Transition Series - National Security Issues GAO/OCG-93-9TR December 1992
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National Security Issues
Reassessing Military Roles and Missions
Managing the Downsized and Restructured Force
Reassessing U.S. Commitments, Forward Presence, and Security Assistance
Controlling the Spread of Weapons of Mass Destruction
Reforming Weapons System Acquisition While Preserving the Industrial Base
Addressing Environmental Challenges
Following Through on Inventory and Other Management Initiatives
Improving Financial Management
Related GAO Products
- Program Areas
Office of the Comptroller General
Washington, DC 20548
The Speaker of the House of Representatives
The Majority Leader of the Senate
In response to your request, this transition series report discusses major
defense policy, management, and program issues facing the Congress and the new
administration. These issues involve
(1) reassessing military roles and missions; (2) managing the downsized and
restructured force; (3) reassessing U.S. commitments, forward presence, and
security assistance programs; (4) controlling the spread of weapons of mass
destruction; (5) reforming weapons system acquisition while preserving the
(6) addressing environmental challenges; (7) following through on inventory
and other management initiatives; and (8) improving financial management.
As part of our high-risk series on program areas vulnerable to waste, fraud,
abuse, and mismanagement, we are issuing related reports; _Defense Weapons
System Acquisition_ (GAO/HR-93-7, Dec. 1992); _Defense Inventory Management_
(GAO/HR-93-12, Dec. 1992); and _Defense Contract Pricing_ (GAO/HR-93-8, Dec.
The key GAO products upon which this transition series report is based are
listed at the end of the report.
We are also sending copies of this report to the President-elect, the
Republican leadership of the Congress, the appropriate congressional
committees, and the Secretary-designate of Defense.
Signed: Charles A. Bowsher
NATIONAL SECURITY ISSUES
At the time of our 1988 transition series, the defense budget had started to
decline from its peak in the mid-1980s, and relations with the Soviet Union
were allowing the United States to look for ways to further reduce defense
spending. There was no hint, however, of the momentous changes that were about
to take place. In 1989, the Berlin Wall fell, and the Warsaw Pact crumbled as
a military force. In 1990, Iraq invaded Kuwait and triggered Operations Desert
Shield and Desert Storm. In 1991, an attempted military coup in the Soviet
Union failed and hastened the dissolution of the country into
15 separate republics. There was general agreement that the Cold War was over.
In response to these events, the Department of Defense (DOD) has begun to cut
its forces and is now moving toward a 25-percent reduction by 1997. DOD is
halfway toward reducing military and civilian forces by 800,000. It is
proposing to pull about half of its forces out of Europe and is closing many
bases around the world and at home. Even with these cuts, the defense budget
is still targeted at over $275 billion in fiscal year 1997. Many in the
Congress argue that these cuts are not enough, that they do not fully reflect
the dramatic changes that have taken place in the world, and that they will
result in a force that is just a smaller version of the Cold War force. The
major issues cited in this transition series report revolve around this
debate. How much can the United States reduce its force? How much can be
saved? What shape should the new force have?
Reducing defense spending will be complicated by a number of financial issues
that are currently not fully recognized in DOD's spending plans. There is a
significant mismatch between the $1.4 trillion fiscal year 1993-97 defense
spending plan and budget realities. The spending plan does not recognize (1)
over $35 billion in potential weapons cost growth, (2) about $12 billion in
congressional actions delaying some proposed program terminations, (3) an
estimated $5.4 billion in funding for defense conversion to commercial
4) $60 billion in additional cuts proposed by the President-elect. In
addition, the spending plan assumes $53 billion in management savings, the
majority of which may not be achieved, and $5 billion in base closure savings
that will not be realized during the period. As a result, DOD may be faced
with additional program reductions of over $150 billion.
Additional items will add pressure for more defense spending in the longer
term. For example, cleaning up hazardous waste on defense property is now
estimated at a total of $24.5 billion, and disposing of chemical weapons will
cost at least $8 billion. Both these estimates are expected to grow.
In addition to these new issues, we also cite some of the same issues that
were present in 1988. At that time, we highlighted inventory management and
weapons acquisition as two areas needing focused management attention. The
Department has taken major steps over the past 4 years to tackle the numerous
problems we cited, and if properly implemented, these initiatives will go a
long way toward improving the efficiency and effectiveness of these
activities. Because of the resources consumed by these functions and their
importance to maintaining defense forces, we continue to highlight them this
year and urge that the Congress and the new administration go even further in
making fundamental reforms.
In 1988, we also pointed out efficiencies that are possible through a careful
examination of military service roles and missions. Little was done to address
that issue, and this same concern was expressed by the Congress last year when
it called on DOD to do such an analysis. We again believe that this analysis
will be crucial to streamlining our military forces for the post-Cold War era.
We also cautioned in 1988 of the dangers of recreating the "hollow force" that
existed in the post-Vietnam era by cutting readiness and training too deeply
and too fast. Performance in the Persian Gulf War indicated that readiness was
at very high levels, but as deep cuts in the budget are proposed, the same
danger exists during the 1990s.
REASSESSING MILITARY ROLES AND MISSIONS
The end of the Cold War has materially altered the international security
environment--setting the stage for the most fundamental and potentially
far-ranging reexamination of the nation's defense policy and structure in 40
years. Instead of the global threat from the Soviet Union, the United States
now faces potential regional threats around the world, many of which cannot be
fully anticipated. Policymakers are confronted with complex and difficult
choices as they attempt to achieve a critical balance between the need to
protect national security interests and the affordability of programs to that
end. The complexity and difficulty of the choices will be compounded by the
huge federal budget deficit and emerging but unpredictable threats to U.S.
The Congress has directed the Joint Chiefs of Staff to examine the roles and
missions of the armed services to eliminate unnecessary redundancy and
duplication. Making changes will require taking on entrenched bureaucracies in
the Pentagon and power centers in the military services, as well as prevailing
cultural attitudes--both internal and external to the defense establishment.
Our work has shown, for example, that individual services have developed and
acquired weapons systems to meet particular missions without adequate
consideration of other services' capabilities. Close air support systems and
antiarmor systems developed by the Air Force, the Army, and the Marines are
A reexamination of military roles and missions appears to offer many
opportunities to provide a more cost-effective means of meeting defense needs
that exist today. In the area of conventional warfare, for example, DOD should
consider whether the current number of Army light infantry and Marine
divisions is more than what is necessary to meet expected threats.
Opportunities also exist for placing less reliance on carrier battle groups by
changing the way they have been historically deployed. Increasing the use of
alternative naval forces, such as surface action groups and amphibious ready
groups, may reduce the demand for the much more expensive carrier battle
Scrutiny also needs to be given to strategic roles and missions. Our recent
analysis of the performance of the strategic nuclear triad's weapon systems
should help policymakers weigh options and costs and make critical choices
about future requirements for deterrence. We found that sea-based strategic
weapons are more cost-effective and less vulnerable than the other two
strategic legs. We also found that the B-2 is extremely costly, at over $2
billion apiece, and of questionable value as a strategic bomber. The B-1B and
the B-52 will continue to remain a viable strategic bomber force for years to
In the post-Cold War era, the military services will be challenged to perform
new and enhanced missions in such areas as peacekeeping, narcotics
interdiction, and disaster relief. United Nations' requests for DOD
assistance--including supplies, military airlifts and sealifts, logistics, and
personnel--for peacekeeping operations have increased substantially in the
2 years and may likely continue in the near future. Similarly, DOD's
involvement in narcotics control and the agency's assistance in drug
interdiction efforts have expanded considerably: DOD's contribution rose from
$300 million in fiscal year 1989 to $1.2 billion this year. DOD has also
increased its involvement in providing humanitarian and disaster assistance in
such places as Somalia and Bangladesh as well as within the United States. The
value of these missions, as well as the resources devoted to them, must be
assessed in the context of the military's more traditional role of protecting
MANAGING THE DOWNSIZED AND RESTRUCTURED FORCE
In response to budget constraints and a decreased post-Cold War threat,
difficult decisions must be made about how best to structure, train, support,
and maintain a smaller, increasingly U.S.-based force so it is highly ready,
sustainable, and capable of responding to a crisis on short notice. DOD's
challenge will be to maintain high levels of military capability while at the
same time significantly reducing the number of both military and civilian
To implement the new security strategy announced in February 1991, DOD has
developed a base force concept, which calls for a reduction in military forces
by 25 percent by 1997. The Congress will likely debate whether further cuts in
military forces below the base force are possible because of the decline in
the Soviet threat. A major concern is whether further cuts will result in a
repetition of the "hollow Army" of the l970s and will leave the United States
unable to effectively protect national security interests in a still dangerous
world. Policymakers will have to balance these concerns as forces are
eliminated and restructured and capabilities are assessed against potential
A key issue in the defense arena will be how many and what kinds of forces
should make up U.S. military forces. In particular, scrutiny should be given
to the mix of active and reserve forces. Consideration needs to be given to
whether (1) certain missions can be transferred from the active forces to the
less expensive reserves, (2) a greater number of support forces are needed in
the active forces, and (3) some reserve units are not needed and can be
deactivated. At the same time, the Army could expand the use of certain
reserve support forces in its contingency force and should examine each of the
elements of the force structure being withdrawn from Europe to determine
whether any of these units' missions could be shifted to the reserves.
Furthermore, in light of the Gulf War and the new security environment,
sustaining U.S. forces will require a reexamination of critical issues. DOD's
forces must be restructured and reduced without sacrificing the U.S. capacity
to respond in time of crisis. Key issues include
-- the capability for airlift and sealift that is needed to quickly respond to
regional crises anywhere in the world,
-- the need to continue existing land and sea prepositioning strategies,
-- the extent to which high levels of readiness and overall military
capability are being maintained, and
-- the extent to which U.S. forces will depend on support and sustainability
resources from allies.
Planning for and managing reductions in the number of civilian and military
personnel and their accompanying adjustment and assistance programs will also
be of critical importance. DOD is just over halfway toward meeting its goal of
00,000 active duty and civilian jobs from the peak strength levels it reached
in fiscal year 1987. Further reductions are expected as a result of additional
base closures and other budgetary trade-offs. These cuts will continue to
affect local communities and military and civilian personnel who are making
the transition into the civilian work force. The Congress has authorized
special funding for community adjustment and assistance programs. Our work
indicates that DOD needs better plans for reducing its work force, especially
its civilian work force, to ensure it retains the right skills.
REASSESSING U.S. COMMITMENTS, FORWARD PRESENCE, AND SECURITY ASSISTANCE
The end of the Cold War requires a reassessment of the U.S. military presence
overseas, of host government contributions to the United States for
maintaining its forces, and of military assistance programs provided to U.S.
allies. DOD proposes cutting forces in Europe from over 300,000 in 1989 to
150,000 by 1995. The Congress has mandated deeper cuts, down to 100,000, by
1996. Determining the right size and composition of overseas forces will be a
major challenge. U.S. forces stationed in Europe and the Far East will be
affected by such factors as threats, allied capabilities, new status of forces
agreements, and the willingness of allies to increase their contributions to
the defense burden. The North Atlantic Treaty Organization (NATO) is
reconsidering its mission and structure and the future role of U.S. forces.
Also, proposed changes to the NATO members' status of forces agreement with
Germany could directly affect the training and operational readiness of U.S.
and other NATO forces. These new changes will influence decisions affecting
the size and composition of U.S. forces deployed to Europe. Similar concerns
must be addressed for U.S. forces stationed in the Far East.
Congressional concerns about increased allied burden sharing will continue.
Our work in NATO, Japan, and Korea shows there are further opportunities for
host country contributions to the United States to offset the costs of
stationing U.S. forces. For example, increases in South Korea's contributions
for depot maintenance, war reserves, indigenous labor, and military
construction could save the United States $500 million or more annually.
U.S. security assistance programs, including foreign military equipment sales,
training, and economic support fund activities, provided billions of dollars
to foreign countries during the Cold War. The fall of the Berlin Wall, the
communists' loss of power in Central and Eastern Europe, and the dissolution
of the Soviet Union have eliminated the Cold War rationale for the U.S.
foreign assistance programs. The radically changed environment has resulted in
some modification to security assistance goals, with new or added focus on
providing aid for establishing democratic institutions and civilian control
over the military, on stabilizing regional tensions, and on combating illegal
While there have been some changes in our security assistance programs, we
recently reported that a limited number of traditional recipients continue to
receive the majority of security assistance. The two main recipients, Israel
and Egypt, have been provided massive economic and military aid since the Camp
David agreements in 1978, which among other things, called for a peace treaty
between the two countries. Rounding out the top six recipients are Greece,
Turkey, Portugal, and the Philippines, all receiving substantial security
assistance funds as part of their base rights agreements with the United
States. Even though bases in the Philippines were recently closed, in fiscal
year 1993 these six countries will receive $6.2 billion, or 83 percent, of the
total $7.5 billion in U.S. security assistance funding.
The challenge to the Congress and the new administration will be to determine
U.S. security priorities and the corresponding size and shape of a security
assistance program that will be flexible and adaptable in a world with
divergent regional threats.
CONTROLLING THE SPREAD OF WEAPONS OF MASS DESTRUCTION
Concerns about the effectiveness of existing controls over the proliferation
of weapons of mass destruction have been heightened by post-Gulf War
revelations about Iraq's nuclear weapons program, uncertainly over the
security of nuclear weapons material in the former Soviet Union, and Chinese
transfers of nuclear and missile technology to the Middle East. These events
highlight shortcomings in the international community's ability to detect
clandestine weapons programs and control the transfer of the equipment,
material, and technology necessary for weapons proliferation. Halting weapons
proliferation in the 1990s will require increased international cooperation to
strengthen verification of existing agreements, to control international
technology transfers, and to dispose of Cold War nuclear and chemical weapons
stockpiles in the former Soviet Union. Through various programs and
initiatives managed by the Departments of State, Defense, Commerce, and Energy
and the Arms Control and Disarmament Agency, the United States has an
important leadership role to play in each of these areas.
The new administration and the Congress will face difficult issues concerning
the existing nonproliferation treaties and regimes such as the Nuclear
Nonproliferation Treaty, the Missile Technology and Control Regime, and the
Australia Group on chemical weapons. Among these issues are (1) how to
increase participation in these regimes by potential "problem states," (2)
whether to adopt more intrusive verification procedures to determine
compliance, and (3) how to strengthen enforcement. Policymakers will also have
to determine how best to help former Soviet republics in the timely
dismantlement of their nuclear and chemical weapons and missile delivery
systems. Although more than $800 million has been authorized to assist this
effort, it is unclear whether the funded activities will accelerate the
To improve the effectiveness of export controls in this changing security
environment, the U.S. government first needs to continue its efforts to
strengthen multilateral export control regimes, to include initiatives to
broaden participation, and to coordinate and share information about export
control decisions. On a bilateral basis, the United States should also work
with the states of the former Soviet Union and the Warsaw Pact to ensure that
they set up and maintain effective export control systems.
The Departments of Commerce, State, and Defense, with input from the
intelligence community and the Department of Energy, all have responsibilities
for developing and administering controls over dual-use items--those with both
military and civilian uses. Similarly, two agencies--the Commerce Department
and the Customs Service--share primary responsibility for preventing or
detecting the illegal export of controlled items. This is an appropriate time
for the administration to reassess the roles of these agencies and the various
interagency coordinating mechanisms that are currently in place.
REFORMING WEAPONS SYSTEM ACQUISITION WHILE PRESERVING THE INDUSTRIAL BASE
The research, development, and procurement of weapons systems account for
about 30 percent of all defense spending. DOD is pursuing close to 100 major
weapons system acquisitions at a projected research, development, and
procurement cost of over $1 trillion. Over the years, such expenditures have
produced many of the world's most technologically advanced and capable weapons
systems. Nevertheless, the manner and process in which weapons requirements
are determined and weapons are acquired have often proved costly and
inefficient--if not wasteful. The combination of unrealistic spending plans,
costly weapons requirements, overly optimistic cost estimates, and high-risk
acquisition schedules has resulted in an annual budget cycle of weapons cost
overruns that require increased funding or program adjustments that reduce,
delay, and/or stretch out the programs.
A gap between DOD's future year spending plan and available funds amounts to
billions of dollars. DOD's tendency to overestimate the amount of future
funding available for planned programs and the agency's tendency to
underestimate program costs result in more programs being started than can be
executed. DOD's attempts to narrow the planning-funding mismatch will be
hampered if assumed savings are not realized and program costs increase beyond
planned levels--a historically frequent occurrence. For example, DOD's
projected savings of over $100 billion from weapons systems terminations and
new acquisition approaches has been reduced by $12 billion in programs
restored by Congress and $5.4 billion for defense conversions to commercial
activities. Greater defense funding cuts will further hurt efforts to bring
plans in line with funding levels and will seriously challenge policymakers in
determining how many weapons programs we can afford.
Past efforts to reform the acquisition process have not eliminated these
problems. A prevailing culture that depends on generating and supporting new
weapons acquisitions has defeated past reform efforts. DOD must rededicate its
efforts to improving weapons acquisition. This will require top management
commitment and further movement toward centralized management and
consolidation of acquisition roles, missions, and support functions. Clear
accountability for implementing reforms is also critical.
Overpriced defense contracts and improper influence in the contracting process
are two highly vulnerable areas subject to fraud and abuse. Vulnerabilities
related to inadequate cost estimating, defective pricing, and improper
contracting practices cost the taxpayers billions of dollars more than
necessary for goods and services purchased.
Details on our concerns about DOD's annual expenditure of billions of dollars
on weapons system research, development, acquisition, and vulnerability to
contract fraud and abuse are available in our high-risk reports.
As the defense budget is reduced, policymakers will face a number of critical
issues related to preserving technological leadership and ensuring the
existence of the industrial base capabilities required to meet U.S. national
security needs. The issues include (1) defense industrial restructuring and
adjustment to a declining defense market; (2) the impact of relying on foreign
sources for critical technology and products to meet defense needs; (3) the
impact of foreign investment in key industries supporting defense; (4) and the
impact on U.S. competitiveness of technology transfer to other countries
through various government programs, including arms sales and weapons
coproduction agreements. Our work shows that DOD needs to take a more active
role regarding each of these issues.
DOD has taken the position that free market forces generally will guide the
restructuring of the defense industrial base. The agency has also stated that
its ability to meet future national security needs will depend largely on the
ability of individual companies to shift from defense to commercial production
and then back again, as required. DOD should adopt a more realistic strategy
for ensuring that government decisions and industry adjustments will result in
the industrial and technological capabilities needed to meet future U.S.
national security requirements. The current strategy does not adequately
recognize that DOD will continue to make budget and contract award decisions
worth many billions of dollars annually to develop and acquire weapons and
other military equipment. These decisions greatly affect, directly and
indirectly, the structure of the defense industrial base.
In addition, free market restructuring is often motivated by short-term
considerations such as profit, rather than by considerations of how well the
changes in the defense industry will serve long-term U.S. national security
needs. Moreover, many defense companies may lack the experience and
specialized knowledge to shift to commercial production successfully. In May
1992, DOD reiterated its free market strategy but stated its intention to
assess and monitor the industrial base and to take action to preserve a needed
critical capability in those "exceptional situations" when the capability may
be lost and cannot be recovered in time to meet an emerging threat. It remains
to be seen how well this approach will be implemented. However, unless DOD
takes a more active role than it currently envisions in ensuring the existence
of the critical capabilities most likely to be needed in the future, it risks
losing these capabilities.
DOD also needs to take a more active role in assessing U.S. reliance on
foreign sources and foreign investment relating to the defense industrial
base. DOD has not systematically maintained data on firms that provide
specialized technology to meet its critical needs. As a result, DOD generally
does not know the extent to which it uses or depends on foreign technology and
products to meet such needs. DOD also lacks agreed-upon criteria for assessing
the national security risks posed by dependencies. The lack of criteria
impairs the ability of DOD to determine the actions it could or should take to
reduce these risks. In addition, no federal agency or process systematically
tracks foreign investment in companies that are primarily commercial but whose
leading-edge technologies are important to U.S. leadership in defense
Similarly, DOD and other agencies involved in technology transfer programs,
such as arms sales, coproduction, and codevelopment, need to place a higher
priority on determining the long-term impact of such activities on U.S.
competitiveness and the industrial base. No government entity collects data on
these arrangements, even though many of these activities are believed to
adversely affect the competitive position of U.S. companies and possibly to
undermine U.S. security interests.
ADDRESSING ENVIRONMENTAL CHALLENGES
DOD faces several environmental challenges in the 1990s. In addition to having
to comply with U.S. and foreign environmental requirements, to minimize
pollution, and to comply with clean air and water legislation, DOD is
confronted with a major task--cleaning up hazardous wastes. The annual cost of
this task has increased from $86 million in 1984 to an estimated $1.6 billion
in 1993. DOD does not know how much cleaning up environmental damage will
cost. Estimates have increased to $24.5 billion from the $5 billion to $10
billion anticipated in 1985. This latest estimate is likely to increase
because DOD has not yet identified all of the contaminated sites and the
extent of contamination to be cleaned up.
DOD has made significant strides in its recognition of such problems and in
its efforts to address them. The increasing resources DOD devotes to cleaning
up its contaminated areas and its initiatives to reduce pollution from current
operations and weapons systems signal a new cultural attitude. The
improvements notwithstanding, we believe that DOD does not yet fully recognize
the magnitude of the task before it, including long-term cleanup costs.
One key to success in meeting this challenge will be information--on the
nature of the pollution that must be cleaned up, on the location of the
contamination, on the technologies available to do the job, on the costs of
remedial actions, and on the progress of cleanup programs. We recently
reported on the lack of sufficient information on, for example, DOD's
underground storage tanks and the costs of reimbursing contractors for cleanup
efforts. As an initial priority, DOD needs to consider the types of
information needed by its decisionmakers and improve the availability and
quality of such data.
Another issue facing DOD is the destruction of existing stockpiles of chemical
weapons. Estimates to dispose of these weapons have increased from $1.7
billion in 1985 to almost $8 billion as of March 1992. DOD recently advised
the Congress that additional costs should be expected.
FOLLOWING THROUGH ON INVENTORY AND OTHER MANAGEMENT INITIATIVES
DOD is one of the largest, most diverse, and most complex organizations in the
world. Over the years, DOD has responded to external and internal calls for
streamlining its organization and for promoting efficiency and effectiveness.
The 1986 Goldwater-Nichols Act can be credited for, among other things, the
increased coordination that is beginning to become apparent within the
military establishment--as witnessed, for example, in the successful joint
operations in the Persian Gulf. At about the same time, the Packard Commission
came out with a report whose recommendations sparked a series of efforts aimed
at improving the Department's organization and management. The _Defense
Management Review_ report, issued in July 1989, is intended to address a
number of actions to modernize the Department's operations and to save
substantial sums, while maintaining the essential strength and readiness of
the armed services. Following through with these initiatives must remain a
high priority if promised savings are to be achieved.
The sheer size of the Department, coupled with the complexity of its programs
and components, presents a Herculean challenge to those charged with
substantially improving Defense management overall. One of the main issues
involves developing and fostering changes in management philosophy and
organizational culture. An organization's culture has a strong influence on
the behavior of its members and the success of the organization as a whole.
Improvements in the area of inventory management, for example, will depend in
large measure on leadership-inspired cultural changes, such as going from a
"having more is always better" way of thinking to a "having what is needed
when and where it is needed" philosophy.
DOD's supply inventory contained millions of items worth close to $100 billion
as of September 30, 1991. We estimate the cost of excess supplies is $40
billion. In the past, DOD has not emphasized economy and efficiency in
purchasing, maintaining, and distributing these supplies. However, it has
recently initiated some projects based on the use of commercial distribution
systems and other commercial practices to address these problems. These
efforts need to be expanded throughout the supply chain. Even then, they will
not be fully successful until DOD puts in place computer and data systems to
aid in managing the supply system. Sustained top management commitment to
fixing inventory management problems is critical. For a further discussion of
inventory management problems, see our high-risk report.
Another DOD initiative involves the consolidation of supply depots under the
Defense Logistics Agency. If properly combined with other Department
initiatives, this effort could result in more efficient and cost-effective
operations. However, consolidation alone will not achieve these objectives
unless it is accompanied by a stock positioning plan that is well thought
out--one that takes into account the impact of the inventory reduction plan,
of the reduced demand caused by reductions in the military force structure,
and of the inventory reductions associated with adopting commercial "quick
Another initiative is the improvement of DOD's business processes, such as
financial and personnel management, through the establishment of the Corporate
Information Management (CIM) System. This initiative is expected to provide
about $36 billion in savings. In the short term, the CIM system is to reduce
or eliminate information systems that perform the same function. In the longer
term, the CIM system is to (1) implement new or improved business practices
(in, for example, the way DOD buys and distributes supplies); (2) create
uniform business processes for common functions;
3) improve the standardization, quality, and consistency of data from defense
management information systems; and
4) develop standard information systems to meet common functional
requirements. On the basis of DOD's past experience, we believe it will be
difficult to achieve the savings promised by the CIM system.
In addition, DOD is projecting $5 billion in savings in the next 5 years as a
result of base closures. Our work, however, raises serious questions on
whether these savings will be realized.
The Defense Business Operations Fund was established in fiscal year 1992 to
place industrial funds, stock funds, and other defense support functions under
centralized overview and control. DOD estimates that the Fund will have sales
of goods and services of about $81 billion in fiscal year 1993. Two of the
basic objectives of this initiative are to capture all the costs of operating
a business area and to charge customers the actual cost of the goods and
services they received. While achieving these objectives could establish a
more businesslike operation, key policies and systems involving standard cost
accounting, rate-setting, cash management, capital asset accounting, and
intrafund transactions have not yet been fully developed. DOD must strongly
commit itself to managing the Fund if the potential financial and management
benefits are to be achieved.
IMPROVING FINANCIAL MANAGEMENT
To control costs, it is first necessary for managers to determine what the
costs are. Currently, DOD is unable to do this for many of its activities
because its financial systems and practices are out of date, inaccurate, and
unreliable. Consequently, the kind of relevant, credible financial information
that program managers, commanders, and top executives need to reduce costs and
measure performance is often not available.
Achieving compliance with the Chief Financial Officers' Act of 1990 (which the
Congress enacted to improve financial management governmentwide) could
significantly help DOD reach its goals. The act's provisions are consistent
with DOD's financial initiatives. The act further requires financial audits
for numerous government activities that control hundreds of billions of
dollars in assets. However, our recent financial audits of the Air Force and
the Army have shown that the military services are still unable to produce
financial statements that are sufficiently reliable for an auditor to express
an opinion on them. For example, we identified over $200 billion in
adjustments needed to improve the accuracy of Army and Air Force financial
reporting. Accordingly, the statements' usefulness to government
decisionmakers and the public is therefore limited.
DOD is primarily relying on long-term initiatives to provide solutions to its
financial management problems. However, DOD also needs to make short-term
improvements in internal controls and in the quality of financial data in its
existing systems. Making fundamental, comprehensive improvements in DOD's
financial operations will require personnel at all levels to adopt priorities
and business practices that have not previously been in place within DOD.
Changes on this scale will require sustained personal attention and leadership
from top officials, including the Secretary of Defense, and a willingness to
look beyond DOD to supplement its existing financial management expertise.
RELATED GAO PRODUCTS
_Acquisition Management: A Rare Opportunity for Lasting Change_
_Defense Contract Pricing_ (GAO/HR-93-8, Dec. 1992).
_Defense Inventory Management_ (GAO/HR-93-12, Dec. 1992).
_Defense Weapons System Acquisition_ (GAO/HR-93-7, Dec. 1992).
_Triad Project Summary_ (GAO/PEMD-92-36R, Sept. 28, 1992).
_Financial Management: Immediate Actions Needed to Improve Army Financial
Operations and Controls_ (GAO/AFMD-92-82, Aug. 7, 1992).
_Russian Nuclear Weapons: U.S. Implementation of the Soviet Nuclear Threat
Reduction Act of 1991_ (GAO/T-NSIAD-92-47, July 27, 1992).
_NATO: A Changing Alliance Faces New Challenges_ (GAO/NSIAD-92-252, July 22,
_Technology Transfer: Japanese Firms Involved in F-15 Coproduction and Civil
Aircraft Programs_ (GAO/NSIAD-92-178, June 10, 1992).
_Major Acquisition: DOD's Process Does Not Ensure Proper Weapons Mix for Close
Support Mission_ (GAO/NSIAD-92-180, Apr. 17, 1992).
_Hazardous Materials: Upgrading of Underground Storage Tanks Can Be Improved
to Avoid Costly Cleanups_ (GAO/NSIAD-92-117, May 13, 1992).
_National Security: Perspectives on Worldwide Threats and Implications for
U.S. Forces_ (GAO/NSIAD-92-104, Apr. 16, 1992).
_National Security: Papers Prepared for GAO Conference on Worldwide Threats_
(GAO/NSIAD-92-104S, Apr. 16, 1992).
_Operation Desert Storm: Army Had Difficulty Providing Adequate Active and
Reserve Support Forces_ (GAO/NSIAD-92-67, Mar. 10, 1992).
_Financial Audit: Aggressive Actions Needed for Air Force to Meet Objectives
of the Chief Financial Officers Act_ (GAO/AFMD-92-12, Feb. 19, 1992).
_Foreign Investment: Issues Raised by Taiwan's Proposed Investment in
McDonnell Douglas_ (GAO/NSIAD-92-120, Feb. 6, 1992).
_Hazardous Waste: DOD Estimates for Cleanup of Contaminated Sites Improved but
Still Constrained_ (GAO/NSIAD-92-37, Oct. 29, 1991).
_Military Presence: U.S. Personnel in the Pacific Theater_ (GAO/NSIAD-91-192,
Aug. 20, 1991).
_Drug Control: Status Report on DOD Support to Counternarcotics Activities_
(GAO/NSIAD-91-117, June 12, 1991).
_Defense Budget and Program Issues Facing the 102nd Congress_
(GAO/T-NSIAD-91-21, Apr. 25, 1991)
_Industrial Base: Significance of DOD's Foreign Dependence_ (GAO/NSIAD-91-93,
Jan. 10, 1991).
_Army Force Structure: Lessons to Apply in Structuring Tomorrow's Army_
(GAO/NSIAD-91-3, Nov. 29, 1990).
_U.S.-NATO Burden Sharing: Allies' Contributions to Common Defense During the
1980s_ (GAO/NSIAD-91-32, Oct. 23, 1990).
_Department of Defense: Improving Management to Meet the Challenges of the
1990s_ (GAO/T-NSIAD-90-57, July 25, 1990).
_Military Presence: U.S. Personnel in NATO Europe_ (GAO/NSIAD-90-4, Oct. 6,
_Defense Issues_ (GAO/OCG-89-9TR, Nov. 1988).
_Budget Issues_ (GAO/OCG-93-1TR).
_Government Management Issues_ (GAO/OCG-93-3TR).
_Financial Management Issues_ (GAO/OCG-93-4TR).
_Information Management and Technology Issues_ (GAO/OCG-93-5TR).
_Program Evaluation Issues_ (GAO/OCG-93-6TR).
_The Public Service_ (GAO/OCG-93-7TR).
_Health Care Reform _ (GAO/OCG-93-8TR).
_National Security Issues_ (GAO/OCG-93-9TR).
_Financial Services Industry Issues_ (GAO/OCG-93-10TR).
_International Trade Issues_ (GAO/OCG-93-11TR).
_Commerce Issues_ (GAO/OCG-93-12TR).
_Energy Issues_ (GAO/OCG-93-13TR).
_Transportation Issues_ (GAO/OCG-93-14TR).
_Food and Agriculture Issues_ (GAO/OCG-93-15TR).
_Environmental Protection Issues_ (GAO/OCG-93-16TR).
_Natural Resources Management Issues_ (GAO/OCG-93-17TR).
_Education Issues_ (GAO/OCG-93-18TR).
_Labor Issues_ (GAO/OCG-93-19TR).
_Health and Human Services Issues_ (GAO/OCG-93-20TR).
_Veterans Affairs Issues_ (GAO/OCG-93-21TR).
_Housing and Community Development Issues_ (GAO/OCG-93-22TR).
_Justice Issues_ (GAO/OCG-93-23TR).
_Internal Revenue Service Issues_ (GAO/OCG-93-24TR).
_Foreign Economic Assistance Issues_ (GAO/OCG-93-25TR).
_Foreign Affairs Issues_ (GAO/OCG-93-26TR).
_NASA Issues_ (GAO/OCG-93-27TR).
_General Services Issues_ (GAO/OCG-93-28TR).
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