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United States Government Accountability Office: 

DOD Transformation Challenges and Opportunities: 

The Honorable David M. Walker: Comptroller General of the United 

Department of Defense: FY 2008 Managers’ Internal Control Program 
Fort McNair, Washington, DC: 
November 29, 2007: 


The Case for Change: 

The federal government is on a “burning platform,” and the status quo 
way of doing business is unacceptable for a variety of reasons, 

* Past fiscal trends and significant long-range challenges; 

* Selected trends and challenges having no boundaries; 

* Additional resource demands due to Iraq, Afghanistan, incremental 
homeland security needs, and recent natural disasters in the United 

* Numerous government performance/accountability and high risk 

* Outdated federal organizational structures, policies, and practices; 

* Rising public expectations for demonstrable results and enhanced 

Composition of Federal Spending: 

[See PDF for image] - graphic text: 

There are three pie charts, containing the following compositions of 
spending by category: 

Year: 1966;
Defense: 43%;
Social Security: 15%; 
Medicare and Medicaid: 1%; 
Net Interest: 7%; 
All Other: 34%. 

Year: 1986;
Defense: 28%;
Social Security: 20%; 
Medicare and Medicaid: 10%; 
Net Interest: 14%; 
All Other: 29%. 

Year: 2006;
Defense: 20%;
Social Security: 21%; 
Medicare and Medicaid: 19%; 
Net Interest: 9%; 
All Other: 32%. 

Source: Office of Management and Budget and the Department of the 

Note: Numbers may not add to 100 percent due to rounding. 

[End of figure] 

Federal Spending for Mandatory and Discretionary Programs: 

[See PDF for image] - graphic text: 

There are three pie charts, containing the following compositions of 
spending by category: 

Year: 1966;
Discretionary: 67%; 
Mandatory: 26%; 
Net Interest: 7%. 

Year: 1986;
Discretionary: 44%; 
Mandatory: 42%; 
Net Interest: 14%. 

Year: 2006;
Discretionary: 38%; 
Mandatory: 53%; 
Net Interest: 9%. 

Source: Office of Management and Budget. 

[End of figure] 

Table: Fiscal Year 2005 and 2006 Deficits and Net Operating Costs: 

On-Budget Deficit, Fiscal Year 2005 ($ Billion): (494); 
On-Budget Deficit, Fiscal Year 2006 ($ Billion): (434); 

Unified Deficit[a], Fiscal Year 2005 ($ Billion): (318); 
Unified Deficit[a], Fiscal Year 2006 ($ Billion): (248); 

Net Operating Cost[b], Fiscal Year 2005 ($ Billion): (760); 
Net Operating Cost[b], Fiscal Year 2006 ($ Billion): (450); 

Sources: Office of Management and Budget and Department of the 

[a] Includes $173 billion in Social Security surpluses for fiscal year 
2005 and $185 billion for fiscal year 2006; $2 billion in Postal 
Service surpluses for fiscal year 2005 and $1 billion for fiscal year 

[b] Fiscal year 2005 and 2006 net operating cost figures reflect 
significant but opposite changes in certain actuarial costs. For 
example, changes in interest rates and other assumptions used to 
estimate future veterans’ compensation benefits increased net operating 
cost by $228 billion in 2005 and reduced net operating cost by $167 
billion in 2006. Therefore, the net operating costs for fiscal years 
2005 and 2006, exclusive of the effect of these actuarial cost 
fluctuations, were ($532) billion and ($617) billion, respectively. 

[End of table] 

Potential Fiscal Outcomes Under Alternative Simulation; Revenues and 
Composition of Spending as a Share of GDP: 

[See PDF for image] - graphic text. 

This is a line/stacked bar graph with one line (revenue) and four 
stacked bars containing four spending items (Net interest, Social 
Security, Medicare and Medicaid, and All other spending). The vertical 
axis represents Percent of GDP and the horizontal axis represents 
fiscal years 2006, 2015, 2030, and 2040. 

The following data is depicted: 

Fiscal year 2006: 
Net interest: 1.7%; 
Social Security: 4.2%; 
Medicare & Medicaid: 3.9%; 
All other spending: 10.6%; 
Revenue: 18.4%. 

Fiscal year 2015: 
Net interest: 2.3%; 
Social Security: 4.8%; 
Medicare & Medicaid: 5.7%; 
All other spending: 9.6%; 
Revenue: 18%. 

Fiscal year 2030: 
Net interest: 5.8%; 
Social Security: 6.6%; 
Medicare & Medicaid: 8.8%; 
All other spending: 9.6%; 
Revenue: 18.6%. 

Fiscal year 2040: 
Net interest: 11.6%; 
Social Security: 7.2%; 
Medicare & Medicaid: 10.8%; 
All other spending: 9.6%; 
Revenue: 18.6%. 

Source: GAO’s August 2007 analysis. 

Notes: AMT exemption amount is retained at the 2006 level through 2017 
and expiring tax provisions are extended. After 2017, revenue as a 
share of GDP returns to its historical level of 18.3 percent of GDP 
plus expected revenues from deferred taxes, i.e. taxes on withdrawals 
from retirement accounts. Medicare spending is based on the Trustees 
April 2007 projections adjusted for the Centers for Medicare and 
Medicaid Services alternative assumption that physician payments are 
not reduced as specified under current law. 

[End of graph] 

Current Fiscal Policy Is Unsustainable: 

The “Status Quo”is Not an Option: 
* We face large and growing structural deficits largely due to known 
demographic trends and rising health care costs. 
* GAO’s simulations show that balancing the budget in 2040 could 
require actions as large as: 
- Cutting total federal spending by 60 percent or; 
- Raising federal taxes to 2 times today's level. 

Faster Economic Growth Can Help, but It Cannot Solve the Problem: 
* Closing the current long-term fiscal gap based on reasonable 
assumptions would require real average annual economic growth in the 
double digit range every year for the next 75 years. 
* During the 1990s, the economy grew at an average 3.2 percent per 
* As a result, we cannot simply grow our way out of this problem. Tough 
choices will be required. 

The Way Forward: A Three-Pronged Approach: 

1. Improve Financial Reporting, Public Education, and Performance 
2. Strengthen Budget and Legislative Processes and Controls. 3. 
Fundamentally Reexamine & Transform for the Twenty-first Century (i.e., 
entitlement programs, other spending, and tax policy). 

Solutions Require Active Involvement from both the Executive and 
Legislative Branches. 

Twenty-first Century Challenges Report: 

* Provides background, framework, and questions to assist in 
reexamining the base; 

* Covers entitlements & other mandatory spending, discretionary 
spending, and tax policies and programs; 

* Based on GAO’s work for the Congress; 

* Issued February 16, 2005. 

Source: GAO. 

Twelve Reexamination Area: 

Mission Areas:
* Defense; 
* Education & Employment;
* Financial Regulation & Housing;
* Health Care;
* Homeland Security;
* International Affairs;
* Natural Resources, Energy & Environment;
* Retirement & Disability;
* Science & Technology;
* Transportation. 

Crosscutting Areas: 

* Improving Governance; 
* Reexamining the Tax System. 

Illustrative Twenty-first Century Questions: National Defense: 

National defense questions relate to such issues as: 

* The allocation of resources across services and programs to reflect 
threat/risk assessments; 

* Investments in transformational systems and legacy systems, 
considering cost growth and historic schedule delays; 

* Identification and protection of critical technologies; 

* Recruitment, retention, and compensation strategies to ensure that 
DOD maintains a total military and civilian workforce with the right 
mix of skills; 

* The role, size, and structure of forces and capabilities comprising 
the strategic triad; 

*The creation of a CMO. 

GAO’s High-Risk List: 

* Started in 1990 with focus on fraud, waste, abuse, and mismanagement; 

* Evolved to include major economy, efficiency, effectiveness, and 
broad-based transformations needed to address twenty-first century 

* Current focus is on identifying inherent risks, systemic problems, or 
key management functions; 

* Updates issued at the start of each new Congress. 

Table: GAO's High-Risk List 2007: 

Addressing Challenges in Broad-based Transformations: 

* Strategic Human Capital Management[a]: Year Designated: 2001;
* Managing Federal Real Property[a]: Year Designated: 2001;
* Protecting the Federal Government’s Information Systems and the 
* Nations’ Critical Infrastructures: Year Designated: 1997;
* Implementing and Transforming the Department of Homeland Security: 
Year Designated: 2003;
* Establishing Appropriate and Effective Information-Sharing Mechanisms 
to Improve Homeland Security: Year Designated: 2005;
* DOD Approach to Business Transformation[a]: Year Designated: 2005;
- DOD Business Systems Modernization: Year Designated: 1995;
- DOD Personnel Security Clearance Program; Year Designated: 2005;
- DOD Support Infrastructure Management; Year Designated: 1997;
- DOD Financial Management; Year Designated: 1995;
- DOD Supply Chain Management; Year Designated: 1990;
- DOD Weapon Systems Acquisition; Year Designated: 1990;
* FAA Air Traffic Control Modernization; Year Designated: 1995;
* Financing the Nation’s Transportation System[a] (New); Year 
Designated: 2007; 
* Ensuring the Effective Protection of Technologies Critical to U.S. 
National Security Interests[a] (New): Year Designated: 2007; 
* Transforming Federal Oversight of Food Safety[a] (New): Year 
Designated: 2007; 

Managing Federal Contracting More Effectively: 

* DOD Contract Management: Year Designated: 1992;
* DOE Contract Management: Year Designated: 1990;
* NASA Contract Management: Year Designated: 1990;
* Management of Interagency Contracting: Year Designated: 2005; 

Assessing the Efficiency and Effectiveness of Tax Law Administration: 

* Enforcement of Tax Laws[a]: Year Designated: 1990;
* IRS Business Systems Modernization: Year Designated: 1995; 

Modernizing and Safeguarding Insurance and Benefit Programs: 

* Modernizing Federal Disability Programs[a]: Year Designated: 2003;
* Pension Benefit Guaranty Corporation Single-Employer Pension 
Insurance Program: Year Designated: 2003;
* Medicare Program[a]: Year Designated: 1990;
* Medicaid Program[a]: Year Designated: 2003;
* National Flood Insurance Program[a]: Year Designated: 2006. 

[a] Legislation is likely to be necessary, as a supplement to actions 
by the executive branch, in order to effectively address this high-risk 

Source: GAO. 

[End of table] 

DOD’s High Risk Areas (see GAO-07-310): 

Assessing Challenges in Broad-based Transformation: 

* DOD Approach to Business Transformation; 
- Business Systems Modernization; 
- Personnel Security Clearance Program; 
- Support Infrastructure Management; 
- Financial Management; 
- Supply Chain Management; 
- Weapon Systems Acquisition. 

Managing Federal Contracting More Efficiently: 

* Contract Management. 

DOD Faces the Challenge of Balancing Near Term and Long Term Wants, 
Needs, Sustainability, and Affordability: 

* DOD's regular budget has grown from about $296 billion in FY 2001 to 
about $460.3 billion in FY 2008. Funding for the Global War on 
Terrorism (GWOT) has added hundreds of billions of dollars to DOD’s 
available budgetary resources; 

* Near term, DOD is paying for the GWOT and facing challenges in 
maintaining readiness; 

* Long term, DOD must address military pay and benefits and weapons 
modernization and force transformation, which may not be affordable or 

* DOD’s efforts to transform its business systems and processes will 
take many years to achieve, but could free up resources through 
efficiencies and reduction in waste. 

Inflation Adjusted Spending on National Defense (in 2000 Dollars): 

[See PDF for image] 

The figure is a line graph depicting inflation adjusted spending on 
national defense. The vertical axis of the graph represents dollars in 
billions from 0 to 800. The horizontal axis of the graph represents 
fiscal years, from 1940 through 2006. The data depicted is as follows: 

Inflation Adjusted Spending on National Defense: 1940: 16.97; 
1941: 63.46; 
1942: 235.61; 
1943: 573.51; 
1944: 654.62; 
1945: 669.61; 
1946: 321.39; 
1947: 87.37; 
1948: 56.69; 
1949: 79.22; 
1950: 83.94; 
1951: 136.77; 
1952: 257.19; 
1953: 289.33; 
1954: 266.88; 
1955: 229.48; 
1956: 222.52; 
1957: 229.1; 
1958: 229.15; 
1959: 236.22; 
1960: 229.19; 
1961: 232.87; 
1962: 243.01; 
1963: 244.84; 
1964: 248.11; 
1965: 225.48; 
1966: 253.43; 
1967: 301.72; 
1968: 334.26; 
1969: 321.88; 
1970: 302.23; 
1971: 277.91; 
1972: 266.4; 
1973: 247.12; 
1974: 238.49; 
1975: 235.53; 
1976: 227.57; 
1977: 229.72; 
1978: 231.29; 
1979: 238.31; 
1980: 252.34; 
1981: 270.18; 
1982: 297.49; 
1983: 322.73; 
1984: 337.21; 
1985: 362.99; 
1986: 383.68; 
1987: 385.72; 
1988: 385.04; 
1989: 387.49; 
1990: 368.41; 
1991: 324.19; 
1992: 345.23; 
1993: 329.36; 
1994: 311.96; 
1995: 295.15; 
1996: 282.87; 
1997: 282.98; 
1998: 277.22; 
1999: 280.34; 
2000: 294.39; 
2001: 297.73; 
2002: 334.05; 
2003: 380.32; 
2004: 417.52; 
2005: 440.25; 
2006: 449.94. 

[End of figure] 

DOD’s Regular Budget: DOD Regular Appropriation FY 2001-2007 (Excluding 

{See PDF for image] 

This figure is a combination line and vertical bar graph depicting DOD 
regular appropriation, FY 2001-2007 (Excluding GWOT). The vertical axis 
of the graph represents dollars in billions from 0 to 500. The 
horizontal axis of the graph represents nominal dollars for fiscal 
years 2001 through 2007. The line represents constant 2007 dollars. The 
following data is depicted: 

Nominal: $296.42; 
Constant 2007: $351.4; 

Nominal: $327.86; 
Constant 2007: $378.1. 

Nominal: $365.33; 
Constant 2007: $409.8. 

Nominal: $377.50; 
Constant 2007: $411.5. 

Nominal: $400.93; 
Constant 2007: $422.5. 

Nominal: $415.45; 
Constant 2007: $425.5. 

Nominal: $431.30; 
Constant 2007: $431.3. 

Source: GAO analysis of Congressional Research Service and 
appropriations data. 

[End of figure] 

Total Budgetary Resources Provided to DOD: Total Defense Resources 
FY2005 - FY 2007: 

{See PDF for image] 

This figure is a stacked bar graph depicting total defense resources 
for FY 2005 through FY 2007. The vertical axis of the graph represents 
dollars in billions from 0 to 600. The horizontal axis of the graph 
represents fiscal years 2005 - 2007. For each year, the stacked bar 
depicts regular, bridge, and supplemental resources. The following data 
is depicted: 

Regular: 400.93; 
Bridge: 25; 
Supplemental: 75.9. 

Regular: 415.45; 
Bridge: 50; 
Supplemental: 66. 

Regular: 431.34; 
Bridge: 70.5; 
Supplemental: 95.2. 

Source: GAO analysis of Congressional Research Service and 
appropriations data. 

Notes: Bridge, or Title IX, is the section of DOD's regular defense 
appropriation that outlines emergency spending provisions for 
operations in support of GWOT. 

[End of figure] 

DOD’s Reported GWOT Obligations for FY 2001 through FY 2007: 

[See PDF for image] 

This figure is a vertical bar graph depicting DOD’s reported GWOT 
obligations for FY 2001 through FY 2007. The vertical axis of the graph 
represents dollars in billions from 0 to 160. The horizontal axis of 
the graph represents fiscal years from 2001 through 2007. The following 
data is depicted: 

FY 01: $0.20; 
FY 02: $29.90; 
FY 03: $67.10; 
FY 04: $71.30; 
FY 05: $84.80; 
FY 06: $98.40; 
FY 07: $139.75. 

Source: GAO analysis of DOD data. 

Note: Reported GWOT obligations include Operation Noble Eagle, 
Operation Enduring Freedom, and Operation Iraqi Freedom. Figures 
include about $19.4 billion obligated in FY 2002 –FY 2003 that DOD did 
not include in its cost reports. Figures do not include any obligations 
for classified activities. GAO has assessed the reliability of DOD’s 
obligation data and found significant problems, such that they may not 
accurately reflect the true dollar value of GWOT obligations. 

[End of figure] 

Increased Budget Transparency Needed: 

* Changes in DOD’s funding guidance have resulted in billions of 
dollars being added to GWOT requests for what DOD calls the “longer war 
against terror,” making it difficult to distinguish between incremental 
costs to support specific contingency operations and regular budget 

* As a result, FY 2007 and 2008 GWOT requests include funding for items 
generally requested in the regular budget, such as future weapons 
systems, transformation, and increases in end strength; 

* Similarities between DOD’s GWOT and base funding requests, along with 
the duration of GWOT operations, indicate that DOD has reached the 
point where it should build more funding into its base budget to 
increase transparency (between incremental and regular budget costs) 
and to facilitate trade-off decisions; 

* DOD needs to take stronger actions to control GWOT costs by setting 
general parameters to guide commanders’ and services’ cost control 

* GAO has found significant reliability problems with the GWOT cost 
data, which impedes the ability of Congress and others to make informed 
decisions about GWOT costs and related funding needs. 

Balancing Wants, Needs, Sustainability, and Affordability: Maintaining 
Near Term Readiness: 

* Readiness is being measured against two different standards 1) the 
traditional war time missions that units are expected to undertake 
based on their structure, and 2) their currently directed 
missions—primarily, supporting operations in Iraq and Afghanistan; 

* Although there are some concerns with deployed units, the deployed 
units are in better shape to undertake the currently directed missions 
than non-deployed units because they receive priority for personnel and 

* When measured against traditional war time missions, there are 
readiness concerns (equipment, personnel, and training) for both 
deployed and non-deployed units. 

Balancing Wants, Needs, Sustainability, and Affordability: Reexamining 
Active Duty Personnel Pay and Benefits: 

* The cost of active duty pay and benefits was $173 billion in fiscal 
year 2006; 

* Enhanced pay and benefits, including health care costs, increased 
costs to an average of $126,239 per person in FY 2006 from $95,971in FY 

* DOD needs to assess the affordability and sustainability of the 
compensation system and the reasonableness and appropriateness of the 
allocation to cash and benefits and whether changes could more 
efficiently achieve recruiting and retention goals. 

Total Compensation Costs for Fiscal Years 2000 and 2006: 

[See PDF for image] 

This figure is a vertical bar graph depicting total compensation costs 
for fiscal years 2000 and 2006. The vertical axis represents FY 2006 
constant dollars. The horizontal axis represents fiscal years 2000 and 
2006. The following data is depicted: 

2000: 132; 
2006: 173. 

Source: GAO-07-828. 

Note: Our calculations include supplemental funding for the Global War 
on Terrorism. Our calculations do not take into account 95,000 
mobilized reservists who were paid out of active duty costs in fiscal 
year 2006. The per capita costs would be lower if these reservists are 
taken into consideration. 

[End of figure] 

Balancing Wants, Needs, Sustainability, and Affordability: Reexamining 
Health Care Benefits: 

* The cost of TRICARE more than doubled from FY01 to FY05; 

* Costs have grown due to increases in enrollment, benefits, medical 
inflation, and GWOT; 

* TRICARE does not fully utilize market incentives to shape 

* TRICARE has low enrollment fees, deductibles, and other beneficiary 
expenses compared to other plans. 

TRICARE Beneficiaries in Fiscal Year 2005: 

[See PDF for image] 

This figure is a pie-chart, depicting the following data: 

TRICARE Beneficiaries in Fiscal Year 2005: 
TRICARE for Life retirees 
and dependents (generally age 65 and older): 14%; 
Active duty personnel and dependents; 42%; 
Retirees and dependents (generally under age 65); 44%. 

Source: GAO-07-48. 

[End of figure] 

DOD Estimates of Factors Contributing to Increases in DOD’s Health Care 
Costs, 2001-2005: 

[See PDF for image] 

This figure is a pie-chart, depicting the following data: 

DOD Estimates of Factors Contributing to Increases in DOD’s Health Care 
Costs, 2001-2005 

Other Congressionally-Mandated Benefit Changes: 5%; 
TRICARE for Life: 49%; 
GWOT: 6%; 
Medical Inflation: 33%; 
Increase in Retirees and Dependents Under 65: 7%. 

Source: GAO analysis of DOD data. 

[End of figure] 

Balancing Wants, Needs,Sustainability, and Affordability: Funding 
Weapons Modernization and Force Transformation: 

* From fiscal years 2001 to 2006, DOD has doubled its planned 
investments in new systems from about $700 billion to nearly $1.4 
trillion, but this has not produced more stability or better outcomes; 

* DOD is also restructuring forces to execute operations in the new 
security environment more effectively. Although the Army originally 
estimated it could largely equip and staff modular units by spending 
$52.5 billion through fiscal year 2011, the Army now believes it will 
require additional funding to equip modular units through fiscal year 

Systemic Defense Acquisition Challenges: 

1. Service budgets are allocated largely according to top line 
historical percentages rather than Defense-wide strategic assessments 
and current and likely resource limitations. 

2. Capabilities and requirements are based primarily on individual 
service wants versus collective Defense needs(i.e. based on current and 
expected future threats) that are both affordable and sustainable over 

3. Defense consistently over-promises and under-delivers in connection 
with major weapons, information, and other systems(i.e. capabilities, 
costs, quantities, schedule). 

4. Defense often employs a “plug and pray approach” when costs 
escalate(i.e. divide total funding dollars by cost per copy, plug the 
number that can be purchased, then pray that Congress will provide more 
funding to buy more quantities). 

5. Congress sometimes forces the department to buy items (e.g. weapons 
systems) and provide services (e.g. additional health care for non-
actives) that the department does not want and we cannot afford. 

6. DOD tries to develop high risk technologies after programs start 
instead of setting up funding, organizations, and processes to conduct 
high risk technology development activities in low cost 
environments(i.e. technology development is not separated from product 
development). Program decisions to move into design and production are 
made without adequate standards or knowledge. 

7. Program requirements are often set at unrealistic levels, then 
changed frequently as recognition sets in that they cannot be 
achieved.As a result, too much time passes, threats may change, and/or 
members of the user and acquisition communities may simply change their 
mind. The resulting program instability causes cost escalation, 
schedule delays, fewer quantities and reduced contractor 

8. Contracts, especially service contracts, often do not have 
definitive or realistic requirements at the outset in order to control 
costs and facilitate accountability. 

9. Contracts typically do not accurately reflect the complexity of 
projects nor appropriately allocate risk between the contractors and 
the taxpayers(e.g. cost plus, cancellation charges). 

10. Key program staff rotate too frequently thus promoting myopia and 
reducing accountability(i.e. tours based on time versus key 
milestones). Additionally, the revolving door between industry and the 
Department presents potential conflicts of interest. 

11. The acquisition workforce faces serious challenges(e.g. size, 
skills, knowledge, succession planning). 

12. Incentive and award fees are often paid based on contractor 
attitudes and efforts versus positive results(i.e. cost, quality, 

13. Inadequate oversight is being conducted by both the Defense 
Department and the Congress which results in little to no 
accountability for recurring and systemic problems. 

14. Some individual program and funding decisions made within the 
Department and by the Congress serve to undercut sound policies. 

15. Lack of a professional, term-based CMO at DOD serves to slow 
progress on defense transformation and reduce the chance of success in 
the acquisitions/contracting and other key business areas. 

DOD Contract Management Challenges: 

DOD continues to experience poor acquisition outcomes and missed 
opportunities to improve its approach to buying goods and services. For 
example, DOD did not: 

* Employ a strategic approach to acquiring services that enabled it to 
determine whether investments were achieving desired outcomes; 

* Always make sound use of various techniques to acquire goods and 
services (i.e. award and incentive fees, competitive acquisition 

* Have a comprehensive plan to ensure its workforce had the right 
skills and capabilities to manage and assess contractor performance. 

Determining the Appropriate Role of Contractors in Meeting DOD’s Needs: 

* Contractors have an important role to play in the discharge of the 
government’s responsibilities, and in some cases the use of contractors 
can result in improved economy, efficiency, and effectiveness; 

* There may be occasions when contractors are used to provide certain 
services because the government lacks another viable and timely option. 
In such cases, the government may actually be paying more and incurring 
higher risk than if such services were provided by federal employees; 

* Examining the appropriate role for contractors is among the 
challenges in meeting the nation’s defense and other needs in the 
Twenty-first Century. 

Definition of Waste: 

Waste involves the taxpayers as a whole not receiving reasonable value 
for money in connection with any government funded activities due to an 
inappropriate act or omission by players with control over or access to 
government resources (e.g., executive, judicial, or legislative branch 
employees, contractors, grantees, or other recipients). 

Importantly, waste represents a transgression that is less than fraud 
and abuse and most waste does not involve a violation of law. Rather, 
waste relates primarily to mismanagement, inappropriate actions, or 
inadequate oversight. 

Examples of Waste: 

Illustrative examples of underlying causes of waste in the acquisitions 
and contracting area could include: 

* Unreasonable, unrealistic, inadequate, or frequently changing 

* Failure to use competitive bidding in appropriate circumstances; 

* Failure to engage in selected pre-contracting activities for 
contingent events (e.g., hurricanes, military conflicts); 

* Congressional directions (e.g., earmarks), and agency spending 
actions where the action would not otherwise be taken based on an 
objective value and risk assessment and considering available 


Webster's definition: 

* An act, process, or instance of change in structure appearance, or 

* A conversion, revolution, makeover, alteration, or renovation. 

The Objective of Transformation for DOD: 

Creating the future of warfare and protecting our national security 
while improving how the department, including all of its various 
component parts, does business in order to support and sustain our 
position as the world’s preeminent military power within current and 
expected resource limits. 

Selected Potential DOD Transformation Related Actions: 

* Revise the current approach to developing national military strategy 
(e.g., order, integration); 

* Take a longer range, and more enterprise-wide approach to program 
planning and budget integration (e.g., life cycles, opportunity costs); 

* Employ a more strategic and integrated approach to business 
information system efforts and financial audit initiatives; 

* Differentiate between war fighting and business systems development, 
implementation, and maintenance (e.g., resource control, project 

* Focus on achieving real success in connection with financial 
management efforts (e.g., systems, controls, information, compliance 
and opinions); 

* Employ a total force management approach to planning and execution 
(e.g., military, civilian, contractors); 

* Get the design and implementation of the NSPS right, including 
modernizing and integrating the DOD, Service, domain, unit, and 
individual performance measurement and reward systems; 

* Revise the process for developing and communicating key changes 
(e.g., DOD transformation, NSPS); 

* Reduce the number of layers, silos, and footprints; 

* Recognize the difference between approving and informing; 

* Review and revise current military compensation policies and 
practices (e.g., more targeted and market-based); 

* Strengthen emphasis on horizontal and external activities (e.g., 

* Create a Chief Management Officer (CMO) to drive the business 
transformation process. 

Transformation is a Long-Term Process: 

* DOD is perhaps the largest and most complex organization in the 

* Many of the department’s weaknesses are decades in the making and 
solutions are not easy; 

* Hundreds of dedicated and hardworking DOD employees are focusing on 
these issues; 

* The establishment of the Defense Business Systems Management 
Committee and the Business Transformation Agency are good first steps; 

* A comprehensive strategic planning process and a full-time CMO are 
necessary next steps. 

Effective Management of Services Requires Both Strategic and 
Transactional Efforts: 

A comprehensive approach would use the strategic and transactional 
factors in a complementary manner to tailor management activity to 
ensure preferred outcomes. 

Strategic Level: 
Effective service acquisition requires the leadership, processes, and 
information necessary for mitigating risks, leveraging buying power, 
and managing outcomes. 

Transactional Level: 
Individual service transactions must focus on buying the right thing, 
the right way, while getting the desired outcomes. 

Source: GAO (analysis). 

GAO’s Recommendation for a CMO at DOD: 

GAO has recommended that DOD establish a CMO to provide strong and 
sustained leadership over all major business transformation efforts. 
The CMO should be: 

* Experienced with a proven track record as a business process change 
agent in a large, complex, and diverse organization; 

* Codified in statute as a separate and full-time position; 

* Designated an Executive Level II appointment that reports directly to 
the Secretary of Defense; 

* Subject to an extended term (e.g., 5 to 7 years) that spans 

* A single point within the department with the perspective and 
responsibility, as well as authority, to develop an overall and 
integrated business transformation plan and help to ensure the 
effective implementation of related functional management and business 
transformation efforts. 

Key Leadership Attributes Needed for These Challenging and Changing 

* Courage; 
* Integrity; 
* Creativity; 
* Stewardship; 
* Partnership. 

[End of presentation] 

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