; personnel security clearance program; and 
support infrastructure management. 

DOD Weapon Systems Acquisitions and Contract Management: 

Two interrelated areas are the management of DOD's major weapon systems 
acquisitions and its contracts. While DOD eventually fields the best 
weapon systems in the world, we have consistently reported that 
typically the programs take significantly longer, cost significantly 
more money, and deliver fewer capabilities than originally promised. 
DOD's new weapon system programs are expected to be the most expensive 
and complex ever and will consume an increasingly large share of DOD's 
budget. These costly current and planned acquisitions are running head- 
on into the nation's unsustainable fiscal path. In the past 5 years, 
DOD has doubled its commitment to weapon systems from $700 billion to 
$1.4 trillion, but this huge increase has not been accompanied by more 
stability, better outcomes, or increased buying power for the 
acquisition dollar. Rather than showing appreciable improvement, 
programs are experiencing recurring problems with cost overruns, missed 
deadlines, and performance shortfalls. A large number of the programs 
included in our annual assessment of weapon systems are costing more 
and taking longer to develop than estimated.[Footnote 53] It is not 
unusual to see development cost increases between 30 percent and 40 
percent and attendant schedule delays. These cost increases mean DOD 
cannot produce as many weapons as intended nor can it be relied on to 
deliver to the warfighter when promised. This causes DOD to either cut 
back on planned quantities or capabilities, or to even scrap 
multibillion dollar programs, after years of effort. If these systems 
are managed with the traditional margins of error, the financial 
consequences can be dire, especially in light of a constrained 
discretionary budget. 

It is within this context that we must engage in a comprehensive and 
fundamental reexamination of new and ongoing investments in our 
nation's weapon systems. Success for acquisitions means making sound 
decisions to ensure that program investments are based on needs versus 
wants and getting promised results. In the commercial world, successful 
companies have no choice but to adopt processes and cultures that 
emphasize basing decisions on knowledge, reducing risks prior to 
undertaking new efforts, producing realistic cost and schedule 
estimates, and building in quality to deliver products to customers at 
the right price, time, and cost. However, this is not happening within 
DOD. The department has tried to embrace best practices in its policies 
and instill more discipline in setting requirements, among numerous 
other actions, but it still has trouble distinguishing wants from true 
needs. While DOD's acquisition policy supports a knowledge-based, 
evolutionary approach to acquiring new weapons, its practice of making 
decisions on individual programs often sacrifices knowledge and 
executability in favor of revolutionary solutions. In an important 
sense, success has come to mean starting and continuing programs even 
when cost, schedule, and quantities must be sacrificed. 

Our reviews have identified a number of causes behind the acquisition 
problems just described, but I would like to focus on three. The first 
I refer to as "big A," or acquisition with a capital "A." What I mean 
by this is that DOD's funding, requirements, and acquisition processes 
are not working synergistically. DOD does not clearly define and 
stabilize requirements before programs are started. Our work has shown 
that DOD's requirements process generates more demand for new programs 
than fiscal resources can support. DOD compounds the problem by 
approving many highly complex and interdependent programs. Moreover, 
once a program is approved, requirements can be added along the way-- 
significantly stretching technology, creating design challenges, 
exacerbating budget overruns, and enhancing accountability challenges. 
For example, in the F-22A program, after the program was started, the 
Air Force added a requirement for air-to-ground attack capability. In 
its Global Hawk program, after the start of the program, the Air Force 
added both signals intelligence and imagery intelligence requirements. 
Both programs have experienced serious schedule delays and significant 
unit cost increases. Customers often demand additional requirements 
fearing there may not be another chance to get new capabilities because 
programs can take a decade or longer to complete. Yet, perversely, 
these strategies delay delivery to the warfighter, often by years. 

The second cause I would refer to as "little a" or the acquisition 
process itself. DOD commits to individual programs before it obtains 
assurance that the capabilities it is pursuing can be achieved within 
available resources and time constraints. In particular, DOD routinely 
accepts high levels of technology risk at the start of major 
acquisition programs. Funding processes encourage this approach, since 
acquisition programs attract more dollars than efforts concentrating 
solely on proving out technologies. However, without mature 
technologies at the outset, a program will almost certainly incur cost 
and schedule problems. Only 10 percent of the programs in our latest 
annual assessment of weapon systems had demonstrated critical 
technologies to best practice standards at the start of development; 
and only 23 percent demonstrated them to DOD's standards.[Footnote 54] 
The cost effect of proceeding without completing technology development 
before starting an acquisition can be dramatic. For example, research, 
development, test and evaluation costs for the programs included in our 
review that met best practice standards at program start increased by a 
modest average of 4.8 percent more than the first full estimate, 
whereas the costs for the programs that did not meet these standards 
increased by a much higher average of 34.9 percent more than the first 
full estimate. The bottom line is that these consequences are 
predictable and, thus, preventable. 

The third cause has to do with the lack of accountability. DOD 
officials are not always held accountable when programs go astray. 
Likewise, contractors are not always held accountable when they fail to 
achieve desired acquisition outcomes. In December 2005, we reported 
that DOD gives its contractors the opportunity to collectively earn 
billions of dollars through monetary incentives.[Footnote 55] 
Unfortunately, we found DOD programs routinely engaged in practices 
that failed to hold contractors accountable for achieving desired 
outcomes and undermined efforts to motivate contractor performance, 
such as: 

* evaluating contractor performance on award-fee criteria that are not 
directly related to key acquisition outcomes (e.g., meeting cost and 
schedule goals and delivering desired capabilities to the warfighter); 

* paying contractors a significant portion of the available fee for 
what award-fee plans describe as "acceptable, average, expected, good, 
or satisfactory" performance, which sometimes did not require meeting 
the basic requirements of the contract; and: 

* giving contractors at least a second opportunity to earn initially 
unearned or deferred fees. 

As a result, DOD has paid out an estimated $8 billion in award fees on 
contracts in our study population, regardless of whether acquisition 
outcomes fell short of, met, or exceeded DOD's expectations. For 
example, we found that DOD paid its contractor for a satellite program-
-the Space-Based Infrared System High--74 percent of the award fee 
available, $160 million, even though research and development costs 
increased by more than 99 percent, and the program was delayed for many 
years and was rebaselined three times. In another instance, DOD paid 
its contractor for the F-22A aircraft more than $848 million, 91 
percent of the available award fee, even though research and 
development costs increased by more than 47 percent, and the program 
had been delayed by more than 2 years and rebaselined 14 times. Despite 
paying billions of dollars in award and incentive fees, DOD has not 
compiled data or developed performance measures to validate its belief 
that award and incentive fees improve contractor performance and 
acquisition outcomes. 

Similarly, DOD officials are rarely held accountable when programs go 
astray. There are several reasons for this, but the primary ones 
include the fact that DOD has never clearly specified who is 
accountable for what, invested responsibility for execution in any 
single individual, or even required program leaders to stay until the 
job is done. Moreover, program managers are not empowered to make go or 
no-go decisions, they have little control over funding, they cannot 
veto new requirements, and they have little authority over staffing. 
Because there is frequent turnover in their positions, program managers 
also sometimes find themselves in the position of having to take on 
efforts that are already significantly flawed. 

There are many other factors that play a role in causing weapons 
programs to go astray. They include workforce challenges, poor 
contractor oversight, frequent turnover in key leadership, and a lack 
of systems engineering, among others. Moreover, many of the business 
processes that support weapons development--strategic planning and 
budgeting, human capital management, infrastructure, financial 
management, information technology, and contracting--are beset with 
pervasive, decades-old management problems, including outdated 
organizational structures, systems, and processes. In fact, all of 
these areas--along with weapon systems acquisition--are on our high- 
risk list of major government programs and operations. 

Our work shows that acquisition problems will likely persist until DOD 
provides a better foundation for buying the right things, the right 
way. This involves making tough trade-off decisions as to which 
programs should be pursued and, more importantly, not pursued, making 
sure programs are executable, locking in requirements before programs 
are started, and making it clear who is responsible for what and 
holding people accountable when these responsibilities are not 
fulfilled. These changes will not be easy to make. They require DOD to 
reexamine the entirety of its acquisition process and to make deep- 
seated changes to the setting, funding, and execution of program 
requirements. In other words, DOD would need to revisit who sets 
requirements and strategy, and who monitors performance, and what 
factors to consider in selecting and rewarding contractors. It also 
involves changing how DOD views success, and what is necessary to 
achieve success. I am encouraged by DOD's recent efforts to improve the 
collaboration and consultation between the requirements and acquisition 
communities. The test of these efforts will be whether they produce 
better decisions. If they do, it is important that they are sustained 
by more than the force of personality. 

Buying major systems is not the only area where DOD needs to improve 
its acquisition practices. For example, DOD's management of its 
contracts has been on our high-risk list since 1992. Our work has found 
that DOD is unable to ensure that it is using sound business practices 
to acquire the goods and services needed to meet the warfighter's 
needs, creating unnecessary risks and paying higher prices than 
justified. In this regard, in a March 2005 report, we concluded that 
deficiencies in DOD's oversight of service contractors could place DOD 
at risk of paying the contractors more than the value of the services 
they performed.[Footnote 56] In June 2006, we reported that personnel 
at the Defense Logistics Agency were not consistently reviewing prices 
for commodities acquired under its Prime Vendor Program.[Footnote 57] 
We noted that until DOD provides sufficient management oversight, the 
program will remain vulnerable to the systemic pricing problems that 
have plagued it in the past. Earlier this year, we reported that the 
Army acquired security guard services under an authorized sole-source 
basis, despite recognizing that it was paying about 25 percent more 
than it had under contracts that had been previously awarded 
competitively.[Footnote 58] We recommended that the Army reassess its 
acquisition strategy to help make the best use of taxpayer dollars and 
achieve its desired outcomes. In other reports, we identified numerous 
issues in DOD's use of interagency contracting vehicles that 
contributed to poor acquisition outcomes. 

Until the department devotes sufficient management attention to address 
these long-standing issues, DOD remains at risk of wasting billions of 
dollars and failing to get the goods and services it needs to 
accomplish its missions. 

DOD Supply Chain Management: 

Since the January 2005 update of the high-risk series, DOD has made 
some progress toward addressing supply chain management problems. With 
the encouragement of OMB, DOD has developed a plan to show progress 
toward the long-term goal of resolving problems and removing supply 
chain management from our list of high-risk areas within the 
department. DOD issued the first iteration of the plan in July 2005 
and, since then, has regularly updated it. Based on our initial review 
of the plan, we believe it is a solid first step toward improving 
supply chain management in support of the warfighter. For example, 
DOD's plan identifies three key areas--requirements forecasting, asset 
visibility, and materiel distribution--that we believe are critical to 
DOD's efforts to improve supply chain management. The plan highlights 
selected DOD supply chain initiatives, including key milestones in 
their development. Within the last year, for example, DOD has made some 
progress in streamlining the storage and distribution of defense 
inventory items on a regional basis as part of its Joint Regional 
Inventory Materiel Management initiative. DOD has completed a pilot for 
this initiative in the San Diego region and, in January 2006, began a 
similar transition for inventory items in Oahu, Hawaii. Notwithstanding 
this positive first step, the department faces challenges and risks in 
successfully implementing its proposed changes across the department 
and measuring progress in resolving supply chain management problems. 
It will be important for DOD to sustain top leadership commitment and 
long-term institutional support for the plan; obtain necessary resource 
commitments from the military services, the Defense Logistics Agency, 
and other organizations; implement its proposed initiatives across the 
department; identify performance metrics and valid data to use in 
monitoring the initiatives; and demonstrate progress toward meeting 
performance targets. We have been holding monthly meetings with DOD and 
OMB officials to receive updates on the plan and gain a greater 
understanding of the ongoing initiatives. In addition, we are 
continuing to review the performance measures DOD is using to track the 
plan's progress in resolving supply chain problems and DOD's efforts to 
develop a comprehensive, integrated, and enterprisewide strategy to 
guide logistics programs and initiatives. DOD is working on a logistics 
road map, referred to as the "To Be" road map, which provides a vision 
for future logistics programs and initiatives, including supply chain 
management; identifies capability gaps; and links programs with 
investments. However, the schedule for completing the initial road map 
has recently slipped. Until the road map is completed, we will not be 
able to assess how it addresses the challenges and risks DOD faces in 
its supply chain management efforts. 

DOD Personnel Security Clearance Program: 

DOD's personnel security clearance program is another area that we 
continue to assess because of the risks it poses. For over two decades, 
we have reported on problems with DOD's personnel security clearance 
program as well as the financial costs and risks to national security 
resulting from these problems. For example, at the turn of the century, 
we documented problems such as incomplete investigations, inconsistency 
in determining eligibility for clearances, and a backlog of overdue 
clearance reinvestigations that exceeded 500,000 cases. More recently 
in 2004, we identified continuing and new impediments hampering DOD's 
clearance program and made recommendations for increasing the 
effectiveness and efficiency of the program. These long-standing delays 
in completing hundreds of thousands of clearance requests for 
servicemembers, federal employees, and industry personnel as well as 
numerous impediments that hinder DOD's ability to accurately estimate 
and eliminate its clearance backlog led us to declare DOD's personnel 
security clearance program a high-risk area in January 2005. Since 
then, we have issued a report and participated in four hearings that 
addressed issues related to DOD's program.[Footnote 59] Among other 
things, our September 2006 report showed that the 2,259 industry 
personnel granted eligibility for a top secret clearance in January and 
February 2006 had waited an average of 471 days. Also, our reviews of 
50 of the cases for completeness revealed that required information was 
not included in almost all of the cases. While positive steps--such as 
(1) the development of an initial version of a plan to improve security 
clearance processes governmentwide and (2) high-level involvement from 
OMB--have been taken toward addressing the problems, other recent 
events such as DOD halting the processing of all new clearance requests 
for industry personnel on April 28, 2006, reveal continuing problems 
with DOD's personnel security clearance program. 

DOD Support Infrastructure Management: 

Since 1997, GAO has identified DOD's management of its support 
infrastructure as a high-risk area because infrastructure costs 
continue to consume a larger than necessary portion of its budget. DOD 
officials have been concerned for several years that much of the 
department's infrastructure is outdated, inadequately maintained, and 
that DOD has more infrastructure than needed, which impacts its ability 
to devote more funding to weapon systems modernization and other 
critical needs. Inefficient management practices and outdated business 
processes have also contributed to the problem. 

While DOD has made progress and expects to continue making improvements 
in its support infrastructure management, DOD officials recognize they 
must achieve greater efficiencies. To its credit, the department has 
given high-level emphasis to reforming its support operations and 
infrastructure since we last reported on this high-risk area, including 
efforts to reduce excess infrastructure, promote transformation, and 
foster jointness through the 2005 base realignment and closure (BRAC) 
process. Also, DOD is updating its Defense Installations Strategic Plan 
to better address infrastructure issues, and has revised its 
installations readiness reporting to better measure facility 
conditions, established core real property inventory data requirements 
to better support the needs of real property asset management, and 
continued to modify its suite of analytical tools to better forecast 
funding requirements for installation management services. It has also 
achieved efficiencies through privatizing military family housing and 
demolishing unneeded buildings at military installations. 

Our engagements examining DOD's management of its facilities 
infrastructure indicates that much work remains for DOD to fully 
rationalize and transform its support infrastructure to improve 
operations, achieve efficiencies, and allow it to concentrate its 
resources on the most critical needs, as the following illustrates. 

* In July 2005, we reported on clear limitations associated with 
achieving DOD's projected $50 billion in savings from this BRAC round. 
While DOD offered many proposed actions in the 2005 round, these 
actions were more related to business process reengineering and 
realignment of various functions and activities than base closures and 
actual facility reductions. Moreover, sizable savings were projected 
from efficiency measures and other actions, but many underlying 
assumptions had not been validated and could be difficult to track over 
time. We have ongoing work monitoring actions emanating from the 2005 
BRAC process and assessing costs and savings from those actions, and 
will be able to comment further on the status of these initiatives over 
the next several years as implementation actions progress. 

* In June 2005, we reported that hundreds of millions of operation and 
maintenance dollars designated for facilities' sustainment, 
restoration, and modernization and other purposes were moved by the 
services to pay for base operations support (BOS) due in part to a lack 
of a common terminology across the services in defining BOS functions, 
as well as the lack of a mature analytic process for developing 
credible and consistent requirements.[Footnote 60] While these funding 
movements are permissible, we found that they were disruptive to the 
orderly provision of BOS services and contributed to the overall 
degradation of facilities, which adversely affects the quality of life 
and morale of military personnel. In another report issued in June 
2005, we reported that many of DOD's training ranges were in 
deteriorated condition and lacked modernization, which adversely 
affected training activities and jeopardized the safety of military 
personnel.[Footnote 61] 

* In an April 2006 report, we identified several opportunities for DOD 
and the services to improve their oversight and monitoring of the 
execution and performance of awarded privatized housing 
projects.[Footnote 62] We further reported that 36 percent of awarded 
privatization projects had occupancy rates below expectations even 
though the services had begun renting housing units to parties other 
than military families, including units rented to single or 
unaccompanied servicemembers, retired military personnel, civilians and 
contractors who work for DOD, and civilians from the general public. 
Factors contributing to occupancy challenges include increased housing 
allowances, which have made it possible for more military families to 
live off base thus reducing the need for privatized housing, and the 
questionable reliability of DOD's housing requirements determination 
process, which could result in overstating the need for privatized 
housing. 

* During recent visits to installations in the United States and 
overseas, service officials continue to report inadequate funding to 
provide both base operations support and maintain their facilities. 
They express concern that unless this is addressed, future upkeep and 
repair of many new facilities to be constructed as a result of BRAC, 
overseas rebasing, and the Army's move to the modular brigade structure 
will suffer and the condition of their facilities will continue to 
deteriorate. 

* We have also found that DOD's outline of its strategic plan for 
addressing this high-risk area had a number of weaknesses and warranted 
further clarification and specification. We have met with OMB and DOD 
officials periodically to discuss the department's efforts to address 
this high-risk area. 

Through our monitoring of DOD activities between now and the next 
several years for base closures and overseas basing, we will be able to 
determine what other work needs to be done on issues associated with 
DOD's management of its support infrastructure, as well as provide a 
more complete assessment of costs, savings, and overall benefits 
realized from the department's efforts to address these issues. 
Organizations throughout DOD will need to continue reengineering their 
business processes and striving for greater operational effectiveness 
and efficiency. DOD will also need to develop a comprehensive, long- 
range plan for its infrastructure that addresses facility requirements, 
recapitalization, and maintenance and repair, as well as to provide 
adequate resources to meet these requirements and halt the degradation 
of facilities and services. 

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 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] Ronald W. Reagan National Defense Authorization Act for Fiscal Year 
2005, Pub. L. No. 108-375, § 332 (2004) (codified in part at 10 U.S.C. 
§§ 186 and 2222). 

[3] GAO, Defense Management: Foundational Steps Being Taken to Manage 
DOD Business Systems Modernization but Much Remains to be Accomplished 
to Effect True Business Transformation, GAO-06-234T (Washington, D.C.: 
Nov. 9, 2005). 

[4] John Warner National Defense Authorization Act for Fiscal Year 
2007, Pub. L. No. 109-364 (2006). 

[5] John Warner National Defense Authorization Act for Fiscal Year 
2007, Pub. L. No. 109-364 (2006). 

[6] The Committee originally asked GAO to comment on sec. 804 of the 
Senate bill, S. 2766, which, with some changes, has now been enacted as 
sec. 816. 

[7] 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). 

[8] 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). 

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

[10] Although not major DOD components, the Military Retirement Fund 
received an unqualified audit opinion on its fiscal year 2005 financial 
statements, and the DOD Medicare Eligible Retiree Health Care Fund 
received a qualified audit opinion on its fiscal year 2005 financial 
statements. 

[11] See for example, GAO, Department of Defense: Sustained Leadership 
is Critical to Effective Financial and Business Management 
Transformation, GAO-06-1006T (Washington, D.C.: Aug. 3, 2006); DOD's 
High-Risk Areas: Successful Business Transformation Requires Sound 
Strategic Planning and Sustained Leadership, GAO-05-520T (Washington, 
D.C.: Apr. 13, 2005); and DOD Financial Management: Integrated 
Approach, Accountability, Transparency, and Incentives Are Keys to 
Effective Reform, GAO-02-497T (Washington, D.C.: Mar. 6, 2002). 

[12] U.S. Department of Defense, Defense Financial Improvement and 
Audit Readiness Plan (Washington, D.C.: Sept. 30, 2006). 

[13] U.S Department of Defense, DOD Plan for Improvement in the GAO 
High Risk Area of Supply Chain Management with a Focus on Inventory 
Management and Distribution, (Washington, D.C.: September 2006). 

[14] GAO, Defense Management: Foundational Steps Being Taken to Manage 
DOD Business Systems Modernization, but Much Remains to be Accomplished 
to Effect True Business Transformation, GAO-06-234T (Washington, D.C.: 
Nov. 9, 2005). 

[15] According to DOD, 21 systems and initiatives have been transferred 
under the BTA as of Oct. 31, 2006. 

[16] National Defense Authorization Act for Fiscal Year 2004, Pub. L. 
No. 108-136, § 1101 (2003) (codified in part at 10 U.S.C. § 9903). 

[17] GAO-06-406T and GAO, Business Systems Modernization: DOD Continues 
to Improve Institutional Approach, but Further Steps Needed, GAO-06-658 
(Washington, D.C.: May 15, 2006). 

[18] A federated architecture is an architecture that is composed of a 
set of coherent, but distinct, entity architectures. The entities or 
members of the federation collaborate to develop an integrated 
enterprise architecture that conforms to the enterprise view and to the 
overarching rules of the federation. 

[19] A service-oriented architecture is an approach for sharing 
functions and applications across an organization by designing them as 
discrete, reusable, business-oriented services. These services need to 
be, among other things, (1) self-contained, meaning that they do not 
depend on any other functions or applications to execute a discrete 
unit of work; (2) published and exposed as self-describing business 
capabilities that can be accessed and used; and (3) subscribed to via 
well-defined and standardized interfaces instead of unique, tightly 
coupled connections. Such a service orientation is thus not only 
intended to promote the reduced redundancy and increased integration 
that any architectural approach is designed to achieve, but to also 
provide the kind of flexibility needed to support a quicker response to 
changing and evolving business requirements and emerging conditions. 

[20] 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) and 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). 

[21] GAO-06-658. 

[22] Ronald W. Reagan National Defense Authorization Act for Fiscal 
Year 2005, Pub. L. No. 108-375, § 332 (2004) (codified in part at 10 
U.S.C. § 2222). 

[23] The United States Standard General Ledger provides a uniform chart 
of accounts and technical guidance used in standardizing federal agency 
accounting. 

[24] SFIS is the department's common financial business language. 

[25] GAO-06-658. 

[26] 10 U.S.C. §2222(d). 

[27] GAO, Enterprise Architecture: Leadership Remains Key to 
Establishing and Leveraging Architectures for Organizational 
Transformation, GAO-06-831 (Washington, D.C.: August 2006). 

[28] GAO-06-831. 

[29] GAO, Information Technology: A Framework for Assessing and 
Improving Enterprise Architecture Management (Version 1.1), GAO-03-584G 
(Washington, D.C.: April 2003). 

[30] GAO-06-658. 

[31] GAO-06-219. 

[32] GAO-06-658. 

[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 and 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] 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. 

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

[37] GAO-04-615. 

[38] See, for example, GAO-06-234T. 

[39] GAO, DOD Systems Modernization: Management of Integrated Military 
Human Capital Program Needs Additional Improvements, GAO-05-189 
(Washington, D.C.: Feb 11, 2005). 

[40] MCTFS is the Marine Corps' integrated personnel and pay system. 

[41] GAO, Defense Travel System: Reported Savings Questionable and 
Implementation Challenges Remain, GAO-06-980 (Washington, D.C.: Sept. 
26, 2006). 

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

[43] Ronald W. Reagan National Defense Authorization Act for Fiscal 
Year 2005, Pub. L. No. 108-375, § 332 (2004) (codified, in part at 10 
U.S.C. §§ 186 and 2222). 

[44] DOD, DOD IT Business Systems Investment Review Process: Investment 
Certification and Annual Review Process User Guidance (Apr. 10, 2006). 

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

[46] 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). 

[47] 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). 

[48] Pub. L. No. 109-163, § 376, 119 Stat. 3136, 3213 (2006). 

[49] Pub. L. No. 109-364, § 321, 120 Stat. 2083 (2006). 

[50] John Warner National Defense Authorization Act for Fiscal Year 
2007, Pub. L. No. 109-364 (2006). 

[51] The Committee originally asked GAO to comment on sec. 804 of the 
Senate bill, S. 2766, which, with some changes, has now been enacted as 
sec. 816. 

[52] Pub. L. No. 107-107, §1008, 115 Stat. 1012, 1204 (Dec. 28, 2001). 

[53] GAO, Defense Acquisitions: Assessments of Selected Major Weapon 
Programs, GAO-06-391 (Washington, D.C.: Mar. 31, 2006). 

[54] DOD's policy states technologies should be demonstrated in at 
least a relevant environment before a program enters system 
development; whereas, GAO utilizes the best practice standard that 
calls for technologies to be demonstrated one step higher-- 
demonstration in an operational environment. 

[55] GAO, Defense Acquisitions: DOD Has Paid Billions in Award and 
Incentive Fees Regardless of Acquisition Outcomes, GAO-06-66 
(Washington, D.C.: Dec. 19, 2005); and Defense Acquisitions: DOD Wastes 
Billions of Dollars through Poorly Structured Incentives, GAO-06-409T 
(Washington, D.C.: Apr. 5, 2006). 

[56] GAO, Contract Management: Opportunities to Improve Surveillance on 
Department of Defense Service Contracts, GAO-05-274 (Washington, D.C.: 
Mar. 17, 2005). 

[57] GAO, Defense Management: Attention is Needed to Improve Oversight 
of DLA Prime Vendor Program, GAO-06-739R (Washington, D.C.: June 19, 
2006). 

[58] GAO, Contract Security Guards: Army's Guard Program Requires 
Greater Oversight and Reassessment of Acquisition Approach, GAO-06-284 
(Washington, D.C.: Apr. 3, 2006). 

[59] GAO, DOD Personnel Clearances: Additional OMB Actions Are Needed 
to Improve the Security Clearance Process , GAO-06-1070 (Washington, 
D.C.: Sept. 28, 2006); DOD Personnel Clearances: New Concerns Slow 
Processing of Clearances for Industry Personnel, GAO-06-748T 
(Washington, D.C.: May 17, 2006); DOD Personnel Clearances: Funding 
Challenges and Other Impediments Slow Clearances for Industry 
Personnel, GAO-06-747T (Washington, D.C.: May 17, 2006); DOD Personnel 
Clearances: Government Plan Addresses Some Longstanding Problems with 
DOD's Program, But Concerns Remain, GAO-06-233T (Washington, D.C.: Nov. 
9, 2005); and DOD Personnel Clearances: Some Progress Has Been Made but 
Hurdles Remain to Overcome the Challenges That Led to GAO's High-Risk 
Designation, GAO-05-842T (Washington, D.C.: June 28, 2005). 

[60] GAO, Defense Infrastructure: Issues Need to Be Addressed in 
Managing and Funding Base Operations and Facilities Support, GAO-05-556 
(Washington, D.C.: June 15, 2005). 

[61] GAO, Military Training: Better Planning and Funding Priority 
Needed to Improve Conditions of Military Training Ranges, GAO-05-534 
(Washington, D.C.: June 10, 2005). 

[62] GAO, Military Housing: Management Issues Require Attention as the 
Privatization Program Matures, GAO-06-438 (Washington, D.C.: Apr. 28, 
2006). 

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