United States General Accounting Office GAO Report to the Chairman, Subcommittee on National Security, Emerging Threats, and International Relations, Committee on Government Reform, House of Representatives March 2003 DOD BUSINESS SYSTEMS MODERNIZATION Continued Investment in Key Accounting Systems Needs to be Justified GAO-03-465 a March 2003 DOD BUSINESS SYSTEMS MODERNIZATION Highlights of GAO-03-465, a report to the Continued Investment in Key Accounting Chairman, Subcommittee on National Security, Emerging Threats, and Systems Needs to be Justified International Relations, Committee on Government Reform, House of Representatives The Department of Defense’s DOD estimated that it had 1,731 business systems for its day-to-day operations (DOD) long-standing financial as of October 2002. As GAO previously reported, these systems have evolved management and business systems over time into the overly complex, error prone, duplicative, stovepiped modernization problems result in a environment that exists today. To support the operation, maintenance, and lack of information needed to make modernization of its business systems, the department requested approximately sound decisions, hinder the $18 billion for fiscal year 2003. Funding is only part of the solution to improving efficiency of operations, and leave DOD’s current system environment. A key ingredient to success is effectively the department vulnerable to fraud, managing and overseeing these investments. waste, and abuse. Such problems led us in 1995 to put financial DOD has invested approximately $316 million in four key Defense Finance and management and business systems modernization at DOD on our list Accounting Service (DFAS) projects. However, DOD has not demonstrated that of high-risk areas in the federal this substantial investment will markedly improve DOD financial management government, a designation that information needed for decision-making and financial reporting purposes. In continues today. GAO was asked fact, the DOD Comptroller terminated one project in December 2002, after an to (1) provide information on the investment of over $126 million, citing poor program performance and number and cost of DOD’s current increasing costs. Continued investment in the other three projects has not been business systems and (2) determine justified because requisite analyses of the costs, benefits, and risks of each one if DOD is effectively managing and do not reflect cost increases and/or schedule delays. overseeing selected accounting system investments. Cost Increases and Schedule Delays for the DFAS Projects Reviewed Dollars in millions DFAS system project Cost increase Schedule slippage This report recommends that the Corporate Database/Warehouse $41 4 years Secretary of Defense limit future Defense Procurement Payment $274 4 years investments by the Defense Defense Departmental Reporting $118 5 years Finance and Accounting Service Defense Standard Disbursing N/A a 4 years (DFAS) in three ongoing system Source: GAO based upon information provided by DFAS projects we reviewed until each a Defense Standard Disbursing System began in 1997; however, a cost estimate was not has been adequately justified. The report also recommends that all developed until September 2000 and this estimate has not been updated. other DFAS information technology projects be evaluated to DOD oversight of the four DFAS projects has not been effective. Collectively, ensure they are being implemented DFAS, the DOD Comptroller, and the DOD Chief Information Officer share at acceptable costs and within investment management responsibility for these four projects. However, these reasonable time frames. DOD oversight entities have not questioned the impact of the cost increases and schedule delays and allowed the projects to proceed absent the requisite DOD concurred with our analytical justification. recommendations and described efforts to address them. www.gao.gov/cgi-bin/getrpt?GAO-03-465. To view the full report, including the scope and methodology, click on the link above. For more information, contact Gregory Kutz, (202) 512-9095 (email@example.com) or Randolph Hite (202) 512-3439 (firstname.lastname@example.org). Contents Letter 1 Results in Brief 2 Background 3 DOD Is Investing Billions of Dollars Annually to Operate, Maintain, and Modernize Its Business Systems 11 Investment Management and Oversight of Key DFAS Accounting Systems Has Not Been Effective 16 Conclusions 32 Recommendations for Executive Action 33 Agency Comments and Our Evaluation 34 Appendixes Appendix I: Scope and Methodology 36 Appendix II: Comments From the Under Secretary of Defense 39 Appendix III: GAO Contacts and Staff Acknowledgments 41 Tables Table 1: DFAS Fiscal Year 2002 Financial Operations 4 Table 2: Reported DOD Business Systems by Functional Area 12 Table 3: Proposed Allocation of DOD’s Fiscal Year 2003 IT Budget 15 Table 4: Reported Cost Increases and Schedule Delays for the Four DFAS Projects Reviewed 17 Table 5: Reported Investment in DPPS, DDRS, and DSDS 22 Figures Figure 1: Intended Interrelationship of the Four DFAS Projects 7 Figure 2: Distribution of DOD’s Fiscal Year 2003 $26 Billion IT Budget Request (dollars in billions) 14 Figure 3: DCD/DCW Schedule Slippages and Cost Increases 20 Figure 4: DPPS Schedule Slippages and Cost Increases 23 Figure 5: DDRS Cost Increases and Schedule Delays 25 Figure 6: DSDS Schedule Delays 27 Figure 7: ITIM Stages of Maturity 37 This is a work of the U.S. Government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. It may contain copyrighted graphics, images or other materials. Permission from the copyright holder may be necessary should you wish to reproduce copyrighted materials separately from GAO’s product. Page i GAO-03-465 DOD Business Systems Modernization A United States General Accounting Office Washington, D.C. 20548 March 28, 2003 Leter The Honorable Christopher Shays Chairman Subcommittee on National Defense, Emerging Threats, and International Relations Committee on Government Reform House of Representatives Dear Mr. Chairman: The Department of Defense’s (DOD) long-standing financial management and business systems1 modernization problems result in a lack of information needed to make sound decisions, hinder the efficiency of operations, and leave the department vulnerable to fraud, waste, and abuse. Such problems led us in 1995 to put financial management and business systems modernization at DOD on our list of high-risk areas2 in the federal government, a designation that continues today.3 DOD’s financial management problems are the result of challenges in the area of human capital, processes (internal controls), and its inability to effectively modernize its business systems. The President has made financial management and the use of technology integral to his fiscal year 2002 Management Agenda for making the federal government more focused on results. The President’s Management Agenda states, “Without accurate and timely information it is not possible to accomplish the President’s agenda to secure the best performance and the highest measure of accountability for the American people.” Additionally, in September 2002, the Secretary of Defense identified the modernization of DOD’s financial management and business operations as one of his top 10 priorities. 1 Business systems include those that are used for areas such as civilian personnel, finance, health, logistics, military personnel, procurement, and transportation, with the common element being the generation or use of financial data. 2 U.S. General Accounting Office, High-Risk Series: An Overview, GAO-HR-95-263 (Washington, D.C.: February 1995). 3 U.S. General Accounting Office, High-Risk Series: An Update, GAO-03-119 (Washington, D.C.: January 2003). Page 1 GAO-03-465 DOD Business Systems Modernization This report responds to your request for information about DOD’s current and planned business systems environment and its management of certain key accounting system projects. As agreed with your office, our objectives were to (1) identify the number of existing business systems and the estimated cost to operate, maintain, and modernize systems and (2) determine if DOD is effectively overseeing selected business system investments made by the Defense Finance and Accounting Service (DFAS)—the centralized accounting agency for DOD. To evaluate the effectiveness of information technology (IT) investment management and oversight practices, we selected four DFAS system acquisition projects as case studies. We selected these projects because all four were intended to benefit the entire department by addressing DOD’s financial management weaknesses in the areas of data accuracy, financial reporting, and problem disbursements. In reviewing these four system projects, we relied on documentation, including cost estimates, provided by DFAS. We did not verify the accuracy and completeness of the cost information provided by DFAS. Our work was performed from November 2001 to January 2003 in accordance with U.S. generally accepted government auditing standards. Details on our scope and methodology are included in appendix I. We requested comments on a draft of this report from the Secretary of Defense or his designee. Written comments from the Under Secretary of Defense (Comptroller) are reprinted in appendix II. Results in Brief As part of its ongoing business systems modernization program, DOD is creating a repository of information about its existing systems environment. As of October 2002, DOD reported that its current business system environment consisted of 1,731 DOD systems and system acquisition projects. DOD officials said they believe the inventory is fairly comprehensive, given the in-depth work the department has undertaken over the past 18 months to develop this information, but acknowledge that it likely does not include all systems. More importantly, as we testified before this Subcommittee,4 these systems are acknowledged by DOD to be error prone, duplicative, and stovepiped. To support its existing business systems environment, the department requested approximately $18 billion for fiscal year 2003. However, funding alone is not the solution to 4 U.S. General Accounting Office, DOD Financial Management: Important Steps Underway But Reform Will Require a Long-term Commitment, GAO-02-784T (Washington, D. C.: June 4, 2002). Page 2 GAO-03-465 DOD Business Systems Modernization improving DOD’s current systems environment. A key to success is effectively managing and overseeing its investments in systems. DOD has not effectively managed and overseen its planned investment of over $1 billion in four DFAS system modernization efforts. Specifically, one project did not have an economic analysis, and the other three did not have approved economic analyses that reflected the fact that expected project costs had increased, while in some cases the benefits had decreased. One project’s estimated cost had increased by as much as $274 million, while the schedule slipped by almost 4 years. Such analyses provide the requisite justification for decision makers to use in determining whether to invest additional resources in anticipation of receiving commensurate benefits and mission value. For each of these projects, DOD oversight entities— DFAS, the DOD Comptroller, and the DOD Chief Information Officer (CIO)—could not provide documentation that indicated they questioned the impact of the cost increases and schedule delays, and allowed the projects to proceed in the absence of the requisite analytical justification. For example, in one case, they allowed a $270 million project to proceed without an economic analysis. In another case, they allowed a project to continue despite known concerns with the validity of the project’s economic analysis. After spending over $126 million as of September 2002, the DOD Comptroller terminated the latter project in December 2002, citing poor program performance and increasing costs. This report recommends that the Secretary of Defense limit future investments in the remaining three DFAS system projects until such investments have been adequately justified. Additionally, we are recommending that all remaining DFAS IT projects be evaluated to ensure they are being implemented at acceptable cost and within reasonable time frames. In its comments on a draft of this report, DOD agreed with our recommendations and briefly outlined its actions for addressing them. Background DFAS, as DOD’s central accounting agency, is responsible for recording and processing accounting transactions; paying vendors, contractors, and military and civilian employees; preparing reports used by DOD managers and by the Congress; and preparing DOD-wide and service-specific financial statements required by the Chief Financial Officers Act. Organizationally, DFAS is under the direction of the Under Secretary of Defense (Comptroller). Table 1 illustrates the enormous scope and importance of DFAS’s reported fiscal year 2002 financial operations. Page 3 GAO-03-465 DOD Business Systems Modernization Table 1: DFAS Fiscal Year 2002 Financial Operations Type of activity Volume of activity Accounting transactions 124 million Disbursements made $346.6 billion Invoices paid 11.2 million Military and civilian employees, retirees, and annuitants paid 5.7 million Active DOD appropriations 267 Source: DFAS DFAS’s fiscal year 2003 IT budgetary request was approximately $494 million.5 Of that amount, $353 million relates to the operation and maintenance of existing DFAS systems and the remaining $141 million is for the modernization of systems. The purpose of each DFAS project we reviewed is highlighted below. DFAS Corporate Database/DFAS Corporate Warehouse (DCD/DCW). DCD and DCW were originally separate initiatives. DCD was initiated in October 1998, and was to be the single DFAS database, meaning it was to contain all DOD financial information required by DFAS systems and would be the central point for all shared data within DFAS. To accomplish this goal, DCD would crosswalk6 detailed transaction data from nonstandard finance and feeder7 systems into a standard format. Further, once the department implemented standard systems, the need to perform these crosswalks would be eliminated. In February 2001, the project’s scope was revised after DFAS realized that crosswalks of detail transaction data were cumbersome and cost prohibitive. DFAS is planning to crosswalk detailed transaction data only when information from multiple systems must be aggregated to satisfy a cross-service need such as the working capital fund activities. 5 DOD Information Technology Fiscal Year 2003 Budget Estimate, February 2002. 6 Translate information so that systems that define data differently (i.e., use different data schemes) can understand each other and communicate accurately. 7 Feeder systems are outside the direct control of DFAS. These are the systems used by DOD’s various functional areas such as acquisition, logistics, and personnel. DOD has estimated that 80 percent of the department financial management data comes from the feeder systems controlled by the military services and defense agencies. Page 4 GAO-03-465 DOD Business Systems Modernization DCW was initiated in July 2000 to provide a historical database to store and manage official DFAS information for analysis and generation of operational reports and queries. In November 2000, the DFAS CIO combined DCD/DCW into one program. In March 2001, DCD/DCW was designated as a major automated information system.8 Defense Procurement Payment System (DPPS). DFAS determined the need for DPPS in April 1995. DPPS was intended to be the standard, automated information system for contract and vendor pay authorization and addressing deficiencies associated with overpayments, negative unliquidated obligations,9 and unmatched disbursements10—all of which are long-standing problems in DOD. DPPS also was to incrementally replace eight contract and vendor systems. In October 1995, the DFAS Director approved proceeding with defining and evaluating the feasibility of alternative concepts and assessing the relative merits of these concepts. In November 1996, the Office of the Assistant Secretary of Defense (Command, Control, Communications, and Intelligence)—DOD’s CIO— designated DPPS a major automated information system. DFAS awarded a contract in June 1998 for the acquisition of a system that was intended to address DOD’s contract and vendor pay deficiencies. Defense Standard Disbursing System (DSDS). Disbursing activities for DOD are largely accomplished through systems that were designed 15-20 years ago. In 1997, DFAS launched DSDS to be the single, standard DFAS automated information system for collecting, processing, recording, and reporting disbursement data and transactions for the military services and defense agencies. These disbursing functions are currently being provided 8 Major automated information systems are defined as IT projects with (1) program costs in any single year that exceed $32 million, (2) total program costs that exceed $126 million, or (3) total life-cycle costs that exceed $378 million. The life-cycle cost is the total cost to the government for an information system over its expected useful life and includes the costs to acquire, operate, maintain, and dispose of the system. DOD Regulation 5000.2-R, Mandatory Procedures for Major Defense Acquisition Programs and Major Automated Information System Acquisition Programs, specifies mandatory policies and procedures for major acquisitions. The policy also specifies that the DOD CIO is the milestone decision authority, responsible for program approval, for all major automated information systems, such as DCD/DCW and DPPS. 9 Negative unliquidated obligations occur when recorded disbursements exceed recorded obligations, indicating that expenditures may exceed amounts obligated. 10 Unmatched disbursements occur when a disbursement cannot be matched to an obligation. Page 5 GAO-03-465 DOD Business Systems Modernization by multiple automated information systems and manual activities at various DFAS locations. Defense Departmental Reporting System (DDRS). In April 1997, DFAS initiated DDRS to be the standardized departmental reporting system. DDRS has two phases. The first phase—DDRS-AFS (Audited Financial Statements)—is intended to be a departmentwide financial reporting system. The second phase—DDRS-Budgetary—is intended to establish a departmentwide budgetary reporting system. Among other things, DDRS is intended to reduce the number of departmental reporting systems and standardize departmental general ledger processes. These four projects are part of the DFAS Corporate Information Infrastructure (DCII) program. According to DFAS, DCII is intended to facilitate cross-functional, integrated processes; promote standardized data and reporting; facilitate standardized business practices; reduce cost of operations; and provide timely information for decision making. Figure 1 depicts a high-level view of the interrelationships among these four system projects. Page 6 GAO-03-465 DOD Business Systems Modernization Figure 1: Intended Interrelationship of the Four DFAS Projects Financial feeder a and accounting and finance systems DCD / DCW DCD is intended to facilitate the sharing of all DOD financial data among systems and functions, applications, and users. DCW is intended to serve as a shared data warehouse that provides uniform, centralized information to DOD's systems. DDRS DPPS DSDS DDRS is intended to use data from DPPS uses data from procurement DSDS is intended to collect, process, b the DCD and DCW to prepare systems, EC/EDI transactions, record, and report DOD's disbursement standard financial and budgetary electronic document management, data and transactions, and serve as reports. and source data entry (all obtained the standard vendor and contractor from DCD) to calculate contract payment system. and vendor payments. Reports go to Payment to end user contractors/vendors Source: GAO. a Feeder systems are outside the direct control of DFAS. These are the systems used by DOD’s various functional areas such as acquisition, logistics, and personnel. DOD has estimated that 80 percent of the department’s financial management data comes from the feeder systems controlled by the military services and defense agencies. b Electronic commerce/electronic data interchange. Electronic commerce is the interchange and processing of information using electronic techniques for accomplishing business. Electronic data interchange is the computer-to-computer exchange of business data in a standardized format between entities. Page 7 GAO-03-465 DOD Business Systems Modernization Overview of DFAS and DOD DOD and DFAS have an established acquisition management and oversight System Acquisition process for acquiring, operating, and maintaining business systems. Among other things, this process requires project managers to provide cost, Management and Oversight schedule, and performance data to the DFAS Chief Information Process Officers/Business Integration Executive (CIO/BIE) Council—DFAS’s IT investment board—prior to scheduled milestone11 reviews. These milestones are intended to be decision points for determining whether a project should continue in the current phase of the system life-cycle, proceed to the next phase, be modified, or be terminated. The results of these reviews are to be set forth in a system decision memorandum which is to be signed by the milestone decision authority. The milestone decision authority for DSDS and DDRS is the Director, DFAS. The DOD CIO is the milestone decision authority for DCD/DCW and DPPS. Prior Reviews Have We and the DOD Inspector General have continued to report on a variety of Identified Problems With long-standing management problems for modernizing DOD’s IT systems. Three recent system endeavors that have fallen short of their intended DOD’s Management and goals illustrate these problems. They are the Standard Procurement Oversight of System System, the Defense Travel System, and the Defense Joint Accounting Acquisitions System. These efforts were aimed at improving the department’s financial management and related business operations. Significant resources—in terms of dollars, time, and people—have been invested in these three efforts. 11 DFAS’s system life-cycle process is consistent with DOD’s Defense Acquisition System guidance, which has three milestones: Milestone A or Concept and Technology Development, Milestone B or System Development and Demonstration, and Milestone C or Production and Deployment. The Defense Acquisition System guidance was revised in October 2000. Prior to this, Milestone A was Milestone 0, Milestone B was Milestone I/II, and Milestone C was Milestone III. Page 8 GAO-03-465 DOD Business Systems Modernization Standard Procurement System (SPS). In November 1994, DOD began the SPS program to acquire and deploy a single automated system to perform all contract management-related functions within DOD’s procurement process for all DOD organizations and activities. The laudable goal of SPS was to replace 76 existing procurement systems with a single departmental system. DOD estimated that SPS had a life-cycle cost of approximately $3 billion over a 10-year period. According to DOD, SPS was to support about 43,000 users at over 1,000 sites worldwide and was to interface with key financial management functions, such as payment processing. Additionally, SPS was intended to replace the contract administration functions currently performed by the Mechanization of Contract Administration Services, a system implemented in 1968. Our July 2001 report12 and February 2002 testimony13 identified weaknesses in the department’s management of its investment in SPS. Specifically: • The department had not economically justified its investment in the program because its latest (January 2000) analysis of costs and benefits was not credible. Further, this analysis showed that the system, as defined, was not a cost-beneficial investment. • The department had not effectively addressed the inherent risks associated with investing in a program as large and lengthy as SPS because it had not divided the program into incremental investment decisions that coincided with incremental releases of system capabilities. • Although the department committed to fully implementing the system by March 31, 2000, this target date had slipped by over 3 ½ years to September 30, 2003, and program officials have recently stated that this date will also not be met. 12 U.S. General Accounting Office, DOD Systems Modernization: Continued Investment in the Standard Procurement System Has Not Been Justified, GAO-01-682 (Washington, D.C.: July 31, 2001). 13 U.S. General Accounting Office, DOD’s Standard Procurement System: Continued Investment Has Yet to Be Justified, GAO-02-392T (Washington, D.C.: Feb. 7, 2002). Page 9 GAO-03-465 DOD Business Systems Modernization Defense Travel System (DTS). In July 2002,14 the DOD Inspector General raised concerns that DTS remained a program at high risk of not being an effective solution in streamlining the DOD travel management process. The report stated that “The Defense Travel System was being substantially developed without the requisite requirements, cost, performance, and schedule documents and analyses needed as the foundation for assessing the effectiveness of the system and its return on investment.” The report further noted there was increased risk that the $114.8 million and 6 years of effort already invested will not fully realize all goals to reengineer temporary duty travel, make better use of IT, and provide an integrated travel system. Additionally, the DOD Inspector General reported that DTS was to cost approximately $491.9 million (approximately 87 percent more than the original contract cost of $263.7 million) and DOD estimates that deployment will not be completed until fiscal year 2006, approximately 4 years behind schedule. Defense Joint Accounting System (DJAS). In 1997, DOD selected DJAS15 to be one of three general fund accounting systems. The other two general fund systems were the Standard Accounting and Reporting System and the Standard Accounting and Budgetary Reporting System. As originally envisioned, DJAS would perform the accounting for the Army and the Air Force as well as the DOD transportation and security assistance areas. Subsequently, in February 1998, DFAS decided that the Air Force could withdraw from using DJAS, because either the Air Force processes or the DJAS processes would need significant reengineering to permit use of a joint accounting system. As a result, the Air Force started its own general fund accounting system—General Fund and Finance System—which resulted in the development of a fourth general fund accounting system. In June 2000, the DOD Inspector General reported16 that DFAS was developing DJAS at an estimated life-cycle cost of about $700 million 14 Department of Defense Office of the Inspector General, Allegations to the Defense Hotline on the Management of the Defense Travel System, Report No. D-2002-124 (Arlington, Va.: July 1, 2002). 15 The original name of the system was the Corps of Engineers Financial Management System (CEFMS). After it was determined that CEFMS could be modified to satisfy Army customers and had the potential for supporting the Defense Working Capital Funds, DFAS selected CEFMS to meet the DJAS requirements. 16 Department of Defense Office of the Inspector General, Acquisition of the Defense Joint Accounting System, Report No. D-2000-151 (Arlington, Va.: June 16, 2000). Page 10 GAO-03-465 DOD Business Systems Modernization without demonstrating that the program was the most cost-effective alternative for providing a portion of DOD’s general fund accounting. More specifically, the report stated that DFAS had not developed a complete or fully supportable feasibility study, analysis of alternatives, economic analysis, acquisition program baseline, or performance measures, and had not reengineered business processes. DOD Is Investing As part of its ongoing business systems modernization program, and consistent with our past recommendation,17 DOD is creating a repository of Billions of Dollars information about its existing systems environment. As of October 2002, Annually to Operate, DOD reported that its current business systems environment consisted of 1,731 systems and system acquisition projects. In particular, DOD reported Maintain, and that it had 374 systems to support civilian and military personnel matters, Modernize Its Business 335 systems to perform finance and accounting functions, and 310 systems Systems that produce information for management decision making. Table 2 presents the composition of DOD business systems by functional area. 17 U.S. General Accounting Office, Financial Management: DOD Improvement Plan Needs Strategic Focus, GAO-01-764 (Washington, D.C.: Aug. 17, 2001). Page 11 GAO-03-465 DOD Business Systems Modernization Table 2: Reported DOD Business Systems by Functional Area Functional area Army Navy Air Force DFAS DLA Other Total Personnel 266 49 13 19 0 27 374 Finance and accounting 79 61 27 131 9 28 335 Management information 156 40 50 14 4 46 310 Inventory 98 53 40 7 7 17 222 Acquisition 18 10 22 0 5 19 74 Budget formulation 25 18 10 5 0 10 68 Cost 19 29 8 0 1 4 61 Logistics 12 6 22 3 7 5 55 National defense property management 5 12 25 1 2 1 46 Travel 9 13 3 2 0 5 32 Real property management 17 4 6 0 0 1 28 Time and attendance 3 14 2 2 3 1 25 Budget execution 6 4 2 7 0 3 22 Personal property management 3 7 7 0 0 4 21 Procurement 7 5 1 0 3 4 20 Vendor payment 3 3 1 7 0 4 18 Transportation 5 1 4 0 0 2 12 Other functions combined 12 7 6 3 0 9 37 Total 743 336 249 201 41 190 1,760a Source: DOD Business Modernization Systems Integration Office. a There are 29 reported duplications within the DOD database (e.g., systems shown in multiple functional areas). Taking this duplication into account provides the reported 1,731 business systems. As we have previously reported,18 these numerous systems have evolved into the overly complex and error prone operation that exists today, including (1) little standardization across DOD components, (2) multiple systems performing the same tasks, (3) the same data stored in multiple systems, (4) manual data entry into multiple systems, and (5) a large number of data translations and interfaces that combine to exacerbate problems with data integrity. The department has recognized the uncontrolled proliferation of systems and the need to eliminate as many systems as possible and integrate and standardize those that remain. In 18 U.S. General Accounting Office, DOD Financial Management: Important Steps Underway But Reform Will Require a Long-term Commitment, GAO-02-784T (Washington, D.C.: June 4, 2002). Page 12 GAO-03-465 DOD Business Systems Modernization fact, three of the four DFAS projects we reviewed were intended to reduce the number of systems or eliminate a portion of different systems that perform the same function. For example, • DPPS was intended to consolidate eight contract and vendor pay systems; • DDRS is intended to reduce the number of departmental reporting systems from seven to one; and • DSDS is intended to eliminate four different disbursing systems. Similarly, DTS is intended to be the DOD-wide travel system. According to data reported by DOD, currently there are 32 travel systems operating within the department. For fiscal year 2003, DOD has requested approximately $26 billion in IT funding to support a wide range of military operations as well as DOD business system operations. As shown in figure 2, the $26 billion is spread across the military services and defense agencies. Each receives its own funding for IT investments. Page 13 GAO-03-465 DOD Business Systems Modernization Figure 2: Distribution of DOD’s Fiscal Year 2003 $26 Billion IT Budget Request (dollars in billions) a 3% DLA $0.9 Billion 3% Tri-Care $0.9 Billion 14% 24% All other DOD Air Force componentsb $6.4 Billion $3.7 Billion 15% c DISA 21% $3.9 Billion Navy $5.5 Billion 20% Army $5.2 Billion Source: GAO analysis based on DOD's fiscal year 2003 IT budget request. a Defense Logistics Agency is DOD’s logistics manager for all consumable and some repair items; its primary business function is providing supply support to sustain military operations and readiness. b Other DOD components include entities such as DFAS and the Defense Commissary Agency. c Defense Information Systems Agency provides DOD and other organizations a wide range of information services such as data processing, telecommunication services, and database management. The $26 billion supports three categories of IT—business systems, business systems infrastructure, and national security systems (NSS)—the first two of which comprise the 1,731 business systems. DOD defines these three categories as follows: • Business systems—used to record the events associated with DOD’s functional areas. Such areas include finance, logistics, personnel, and transportation. • Business systems infrastructure—represents the costs associated with the operations of the department’s business systems. Such costs would include transmission lines, network management, and information security. • National Security System (NSS)—intelligence systems, cryptologic activities related to national security, military command and control Page 14 GAO-03-465 DOD Business Systems Modernization systems, and equipment that is an integral part of a weapon or weapons system, or is critical to the direct fulfillment of military or intelligence mission. As shown in table 3, approximately $18 billion—the nearly $5.2 billion for business systems and the $12.8 billion for business systems infrastructure—relates to the operation, maintenance, and modernization of DOD’s 1,731 business systems. Table 3: Proposed Allocation of DOD’s Fiscal Year 2003 IT Budget Dollars in millions Business Business system Component systems infrastructure NSS Total Air Force $578 $3,178 $2,674 $6,430 Navy 1,397 2,674 1,444 5,515 Army 1,122 2,223 1,823 5,168 DISA 45 3,190 648 3,884 Tricare 444 452 15 911 DLA 434 407 24 865 Other DOD components 1,135 676 1,843 3,653 Total $5,155 $12,800 $8,471 $26,426 Source: GAO analysis based on DOD’s fiscal year 2003 IT budget request As we have reported,19 while DOD plans to invest billions of dollars in modernizing its financial management and other business support systems, it does not yet have an overall blueprint—or enterprise architecture—in place to guide and direct these investments. Our review of practices at leading organizations showed they were able to provide reasonable assurance that their business systems addressed corporate—rather than individual business units—objectives by using enterprise architectures to guide and constrain investments.20 19 U.S. General Accounting Office, Information Technology: Architecture Needed to Guide Modernization of DOD’s Financial Operations, GAO-01-525 (Washington, D.C.: May 17, 2001). 20 U.S. General Accounting Office, Defense Acquisitions: DOD Faces Challenges in Implementing Best Practices, GAO-02-469T (Washington, D.C.: Feb. 27, 2002). Page 15 GAO-03-465 DOD Business Systems Modernization Consistent with our recommendation,21 DOD is now working to develop a financial management enterprise architecture, which is a positive step. Further, Section 1004 of the National Defense Authorization Act for Fiscal Year 200322 directs DOD to develop an enterprise architecture not later than May 1, 2003, and that a transition plan accompany the architecture that delineates how the architecture will be implemented. The act also directs that we provide an assessment to the congressional defense committees as to whether DOD has complied with the provisions of Section 1004. Investment DOD management and oversight authorities for the four case study projects are DFAS, the DOD Comptroller, and the DOD CIO. They Management and permitted each project to proceed despite the absence of the requisite Oversight of Key DFAS analysis to demonstrate that the projects will produce value commensurate with the costs being incurred. For example, an economic analysis has yet Accounting Systems to be prepared for DCD/DCW and the other three projects did not have Has Not Been Effective economic analyses that reflected the fact that project costs, schedules, and/or expected benefits had changed materially. Table 4 highlights these cost increases and schedule delays. 21 U.S. General Accounting Office, Information Technology: Architecture Needed to Guide Modernization of DOD’s Financial Operations, GAO-01-525 (Washington, D.C.: May 17, 2001). 22 P.L. 107-314, December 2, 2002. Page 16 GAO-03-465 DOD Business Systems Modernization Table 4: Reported Cost Increases and Schedule Delays for the Four DFAS Projects Reviewed Dollars in millions Original planned Current planned date (fiscal year) date (fiscal year) Original cost Current cost of full operational of full operational System estimate estimate capabilitya capability DCD/DCWb $229 $270 2001 2005 DPPS $278 $552 2002 2006 DDRS $ 52 $170 1999 2004 DSDS $151c $151 2002 2006 Total $710 $1,143 Source: GAO based upon information provided by DFAS. a Full operational capability means the system is deployed and operating at all intended locations. b When DFAS initiated the DCW in July 2000, a full operational capability date was not established. The current full operational capability date applies to both DCD and DCW since they were combined into one program in November 2000. c DSDS began in 1997; however, a cost estimate was not developed until September 2000, and this estimate has not been updated. In the case of DPPS, the estimated costs had increased by $274 million and the schedule had slipped by almost 4 years. In December 2002, following our discussions with DOD Comptroller officials, the DOD Comptroller terminated DPPS after 7 years of effort and an investment of over $126 million. In making this decision, the DOD Comptroller noted that the project was being terminated due to poor program performance and increasing costs. Page 17 GAO-03-465 DOD Business Systems Modernization The Clinger-Cohen Act of 1996 and Office of Management and Budget (OMB) guidance provide an effective framework for IT investment management.23 They emphasize the need to have investment management processes and information to help ensure that IT projects are being implemented at acceptable costs and within reasonable and expected time frames and that they are contributing to tangible, observable improvements in mission performance. DOD policy also reflects these investment principles by requiring that investments be justified by an economic analysis.24 More specifically, the policy states that the economic analysis is to reflect both the life-cycle cost and benefit estimates, including a return- on-investment calculation, to demonstrate that the proposed investment is economically justified before it is made. DCD/DCW Has Not Been After 4 years of effort and an investment of approximately $93 million, Economically Justified DOD has yet to economically justify that its investment in DCD/DCW will result in tangible improvement in DOD financial management operations. Consistent with the Clinger-Cohen Act, DOD and DFAS systems acquisition guidance25 requires that certain documentation be prepared at each milestone within the system life-cycle. This documentation is intended to provide relevant information for management oversight and in making decisions as to whether the investment of resources is cost beneficial. A key piece of information—the economic analysis—was never completed for the DCD/DCW project. In May 2000, the Director, DFAS, granted approval to continue with development of DCD with a condition that a cost benefit analysis be completed by June 2000. DFAS completed a draft cost benefit analysis for DCD in October 2000. This document was not finalized and in November 2000, DCD/DCW were combined into one program. Since that time, DCD/DCW has continued without a valid, well-supported 23 Clinger-Cohen Act of 1996, P.L. 104-106, Div. E, 110 Stat. 679, February 10, 1996 (originally known as the Information Technology Management Reform Act of 1996) and OMB Circular A-130, Management of Federal Information Resources (Nov. 30, 2000). 24 DOD Regulation 5000.2-R, Mandatory Procedures for Major Defense Acquisition Programs and Major Automated Information System Acquisition Programs (Apr. 5, 2002). 25 DOD Regulation 5000.2-R, Mandatory Procedures for Major Defense Acquisition Programs and Major Automated Information System Acquisition Programs (Apr. 5, 2002) and DFAS 8000.1-R, Part C, DFAS Information Technology Life Cycle Management Policy (May 3, 2002). Page 18 GAO-03-465 DOD Business Systems Modernization economic justification to support continued investment in DCD/DCW. DCD project management officials stated that the economic analysis has not been finalized because they were unable to agree on how to compute the return on investment and demonstrate that benefits exceeded costs. In March 2001, DCD/DCW was designated a Major Automated Information System, and as such, DOD’s Office of Program Analysis and Evaluation (PA&E) is required to assess the economic analysis and provide any recommendations to the DOD CIO. However, after approximately 2 years, the economic analysis still has not been developed and PA&E officials stated that it did not anticipate receiving the economic analysis until May 2003. At the same time, as highlighted in figure 3, the cost and schedule of this project have continued to increase over the years. Page 19 GAO-03-465 DOD Business Systems Modernization Figure 3: DCD/DCW Schedule Slippages and Cost Increases FOC schedule Cost estimates (dollars in millions) 2005 4th $300 quarter FY05 DCD/ DCW $270 2004 Million $250 DCD/ DCW $229.1 Million total $115.9 2003 Million DCW $200 2002 $150 2001 $113.2 $100 Million DCD 1st DCW quarter 2000 initiated FY01 7-00 DCD $50 1999 1998 DCD $0 initiated Project initiated Milestone 0 Milestone I Milestone II Current 10-98 DCD 10-98 DCD 5-99 DCD 5-00 DCD 5-00 DCD/DCW DCW 7-00 DCW 8-00 DCW (none) DCW (none) 12-02 Cost estimate Full operational capability (FOC) schedule Source: GAO based on information provided by DFAS. Page 20 GAO-03-465 DOD Business Systems Modernization Additionally, the planned functionality of DCD has been drastically reduced since the original concept was set forth. Originally, DCD was to contain all DOD financial information required by DFAS systems, making it the central point for all shared data within DFAS. To accomplish this goal, DCD was to crosswalk26 detailed transactions from nonstandard finance and feeder systems into a standard format, pending the acquisition and implementation of standard feeder systems. In February 2001, the scope of the DCD project was revised after DFAS realized, through testing of Air Force detailed transactions from feeder systems, that the planned crosswalks were cumbersome and cost prohibitive. Currently, DFAS is planning to crosswalk detailed transaction data only when information from multiple systems must be aggregated to satisfy a cross-service need such as the working capital fund activities. This will result in the originally envisioned capability not being provided. Additionally, DCD/DCW will continue to rely on the error-plagued data in the feeder systems and will not produce financial records that are traceable to transaction-level data. According to the DOD Inspector General, DCD was a high-risk effort because there was no assurance that DCD and other financial management systems would standardize DOD business processes; reduce the number of finance, accounting, and feeder systems; reduce costs; and produce accurate and auditable financial information.27 Until the economic analysis is finalized, DOD does not know if its investment in DCD/DCW is justified and the decision to move to the next milestone will continue to be delayed. Nevertheless, DOD continues to spend funds to perform tasks in anticipation of milestone approval being received. In fiscal year 2002, according to DFAS officials, approximately $36 million was spent on DCD/DCW. Economic Justification for DOD had developed an economic analysis for each of the remaining three the Other Three Projects Is projects. However, these analyses had not been updated to reflect schedule delays, cost increases, and changes in scope that have occurred— Not Current each of which has an impact on the projected benefits that were originally 26 Translate information so that systems that define data differently can understand each other and communicate accurately. 27 Department of Defense Office of the Inspector General, Development of the Defense Finance and Accounting Service Corporate Database and Other Financial Management Systems, Report No. D-2002-014 (Arlington, Va.: Nov. 7, 2001). Page 21 GAO-03-465 DOD Business Systems Modernization justified. Nevertheless, as shown in table 5, investment in each project continues. Table 5: Reported Investment in DPPS, DDRS, and DSDS Dollars in millions Date of the economic Fiscal year 2002 Total investment as System analysis investment of September 2002 DPPS February 1998 $20 $126.5 DDRS October 1998 $10 $57.5 DSDS September 2000 $7 $39 Total $37 $223 Source: GAO based on information provided by DFAS The investment of resources in a system project should be conditional upon analytical justification that the proposed investment will produce commensurate value. As called for in OMB guidance,28 analyses of investment costs, benefits, and risks should be (1) updated throughout a project’s life cycle to reflect material changes in project scope and estimates and (2) used as a basis for ongoing investment selection and control decisions. To do less presents the risk of continued investment in projects on the basis of outdated and invalid economic justification. In the case of DPPS, PA&E questioned the validity of the economic analysis developed by DFAS. Since DPPS is classified as a major automated information system, the economic analysis is to be reviewed by PA&E. In its May 1998 assessment of the economic analysis, PA&E questioned areas such as the validity of the estimated savings and the ability to implement DPPS within the original estimated cost and schedule. According to DOD officials, these issues were resolved, but they could not provide any documentation to substantiate their position. The DOD CIO subsequently granted permission to continue the project. Over the years, as shown in figure 4, the DPPS effort has been marked by significant increases in cost and schedule delays. 28 OMB Circular A-130 (Nov. 30, 2000). Page 22 GAO-03-465 DOD Business Systems Modernization Figure 4: DPPS Schedule Slippages and Cost Increases FOC schedule 12-05 2005 2004 2003 Cost estimates (dollars in millions) 2002 $600 4-02 $552 M 2001 $500 2000 $400 1999 $300 1998 $278 M $200 1997 $100 1996 1995 Project $0 initiated Project initiated Milestone 0 Milestone I/II 12-02 4-95 4-95 10-95 6-98 Cost estimate Full operational capability (FOC) schedule Source: GAO based on information provided by DFAS. The original full operational capability date of April 2002 slipped to December 2005—a delay of almost 4 years—with the estimated cost almost doubling to $552 million. In December 2002, following our discussion with DOD Comptroller officials of DPPS cost increases and schedule slippages, the DOD Comptroller terminated DPPS. In making this decision, the DOD Page 23 GAO-03-465 DOD Business Systems Modernization Comptroller noted that the project was being terminated due to poor program performance and increasing costs. With regard to DDRS, the economic analysis used to justify this initiative was developed in October 1998—over 4 years ago. At that time, it was estimated that DDRS would cost $111 million and be fully operational by April 2000. However, based upon information provided by DFAS, and as shown in figure 5, DDRS has experienced increased cost and schedule delays. However, the economic analysis has not been updated to reflect the known changes in the project’s costs and schedule. Page 24 GAO-03-465 DOD Business Systems Modernization Figure 5: DDRS Cost Increases and Schedule Delays FOC schedule 2004 7-04 2003 4-03 2002 Cost estimates (dollars in millions) $200 2001 $170 M $150 2000 4-00 $111 M $112 M $100 1999 6-99 1998 $50 $52 M 1997 Project $0 initiated Project initiated Milestone 0 Milestone I Milestone II 4-97 4-97 11-98 4-02 12-02 Cost estimate Full operational capability (FOC) schedule Source: GAO based on information provided by DFAS. Page 25 GAO-03-465 DOD Business Systems Modernization Moreover, the intended capability of DDRS as originally envisioned has been reduced. For example, DDRS is no longer intended to provide the capability to build an audit trail so that financial data can be tracked back to its transaction-based support, as originally planned. The Federal Financial Management Improvement Act of 199629 requires that agency financial management systems comply with federal financial management systems requirements, applicable federal accounting standards, and the U.S. Government Standard General Ledger at the transaction level. Systems meeting these requirements should be able to produce auditable financial statements and otherwise have audit trail capability. However, DDRS system users will have to rely on the audit trail capabilities of feeder systems in order to trace individual transactions to their source documents. As we have previously reported,30 the data from the feeder systems, which are outside the control of DFAS and provide approximately 80 percent of the data that DOD needs for financial reporting purposes, are not reliable. Additionally, until DCD is operational, DDRS will be receiving data from the feeder systems in order to prepare the department’s financial reports on the results of its operations. Therefore, DOD’s financial reports produced by DDRS will (1) continue to be incomplete and inaccurate and thus not useful for decision-making purposes and (2) remain unable to withstand the scrutiny of a financial audit. For DSDS, an economic analysis was prepared in September 2000. However, it has not been updated to reflect material changes in the project. For example, as shown in figure 6, the full operational capability (FOC) date31 at the time the economic analysis was prepared was February 2003. However, according to information provided by DFAS, the current FOC date is December 2005—a schedule slippage of almost 3 years.32 Such delays postpone the delivery of promised benefits. DFAS has stated that the cost information is being updated to support a Milestone C decision, which they anticipate will occur in early fiscal year 2004. 29 P.L. 104-208, Div. A, 110 Stat. 3009-389, Sept. 30, 1996. 30 U.S. General Accounting Office, DOD Financial Management: Important Steps Underway But Reform Will Require a Long-term Commitment, GAO-02-784T (Washington, D. C.: June 4, 2002). 31 The full operational capability date represents the date that a system will be operating at all intended locations. 32 In March 1998, DFAS estimated the FOC date would be February 2002. Page 26 GAO-03-465 DOD Business Systems Modernization Figure 6: DSDS Schedule Delays FOC schedule 12-05 2005 2004 Cost estimates (dollars in millions) $250 2003 2-03 2-03 $200 2002 2-02 2001 $150 $151 M $151 M 2000 $100 1999 $50 1998 1997 Project $0 initiated Project initiated Milestone 0 Milestone I Milestone II 12-02 2-97 2-97 3-98 12-00 3-01 Cost estimate Full operational capability (FOC) schedule Source: GAO based on information provided by DFAS. Additionally, DSDS delivery of promised benefits depends upon the DCD/DCW being implemented on time. However, as previously discussed, DCD/DCW implementation has been fraught with difficulties, which has a corresponding adverse effect on DSDS schedule delays. For example, Page 27 GAO-03-465 DOD Business Systems Modernization DCD/DCW project management officials are in the process of addressing 102 requests for requirement changes. According to the DCD/DCW program manager, the date for resolving these changes and approving the Operational Requirements Document is November 2003. Until this process is completed, affected systems integration testing for other DCD/DCW dependent systems, such as DSDS, cannot be finalized. Further, according to DFAS officials, the continued operation of existing legacy systems may result in an increase to the DSDS life-cycle cost estimate by approximately $14 million for each 6-month delay. This would quickly erode the savings of $171 million that DFAS estimated in September 2000, and reconfirmed in January 2003. Without an updated economic analysis to justify continued investment in DDRS and DSDS, DOD does not have reasonable assurance that continued investment will result in commensurate improvement in the financial management operations of the department. DOD Oversight of DFAS IT DOD’s oversight over the four DFAS projects we reviewed has been Projects Has Not Been ineffective. Investment management responsibility for the four projects rests with DFAS, the DOD Comptroller, and the DOD CIO. In discharging Effective this responsibility, each has allowed project investments to continue year after year, even though the projects have been marked by cost increases, schedule slippages, and capability changes. As a result, DOD has invested approximately $316 million in the four projects without adequately knowing if these efforts will resolve some of DOD’s financial management difficulties—the rationale upon which each initiative was undertaken. In fact, as previously noted, after an investment of over $126 million and 7 years of effort, the DOD Comptroller terminated DPPS in December 2002. GAO’s Information Technology Investment Management (ITIM) maturity framework33 defines critical processes pertaining to IT investment management and oversight. Among other things these processes provide for establishing investment decision-making bodies responsible for selecting and controlling IT investments by (1) understanding, for example, each project’s expected return on investment and associated costs, schedule, and performance commitments, (2) regularly determining each 33 U.S. General Accounting Office, Information Technology Investment Management: A Framework for Assessing and Improving Process Maturity (Exposure Draft), GAO/AIMD- 10.1.23 (Washington, D.C.: May 2000). Page 28 GAO-03-465 DOD Business Systems Modernization project’s progress toward these expectations and commitments, and (3) taking corrective actions to address deviations. Additionally, the Clinger- Cohen Act and OMB guidance similarly emphasize the need to have investment management processes and information to help ensure that IT projects are being implemented at acceptable costs and within reasonable and expected time frames and that they are contributing to tangible, observable improvements in mission performance (i.e., that projects are meeting the cost, schedule, and performance commitments upon which their approval was justified). Organizationally, within DOD, the Comptroller has overall management and oversight responsibility for DFAS’s activities—including system investments. However, DOD Comptroller officials told us that they were unaware of the cost increases and schedule slippages on the projects until we brought them to their attention. Further, these officials said that they do not review DFAS’s system investments to ensure that they are meeting cost, schedule, and performance commitments, stating that DFAS is responsible for ensuring that projects stay on target in terms of cost, schedule, and performance. Additionally, they told us that their review is limited to a review of budgetary information and budget exhibits, and that they compare the current year budget request to the previous year’s request to determine if any significant funding increases are being requested for the coming fiscal year. If the budget request is generally consistent from year to year, they said that they do not raise questions about the project. According to these officials, the review of DFAS’s fiscal year 2003 budget did not result in the identification of issues that warranted further review. While the DOD Comptroller is the responsible authority for DFAS activities, DFAS is also responsible for ensuring that its proposed investments will result in systems that are implemented at acceptable costs and within reasonable and expected time frames. To fulfill this responsibility, DFAS established the CIO/BIE Council to oversee system investments. As outlined in the CIO/BIE Council charter, members of the council are responsible for, among other things, advising the Leadership Council—DFAS’s senior decision-making body—on IT investment decisions. The CIO/BIE Council membership includes representatives of DFAS’s business lines, such as accounting services and commercial pay, as well as IT management. In order to assure that the roles, responsibilities, and authorities of the IT investment board are well defined and that board processes are clear, the ITIM Framework states that an IT investment process guide should be Page 29 GAO-03-465 DOD Business Systems Modernization created to direct IT investment board operations. While DFAS has endeavored to give the CIO/BIE a role in the acquisition management and oversight process, it has not provided clear, consistent guidance to describe that role and the associated operating procedure. Though the council charter does mention the CIO/BIE Council’s responsibilities, it does not adequately describe them, address the council’s authority, or describe how the council is to fulfill its responsibilities. The DFAS 8000 series also addresses CIO/BIE responsibilities (DFAS 8000.1-R, Part C). However, the 8000 series does not describe how the CIO/BIE is expected to execute its responsibilities, including providing corporate oversight and reviewing capital budget proposals. The lack of clear definition of responsibilities and authority limits the council’s ability to effectively perform oversight- related activities. For the four IT investment projects we reviewed, we found no evidence that the CIO/BIE effectively monitored the cost, schedule, or performance goals of the four projects. As previously noted, the DOD CIO is responsible for overseeing major automated information systems. As such, this office is responsible for ensuring that the investments being made in DCD/DCW and DPPS are justified. However, the DOD CIO did not effectively exercise this authority. In regard to DPPS, the DOD CIO was designated the milestone decision authority in November 1996. While DOD CIO officials told us that they were aware of the problems with DPPS, they were unable to provide any documentation that indicated they had raised concerns with the DPPS effort. DCD/DCW was not brought under the purview of the DOD CIO until March 2001— approximately 2½ years after the project began. DOD CIO officials expressed concerns about the viability of DCD/DCW and questioned DFAS’s decision to move forward absent an economic analysis. However, they were unable to provide us with documentation that indicated they had carried out their oversight responsibilities and independently determined whether DCD/DCW was a viable investment. Page 30 GAO-03-465 DOD Business Systems Modernization According to DOD CIO officials, despite being the milestone decision authority for major projects, they have little practical authority in influencing component agency IT projects. As such, they said they try to work with the program managers to ensure that all of the required documentation for passing the next milestone is prepared, but the department’s culture, which rests organizational authority and funding control with the components, precludes them from exercising effective IT investment oversight. The comments of the DOD CIO officials support the fact that the current stovepiped, parochial management of DOD’s IT investments has led to the previously discussed proliferation of business systems. As we previously reported,34 DOD’s organizational structure and embedded culture have made it difficult to implement departmentwide oversight or visibility over information resources. 34 U.S. General Accounting Office, Defense IRM: Poor Implementation of Management Controls Has Put the Migration Strategy at Risk, GAO/AIMD-98-5 (Washington, D.C.: Oct. 20, 1997). Page 31 GAO-03-465 DOD Business Systems Modernization Similarly, we recently reported35 that DOD does not yet have the departmental investment governance structure and process controls needed to adequately align ongoing investments with DOD’s architectural goals and direction. Instead, DOD continues to allow its component organizations to make their own investment decisions, following different approaches and criteria. We reported that this stovepiped decision-making process has contributed to the department’s current complex, error prone environment of over 1,700 systems. In particular, DOD has not yet established and applied common investment criteria to its ongoing IT system projects using a hierarchy of investment review and funding decision-making bodies, each composed of representatives from across the department. DOD also has not yet conducted a comprehensive review of its ongoing IT investments to ensure that they are consistent with its architecture development efforts. Until it does these things, DOD will likely continue to lack effective control over the billions of dollars it is currently spending on IT projects. To address this problem we recommended that DOD establish a series of investment review boards, each responsible and accountable for selecting and controlling investments that meet defined threshold criteria, and each composed of the appropriate level of executive representatives, depending on the threshold criteria, from across the department. We also reiterated our open recommendations governing limitations in business system investments pending development of the architecture.36 Conclusions DOD is investing billions of dollars annually in hundreds of systems that perform the same function spread across numerous DOD components. As we have previously reported, this proliferation of systems has resulted in part because DOD’s embedded culture and parochial operations have permitted each of the military services and DOD agencies to manage and oversee their IT investments apart from one another. It has also occurred because DOD has not effectively managed its investments in IT business systems, as our past work and the DOD Inspector General work have demonstrated. As a result, DOD runs a high risk that hundreds of millions 35 U.S. General Accounting Office, DOD Business Systems Modernization: Improvements to Enterprise Architecture Development and Implementation Efforts Needed, GAO-03-458 (Washington, D.C.: Feb. 28, 2003). 36 U.S. General Accounting Office, Information Technology: Architecture Needed to Guide Modernization of DOD’s Financial Operations, GAO-01-525 (Washington, D.C.: May 17, 2001). Page 32 GAO-03-465 DOD Business Systems Modernization of dollars will continue to be invested annually in modernization efforts that will not result in improvements in the department’s operations. In each of the four system projects we discuss in the report, DOD has invested millions of dollars without economically justifying its investments, in large part because those entities responsible for managing and overseeing these investments have not required such justification despite schedule slippages, cost overruns, and reductions in planned capability. Urgent need for effective investment control is exemplified by DPPS—$126 million for a terminated project. More vigorous oversight of DPPS could have precluded the substantial investment in this failed effort. Until it has effective investment management and oversight, DOD will not have reasonable assurance that its continued investment in the remaining three projects discussed in this report, as well as its other system projects, are justified. Recommendations for We recommend that the Secretary of Defense direct the Under Secretary of Defense (Comptroller) to limit funding in the DFAS Corporate Database/ Executive Action Corporate Warehouse, the Defense Standard Disbursing System, and the Defense Departmental Reporting System until the DOD Comptroller, in collaboration with the Assistant Secretary of Defense (Command, Control, Communications & Intelligence), and the Director, Program Analysis and Evaluation, demonstrates on the basis of credible analysis and data that continued investment in these three projects will produce benefits that exceed costs. We further recommend that the Secretary of Defense, in light of the department’s ongoing efforts to modernize its business systems, direct the Under Secretary of Defense (Comptroller) to evaluate all remaining DFAS IT projects and ensure that each project is being implemented at acceptable costs, within reasonable time frames, and is contributing to tangible, observable improvements in mission performance. Page 33 GAO-03-465 DOD Business Systems Modernization Agency Comments and DOD provided written comments on a draft of this report. DOD concurred with our recommendations and identified actions it planned to take to Our Evaluation ensure that future investments in DFAS’s systems are justified. For example, the Under Secretary of Defense (Comptroller) noted that the review of DCD/DCW, DDRS, and DSDS would be completed by June 15, 2003. Additionally, the Under Secretary of Defense (Comptroller) stated that all systems would be reviewed as part of the department’s effort to establish a financial management enterprise architecture governance structure. As discussed in our February 2003 report,37 the governance structure is intended to provide DOD the means to gain control over its IT investments. However, as noted in our report, we have not verified or evaluated the extent to which the planned governance structure will address our recommendation. DOD comments are reprinted in appendix II. As agreed with your office, unless you announce the contents of this report earlier, we will not distribute this report until 30 days from its date. At that time, we will send copies to the Chairman and Ranking Minority Member, Senate Committee on Armed Services; Chairman and Ranking Minority Member, Senate Appropriations Subcommittee on Defense; Chairman and Ranking Minority Member, House Armed Services Committee; Chairman and Ranking Minority Member, House Appropriations Subcommittee on Defense; Chairman and Ranking Minority Member, Senate Committee on Governmental Affairs; Chairman and Ranking Minority Member, House Committee on Government Reform; the Director, Office of Management and Budget; the Under Secretary of Defense (Comptroller); the Assistant Secretary of Defense (Command, Control, Communications & Intelligence); and the Director, Defense Finance and Accounting Service. Copies of this report will be made available to others upon request. The report will also be available on GAO's Web site at http://www.gao.gov. If you or your staff have any questions on matters discussed in this report, please contact Gregory D. Kutz at (202) 512-9505 or email@example.com or 37 U.S. General Accounting Office, DOD Business Systems Modernization: Improvements to Enterprise Architecture Development and Implementation Efforts Needed, GAO-03-458 (Washington, D.C.: Feb. 28, 2003). Page 34 GAO-03-465 DOD Business Systems Modernization Randolph C. Hite at (202) 512-3439 or firstname.lastname@example.org. Major contributors to this report are acknowledged in appendix III. Gregory D. Kutz Director, Financial Management and Assurance Randolph C. Hite Director, Information Technology Architecture and Systems Issues Page 35 GAO-03-465 DOD Business Systems Modernization Appendix I Scope and Methodology AA ppp ep ned n x id e x Iis To obtain an overview of DOD’s current business systems environment we met with representatives of the then Financial Management Modernization Program Office1 to obtain information on the number of systems that are part of the current systems environment. We also reviewed DOD’s $26 billion fiscal year 2003 IT budget request to determine what portion of the budget relates to DOD business systems. Additionally, we reviewed the IT budget to determine the reported operations, maintenance, development, and infrastructure costs for DOD’s business systems. To determine if DOD was effectively managing and overseeing its IT investments, we focused on the four system projects previously noted. To assist us in our evaluation, we used our Information Technology Investment Management (ITIM) framework. The ITIM identifies critical processes for successful IT investment and organizes these processes into a framework of increasingly mature stages. We focused on the Stage 2 critical processes of IT project oversight and IT investment board practices based on DFAS’s self assessment that it was at Stage 2. Figure 7 shows ITIM’s five stages of maturity. 1 This office has been renamed the Business Modernization Systems Integration Office. Page 36 GAO-03-465 DOD Business Systems Modernization Appendix I Scope and Methodology Figure 7: ITIM Stages of Maturity Maturity stages Critical processes Investment process benchmarking Stage 5 IT-driven strategic business change Leveraging IT for strategic outcomes Post-implementation reviews and feedback Stage 4 Portfolio performance evaluation and improvement Improving the investment Systems and technology sucession management process Authority alignment of IT investment boards Stage 3 Portfolio selection criteria definition Developing a complete Investment analysis Portfolio development investment portfolio Portfolio performance oversight IT investment board operation Stage 2 IT project oversight Building the investment IT project and system identification Business needs identification for IT projects foundation Proposal selection IT spending without disciplined Stage 1 investment processes Creating investment awareness Source: GAO. In addition, we also evaluated DOD’s and DFAS’s guidance on systems acquisition, as it relates to life-cycle management and milestones for proceeding to the next phase of the system acquisition process.2 To verify application of the critical processes and practices, we selected projects that (1) were in different life-cycle phases of systems development (2) required oversight by a DOD authority outside of the DOD Comptroller, such as the Office of the Assistant Secretary of Defense (Command, Control, Communications & Intelligence)—DOD’s CIO, and (3) supported different DFAS business areas such as disbursements and departmental 2 DOD Regulation 5000.2-R, Mandatory Procedures for Major Defense Acquisition Programs and Major Automated Information System Acquisition Programs (Apr. 5, 2002), DOD Instruction 5000.2, Operation of the Defense Acquisition System (Apr. 5, 2002), DFAS 8000.1-R, Part C, DFAS Life Cycle Management Policy (May 3, 2002), and DFAS 8000- 1-R, Information Systems Life Cycle Management, policies for 1996, 1997, and 1998. Page 37 GAO-03-465 DOD Business Systems Modernization Appendix I Scope and Methodology reporting. For these four projects we reviewed documentation, such as mission needs statements, acquisition program baseline updates, and project management plans. According to DOD, it provided estimates for DCD/DCW and DDRS in constant dollars and DPPS and DSDS in escalated dollars. We also reviewed and analyzed charters and meeting minutes of the DFAS investment oversight boards and working groups. To supplement our document reviews, we interviewed senior DFAS officials in the CIO and Systems Integration Offices, as well as the program managers for the four projects. We also met with officials in the offices of the DOD Comptroller and DOD CIO to obtain an understanding of their specific duties and responsibilities in approving, reviewing, and overseeing investments in the four DFAS systems modernization projects. We conducted our work at DFAS Headquarters; the Office of the Under Secretary of Defense (Comptroller); the Office of the Secretary of Defense Program Analysis and Evaluation; and the Office of the Assistant Secretary of Defense (Command, Control, Communications & Intelligence) from November 2001 through January 2003, in accordance with U.S. generally accepted government auditing standards. We did not verify the accuracy and completeness of the cost information provided by DFAS for the four projects we reviewed. We requested comments on a draft of this report from the Secretary of Defense or his designee. We received written comments on a draft of this report from the Under Secretary of Defense (Comptroller), which are reprinted in appendix II. Page 38 GAO-03-465 DOD Business Systems Modernization Appendix II Comments From the Under Secretary of Defense Appendx Ii Page 39 GAO-03-465 DOD Business Systems Modernization Appendix II Comments From the Under Secretary of Defense Page 40 GAO-03-465 DOD Business Systems Modernization Appendix III GAO Contacts and Staff Acknowledgments Appendx iI GAO Contacts Darby Smith, (202) 512-7803 Jenniffer Wilson, (202) 512-9192 Acknowledgments In addition to the individuals named above, key contributors to this report included Beatrice Alff, Joseph Cruz, Francine DelVecchio, Lester Diamond, Jason Kelly, J. Christopher Martin, Stacey Smith, and Robert Wagner. (192043) Page 41 GAO-03-465 DOD Business Systems Modernization GAO’s Mission The General Accounting Office, the audit, evaluation and investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. GAO examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. GAO’s commitment to good government is reflected in its core values of accountability, integrity, and reliability. Obtaining Copies of The fastest and easiest way to obtain copies of GAO documents at no cost is through the Internet. GAO’s Web site (www.gao.gov) contains abstracts and full- GAO Reports and text files of current reports and testimony and an expanding archive of older products. 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DOD Business Systems Modernization: Continued Investment in Key Accounting Systems Needs to be Justified
Published by the Government Accountability Office on 2003-03-28.
Below is a raw (and likely hideous) rendition of the original report. (PDF)