DOD High-Risk Areas: Eliminating Underlying Causes Will Avoid Billions of Dollars in Waste (Testimony, 05/01/97, GAO/T-NSIAD/AIMD-97-143)
GAO discussed Department of Defense (DOD) programs and operations that
GAO has identified as high risk because of vulnerabilities to waste,
fraud, abuse, and mismanagement, focusing on the: (1) high-risk areas of
financial management, information technology, weapon systems
acquisition, contract management, infrastructure, and inventory
management; (2) underlying causes of these high-risk areas; and (3)
overall strategy GAO believes is needed to eliminate them.
GAO noted that: (1) to avoid the risk of waste, fraud, abuse, and
mismanagement, GAO has made hundreds of recommendations to DOD over the
last few years to help correct problems in high-risk areas, and the
Congress has held oversight hearings and enacted specific legislative
initiatives; (2) DOD has taken GAO's suggestions and congressional
direction seriously and has initiated actions that resulted in some
progress in each of the high-risk areas; (3) however, eliminating these
problems requires that their underlying causes be addressed; (4)
effectively attacking the underlying causes will require congressional
support and a commitment by senior-level DOD managers to a multilevel
strategy that: (a) implements GAO's recommendations to correct specific
problems in each of the high-risk areas; and (b) develops and implements
a strategic plan that addresses actions for eliminating the six
high-risk areas; (5) this strategic plan should: (a) include goals,
performance measures, and time frames for completing corrective actions;
(b) identify organizations and individuals accountable for accomplishing
specific goals; and (c) fully comply with legislative requirements of
the Chief Financial Officers Act, Government Performance and Results
Act, Paperwork Reduction Act, and the Clinger-Cohen Act; (6) to help
ensure success of the multilevel strategy, top level management within
DOD needs to be held accountable and have the authority and flexibility
to achieve the desired results; (7) if DOD is successful in attacking
the underlying causes of the problems, the Congress should expect to see
positive outcomes, including: (a) the successful completion of
full-scale financial audits; (b) reductions in operation and support
costs; and (c) the fielding of major weapon and computer systems that
meet cost, schedule, and performance estimates; and (8) if DOD's
multilevel strategy does not result in the elimination of high-risk
areas, the Congress may wish to consider the need for incentives to
reach that goal.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: T-NSIAD/AIMD-97-143
TITLE: DOD High-Risk Areas: Eliminating Underlying Causes Will
Avoid Billions of Dollars in Waste
DATE: 05/01/97
SUBJECT: Defense operations
Financial management
Information technology
Weapons systems
Defense contracts
Military inventories
Program abuses
Fraud
Public administration
Strategic planning
IDENTIFIER: GAO High Risk Program
DOD Chief Financial Officer Financial Management 5-Year Plan
CIM
DOD Corporate Information Management Initiative
DOD Year 2000 Program
DOD Planning, Programming, and Budgeting System
DOD Voluntary Disclosure Program
Defense Information System Network
******************************************************************
** This file contains an ASCII representation of the text of a **
** GAO report. Delineations within the text indicating chapter **
** titles, headings, and bullets are preserved. Major **
** divisions and subdivisions of the text, such as Chapters, **
** Sections, and Appendixes, are identified by double and **
** single lines. The numbers on the right end of these lines **
** indicate the position of each of the subsections in the **
** document outline. These numbers do NOT correspond with the **
** page numbers of the printed product. **
** **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced. Tables are included, but **
** may not resemble those in the printed version. **
** **
** Please see the PDF (Portable Document Format) file, when **
** available, for a complete electronic file of the printed **
** document's contents. **
** **
** A printed copy of this report may be obtained from the GAO **
** Document Distribution Center. For further details, please **
** send an e-mail message to: **
** **
** <info@www.gao.gov> **
** **
** with the message 'info' in the body. **
******************************************************************
Cover
================================================================ COVER
Before the Committee on Governmental Affairs, U.S. Senate
For Release
Expected at
10:00 a.m., EST
Thursday,
May 1, 1997
DOD HIGH-RISK AREAS - ELIMINATING
UNDERLYING CAUSES WILL AVOID
BILLIONS OF DOLLARS IN WASTE
Statement of Henry L. Hinton, Jr., Assistant Comptroller General,
National Security and International Affairs Division
GAO/T-NSIAD/AIMD-97-143
GAO/NSIAD-97-143T
High-Risk Areas
(709257)
Abbreviations
=============================================================== ABBREV
DOD - x
GAO - x
============================================================ Chapter 0
Mr. Chairman and Members of the Committee:
We are pleased to be here today to discuss the Department of Defense
(DOD) programs and operations that we have identified as high risk
because of vulnerabilities to waste, fraud, abuse, and mismanagement.
In 1990, we began reviewing and reporting on high-risk areas
throughout the federal government, and in February 1997, we issued a
series of reports providing the status of such areas. Of the 25
areas we identified as high risk, 6 are within DOD. (See app. I for
a list of our 1997 high-risk reports involving DOD.) DOD's inability
to effectively address problems in its high-risk areas has resulted
in billions of dollars being wasted and places billions of dollars in
future spending at similar risk.
My statement today discusses the
-- high-risk areas of financial management, information technology,
weapon systems acquisition, contract management, infrastructure,
and inventory management;
-- underlying causes of these high-risk areas; and
-- overall strategy we believe is needed to eliminate them.
RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:1
To avoid the risk of waste, fraud, abuse, and mismanagement, we have
made hundreds of recommendations to DOD over the last few years to
help correct problems in high-risk areas, and the Congress has held
oversight hearings and enacted specific legislative initiatives. DOD
has taken our suggestions and congressional direction seriously and
has initiated actions that resulted in some progress in each of the
high-risk areas. However, eliminating these problems requires that
their underlying causes be addressed.
Effectively attacking the underlying causes will require
congressional support and a commitment by senior-level DOD managers
to a multilevel strategy that (1) implements our recommendations to
correct specific problems in each of the high-risk areas and (2)
develops and implements a strategic plan that addresses actions for
eliminating the six high-risk areas. This strategic plan should
include goals, performance measures, and time frames for completing
corrective actions; identify organizations and individuals
accountable for accomplishing specific goals; and fully comply with
legislative requirements of the Chief Financial Officers Act, the
Government Performance and Results Act, the Paperwork Reduction Act,
and the Clinger-Cohen Act. To help ensure success of the multilevel
strategy, top-level management within DOD needs to be held
accountable and have the authority and flexibility to achieve the
desired results.
If DOD is successful in attacking the underlying causes of the
problems, the Congress should expect to see positive outcomes,
including the successful completion of full-scale financial audits;
reductions in operation and support costs; and the fielding of major
weapon and computer systems that meet cost, schedule, and performance
estimates. If DOD's multilevel strategy does not result in the
elimination of high-risk areas, the Congress may wish to consider the
need for incentives to reach that goal.
DOD'S HIGH-RISK AREAS ARE
VULNERABLE TO WASTE, FRAUD,
ABUSE, AND MISMANAGEMENT
-------------------------------------------------------- Chapter 0:1.1
DOD has severe management weaknesses in six high-risk areas:
financial management, information technology, weapon systems
acquisition, contract management, infrastructure, and inventory
management. Due to its lingering financial management problems,
which are among the most severe in government, DOD does not have
accurate information to use in managing its budget of over $250
billion and reported $1 trillion in assets. DOD's efforts to develop
and modernize its computer systems and networks have yielded poor
returns in reducing its operating costs, improving performance, and
supporting sound financial management.
DOD continues to generate and support acquisition of new weapon
systems that will not satisfy the most critical requirements at the
least cost to the government and commit more procurement funds to
programs than can reasonably be expected to be available in future
defense budgets. Many new weapon systems cost more and do less than
anticipated, and schedules are often delayed.
In spite of budget reductions and other changes, DOD's contracting
activity remains substantial, amounting to about $110 billion in
fiscal year 1995. The risks associated with this level of
contracting activity alone are high. The risk increases
substantially when this activity is coupled with (1) continuing
fundamental changes in the acquisition and contracting processes that
have yet to be fully implemented or evaluated and (2) a contract
administration and auditing resource base that has already been
substantially reduced.
Although it has undergone substantial downsizing in force structure,
DOD has not achieved commensurate reductions in operation and support
costs. For example, our analysis of the Army depot system showed
that the Army is not effectively downsizing its remaining depot
maintenance infrastructure to reduce costly excess capacity. In the
case of Army's tactical missile workload, consolidating the workload
at the Tobyhanna depot would improve the utilization of the depot's
capacity and decrease costs by as much as $27 million annually.
Expenditures on wasteful or inefficient infrastructure activities
divert limited defense funds from pressing defense needs such as the
modernization of weapon systems.
Because of fundamental inefficiencies in inventory management systems
and procedures, DOD is vulnerable to wasting billions of dollars on
excess supplies. For example, it is for these inefficiencies that we
find about one-half of DOD's $69.6 billion inventory is beyond the
level needed to support war reserve or current operating
requirements, and DOD continues to buy inventory in excess of what it
needs.
UNDERLYING CAUSES OF THE
HIGH-RISK AREAS HAVE NOT
BEEN FULLY ADDRESSED
-------------------------------------------------------- Chapter 0:1.2
To its credit, DOD has taken actions to correct problems in the
high-risk areas and made progress in some of these areas. For
example, in response to our recommendations, DOD implemented certain
commercial practices in its inventory management area, such as direct
vendor delivery for medical and food items. However, even though
this and other actions are very important, the task of eliminating
the high-risk areas altogether remains to be accomplished. Key to
accomplishing this task is attacking the following underlying causes
of the high-risk areas:
-- Cultural barriers and parochialism limit opportunities for
change. Cultural resistance to change and service parochialism
have contributed to the difficulty of implementing corrective
actions to improve DOD's financial, infrastructure, inventory,
and acquisition systems that are at risk. For example, some
weapon systems are being developed and produced, even though the
Soviet threat upon which they were justified has diminished. It
is not unusual for DOD, due to its culture to continually
generate and support the acquisition of new weapons, to override
the need to satisfy the most critical weapon requirements at
minimal cost.
-- Incentives for seeking and implementing change are lacking. DOD
managers have few incentives to improve the Department's
financial, acquisition, and infrastructure management
approaches. For example, in DOD's culture, the success of a
manager's career depends more often on moving programs and
operations through the DOD process rather than on improving the
process. The fact that a given program costs more than
estimated, takes longer to complete, and does not generate
results or perform as promised is secondary to implementing a
new program.
-- Management data are deficient. DOD decisionmakers are severely
affected by the lack of comprehensive and reliable data for
measuring program costs and results and making well-informed
decisions. For example, better information on the quantity and
location of items in the Department's inventory would help
prevent DOD managers from procuring additional items at one
location that are already on hand at another location. In
addition, reliable information would greatly aid DOD officials
in resolving problems with erroneous contract payments, weapon
system cost overruns, and excessive infrastructure.
-- Clear, results-oriented goals and performance measures are
lacking. In some cases, DOD's strategic goals and objectives
are not linked to those of the military services and defense
agencies, and DOD's guidance tends to lack specificity.
Moreover, several DOD managers said that the Department's
strategic goals are too broad for their organizations to readily
align their activities in support of those goals. Without
clear, hierarchically linked goals and performance measures, DOD
managers lack straightforward road maps showing how their work
contributes to attaining DOD's strategic goals and risk
operating autonomously rather than collectively.
-- Management accountability and follow through have been
inadequate. DOD does not routinely link its performance
measures to specific organizational units or individuals that
have sufficient flexibility, discretion, and authority to
accomplish the desired results. In some departments and
agencies, DOD's top political and career leaders have not
encouraged accountability by providing managers at each level in
the organization with the authority and flexibility to obtain
those results. At both the organizational and managerial
levels, accountability requires results-oriented goals and
performance measures through which to gauge progress. This
accountability helps to guarantee that daily activities remain
focused on achieving the outcomes that DOD is trying to attain.
DOD NEEDS A MULTILEVEL
STRATEGY TO ELIMINATE THE
HIGH-RISK AREAS
-------------------------------------------------------- Chapter 0:1.3
To eliminate the high-risk areas, DOD needs a multilevel strategy
that implements our recommendations to correct specific problems in
each of the six high-risk areas and develops a strategic plan for
eliminating those areas. This strategic plan should include goals,
performance measures, and time frames for completing corrective
actions; identify organizations and individuals that are accountable
for accomplishing specific goals; and provide for annual progress
reports to the Congress on outcomes achieved. In developing the
plan, DOD should comply with the legislative requirements of the
Chief Financial Officers Act, the Government Performance and Results
Act, the Paperwork Reduction Act, and the Clinger-Cohen Act. To help
ensure success of the multilevel strategy, top-level management
within DOD needs to be held accountable and have the authority and
flexibility to achieve the desired results. We believe that the
Deputy Secretary of Defense is the appropriate management level to
develop and implement such a strategy.
DOD NEEDS TO ADDRESS OUR
RECOMMENDATIONS
------------------------------------------------------ Chapter 0:1.3.1
Although DOD's actions on many of our recommendations have resulted
in significant financial savings and improvements in DOD's
operations, numerous recommendations have not been fully
implemented.\1 (See Related GAO Products at the end of this
testimony.) In our 1997 high-risk reports, we recommended that
-- DOD implement a focused, sustained effort to fully realize
meaningful financial management improvements, including
integrating accounting and financial management systems,
accumulating accurate cost information, resolving problem
disbursements, upgrading the financial management workforce and
organization, strengthening internal controls, and reengineering
business practices;
-- DOD establish (1) performance measures to link the use of
information technology to improvements in productivity,
efficiency, and effectiveness of their operations and (2) a
structured process for selecting, controlling, and evaluating
their capital investments in technology to maximize
mission-related benefits and control risks;
-- DOD take much stronger actions to effectively control the
influence of the acquisition culture, such as planning weapon
programs and resources on a joint mission basis, examining cost
and performance tradeoffs among alternatives more rigorously
before a particular approach is chosen, making the war fighters
responsible for participating in the selection of weapon
systems, linking program decisions in a more durable way to
DOD's long-term budget, and aggressively pursuing high-risk
(breakthrough) technology before weapon system research and
development;
-- DOD seek to reengineer and streamline its contracting and
acquisition processes, including the use of new business process
techniques;
-- the Secretary of Defense and the Secretaries of the Army, the
Navy, and the Air Force consider using a variety of means to
achieve infrastructure reductions, including consolidations,
privatization, outsourcing, reengineering, and interservicing
agreements; and
-- DOD (1) establish aggressive milestones for substantially
expanding the use of modern commercial practices; (2) provide
managers with the tools critical to managing inventory
efficiently; and (3) continue to explore other alternatives,
such as business case analysis to identify opportunities for
outsourcing logistics functions.
--------------------
\1 Status of Open Recommendations: Improving Operations of Federal
Departments and Agencies (GAO/OP-97-1, Jan. 24, 1997).
DOD NEEDS A STRATEGIC
PLAN
------------------------------------------------------ Chapter 0:1.3.2
To attack the underlying causes of the high-risk areas, DOD also
needs to develop a strategic plan that establishes results-oriented
goals, performance measures, and time frames for completing
corrective actions; identifies organizations and individuals that are
responsible for accomplishing specific goals; and provides for annual
progress reports to the Congress on outcomes achieved. In developing
the plan, DOD should comply with the following legislation:
-- The expanded Chief Financial Officers Act of 1990 (P.L.
101-576) provides the framework for identifying and correcting
financial management weaknesses and reliably reporting on the
results of financial operations.
-- The Government Performance and Results Act of 1993 (P.L.103-62)
emphasizes managing for results and pinpointing opportunities
for improved performance and increased accountability.
-- The Paperwork Reduction Act of 1995 (P.L. 104-13) requires
federal agencies to use information resources to improve the
efficiency and effectiveness of their operations and fulfillment
of their missions. As such, it is the overarching statute
dealing with the acquisition and management of information
resources.
-- The Clinger-Cohen Act of 1996 (P.L. 104-106) focuses on the
application of information resources in supporting agency
missions and improving agency performance and sets forth
requirements for improving the efficiency and effectiveness of
operations and the delivery of services to the public through
the effective use of information technology. Specifically, the
act requires that DOD establish performance measures that
measure how well its information technology supports its
missions and programs and that evaluations be made of the
results achieved from its information technology investments.
This strategic plan and annual progress reports should be presented
to the Congress to provide a basis for overseeing DOD's improvement
efforts and allow other stakeholders to agree on what actions should
happen and when they should occur. It is important that the Congress
be adequately informed of DOD's plans and outcomes and hold top
officials accountable for implementing the reforms needed to
eliminate all six areas from the high-risk category.
THE CONGRESS SHOULD EXPECT
CERTAIN OUTCOMES AND PRECISE
MEASURES OF PERFORMANCE
-------------------------------------------------------- Chapter 0:1.4
If DOD is successful in eliminating the underlying causes of the six
high-risk areas, the Congress should expect to see, over time,
outcomes showing DOD's progress. These outcomes could include (1)
the successful completion of full-scale financial audits, a primary
catalyst for increasing the reliability of financial data and
improving financial operations; (2) the development of information
technology investment processes and performance measures that link
return-on-investment dollars to mission and program objectives; (3)
the acquisition of major weapon systems within fiscal realities and
the fielding of weapon systems without excessive cost overruns,
schedule delays, or performance shortfalls; (4) the utilization of
proven acquisition and contracting processes that increase
accountability and result in cost savings and other benefits; (5)
reductions in operation and support activities that are commensurate
with force structure reductions; and (6) significant reductions in
the amount of unneeded inventory and annual expenditures for new
inventory.
INCENTIVES MAY BE NEEDED
-------------------------------------------------------- Chapter 0:1.5
If DOD does not make progress in eliminating the underlying causes of
the high-risk areas, the Congress may wish to consider the need for
incentives to stimulate change. We believe that, one of the best
incentives the Congress can apply to foster results-oriented
management is to use performance measurement data in its policy,
program, and resource allocation decisions.\2 Another incentive could
be to allow DOD to use savings from eliminating waste in the
high-risk areas to further improve operations or satisfy other
defense priorities, such as modernization, readiness, and
quality-of-life needs.
--------------------
\2 Executive Guide: Effectively Implementing the Government
Performance and Results Act (GAO/GGD-96-118, June 1996).
LONG-STANDING WEAKNESSES IN
FINANCIAL MANAGEMENT
---------------------------------------------------------- Chapter 0:2
Long-standing weaknesses in DOD's financial operations continue to
severely limit the reliability of the financial information it
provides to the Congress. These weaknesses also result in wasted
resources that undermine DOD's ability to carry out its stewardship
responsibilities, which in fiscal year 1997 included a budget of over
$250 billion and $1 trillion in assets. No military service or major
defense component has withstood the scrutiny of an independent
financial statement audit. DOD has acknowledged many weaknesses and
has a number of financial management reform initiatives underway to
address them. However, it still has a long way to go to meet the
challenges of managing its vast and complex operations with the
business-like efficiency demanded by the Congress and the public.
FINANCIAL MANAGEMENT
WEAKNESSES FALL INTO SIX
AREAS
-------------------------------------------------------- Chapter 0:2.1
In its annual reports to the President and the Congress, DOD
acknowledged a series of financial management problems confronting
the Department, including billions of dollars in disbursements not
matched to specific obligations, overpayments to contractors,
Anti-Deficiency Act violations, and issuance of paychecks to soldiers
after their discharge. While these signs of DOD top leadership
acknowledgement of the Department's financial management problems are
encouraging, DOD must effectively address challenges in the following
six critical areas if its envisioned financial reforms are to be
realized.
-- Accounting and financial management systems need to be
integrated. DOD's existing accounting and financial management
systems are not integrated and lack a standard general ledger.
An integrated, general ledger controlled system is necessary to
provide oversight and control to ensure accurate and complete
accounting for DOD's resources. Under an integrated system
structure, DOD's accounting, finance, logistics, personnel, and
budgetary systems would be closely tied together. However, DOD
acknowledged that its operations are constrained by the military
services operating unique systems, many of which are
incompatible. An example of the effect of DOD's nonintegrated
systems is in the inventory management area. Auditors found
that DOD components purchased unneeded materials, at least in
part because DOD's accounting and logistics systems were not
integrated.
-- Accurate cost data are needed. DOD has acknowledged fundamental
problems with the Department's ability to accumulate reliable
cost data. DOD does not have accurate cost data for almost all
of its assets, such as inventories, equipment, aircraft, and
missiles. In addition, DOD cannot accumulate reliable
information on the costs of its business activities and critical
operations, such as the cost associated with maintaining its
weapon systems in a high state of readiness, or costs related to
its contingency operations. It is critical that managers have
accurate information on actual costs to consider when making
decisions, such as whether to replace or upgrade weapon systems.
-- Disbursement problems need resolution. DOD cannot confirm that
disbursements are charged to the correct appropriation accounts
and that billions of dollars in disbursements can be promptly or
accurately matched with related obligations. DOD has recognized
this as a major area of concern and has a number of initiatives
underway to reduce current problem disbursements. However,
until the Department's problems in this area are corrected, its
ability to detect and correct illegal acts and ensure that funds
are spent as directed by the Congress will continue to be
impaired.
-- Financial management workforce and organization need upgrading.
DOD faces a considerable challenge if it is to put in place a
quality, professional financial management workforce with clear
organizational accountability. DOD has acknowledged that, no
matter how skilled its financial personnel, its manifold
financial failures reflect a large, complex, antiquated
bureaucratic organization structure. For example, the
Department has stated that a dozen organizations are involved in
making a single progress payment on a complex weapon system. In
addition, deficiencies in DOD's financial workforce, such as the
lack of accounting experience, competencies, and adequate
training, have diminished its effectiveness. For example, only
58 percent of the key managers at critical DOD accounting
locations had more than the minimum number of accounting hours
necessary to be classified as an accountant in the federal
government.
-- Internal controls need strengthening. Many basic required
control procedures are either not in place, or are not followed,
such as critical reconciliations, physical counts of
inventories, and reviews of abnormal balances. In its reporting
under the Federal Managers' Financial Integrity Act, DOD
acknowledged over 30 material control weaknesses across a broad
spectrum of its operations. Adherence to basic controls is
necessary to help ensure that DOD's assets are properly
safeguarded against unauthorized acquisition, use, or
disposition. For example, pervasive weaknesses in DOD's general
computer controls place it at risk of improper modification,
theft, inappropriate disclosure, and destruction of sensitive
personnel, payroll, disbursement, or inventory information.
Also, DOD paid millions of dollars in unauthorized military
payroll payments because basic control procedures were not
followed.
-- Financial processes need reengineering. DOD's financial
management operations are plagued with duplicative processes and
business practices that are complex, slow, and error-prone. For
example, before DOD decided to reengineer its travel processes,
they were extremely complicated with over 700 processing centers
and 1,300 pages of regulations. The processes required DOD
employees to go through some 40 steps to get their travel
authorized and reimbursed. DOD acknowledged that it confronts
decades-old problems deeply grounded in the bureaucratic history
and operating procedures developed piecemeal over a period of
decades to accommodate different organizations, each with its
own policies and procedures. Without reengineering, DOD will
have little chance of radically improving these cumbersome and
bureaucratic processes.
INITIATIVES TO ADDRESS
DEFICIENCIES IN FINANCIAL
MANAGEMENT AND REPORTING
-------------------------------------------------------- Chapter 0:2.2
Since 1990, we and DOD auditors have made over 400 recommendations
aimed at correcting the Department's most pressing financial
management weaknesses. The past few years have been marked by DOD's
financial management leadership recognizing the importance of
tackling the broad range of problems confronting the Department in
this area. Through his 5-Year Plan, the Chief Financial Officer has
put in place a vision statement to guide DOD's financial management
reform efforts. As a result, the importance of greater financial
accountability is now clearer throughout DOD.
DOD has begun a number of short- and long-term initiatives intended
to address the Department's long-standing financial management
weaknesses. For example, DOD is working to resolve its problems in
accounting for disbursements, including short-term initiatives
focusing primarily on preventing additional problem disbursements.
Long-term initiatives include projects to consolidate and standardize
selected financial systems and DOD-wide data, including implementing
the U.S. Government Standard General Ledger, a basic requirement.
In addition, DOD has begun several efforts to enhance the
professional skills of its financial personnel and has consolidated
responsibility for accounting systems development into the Defense
Accounting System Program Management Office.
As it looks to the future, DOD must effectively address challenges in
all six critical areas--systems, cost accounting, disbursements,
personnel, internal controls, and business processes--if its
envisioned financial reforms are to realize meaningful financial
management improvements. Specifically, DOD must (1) develop a
comprehensive financial systems inventory and a target financial
management systems architecture, including systems interfaces and
data flows; (2) ensure that the Department's financial management
systems improvement effort has a comprehensive, DOD-wide scope and
sufficient top management involvement and support; (3) determine the
appropriate numbers and skills of personnel needed to implement
financial reforms and utilize an independent board of experts to
advise DOD on its reform efforts; (4) address deep-rooted
organizational emphasis on maintaining "business as usual" across the
Department; and (5) ensure that its initiatives intended to address
the Department's problem disbursements provide for establishing base
line data and comprehensive reporting standards and controls, and
prioritizing the various initiatives to ensure that resources are
allocated to the most severe problem disbursement areas. It will
take a focused, sustained effort for DOD to fully resolve these
challenges.
IMPROVEMENTS NEEDED IN
INFORMATION RESOURCES
MANAGEMENT
---------------------------------------------------------- Chapter 0:3
As with most agencies, DOD faces significant challenges in managing
its information resources. However, the Department's challenges are
amplified by the sheer size of its technology investment, the vast
number of systems (over 10,000) put in place to provide mission
support, and the lack of a clearly articulated and directed
management approach to dealing with the problems. Our work over the
past several years has highlighted problems in the department's
control over investment dollars, managing risks associated with
computer hacking, and--most recently--dealing with the challenges of
the year 2000 problem.
The Paperwork Reduction Act and the Clinger-Cohen Act provide the
framework for managing investments in information technology. These
acts require, in part, a strong Chief Information Officer
organization, defined controls over information technology
investment, and performance measures that better link information
technology investment decisions to program results. Proper
implementation by DOD could result in reducing the risks we have
identified.
TECHNOLOGY INVESTMENT
RESULTS HAVE BEEN
DISAPPOINTING
-------------------------------------------------------- Chapter 0:3.1
DOD spends billions yearly on information technology--about $10
billion yearly on business systems alone--to provide support for
every aspect of its operations. In 1989, the Department started its
Corporate Information Management initiative to take better advantage
of its information technology investments by streamlining operations
and implementing standard information systems supporting such
important business areas as supply distribution, material management,
personnel, finance, and transportation. The results have not been as
anticipated by DOD. While DOD projected $36 billion in savings, its
failure over the past 8 years to implement sound business practices
to control investment dollars and link system modernization practices
to business process improvement efforts has led to an outlay of over
$20 billion with no corresponding savings in return.
DOD is now concentrating on its migration projects, which are being
carried out to reduce the number of legacy systems providing similar
functions by "migrating" to a fewer number of more efficient systems
providing the same or enhanced service. We have found that billions
of dollars have been spent on these projects with little analytical
justification. Rather than relying on a rigorous decision-making
process for information technology investments--as used in leading
organizations, DOD is making system selections without appropriately
analyzing costs, benefits, and technical risks; establishing
realistic project schedules; or considering how business process
improvements could affect technology investments. For example, in
material management, DOD abandoned its system modernization strategy
after spending over $700 million. In the transportation area, DOD
made some investments that are likely to result in a negative return
on investment.\3
--------------------
\3 Defense IRM: Critical Risks Facing New Material Management
Strategy (GAO/AIMD-96-109, Sept. 6, 1996) and Defense
Transportation: Migration Systems Selected Without Adequate Analysis
(GAO/AIMD-96-81, Aug. 29, 1996).
COMPUTER SYSTEMS AND DATA
ARE VULNERABLE TO DISRUPTION
AND UNAUTHORIZED DISCLOSURE
-------------------------------------------------------- Chapter 0:3.2
Malicious attacks on computer systems are an increasing threat to our
nation's welfare. We have found throughout government that billions
of dollars in assets are at risk and vast amounts of sensitive data
are vulnerable to unauthorized disclosure. DOD, with its thousands
of integrated systems and sensitive data, provide an inviting target
to computer hackers. In May 1996, we reported that DOD computer
systems may have experienced as many as 250,000 attacks during 1995
with over 60 percent of these attacks successful in gaining access.
DOD FACES CHALLENGES OF THE
YEAR 2000 PROBLEM
-------------------------------------------------------- Chapter 0:3.3
After midnight on January 1, 2000, many DOD and defense contractor
computer systems will either fail to run or malfunction simply
because the equipment and software were not designed to accommodate
the change of the date to the new millennium. If not corrected, this
problem has the potential to severely impact key operations, such as
command and control, mission planning, supply and maintenance
support, payroll, and contract management. This problem is rooted in
the way dates are recorded and computed in those computer systems
that typically use two digits to represent the year, such as "97"
representing 1997, to conserve electronic data storage and reduce
operating costs. Thus, the year 2000 will be indistinguishable from
1900, 2001 from 1901, and so on, in these systems. As a result of
this ambiguity, defense systems or application programs that use
two-digit dates to perform calculations, comparisons, or sorting may
generate incorrect results or may not work at all when working with
dates after 1999.
There is no easy fix for this problem. Every line of software code,
operating system, and piece of computer hardware must be checked. As
a result, DOD's year 2000 program will likely be the largest and most
complex system conversion effort the Department has ever undertaken.
Strong and effective program management through the five phases
needed to address the year 2000 problem (awareness, assessment,
renovation, validation, and implementation) are essential if defense
agencies are to be successful. DOD has a formidable task: it has an
infrastructure of thousands of systems, millions of lines of
software, more than 2 million computers, and over 10,000 networks
that must all be assessed--and time is running out. DOD has not yet
fully completed the assessment phase, and the more difficult and
time-consuming phases of renovation, validation (testing), and
implementation are yet to come. We estimate that defense agencies
must complete the renovation phase by the end of 1998 at the latest
if they are to allow sufficient time for the validation and
implementation phases.
INITIATIVES TO IMPROVE
RETURN ON INFORMATION
TECHNOLOGY INVESTMENTS
-------------------------------------------------------- Chapter 0:3.4
Our reports and congressional hearings chronicled numerous system
development efforts that suffered from multimillion dollar cost
overruns, schedule slippages measured in years, and dismal
mission-related results. Recognizing the urgent need for
improvement, the Congress passed key reforms in information
technology management. The Paperwork Reduction Act and Clinger-Cohen
Act directed agencies to implement a framework for modern technology
management that is based on practices followed by leading public and
private sector organizations that have successfully used technology
to dramatically improve performance and meet strategic goals. DOD
has plans to improve its current Planning, Programming, and Budgeting
System and incorporate the management improvements that have been
dictated by congressional actions, such as the Government Performance
and Results Act, the Paperwork Reduction Act, and the Clinger-Cohen
Act. We believe that if DOD is to achieve success in this area,
which has proven to be extremely difficult in the past, it will need
to have incentives to motivate decisionmakers into making the
necessary changes over its management of information technology
investments.
We made specific recommendations to DOD for mitigating risks and
improving its management framework and controls in areas such as
information management, information technology investment, system
development, and technical infrastructure. Although DOD has made
some progress, the level of improvement has not yet been sufficient
to bring the problems under control.
COSTLY AND INEFFICIENT
PROCESSES FOR WEAPON SYSTEMS
ACQUISITION
---------------------------------------------------------- Chapter 0:4
Even though DOD's expenditures have produced many of the world's most
capable weapon systems, its processes for acquiring weapon systems
have often proven costly and inefficient. Although DOD's leadership
has emphasized its commitment to reforming its processes, wasteful
practices still add billions of dollars to defense acquisition costs.
MANY WEAPON SYSTEMS COST
MORE AND DO LESS THAN
ANTICIPATED
-------------------------------------------------------- Chapter 0:4.1
Despite its efforts to reform defense weapon systems acquisition, DOD
continues to (1) generate and support acquisition of new weapon
systems that do not satisfy the most critical weapon requirements at
minimal cost and (2) commit more procurement funds to programs than
can reasonably be expected to be available in future defense budgets.
In addition, many new weapon systems cost more and do less than
anticipated, and schedules are often delayed. Moreover, the need for
some of these costly weapons, particularly since the collapse of the
Soviet Union, is questionable. Pervasive problems persist regarding
questionable requirements and solutions that are not the most
cost-effective available; unrealistic cost, schedule, and performance
estimates; questionable program affordability; and the use of
high-risk acquisition strategies. Our work indicates the following:
-- Some requirements and solutions are questionable and not the
most cost-effective. Although the military services conduct
considerable analyses in justifying major acquisitions, these
analyses can be narrowly focused and may not fully consider
alternative solutions, including the joint acquisition of
systems with the other services. In addition, because DOD does
not routinely develop information on joint mission needs and
aggregate capabilities, it has little assurance that decisions
to buy, modify, or retire systems are sound. Our reviews of air
power mission areas found that some planned modernization
programs will add only marginally to already formidable
capabilities, and the need for other weapon systems has been
lessened by the changed national security environment.
-- Cost, schedule, and performance estimates are unrealistic. To
keep cost estimates as low as possible and present attractive
milestone schedules, DOD program sponsors have used unreasonable
assumptions about the pace and magnitude of the technical
effort, material costs, production rates, and savings from
competition. The fact that a given weapon system costs more
than estimated, takes longer to field, and does not perform as
promised is secondary to fielding a new system.
-- Program affordability is questionable. DOD's tendency to
overestimate the funding that would be available in the future,
coupled with the tendency to underestimate program costs, have
resulted in the advent of more programs than can be executed.
As a result, DOD often has to reduce, delay, and stretch out
programs, substantially increasing the cost of each system. In
addition, numerous problems exist with DOD's budgeting and
spending practices for weapon system acquisitions. For example,
our review of the Future Years Defense Program found no
significant net infrastructure or acquisition savings to DOD
between fiscal years 1997 and 2001. Nonetheless, DOD is
pursuing a number of major system acquisition programs on the
assumption that such savings will materialize.
-- Acquisition strategies are high risk. DOD continues its
practice of beginning production of a weapon system before
development, testing, and evaluation are complete. When this
strategy is used, critical decisions are made without adequate
information about a weapon's demonstrated operational
effectiveness, reliability, logistics supportability, and
readiness for production. Also, by rushing into production
before critical tests have been successfully completed, DOD has
purchased weapon systems that do not perform as intended. These
premature purchases have resulted in lower-than-expected
availability for operations and have often led to expensive
modifications.
In today's national security environment, proceeding with low-rate
production without demonstrating that the system will work as
intended should rarely be necessary. Nevertheless, DOD still begins
production of many major and secondary weapons without first ensuring
that the systems will meet critical performance requirements. For
example, the F-22 aircraft program involves considerable technical
risk because it embodies technological advances that are critical to
its operational success. Nevertheless, DOD plans to begin producing
the F-22 aircraft well before beginning initial operational testing
and commit to the production of 70 aircraft at a cost of over $14
billion before initial operational testing is complete.
INITIATIVES TO REFORM THE
WEAPON ACQUISITION SYSTEM
-------------------------------------------------------- Chapter 0:4.2
Since 1990, we reported that cultural changes were needed to (1)
control interservice competition and self-interest that have led to
the acquisition of unnecessary, overlapping, or duplicative
capabilities; (2) discourage the overselling of programs through
optimistic cost, schedule, and performance estimates and the use of
high-risk acquisition strategies; and (3) limit the incorporation of
immature technologies into new weapons to reduce the risk of
technological failures. These problems were discussed in detail in
our cross-cutting reports\4 and reports on individual programs.
DOD's leadership has emphasized its commitment to reforming its
weapon system acquisition processes. DOD's goal is to become the
world's smartest buyer, continuously reinventing and improving the
acquisition process while taking maximum advantage of emerging
technologies that enable business process reengineering. Concerning
"what to buy," DOD is focusing its efforts on (1) greater reliance on
commercial products and processes and (2) more timely infusion of new
technology into new or existing systems. Concerning "how to buy,"
DOD's efforts have been directed at, among other things, increasing
teamwork and cooperation, encouraging risk management rather than
risk avoidance, reducing reporting requirements, and reducing layers
of review and oversight that do not add any value.
DOD is also striving to reduce costs through an initiative known as
"cost as an independent variable." This initiative's assumption is
that, once the system performance and target cost are decided, the
acquisition process will make cost more a constant and less a
variable. This approach to developing new systems is more consistent
with commercial practices, which use market forces to determine the
price at which a new system can be offered. Even though these
initiatives are commendable, the fundamental reforms needed to
improve the weapon systems acquisition process have not yet been
formulated or instituted by DOD.
--------------------
\4 Weapons Acquisition: A Rare Opportunity for Lasting Change
(GAO/NSIAD-93-15, Dec. 1992) and Weapons Acquisition: Low-Rate
Initial Production Used to Buy Weapon Systems Prematurely
(GAO/NSIAD-95-18, Nov. 21, 1994).
LONG-STANDING WEAKNESSES IN
CONTRACT MANAGEMENT
---------------------------------------------------------- Chapter 0:5
Over the last few years, changes have occurred in the defense
contracting environment--both within DOD and the private contractor
community. DOD, recognizing that it could no longer afford to
conduct business as it had in the past, began broad-based changes to
its acquisition and contracting processes. However, these changes
are not yet complete.
CONTRACT MANAGEMENT SYSTEM
NEEDS TO BE IMPROVED AND
SIMPLIFIED
-------------------------------------------------------- Chapter 0:5.1
Despite budget reductions and other changes, DOD's contracting
activities remain substantial, amounting to about $123 billion in
fiscal year 1996. The risk of waste, fraud, abuse, and mismanagement
increases when these activities are coupled with the following
weaknesses:
-- Contract payment process is costly and prone to errors. DOD
continues to pay contractors millions of dollars erroneously as
a result of financial management and accounting control
problems. In recent years, we have reported on DOD's numerous
problems in making accurate payments to defense contractors and
identified millions of dollars in government overpayments,
underpayments, and interest on late payments. Moreover, as of
May 1996, DOD reported that its problem disbursements totaled
$18 billion.
-- Cost-estimating systems are not reliable. We and the Defense
Contract Audit Agency continue to find significant problems with
contractors' cost-estimating systems. Although DOD
administrative contracting officers are responsible for
determining the adequacy of the contractors' cost-estimating
systems and requiring correction if the systems are deficient,
we found that contracting officers were reluctant to use all
available sanctions to encourage contractors to correct
deficiencies. The failure to correct these deficiencies creates
a variety of problems for DOD, including increased costs and
delays in contract award.
-- Participation in DOD's Voluntary Disclosure Program has been
limited. Defense contractors' participation in the Voluntary
Disclosure Program has been relatively limited, and the dollar
recoveries have been modest. From the program's inception in
1986 through September 1994, DOD reported that, of the thousands
of defense contractors, 138 made 325 voluntary disclosures of
potential procurement fraud. In addition, DOD reported
recoveries from these disclosures to be $290 million. However,
this $290 million figure is overstated because it included $75
million in premature progress payments and amounts from
disclosures made before the program.\5
-- Growth in workload requires a new management approach. DOD
plans to increase its procurement budget from $43 billion in
fiscal year 1996 to $60 billion by fiscal year 2001. As
procurement activity increases, the amount of contracting and
the demands for contract administration and audits are also
likely to increase. However, unlike future procurement budgets,
contract administration and audit resources are expected to be
cut back further. By fiscal year 2001, staffing at the Defense
Contract Management Command and the Defense Contract Audit
Agency are expected to be reduced to around 12,650 and 4,200,
respectively, a decrease of about 41 and 32 percent,
respectively, from fiscal year 1991 levels.\6 DOD will need to
be creative in finding ways to meet an expected increase in
demand for contract oversight and be more efficient in using its
existing resources.
--------------------
\5 DOD Procurement: Use and Administration of DOD's Voluntary
Disclosure Program (GAO/NSIAD-96-21, Feb. 6, 1996).
\6 The Defense Contract Management Command administers defense
contracts, and the Defense Contract Audit Agency audits them.
INITIATIVES TO STRENGTHEN
DOD'S CONTRACT MANAGEMENT
-------------------------------------------------------- Chapter 0:5.2
DOD has acknowledged the necessity to improve its contract management
through initiatives such as testing and adopting some best practices.
In the long term, DOD is developing procurement and payment systems
that are linked by sharing common data. This linkage is expected to
allow one-time entry of contract data critical to making correct
payments. DOD plans to implement the payment system in fiscal year
1999 and make both systems fully operational in 2004. In the
meantime, DOD is enhancing its current technologies to further
automate the payment process. DOD is also testing streamlined
payment practices.
In addition, DOD has taken steps to strengthen oversight of its
contractors' estimating systems. Specifically, it issued new
internal guidance for monitoring contractors' cost-estimating systems
and established positions within Defense Contract Management Command
district offices to serve as focal points for overseeing the status
of contractors' cost-estimating systems. DOD now requires a biannual
status report from administrative contracting officers on the status
of outstanding deficiencies in contractors' estimating systems.
According to these reports, the number of estimating system
deficiencies has declined. However, Defense Contract Audit Agency
reports continue to identify proposals that lack complete, accurate,
and current data. According to the Agency, its audits of proposals
saved $5.3 billion over the last 3 fiscal years.
WASTEFUL AND INEFFICIENT
INFRASTRUCTURE ACTIVITIES
---------------------------------------------------------- Chapter 0:6
Despite actions over the last 10 years to reduce operation and
support costs, DOD has wasted billions of dollars annually on
inefficient and unneeded infrastructure activities. Although DOD has
recently downsized its force structure substantially, it has not
achieved commensurate reductions in support activities. These
activities, which DOD generally refers to as its support
infrastructure, include maintaining installation facilities,
providing nonunit training to the force, providing health care to
military personnel and their families, repairing equipment, and
buying and managing spare part inventories. DOD is faced with
transforming its Cold War operating and support infrastructure in
much the same way it has been working to transform its military force
structure. Making this transition is a complex, difficult challenge
that will affect hundreds of thousands of civilian and military
personnel at activities across the nation and overseas.
EXCESS SUPPORT
INFRASTRUCTURE DIVERTS
LIMITED DEFENSE FUNDS
-------------------------------------------------------- Chapter 0:6.1
DOD officials have repeatedly recognized the importance of using
resources for the highest priority operational and investment needs
rather than maintaining unneeded property, facilities, and overhead.
Expenditures on wasteful or inefficient activities divert limited
defense funds from pressing defense needs, such as the modernization
of weapon systems. DOD has programmed reductions in installation
support funding; however, overall infrastructure funding is projected
to remain relatively constant through 2001.
Our work has identified the following areas in which infrastructure
activities can be eliminated, streamlined, or reengineered to be made
more efficient:
-- Laboratory infrastructure includes excess capacity. Although
studies have shown that DOD's laboratories and centers have
excess capacity, the studies have generally recommended
management efficiencies rather than infrastructure reductions.
Despite four base realignment and closure rounds, DOD states
that its research and development laboratory infrastructure
still has an excess capacity of approximately 35 percent.
-- Training costs could be reduced. Since 1972, DOD has obtained
physicians from two sources: the Health Professional
Scholarship Program and DOD's Uniformed Services University of
Health Sciences. However, the cost to educate a physician in
DOD's university program is more than twice as much as the $1.5
million cost of providing scholarships to students in civilian
medical schools. DOD pays tuition, fees, and a monthly stipend
for students enrolled in civilian medical schools, and the
students are obligated to serve 1 year of active duty for each
year of benefits. Medical students in DOD's university program
are on active duty military service, receive pay and benefits
while attending medical school, and incur a 10-year service
obligation.
-- Depot maintenance infrastructure includes excess capacity. At
the time of the 1995 base realignment and closure process, the
DOD depot system had an excess capacity of 40 percent. In
addition, DOD's efforts to shift workloads to the private sector
without downsizing overall depot infrastructure will exacerbate
existing excess capacity problems. For example, our analysis of
the Army depot system showed that the Army is not effectively
downsizing its depot maintenance infrastructure. Its plans to
privatize in-place workloads at closing facilities rather than
transferring them to remaining underutilized facilities would
increase excess capacity in Army depots from 42 to 46 percent,
thus increasing the Army's maintenance depot costs.
-- Overhead costs for transportation services are excessive. DOD's
overhead costs for transportation services are frequently two to
three times the basic cost of transportation. The U.S.
Transportation Command retains an outdated and inefficient,
mode-oriented organizational structure with some collocated
facilities. Each separate component command incurs operation
and support costs, and customers receive bills from each
component command for each mode of transportation rather than a
single intermodal bill from only one component. The separate
billing systems are inefficient, adding people and costs to the
process.
INITIATIVES TO REDUCE
INEFFICIENT AND UNNEEDED
INFRASTRUCTURE ACTIVITIES
-------------------------------------------------------- Chapter 0:6.2
Although we have not completed an in-depth analysis of all the
categories of infrastructure, our work to date has identified
numerous areas in which infrastructure activities can be eliminated,
streamlined, or reengineered to be made more efficient. For example,
we previously identified 13 options that, according to the
Congressional Budget Office, could result in savings of about $11.8
billion during fiscal years 1997 through 2001. However, DOD found
that infrastructure reductions are a difficult and painful process
because achieving significant cost savings requires up-front
investments, the closure of installations, and the elimination of
military and civilian jobs. Breaking down cultural resistance to
change, overcoming service parochialism, and setting forth a clear
framework for a reduced infrastructure are key to avoiding waste and
inefficiency.
WASTEFUL INVENTORY MANAGEMENT
SYSTEMS
---------------------------------------------------------- Chapter 0:7
DOD has wasted billions of dollars on excess supplies because
inherent in DOD's culture is the belief that it is better to overbuy
items than to manage with just the amount of stock needed. If DOD
had used effective inventory management and control techniques and
modern commercial inventory management practices, it would have had
lower inventory levels and avoided the burden and expense of storing
excess inventory. DOD has clearly had some success in addressing its
inventory management problems, but much remains to be done.
EXCESS INVENTORY COSTS
BILLIONS OF DOLLARS
-------------------------------------------------------- Chapter 0:7.1
DOD has reduced its inventory from $92.5 billion in 1989 to $69.6
billion in 1995, a $22.9 billion reduction. However, DOD has not
been as aggressive as possible in implementing modern commercial
practices. It has addressed only about 3 percent of the items for
which commercial practices could be used and is still in the midst of
changing its inventory management culture. About one-half of DOD's
$69.6 billion inventory is beyond the level needed to support war
reserve or current operating requirements. Additionally, DOD spends
millions of dollars each year to manage and maintain unnecessary
inventory. DOD still lacks adequate oversight of its inventory,
financial accountability remains weak, and requirements continue to
be overstated. Our work shows the following:
-- Visibility over inventory is not adequate. The lack of adequate
visibility over operating materials and supplies substantially
increases the risk that millions of dollars will be
unnecessarily spent. For example, in August 1996, we reported
that Navy managers did not have adequate visibility over $5.7
billion in operating materials and supplies on board ships and
at 17 redistribution sites. We estimated that because of the
lack of oversight in the first half of 1995, item managers
ordered or purchased items in excess of operating level needs
and that as a result, the Navy will incur unnecessary costs of
about $27 million.
-- Requirements are overstated. DOD commonly overstates
requirements and understates the amount of inventory on hand
when budgeting for and buying spare parts and supplies because
of questionable policies for determining needs and poor
accountability. The Defense Logistics Agency and the Navy stock
millions of dollars of unnecessary "insurance items" (i.e.,
parts that are not expected to fail through normal usage). The
unnecessary inventories accrued because these DOD components do
not periodically review insurance items to confirm that they are
mission essential and stocked in appropriate quantities. In
addition, DOD could reduce its lead time by 25 percent over a
4-year period and save about $1 billion by renewing its emphasis
on prompt implementation of its 1990 lead time reduction
initiatives, periodically validating and updating old data for
long lead time items, and considering lead time reductions as a
factor in deciding whether to continue purchasing spare parts
from the prime contractor or the manufacturer.
-- Financial accountability and internal controls are weak. DOD
lacks financial accountability and control over its inventory.
The Secretary of Defense identified several financial and
internal control weaknesses within DOD, such as (1) inventory
systems that are not integrated or cannot respond rapidly to
change, (2) difficulties in reconciling physical inventories and
valuating properties and equipment, and (3) lack of indicators
that measure performance and costs.
INITIATIVES TO ELIMINATE
WASTEFUL INVENTORY
MANAGEMENT SYSTEMS
-------------------------------------------------------- Chapter 0:7.2
Since 1990, we have recommended major changes in all levels of DOD's
inventory management system. We reported that DOD's top managers
needed to take long-range actions to (1) change the organizational
culture to eliminate the overstocking of items, (2) increase the use
of commercial practices, (3) establish and monitor improved
performance measures that stress cost-effectiveness and inventory
reductions, and (4) improve the computer systems used in inventory
management. Even though we continue to see some improvement, DOD has
made little overall progress in correcting systemic problems that
have traditionally resulted in large unneeded inventories.
DOD has acknowledged the necessity to change its inventory management
culture but has been slow in taking steps to do so. For example, DOD
has been slow to implement its plans for improving asset visibility
in such areas as in-transit assets, retail-level stocks, and
automated systems. The implementation of DOD's asset visibility
plans was expected to be completed by 1996, but will not occur until
2001. In addition, the Defense Logistics Agency has implemented, in
a limited manner, certain commercial practices, such as direct vendor
delivery for medical and food items. However, this initiative
addresses only about 3 percent of the items for which direct vendor
delivery could be used. Because of the lack of progress with some of
the key initiatives, it has become increasingly difficult for
inventory managers to oversee DOD's multibillion dollar inventory
supply system efficiently and effectively.
UNDERLYING CAUSES OF THE
HIGH-RISK AREAS HAVE NOT BEEN
FULLY ADDRESSED
---------------------------------------------------------- Chapter 0:8
Our high-risk reports indicate that DOD has made progress in
addressing specific problems within each of the six high-risk areas
but that the key underlying causes of these problems have not been
effectively addressed. These causes include cultural resistance to
change and service parochialism, inadequate incentives for seeking
change, lack of comprehensive and reliable data, lack of
results-oriented goals and performance measures, and lack of
management accountability for correcting problems and following
through to confirm performance results.
CULTURAL BARRIERS AND
PAROCHIALISM LIMIT CHANGE
-------------------------------------------------------- Chapter 0:8.1
Cultural resistance to change, service parochialism, and public and
congressional concern about the effects on local communities and
economies have contributed to the difficulty of improving DOD's
financial, infrastructure, inventory, and acquisition processes and
systems that are at risk. For example, DOD officials have repeatedly
recognized the importance of using resources for the highest priority
operations and investment needs rather than maintaining unneeded
properties, facilities, and overhead. However, DOD found that
infrastructure reductions are a difficult and painful process because
achieving significant cost savings requires up-front investments, the
closure of installations, and the elimination of military and
civilian jobs. The 1988, 1991, and 1993 base realignment and closure
rounds produced decisions to fully or partially close 70 major
domestic bases and resulted in a 15-percent reduction in plant
replacement value. DOD's goal during the 1995 base realignment and
closure round was to reduce the overall domestic base structure by a
minimum of another 15 percent, for a total 30-percent reduction in
DOD-wide plant replacement value. However, the 1995 closures and
realignments will increase the total reduction to approximately 21
percent, or 9 percent short of DOD's goal.
In addition, some weapon systems are being developed and produced,
even though the Soviet threat upon which they were justified has
diminished. The underlying cause of this problem is DOD's prevailing
culture, which continually generates and supports the acquisition of
new weapons. Inherent in this culture are powerful incentives and
interests that influence and motivate the behaviors of participants
in the process, including DOD components, the Congress, and industry.
It is not unusual for these incentives and interests to override the
need to satisfy the most critical weapon requirements at minimal
cost. Furthermore, in the inventory management area, DOD's culture
believed that it was better to overbuy items than to manage with just
the amount of stock needed. As a result of this and other inventory
management weaknesses, about one-half of DOD's current inventory of
spare parts, clothing, medical supplies, and other secondary
inventory items is not needed to support war reserves or current
operating requirements.
DOD has also acknowledged that its operations are constrained by the
military services' unique operating processes and systems, many of
which are incompatible. For example, the lack of integration between
DOD's accounting and logistics systems has contributed to the
purchasing of unneeded materials.
LACK OF INCENTIVES FOR
SEEKING AND IMPLEMENTING
CHANGE
-------------------------------------------------------- Chapter 0:8.2
Traditionally, DOD has focused most of its attention on justifying
its need for funding rather than on the outcomes that its programs
produced. DOD generally measures its performance by the amount of
money spent, number of people employed, or number of tasks completed.
Also, incentives for DOD decisionmakers to implement changed behavior
have been minimal or nonexistent. However, the changing national
security threat and increasing fiscal constraints require that these
issues be addressed. Regardless of the specific actions DOD
decisionmakers take to effect change, we believe the objectives of
the actions should (1) break down parochialism and award behavior
that meets DOD goals and (2) develop incentives that motivate
decisionmakers to initiate and implement efforts that are consistent
with better program outcomes. Congressional incentives can include
fostering results-oriented management and using performance
measurement data when making resource allocation decisions.
DOD managers have few incentives to change their behaviors to improve
the Department's financial, acquisition, and infrastructure
management approach. In DOD's culture, the success of a manager's
career depends more on moving programs and operations through the DOD
process rather than on achieving better program outcomes. As a
result, the desire of managers to keep cost estimates as low as
possible and present attractive milestone schedules encourages the
use of unreasonable assumptions about the pace and magnitude of the
effort, material costs, production rates, savings, and other factors.
Accordingly, overselling a program works in the sense that programs
are started, funded, and eventually fielded. The fact that a given
program costs more than estimated, takes longer to complete, and does
not generate results or perform as promised is secondary to fielding
a new, improved program.
LACK OF COMPREHENSIVE AND
RELIABLE DATA
-------------------------------------------------------- Chapter 0:8.3
DOD's financial management problems result in a lack of visibility
over a substantial portion of its resources. Correction of these
widespread and severe financial management problems is critical to
the resolution of DOD's high-risk areas. Reliable financial
management information would greatly aid the resolution of problems
with tracking computer system costs and benefits, weapon system cost
overruns, erroneous contract payments, excessive infrastructure, and
unneeded inventories.
DOD decisionmakers are severely affected by the lack of comprehensive
and reliable data for measuring program costs and results and making
well-informed decisions. For example, better information on the
quantity and location of items in its inventory would help prevent
DOD managers from procuring additional items at one location that are
already on hand at another location. In addition, the lack of
complete information on the costs incurred to acquire and operate
weapon systems has caused DOD managers to initiate more weapon
programs than the Department can execute as planned. To address
funding realities, DOD often reduces, delays, or stretches out
programs--substantially increasing the cost of each weapon system.
More reliable and relevant financial data would enable DOD to make
more informed decisions for its programs.
LACK OF CLEAR,
RESULTS-ORIENTED GOALS AND
PERFORMANCE MEASURES
-------------------------------------------------------- Chapter 0:8.4
In some cases, DOD's strategic goals and objectives are not linked to
those of the military services and defense agencies, and DOD's
guidance tends to lack specificity. Moreover, several DOD managers
said that DOD's strategic goals were too broad for their
organizations to readily align their activities in support of those
goals. Without clear, hierarchically linked goals and performance
measures, DOD managers lack straightforward road maps showing how
their work contributes to attaining DOD's strategic goals, and they
risk operating autonomously rather than collectively. For example:
-- According to Atlantic Fleet officials, the Fleet's goals were
only remotely connected to one of DOD's goals--to provide
flexible, ready military structure.
-- The military services' analyses in justifying weapon system
acquisitions can be narrowly focused and may not fully consider
alternative solutions, including the joint acquisition of
systems with the other services. In addition, because DOD does
not routinely develop information on joint mission needs and
aggregate capabilities, it has little assurance that decisions
to buy, modify, or retire weapon systems are sound. In the air
power mission area, some planned modernization programs will add
only marginally to already formidable capabilities, and the need
for other capabilities has been lessened by the changed national
security environment.
-- DOD has not developed performance measures that would allow it
to track whether its efforts to modernize and optimize its
central telecommunications program--the Defense Information
Systems Network--are achieving their goals. Without this
information, DOD has no way of knowing whether it will be
spending billions of dollars acquiring, operating, and
maintaining network facilities and services that efficiently and
effectively meet its needs.
LACK OF MANAGEMENT
ACCOUNTABILITY AND FOLLOW
THROUGH
-------------------------------------------------------- Chapter 0:8.5
DOD does not routinely link its performance measures to specific
organizational units or individuals that have sufficient flexibility,
discretion, and authority to accomplish the desired results. In some
departments and agencies, DOD's top political and career leaders have
not encouraged accountability by providing managers at each level in
the organization with the appropriate authority and flexibility to
obtain those results. At both the organizational and managerial
levels, accountability requires results-oriented goals and
appropriate performance measures through which to gauge progress.
This accountability helps to guarantee that daily activities remain
focused on achieving the outcomes that DOD is trying to attain.
The Government Performance and Results Act, with its statutory
planning and reporting requirements, provides the possibility that
the commitment of DOD's top management to improving performance
results will be sustained. Nonetheless, DOD experiences suggest that
top management does not have a proactive, consistent, and continuing
role in building capacity, creating incentives, and integrating daily
operations for achieving performance goals. For example, DOD
decisionmakers have recognized the urgent need to improve the
Department's financial management practices but have not created and
maintained the momentum for implementing reform.
Sustaining top management commitment to performance goals is a
challenge for DOD because of the general turnover rate among
political appointees. In 1994, we reported that the median tenure of
top political appointees in the Office of the Secretary of Defense
was 1.7 years.\7 We also found that mean vacancy periods for top
positions in the Departments of the Air Force and the Navy were 9 and
11 months, respectively. As a result, turnover among DOD political
appointees has hindered long-term planning and follow-through
activities.
--------------------
\7 Political Appointees: Turnover Rates in Executive Schedule
Positions Requiring Senate Confirmation (GAO/GGD-94-115FS, Apr. 21,
1994).
A MULTILEVEL STRATEGY ATTACKING
THE UNDERLYING CAUSES IS THE
KEY TO ELIMINATING THE
HIGH-RISK AREAS
---------------------------------------------------------- Chapter 0:9
Effectively attacking the underlying causes will require
congressional support and a commitment by senior-level DOD managers
to a multilevel strategy that (1) implements our recommendations to
correct specific problems in each of the high-risk areas and (2)
develops and implements a strategic plan that addresses actions for
eliminating the six high-risk areas. If DOD is successful in
attacking the underlying causes of the problems, the Congress should
expect to see positive outcomes, including the successful completion
of full-scale financial audits; reductions in operation and support
costs; and the fielding of major weapon and computer systems that
meet cost, schedule, and performance estimates. If DOD's multilevel
strategy does not result in the elimination of high-risk areas, the
Congress may wish to consider the need for incentives to reach that
goal.
DOD NEEDS A MULTILEVEL
STRATEGY TO ELIMINATE THE
HIGH-RISK AREAS
-------------------------------------------------------- Chapter 0:9.1
To eliminate the high-risk areas, DOD needs a multilevel strategy
that implements our recommendations to correct specific problems in
each of the high-risk areas and develops a strategic plan for
eliminating the six high-risk areas. This strategic plan should
include goals, performance measures, and time frames for completing
corrective actions; identify organizations and individuals
accountable for accomplishing specific goals; and provide for annual
progress reports to Congress on outcomes achieved. In developing the
plan, DOD should comply with legislative requirements of the Chief
Financial Officers Act, the Government Performance and Results Act,
the Paperwork Reduction Act, and the Clinger-Cohen Act. To help
ensure success of the multilevel strategy, top-level management
within DOD needs to be held accountable and have the authority and
flexibility to achieve the desired results. We believe that the
Deputy Secretary of Defense is the appropriate management level to
develop and implement such a strategy.
DOD NEEDS TO ADDRESS OUR
RECOMMENDATIONS
------------------------------------------------------ Chapter 0:9.1.1
Although DOD's actions on many of our recommendations have resulted
in significant financial savings and improvements in DOD's
operations, numerous recommendations have not been fully implemented.
In our 1997 high-risk reports, we recommended that
-- DOD implement a focused, sustained effort to fully realize
meaningful financial management improvements, including
integrating accounting and financial management systems,
accumulating accurate cost information, resolving problem
disbursements, upgrading the financial management work force and
organization, strengthening internal controls, and reengineering
business practices;
-- DOD establish (1) performance measures to link the use of
information technology to improvements in productivity,
efficiency, and effectiveness of their operations and (2) a
structured process for selecting, controlling, and evaluating
their capital investments in technology to maximize
mission-related benefits and control risks;
-- DOD take much stronger actions to effectively control the
influence of the acquisition culture, such as planning weapon
programs and resources on a joint mission basis, examining cost
and performance tradeoffs among alternatives more rigorously
before a particular approach is chosen, making the war fighters
responsible for participating in the selection of weapon
systems, linking program decisions in a more durable way to
DOD's long-term budget, and aggressively pursuing high-risk
(breakthrough) technology before weapon system research and
development;
-- DOD seek to reengineer and streamline its contracting and
acquisition processes, including the use of new business process
techniques;
-- the Secretary of Defense and the Secretaries of the Army, Navy,
and Air Force consider using a variety of means to achieve
infrastructure reductions, including consolidations,
privatization, outsourcing, reengineering, and interservicing
agreements; and
-- DOD (1) establish aggressive milestones for substantially
expanding the use of modern commercial practices; (2) provide
managers with the tools critical to managing inventory
efficiently; and (3) continue to explore other alternatives,
such as business case analysis to identify opportunities for
outsourcing logistics functions.
DOD NEEDS A STRATEGIC
PLAN
------------------------------------------------------ Chapter 0:9.1.2
To attack the underlying causes of the high-risk areas, DOD also
needs to develop a strategic plan that establishes results-oriented
goals, performance measures, and time frames for completing
corrective actions; identifies organizations and individuals that are
responsible for accomplishing specific goals; and provides for annual
progress reports to Congress on outcomes achieved. In developing the
plan, DOD should comply with the following legislation:
-- The expanded Chief Financial Officers Act of 1990 (P.L.
101-576) provides the framework for identifying and correcting
financial management weaknesses and reliably reporting on the
results of financial operations.
-- The Government Performance and Results Act of 1993 (P.L.103-62)
emphasizes managing for results and pinpointing opportunities
for improved performance and increased accountability.
-- The Paperwork Reduction Act of 1995 (P.L. 104-13) requires
federal agencies to use information resources to improve the
efficiency and effectiveness of their operations and fulfillment
of their missions. As such, it is the overarching statute
dealing with the acquisition and management of information
resources.
-- The Clinger-Cohen Act of 1996 (P.L. 104-106) focuses on the
application of information resources in supporting agency
missions and improving agency performance and sets forth
requirements for improving the efficiency and effectiveness of
operations and the delivery of services to the public through
the effective use of information technology. Specifically, the
act requires that DOD establish performance measures that
measure how well its information technology supports its
missions and programs and that evaluations be made of the
results achieved from its information technology investments.
This strategic plan and annual progress reports should be presented
to the Congress to provide a basis for overseeing DOD's improvement
efforts and allow other stakeholders to agree on what actions should
happen and when they should occur. It is important that the Congress
be adequately informed of DOD's plans and outcomes and hold top
officials accountable for implementing the reforms needed to
eliminate all six areas from the high-risk category.
CONGRESS SHOULD EXPECT
CERTAIN OUTCOMES AND PRECISE
MEASURES OF PERFORMANCE
-------------------------------------------------------- Chapter 0:9.2
If DOD is successful in attacking the underlying causes of the six
high-risk areas, the Congress should expect to see, over time,
outcomes showing DOD's progress. Among those outcomes are the
following:
-- Financial management: Military services and DOD components
successfully undergo full-scale financial audits, a primary
catalyst for increasing the reliability of financial data and
improving financial operations.
-- Information management and technology: DOD effectively
implements the tenets of the Paperwork Reduction Act and the
Clinger-Cohen Act, including a strong Chief Information Officer
organization, effective investment control processes, and the
development of performance measures that link
return-on-investment dollars to mission and program objectives.
-- Weapon systems acquisition: DOD purchases major weapon systems
within fiscal realities and fields weapons without cost
overruns, schedule delays, or performance shortfalls.
-- Contract management: DOD increases the use of proven
acquisition and contracting processes that improve
accountability and result in cost savings and other benefits.
-- Infrastructure: DOD achieves reductions in operation and
support activities that are commensurate with its force
structure reductions.
-- Inventory management: DOD significantly reduces the amount of
unneeded inventory and annual expenditures for new inventory.
INCENTIVES MAY BE NEEDED
-------------------------------------------------------- Chapter 0:9.3
If DOD does not make progress in eliminating the underlying causes of
the high-risk areas, the Congress may wish to consider the need for
incentives to stimulate change. We believe that one of the best
incentives the Congress can apply to foster results-oriented
management is to use performance measurement data in its policy,
program, and resource allocation decisions. Another incentive could
be to allow DOD to use savings from eliminating waste in the
high-risk areas to further improve operations or satisfy other
defense priorities, such as modernization, readiness, and
quality-of-life needs.
-------------------------------------------------------- Chapter 0:9.4
Mr. Chairman, this concludes my statement. I would be happy to
respond to any questions you or other members of the Committee may
have.
1997 HIGH-RISK SERIES REPORTS
INVOLVING DOD
=========================================================== Appendix I
Defense Financial Management (GAO/HR-97-3, Feb. 1997).
Defense Contract Management (GAO/HR-97-4, Feb. 1997).
Defense Inventory Management (GAO/HR-97-5, Feb. 1997).
Defense Weapon Systems Acquisition (GAO/HR-97-6, Feb. 1997).
Defense Infrastructure (GAO/HR-97-7, Feb. 1997).
Information Management and Technology (GAO/HR-97-9, Feb. 1997).
RELATED GAO PRODUCTS
=========================================================== Appendix 1
Contract Management: Fixing DOD's Payment Problems Is Imperative
(GAO/NSIAD-97-37, Apr. 10, 1997).
Defense IRM: Investments at Risk for DOD Computer Centers
(GAO/AIMD-97-39, Apr. 4, 1997).
Defense Inventory Management: Problems, Progress, and Additional
Actions Needed (GAO/T-NSIAD-97-109, Mar. 20, 1997).
Defense Logistics: Much of the Inventory Exceeds Current Needs
(GAO/NSIAD-97-71, Feb. 28, 1997).
Financial Management: DOD Inventory of Financial Management Systems
Is Incomplete (GAO/AIMD-97-29, Jan. 31, 1997).
Air Force Depot Maintenance: Privatization-In-Place Plans Are Costly
While Excess Capacity Exists (GAO/NSIAD-97-13, Dec. 31, 1996).
Defense IRM: Strategy Needed for Logistics Information Technology
Improvement Efforts (GAO/AIMD-97-6, Nov. 14, 1996).
Acquisition Reform: Implementation of Title V of the Federal
Acquisition Streamlining Act of 1994 (GAO/NSIAD-97-22BR, Oct. 31,
1996).
DOD Accounting Systems: Efforts to Improve System for Navy Need
Overall Structure (GAO/AIMD-96-99, Sept. 30, 1996).
Information Security: Opportunities for Improved OMB Oversight of
Agency Practices (GAO/AIMD-96-110, Sept. 24, 1996).
Combat Air Power: Joint Mission Assessments Needed Before Making
Program and Budget Decisions (GAO/NSIAD-96-177, Sept. 20, 1996).
Army Depot Maintenance: Privatization Without Further Downsizing
Increases Costly Excess Capacity (GAO/NSIAD-96-201, Sept. 18, 1996).
Navy Depot Maintenance: Cost and Savings Issues Related to
Privatizing-in-Place at the Louisville, Kentucky, Depot
(GAO/NSIAD-96-202, Sept. 18, 1996).
1997 DOD Budget: Potential Reductions to Operation and Maintenance
Program (GAO/NSIAD-96-220, Sept. 18, 1996).
Defense Acquisition Infrastructure: Changes in RDT&E Laboratories
and Centers (GAO/NSIAD-96-221BR, Sept. 13, 1996).
Defense IRM: Critical Risks Facing New Materiel Management Strategy
(GAO/AIMD-96-109, Sept. 6, 1996).
Defense Transportation: Migration Systems Selected Without Adequate
Analysis (GAO/AIMD-96-81, Aug. 29, 1996).
Best Practices: Commercial Quality Assurance Practices Offer
Improvements for DOD (GAO/NSIAD-96-162, Aug. 26, 1996).
Navy Financial Management: Improved Management of Operating
Materials and Supplies Could Yield Significant Savings
(GAO/AIMD-96-94, Aug. 16, 1996).
Inventory Management: Adopting Best Practices Could Enhance Navy
Efforts to Achieve Efficiencies and Savings (GAO/NSIAD-96-156, July
12, 1996).
CFO Act Financial Audits: Navy Plant Property Accounting and
Reporting Is Unreliable (GAO/AIMD-96-65, July 8, 1996).
Navy Aviation: F/A-18E/F Will Provide Marginal Operational
Improvement at High Cost (GAO/NSIAD-96-98, June 18, 1996).
Financial Management: DOD Needs to Lower the Disbursement
Revalidation Threshold (GAO/AIMD-96-82, June 11, 1996).
Defense Infrastructure: Costs Projected to Increase Between 1997 and
2001 (GAO/NSIAD-96-174, May 31, 1996).
Information Security: Computer Attacks at Department of Defense Pose
Increasing Risks (GAO/AIMD-96-84, May 22, 1996).
Military Bases: Opportunities for Savings in Installation Support
Costs Are Being Missed (GAO/NSIAD-96-108, Apr. 23, 1996).
Acquisition Reform: Efforts to Reduce the Cost to Manage and Oversee
DOD Contracts (GAO/NSIAD-96-106, Apr. 18, 1996).
Defense Depot Maintenance: Privatization and the Debate Over the
Public-Private Mix (GAO/T-NSIAD-96-146, Apr. 16, 1996).
Defense Business Operations Fund: DOD Is Experiencing Difficulty in
Managing the Fund's Cash (GAO/AIMD-96-54, Apr. 10, 1996).
Military Bases: Closure and Realignment Savings Are Significant, But
Not Easily Quantified (GAO/NSIAD-96-67, Apr. 8, 1996).
Defense Infrastructure: Budget Estimates for 1996-2001 Offer Little
Savings for Modernization (GAO/NSIAD-96-131, Apr. 4, 1996).
CFO Act Financial Audits: Increased Attention Must Be Given to
Preparing Navy's Financial Reports (GAO/AIMD-96-7, Mar. 27, 1996).
Defense Logistics: Requirement Determinations for Aviation Spare
Parts Need to Be Improved (GAO/NSIAD-96-70, Mar. 19, 1996).
Managing for Results: Achieving GPRA's Objectives Require Strong
Congressional Role (GAO/T-GGD-96-79, Mar. 6, 1996).
Defense Transportation: Streamlining of the U.S. Transportation
Command Is Needed (GAO/NSIAD-96-60, Feb. 22, 1996).
Best Management Practices: Reengineering the Air Force's Logistics
System Can Yield Substantial Savings (GAO/NSIAD-96-5, Feb. 21,
1996).
DOD Procurement: Use and Administration of DOD's Voluntary
Disclosure Program (GAO/NSIAD-96-21, Feb. 6, 1996).
Financial Management: Continued Momentum Essential to Achieve CFO
Act Goals (GAO/T-AIMD-96-10, Dec. 14, 1995).
Financial Management: Challenges Facing DOD in Meeting the Goals of
the Chief Financial Officers Act (GAO/T-AIMD-96-1, Nov. 14, 1995).
DOD Procurement: Millions in Contract Payment Errors Not Detected
and Resolved Promptly (GAO/NSIAD-96-8, Oct. 6, 1995).
Inventory Management: DOD Can Build on Progress in Using Best
Practices to Achieve Substantial Savings (GAO/NSIAD-95-142, Aug. 4,
1995).
Defense Management: Selection of Depot Maintenance Standard System
Not Based on Sufficient Analyses (GAO/AIMD-95-110, July 13, 1995).
Managing for Results: Status of the Government Performance and
Results Act (GAO/T-GGD-95-193, June 27, 1995).
Managing for Results: Critical Actions for Measuring Performance
(GAO/T-GGD/AIMD-95-187, June 20, 1995).
Financial Management: Challenges Confronting DOD's Reform
Initiatives (GAO/T-AIMD-95-146, May 23, 1995).
Comanche Helicopter: Testing Needs to be Completed Prior to
Production Decisions (GAO/NSIAD-95-112, May 18, 1995).
Financial Management: Control Weaknesses Increase Risk of Improper
Navy Civilian Payroll Payments (GAO/AIMD-95-73, May 8, 1995).
Tactical Aircraft: Concurrency in Development and Production of F-22
Aircraft Should Be Reduced (GAO/NSIAD-95-59, Apr. 19, 1995).
Military Bases: Analysis of DOD's 1995 Process and Recommendations
for Closure and Realignment (GAO/NSIAD-95-133, Apr. 14, 1995).
Defense Business Operations Fund: Management Issues Challenge Fund
Implementation (GAO/NSIAD-95-79, Mar. 1, 1995).
Defense Supply: Inventories Contain Nonessential and Excessive
Insurance Stocks (GAO/NSIAD-95-1, Jan. 20, 1995).
*** End of document. ***
|
NEWSLETTER
|
|
Join the GlobalSecurity.org mailing list
|
|
|
