Major Management Challenges and Program Risks: Department of Defense

Published by the Government Accountability Office on 2003-01-01.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

               United States General Accounting Office

GAO            Performance and Accountability Series

January 2003
               Major Management
               Challenges and
               Program Risks
               Department of

A Glance at the Agency Covered in This Report
The Department of Defense provides the military forces needed to deter war and
to protect the security of our country. U.S. defense strategy seeks to defend the
freedom of the United States and its allies and friends, and to secure an
international environment of peace that makes other goals possible. The
department has developed the following four goals to help achieve its mission:
●   assure allies and friends by maintaining an overseas presence;
●   dissuade future military competition by maintaining or enhancing U.S.
    advantage in key areas of military capability;
●   deter threats against U.S. interests by having a range of military options,
    emphasizing peacetime forward deterrence in critical areas of the world, and
    enhancing the capability of forward deployed and stationed forces; and finally,
●   defeat any adversary decisively, if deterrence fails.

The Department of Defense’s Budgetary and Personnel Resources

Budgetary Resources a,b                                        Personnel Resources b,c
Dollars in billions

500                                               490
                                       451                                    Active Military    Civilian Personnel
                  404        424
        387                                                                     Personnel               (FTEs)
375                                                             Fiscal year    in thousands         in thousands

                                                                   1998            1,422                707

250                                                                1999            1,387                681

                                                                   2000            1,381                660
                                                                   2001            1,387                650

                                                                   2002            1,386                635
        1998     1999       2000       2001       2002
        Fiscal year
Source: Budget of the United States Government.

a Budgetary resources include new budget authority (BA) and unobligated balances of previous BA.

b Budget and staff resources are actuals for FY 1998-2001. FY 2002 are estimates from the FY 2003 budget, which
  are the latest publicly available figures on a consistent basis as of January 2003. Actuals for FY 2002 will be
  contained in the President’s FY 2004 budget to be released in February 2003.
c Does not include guard and reserve personnel, which are an all-volunteer force of about 1.3 million (almost half of
  the total military force), or retired reserve personnel.

This Series
This report is part of a special GAO series, first issued in 1999 and updated in
2001, entitled the Performance and Accountability Series: Major Management
Challenges and Program Risks. The 2003 Performance and Accountability Series
contains separate reports covering each cabinet department, most major
independent agencies, and the U.S. Postal Service. The series also includes a
governmentwide perspective on transforming the way the government does
business in order to meet 21st century challenges and address long-term fiscal
needs. The companion 2003 High-Risk Series: An Update identifies areas at high risk
due to either their greater vulnerabilities to waste, fraud, abuse, and
mismanagement or major challenges associated with their economy, efficiency, or
effectiveness. A list of all of the reports in this series is included at the end of
this report.
                                                    January 2003

                                                    PERFORMANCE AND ACCOUNTABILITY SERIES

                                                    Department of Defense
Highlights of GAO-03-98, a report to
Congress included as part of GAO’s
Performance and Accountability Series

In its 2001 performance and                         DOD is transforming its business operations, and its current leadership
accountability report on the                        places high priority and great attention on transformation. However,
Department of Defense (DOD),                        significant management problems continue to impact the economy,
GAO identified systemic                             effectiveness, and efficiency of DOD’s business processes. This places
and specific problems with                          mission capabilities at risk by unnecessarily spending funds that could be
management processes related to
strategic planning, human capital,
                                                    directed to higher priorities such as modernization and readiness.
support infrastructure, financial                   •   Strengthen strategic planning and budgeting. DOD developed a
and information management,                             new strategic plan and management framework, but shortcomings in
acquisition reform, contracting                         strategic planning and budgeting processes provide little assurance that
processes, and logistics                                DOD manages and operates programs effectively or ensures adequate
reengineering. The information                          program accountability.
GAO presents in this report is                      •   Hire, support, and retain military and civilian personnel. DOD has
intended to help to sustain                             instituted benefits, but junior officer shortages, retention problems, and
congressional attention; facilitate a                   civilian workforce reductions and imbalances create a workforce not
departmental focus on continuing                        balanced by age or experience and that puts at risk the orderly transfer
to make progress in addressing
                                                        of institutional knowledge.
these challenges—and others that
have arisen since 2001; and                         •   Overcome support infrastructure inefficiencies. DOD emphasizes
ultimately overcome them. This                          reform but lacks an overarching business transformation strategy;
report is part of a special series of                   infrastructure costs continue to consume nearly 44 percent of its budget,
reports on governmentwide and                           detracting from DOD’s ability to spend funds on more critical needs such
agency-specific issues.                                 as weapon system modernization and readiness.
                                                    •   Confront and transform pervasive, decades-old financial
                                                        management problems. DOD has adopted business transformation
                                                        initiatives, but long-standing financial management problems adversely
DOD needs a strategic approach to                       affect its ability to control costs, ensure basic accountability, anticipate
transition its business processes                       future costs and claims on the budget, measure performance, maintain
that includes the
                                                        funds control, prevent fraud, and address pressing management issues.
•    integrated nature of the
     department’s management                        •   Effectively manage information technology investments. DOD
     challenges and related                             is investing heavily in modernizing its information technology, but
     solutions;                                         management weaknesses have limited success. At the same time,
•    importance of continuity in                        information security weaknesses limit DOD’s ability to ensure that
     leadership to achieve process                      current and future systems are not compromised.
     improvements; and                              •   Improve DOD’s weapons acquisition process. DOD has undertaken
•    agreement between the                              acquisition reforms, but cost increases, schedule delays, and
     executive and legislative                          performance shortfalls pervade the acquisition process; reforms have
     branches of government on                          not produced consistent improvements in program outcomes.
     planned actions, time frames,                  •   Improve processes and controls to reduce contract risk. DOD is
     and desired results.
                                                        trying to reduce contract risk, but problems in service contracting,
Legislatively establishing a chief
management officer may be one                           techniques and approaches, payments, health contract management, and
option to help achieve these goals.                     human capital undermine DOD’s ability to effectively acquire goods and
www.gao.gov/cgi-bin/getrpt?GAO-03-98.               •   Improve quality of logistics support. DOD has 400 improvement
                                                        initiatives ongoing, but longstanding problems in logistics processes,
To view the full report, click on the link above.
For more information, contact Henry L.                  systems, and operations result in decreases in the quality and timeliness
Hinton, Jr., at (202) 512-4300 or                       of logistics support. This is particularly the case for its high-risk
hintonh@gao.gov.                                        inventory area.

Transmittal Letter                                                                                                1

Major Performance                                                                                                  2

and Accountability

GAO Contacts                                                                                                      88

Related GAO Products                                                                                              89

Performance and                                                                                                   97
Accountability and
High-Risk Series

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                       Page i                                                         GAO-03-98 DOD Challenges
United States General Accounting Office
Washington, D.C. 20548
                                                                                           Comptroller General
                                                                                           of the United States

           January 2003                                                                                          T

           The President of the Senate and the
           Speaker of the House of Representatives

           This report addresses the major management challenges and program risks facing the Department of
           Defense (DOD) as it seeks to support and defend the Constitution of the United States; provide for
           the common defense of the nation, its citizens, and its allies; and protect and advance U.S. interests
           around the world.

           The report discusses the actions that DOD has taken and that are underway to address the challenges
           GAO identified in its Performance and Accountability Series 2 years ago. It also discusses major
           events that significantly influence the environment in which the department carries out its mission.
           GAO summarizes the challenges that remain, new ones that have emerged, and further actions that it
           believes are needed.

           This analysis is intended to help the new Congress and the administration carry out their
           responsibility and improve government in order to benefit the American people. For additional
           information about this report, please contact Henry L. Hinton, Jr., Managing Director, Defense
           Capabilities and Management, at (202) 512-4300 or at hintonh@gao.gov.

           David M. Walker
           Comptroller General
            of the United States

                                     Page 1                                               GAO-03-98 DOD Challenges
Major Performance and Accountability

              The United States began the new millennium with military forces second
              to none. The effectiveness of U.S. forces has been well evidenced by
              experiences in the Persian Gulf, Bosnia, and Kosovo. However, the
              Department of Defense (DOD) has reached a pivotal point, with the tragic
              terrorist attacks of September 11, 2001, permanently changing the defense
              landscape. These terrorist attacks underlined the importance of change in
              equipping DOD to meet unconventional threats and asymmetrical warfare.
              The attacks also resulted in DOD’s requirement for additional resources to
              meet a broad array of needs that support the readiness of U.S. forces.
              DOD has undertaken a number of initiatives to transform its forces and
              improve its business operations. However, unless these initiatives are
              addressed in a unified, integrated fashion, DOD will continue to see
              billions of dollars consumed to support inefficiencies in its business
              functions that if reformed, could be directed to other higher priorities
              such as modernization and readiness. Such opportunities will be achieved
              only through transformations involving challenges in the following
              key functions: (1) strategic planning and budgeting, (2) human capital,
              (3) infrastructure, (4) financial management and accountability,
              (5) information technology, (6) weapons acquisition process,
              (7) contracting, and (8) logistics support.

              We have reported on many of these challenges for years and highlighted
              them all in our January 2001 Performance and Accountability Series. As
              we reported then, and as is the case today, limitations in DOD’s strategic
              planning and budgeting processes led to difficulties in assessing DOD’s
              mission achievements and in planning and executing DOD’s budget. We
              also reported our concerns on human capital challenges in recruiting and
              retaining military personnel as well as ensuring that the civilian workforce
              is properly constituted in key areas such as acquisition management. We
              identified DOD’s human capital problems as part of a broader pattern of
              human capital shortcomings that have eroded mission capabilities across
              the federal government, and this problem persists. In addition, much of
              DOD’s infrastructure was inadequately funded and maintained, with scarce
              resources being devoted to inefficient and unneeded facilities. Indeed,
              aging and substandard housing exacerbates human capital issues.
              Furthermore, decades-old financial management and accountability
              problems continued. Such problems also involved ineffectively managed
              information technology investments and the overbudget, untimely
              weapons acquisition process. In addition, numerous contract management
              difficulties were related to payment issues and service acquisitions. DOD
              revealed that it had not effectively managed even the most basic processes
              relating to contract payment, resulting in millions of dollars of

              Page 2                                               GAO-03-98 DOD Challenges
Major Performance and Accountability

overpayments. Such financial management and contracting challenges
in turn affected the quality and timeliness of logistics support for
the warfighter.

DOD's senior civilian and military leaders appear to be committed to
transforming the department and improving its business operations.
Since our last report, DOD has emphasized force transformation as
necessary to effectively anticipate, counter, and eliminate the emergence
of unconventional threats overseas and domestically. DOD believes force
transformation will create an environment of greater precautions,
heightened intelligence, and greater homeland security, all while DOD is
simultaneously fighting the war on terrorism. As part of the transformation
process, DOD has committed to adopt a capabilities-based approach to
planning based on clear goals and to improve the linkage between strategy
and investments. At the same time, DOD has embarked on a series of
efforts to improve its business processes, including support infrastructure
reforms, the issuance of a new human capital resource plan, and the
adoption of a new management approach to balancing risks. Additionally,
in acknowledging DOD's numerous ongoing financial difficulties, the
Secretary of Defense has laid out an 8-year plan to reform financial
management and accountability and instituted new contract management
policies and programs aimed at increasing the importance given to these
processes. While DOD recognizes the need for internal transformation and
budget reform, its goals are challenging, and its strategic plan is currently
not set up to allow DOD to implement and measure progress toward
achieving its performance goals in an integrated fashion.

As old problems persist for DOD and new problems emerge, the eight areas
we identified in January 2001 continue to challenge DOD in its attempts to
develop world-class operations and activities to support its forces. Six of
the eight are included on our high-risk list. As the security environment
shifted from a Cold War structure to one of many and varied threats, DOD
did not keep pace with the changing capabilities and productivity of the
modern business environment. Indeed, transformation applies not just to
what DOD does but also to how DOD does it and who implements it. As we
have reported, if these and related support problems are not addressed,
inefficiencies will continue to make the cost of carrying out assigned
missions unnecessarily high and, more importantly, increase the risk
associated with those missions. Each dollar that is spent inefficiently is a
dollar that is unavailable for other departmental priorities such as weapon
system modernization and readiness.

Page 3                                                GAO-03-98 DOD Challenges
Major Performance and Accountability

However, effectuating departmental transformation also requires cultural
transformation and business process reengineering that take years to
accomplish and a commitment from both the executive and legislative
branches of government. Although sound strategic planning is the
foundation upon which to build, sustained leadership is needed to maintain
continuity. One way to ensure sustained, committed leadership would be to
create a full-time position, such as a chief management officer position.
Such a position would provide the sustained attention essential for
addressing key stewardship responsibilities such as strategic planning,
performance management, and financial management in an integrated
manner while helping to facilitate the transformation processes within
DOD. Equally important is the Congress’s responsibility to provide the
necessary review and visible leadership to demonstrate its commitment to
reform and oversight.

This report summarizes ours and, where appropriate, the DOD Inspector
General’s findings and recommendations to address DOD’s challenges.
We continue to consider all or part of six areas relating to support
infrastructure, financial management, information technology, acquisitions,
contracts, and logistics to be high risk.

Page 4                                              GAO-03-98 DOD Challenges
Major Performance and Accountability

    Performance and
    Accountability Challenges
         Strengthen strategic planning and budgeting to achieve desired mission

         Hire, support, and retain military and civilian personnel with the skills to meet
         mission needs

         Overcome support infrastructure inefficiencies to reduce costs and improve

         Confront and transform pervasive, decades-old financial management
         problems to improve financial accountability

         Effectively manage information technology investments to transform business

         Improve DOD’s ability to acquire weapon systems in a cost-effective and
         timely way

         Improve processes and controls to reduce contract risk

         Provide logistics support that responds to the needs of the warfighter at an
         affordable cost

Page 5                                                             GAO-03-98 DOD Challenges
                           Major Performance and Accountability

Strengthen Strategic       Strategic planning that clearly lays out DOD’s mission and goals and the
                           resources needed, strategies to be followed, assigned responsibilities,
Planning and               and performance measures for tracking goal accomplishments is crucial
Budgeting to Achieve       to fully focusing DOD’s activities on achieving desired mission outcomes.
                           However, as we reported in January 2001, limitations in DOD’s strategic
Desired Mission            planning and budgeting processes have led to difficulties in assessing
Outcomes                   its performance in achieving mission outcomes and in planning and
                           executing the budget. This condition has not changed, and key actions
                           needed to improve planning and budgeting have not been accomplished.
                           Consequently, the same strategic management challenges we previously
                           noted continue to exist. While DOD has developed a new strategic plan,
                           it has not yet updated its mission outcomes or linked those outcomes to the
                           budget. Additionally, shortcomings in the strategic plan’s underlying
                           analyses, the absence of performance plans for fiscal years 2002 and 2003,
                           and the failure to link budget resources to mission outcomes provide
                           little assurance to DOD and congressional decision makers that DOD
                           is adequately managing its programs and operations and being held
                           accountable for doing so.

DOD’s Strategic Planning   The President’s management agenda for fiscal year 2002 emphasizes
Has Limitations            the need to fully integrate performance measures in the federal budget
                           process so that resource allocation is tied to specific outcomes. The
                           Government Performance and Results Act of 1993 provides a framework
                           for DOD and other federal agencies to accomplish this task and to achieve
                           greater accountability in their programs and operations. Under the
                           Results Act, DOD is to develop a strategic plan and subsequent annual
                           performance plans to establish performance goals and measures covering
                           a given fiscal year and directly link its longer-term strategic goals to
                           day-to-day activities. Annual performance reports are to disclose the
                           degree to which those performance goals were met. At the request of
                           the Congress, DOD conducts the Quadrennial Defense Review, a
                           comprehensive analysis of its defense strategy, every 4 years. The review—
                           DOD’s strategic plan—forms the foundation for DOD’s mission and vision
                           statements and strategic goals.1

                           In January 2001, as DOD was preparing to conduct its next Quadrennial
                           Defense Review, we reported that it must follow results-oriented

                               The first Quadrennial Defense Review was submitted to the Congress in May 1997.

                           Page 6                                                          GAO-03-98 DOD Challenges
Major Performance and Accountability

management principles in performing its next review and that the review
should have an explicit strategy for achieving force structure goals. DOD
subsequently issued its review report in September 2001, which, as we have
reported, has both strengths and weaknesses. On the positive side,
sustained involvement of senior DOD officials, including the Secretary of
Defense, enhanced the review and led to the adoption of a new defense
strategy that underscores the need to transform the force to meet future
military threats and adopt more efficient business practices. However,
weaknesses in the Quadrennial Defense Review process, analysis, and
reporting limited the review’s usefulness as a means for fundamentally
reassessing U.S. defense plans and programs.

• The Secretary of Defense’s decision to delay the Quadrennial Defense
  Review’s start until late spring 2001, when DOD completed a series of
  strategic reviews led by outside defense experts, imposed additional
  time constraints on the review’s already tight schedule.

• A clear link between the specific legislative reporting requirements2
  and the issues assigned to study teams for analysis did not always exist
  because the principal guidance document of the Quadrennial Defense
  Review was designed to emphasize the Secretary’s priorities and not the
  reporting requirements.

• The varied thoroughness of DOD’s analysis and reporting on issues
  mandated by legislation limited the Quadrennial Defense Review’s
  usefulness, and some significant issues were not addressed or were
  deferred to follow-on studies. For example, limitations in the
  assessment of force structure requirements—such as the lack of focus
  on longer-term threats and requirements for critical support
  capabilities—provided few insights into how future threats and planned
  technological advances in U.S. capabilities would affect future force
  requirements. Additionally, DOD’s Quadrennial Defense Review report
  provided little information on some required issues such as the specific
  assumptions used in the analysis and deferred analysis of some issues,
  such as the role of the reserves, for later studies.

  The Congress first mandated the 1997 Quadrennial Defense Review in the National
Defense Authorization Act for Fiscal Year 1997, and the National Defense Authorization Act
for Fiscal Year 2000 created a permanent requirement for DOD to conduct such a review
every 4 years. The legislation requires DOD to report on various topics, including the type of
force structure best suited to implement the defense strategy, the effect of new technologies
on force structure, and the key assumptions used in the review.

Page 7                                                            GAO-03-98 DOD Challenges
Major Performance and Accountability

As a result of these shortcomings, the Congress did not receive
comprehensive information on all of the legislatively mandated issues,
DOD lacks assurance that it has optimized its force structure to balance
short- and long-term risks, and the Quadrennial Defense Review resulted
in few specific decisions on how existing military forces and weapons
modernization programs may need to be changed in response to emerging
threats. We recommended that DOD clearly assign responsibility for
addressing legislatively required review issues and provide the Congress
with more complete information on key assumptions, scenarios, analytical
methods, and alternatives used in assessing DOD’s force structure
requirements.3 DOD partially concurred with our recommendations,
indicating that clear assignment of responsibilities is important to the
success of the review. However, DOD noted that the Secretary of Defense
must be allowed to manage the review in a manner that focuses on issues
of primary importance. DOD also stated that, given the scope and timing of
the review, it effectively used a combination of analytical tools and
professional judgment to reach its conclusions on force structure.

The weaknesses with the Quadrennial Defense Review permeate
throughout DOD’s planning and budgeting processes—from initial
planning, to programming, and to budgeting resources. The review forms
the backbone for the development and integration of DOD’s missions and
strategic priorities, and it also is the foundation from which DOD’s
results-oriented performance goals flow and from which achievement of
those goals is measured. In June 2001, we reported on the need for DOD to
have sound strategic planning to guide improvements to DOD’s operations
and to tie plans to desired mission outcomes. At that time, we noted that

  U.S. General Accounting Office, Quadrennial Defense Review: Future Reviews
Can Benefit from Better Analysis and Changes in Timing and Scope, GAO-03-13
(Washington, D.C.: Nov. 4, 2002).

Page 8                                                     GAO-03-98 DOD Challenges
Major Performance and Accountability

DOD had made efforts to improve its overall reporting.4 However, we
reported that progress in achieving selected outcomes was unclear5 and
noted that it was difficult to assess performance shortfalls in DOD’s
strategies and measures for the outcomes identified at that time. Affected
areas included combat readiness, support infrastructure reduction, force
structure needs, and matching resources to program spending plans. We
also pointed out that DOD’s fiscal year 2002 performance plan—which
has yet to be developed and finalized—could have provided DOD with an
opportunity to address these shortfalls and that the conduct of the
review could have provided DOD with another opportunity to include the
necessary qualitative and quantitative information that could contribute to
providing a clearer picture of performance.

However, to date, DOD has not issued performance plans for fiscal years
2002 and 2003 or reported on fiscal year 2001 results.6 According to the
Deputy Secretary of Defense, DOD has not finalized performance plans
and reports because it introduced a new management framework and
has undertaken a fundamental restructuring of defense priorities and
programs. According to the Deputy Secretary, most of the performance
targets established in 2000 have been replaced by new or revised standards
derived from the September 2001 Quadrennial Defense Review. Thus, while
DOD is taking actions to improve its performance planning and reporting, it
does not have a strong basis to optimize decision making in an integrated
manner across diverse activities and programs.

Currently, DOD is formulating new performance goals and metrics to align
with outcomes described in the September 2001 Quadrennial Defense
Review. DOD hopes that its new goals and measures will meet or exceed
the intent of the Results Act and, when available, provide the President and

  We reported that DOD discussed the importance of human resources in achieving
DOD’s performance objectives; summarized how DOD’s performance metrics responded
to each of the eight management challenges; and more effectively presented information
data verification, presentation, and content in the fiscal year 2000 performance report.
 At the time of our report, the selected outcomes were as follows: (1) technological
superiority is maintained in key warfighting capabilities; (2) U.S. military forces are
adequate in number, well qualified, and highly motivated; (3) combat readiness is
maintained at desired levels; (4) infrastructure and operating procedures are more efficient
and cost-effective; (5) availability and/or use of illegal drugs are reduced; and (6) fewer
erroneous payments are made to contractors.
 Results for fiscal year 2001 were to use standards established by a February 2000
performance plan submitted to the Congress with the Clinton administration’s last budget.

Page 9                                                           GAO-03-98 DOD Challenges
                        Major Performance and Accountability

                        the Congress with up-to-date, useful information with which to assess its
                        performance. DOD had hoped to submit a new performance plan for fiscal
                        years 2002 to 2003 and a report for fiscal year 2001 by the end of August
                        2002, but DOD did not meet its target. It expects to publish its next
                        performance plan in February 2003.

Budget Formulation      We previously reported that DOD employs overly optimistic planning
and Execution Have      assumptions in its budget formulation. Figure 1 illustrates that DOD’s
                        budget has increased significantly over the last few years and shows plans
Continuing Weaknesses   for continued growth. Nevertheless, DOD still plans more programs than
                        it can fund, and costs for functions such as health care could possibly
                        put additional pressure on DOD’s budget. Also, in some cases, DOD has
                        limited ability to track expenditures from operating and supplemental
                        appropriations to ensure that funds are expended as intended. Moreover,
                        DOD has not always effectively managed and monitored its use of
                        appropriated funds. These system weaknesses, which DOD has recognized,
                        limit the information available to DOD and congressional decision makers
                        in planning and overseeing DOD’s budget.

                        Page 10                                             GAO-03-98 DOD Challenges
Major Performance and Accountability

Figure 1: DOD’s Budget from Fiscal Year 2000 through Fiscal Year 2007

500   Dollars in billions

                               15              387
                     23              366
          6                    333
300                 313



         2000       2001    2002     2003     2004      2005      2006     2007

      Fiscal year

                Regular budget

Source: DOD.

Notes:    GAO’s analysis of DOD’s data.

          Data for fiscal years 2000-2003 are appropriated funds; data for fiscal years 2004-2007 are
          projected funds.

Since the mid-1980s, we have reported that DOD employs overly optimistic
planning assumptions in its budget formulation. As a result, DOD has too
many programs for the available dollars, which often leads to program
instability, costly program stretch-outs, and program termination. In 2000,
we reported that because the fiscal year 2001 program’s projected cost was
about $16 billion more than the cost projected for the same elements in the
fiscal year 2000 program, DOD could not implement its operation and
maintenance and procurement programs as planned. Over the past few
years, the mismatch between programs and budgets has continued,
especially in the area of weapon systems acquisition. For example, as
discussed in more detail later, the estimated cost of developing eight major
weapon systems has increased from about $47 billion in fiscal year 1998 to
about $72 billion by fiscal year 2003.

Page 11                                                                  GAO-03-98 DOD Challenges
Major Performance and Accountability

In executing the budget, DOD’s ability to effectively manage and track
expenditures from operating and supplemental appropriations is limited.
The net effect of DOD’s problems in this area is that it does not know with
certainty the amount of funding available. Such information is essential
for DOD and the Congress to determine if funds are available that could
be reprogrammed or transferred to meet other critical program needs.

While DOD has some flexibility in how to use its annual operating
appropriation and often transfers funds among its operating accounts,
it has not developed systems that can sufficiently track the movement of
funds. For example, DOD does not have reports to show how it used much
of $47 billion appropriated from fiscal years 1999 through 2001 that it
moved among or into its operation and maintenance accounts. While it
does track the movement of some high-priority readiness accounts, it has
frequently used some of these funds for purposes other than intended. For
example, we reported that over a 4-year period—fiscal year 1997 to fiscal
year 2000—one service moved almost $1 billion (about 21 percent) of the
nearly $4.8 billion that the Congress had provided for training to finance
other expenses such as base operations and real property maintenance.

Moreover, DOD does not always effectively use its funds from its operating
appropriations. For example, in 2002, we reported that DOD had to return
an annual average of $1 billion in unexpended balances from its operation
and maintenance accounts to the Department of Treasury for fiscal years
1992 through 1996. We reported that in one service, fund managers had
failed to make required reviews that could have freed up funds no longer
needed for their original purpose and could have been used for other
appropriate purposes.

Page 12                                              GAO-03-98 DOD Challenges
Major Performance and Accountability

DOD has similar problems in tracking and managing funds from
supplemental appropriations. From February 1991 to May 2002,
DOD reported $44 billion in incremental costs for overseas contingency
operations and the war on terrorism. In May 2002, we reported that
DOD had not provided adequate guidance and monitoring for some of
these funds. We recommended that DOD provide better guidance
for contingency fund use and improve oversight of contingency fund
expenditures. In its written response, DOD recognized the need to make
these improvements and stated that it would more closely monitor the
execution of funds to avoid the situations discussed in our report.7

For contingency operations in the Balkans and Southwest Asia, we
reported that DOD spent as much as $101 million of $2.2 billion in fiscal
years 2000 and 2001 on questionable expenditures. Some expenses did not
appear to be specifically for the contingency, other expenditures were for
items already in the theater, and some expenditures were for seemingly
unneeded items such as cappuccino machines, golf memberships, and
decorator furniture.

In addition, a continuing inability to capture and report the full cost of its
programs represents one of the most significant impediments facing DOD.
DOD does not have the systems and processes in place to capture the
required cost information from hundreds of millions of transactions it
processes each year. Lacking complete and accurate overall life-cycle
cost information for weapon systems impairs DOD’s and congressional
decision makers’ ability to make fully informed judgments on funding
comparable weapon systems. DOD has acknowledged that the lack of a
cost accounting system is the largest impediment to controlling and
managing weapon system costs. Further, an April 2001 report on the results
of an independent study of DOD’s financial operations commissioned by
the Secretary of Defense concluded that DOD lacked the ability to routinely
generate cost-based metrics needed to link financial management to
DOD’s goals.8

  U.S. General Accounting Office, Defense Budget: Need to Strengthen Guidance and
Oversight of Contingency Operation Costs, GAO-02-450 (Washington, D.C.: May 21, 2002).
  Department of Defense, Transforming Department of Defense Financial Management:
A Strategy for Change (Washington, D.C.: Apr. 13, 2001). Recognizing the need for improved
financial data to effectively manage DOD’s vast operations, the Secretary of Defense
commissioned an independent study to recommend a strategy for financial
management improvements.

Page 13                                                        GAO-03-98 DOD Challenges
                     Major Performance and Accountability

                     The Secretary of Defense, in the most recent Quadrennial Defense Review
                     report (September 2001), acknowledged that DOD’s financial systems are
                     outdated and incompatible with one another. The report also noted that
                     many of DOD’s business processes must be modernized and simplified,
                     including the planning, programming, and budgeting system. According
                     to the report, over the next several years, DOD will explore options to
                     redesign the way it plans and budgets.

Key Actions Needed   DOD is taking a number of actions to better align its planning, budgeting,
                     and execution functions. However, to help overcome inefficiencies in its
                     strategic planning processes and to promote more realistic budgeting,
                     DOD must follow results-oriented management principles, beginning with
                     improvements to the Quadrennial Defense Review process.

                     A number of options are available to enhance the usefulness of future
                     quadrennial defense reviews. In November 2002, we recommended that
                     the Secretary of Defense clearly assign responsibility for addressing all
                     legislative requirements and provide the Congress with more complete
                     information on DOD’s analyses to meet legislative reporting requirements,
                     particularly DOD’s examination of force structure requirements. In
                     addition, we suggested that the Congress consider extending the time
                     frame for the review, reassessing and focusing the legislative requirements
                     on a clear set of high-priority issues, and establishing an advisory panel to
                     identify the critical issues that the next review should address.

                     As previously discussed, DOD believes that clear assignment of
                     responsibilities is important to the success of the Quadrennial Defense
                     Review and that its briefings to the Congress provide sufficient visibility
                     into its decisions. With regard to the timing of the review, DOD proposed
                     extending the time frame for the review. The Bob Stump National Defense
                     Authorization Act for Fiscal Year 2003 included language that extended the
                     time frame.9

                     As we have reported, sound plans linked to DOD’s overall strategic goals
                     are critical to achieving needed reforms and to holding DOD accountable
                     for achieving intended results. To ensure that DOD has a strong basis to
                     make sound decisions about its activities and programs, it is imperative

                         Public Law 107-314, December 2, 2002.

                     Page 14                                               GAO-03-98 DOD Challenges
                          Major Performance and Accountability

                          that DOD’s future performance plans be linked directly to the Quadrennial
                          Defense Review’s goals and outcomes.

                          DOD has a critical need for funds for weapon systems, readiness, and other
                          operations. Failure to accurately account for what it spends has enormous
                          implications for DOD and could prevent the effective allocations of funds
                          to those programs most in need. To promote more realistic budgeting and
                          execution, DOD needs to incorporate more realistic assumptions into its
                          planning processes and enhance the reporting and monitoring of its
                          expenditures. The implementation of such actions may put DOD in a better
                          position to more realistically and effectively allocate resources to those key
                          needs for weapon systems, readiness, and other operations.

Hire, Support, and        Effective human capital management is key to enabling DOD to have the
                          right number of military and civilian personnel with the right knowledge,
Retain Military and       skills, and abilities to accomplish its mission. In January 2001, we reported
Civilian Personnel with   that human capital management represented a huge challenge that affected
                          virtually every DOD activity. The department was dealing with military
the Skills to Meet        personnel issues such as shortages of junior officers for the career force,
Mission Needs             problems in retaining certain skills, and the military services’ failure to
                          meet recruiting goals. DOD also faced significant challenges in managing
                          its civilian workforce. With the exception of recruiting and retention, this
                          situation remains, in general, unchanged. In fiscal year 2001, all of the
                          active and reserve components—except the Air National Guard—met their
                          numeric goals for recruitment and retention. However, retention challenges
                          continued for those personnel holding technical and scientific skills that
                          are in demand in the private sector. Also of significance, is DOD’s issuance,
                          in 2002, of a three-component human capital strategic plan addressing
                          military and civilian personnel management and policies and quality of life
                          issues affecting servicemembers and their families.

                          Page 15                                                GAO-03-98 DOD Challenges
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DOD uses pay and benefits as tools to recruit and retain military
personnel.10 In fiscal year 2002, the Congress appropriated more than
$100 billion in compensation for military personnel.11 Although DOD
provides a wide array of benefits to its people, its benefit package was
developed piecemeal in the absence of a strategic approach to human
capital management. DOD has faced many challenges in providing an
employee benefit package to servicemembers that responds to their
changing needs and is competitive with private-sector companies.
However, DOD may face increased competition for qualified people over
the next few years because of continued increases in the number of high
school graduates going on to college and labor shortages projected through
at least 2010. In addition, the recent war on terrorism has added to the
operational tempos in all the reserve components, and on March 19, 2002,
more than 95,000 reservists were on duty. Many of these reservists had
been mobilized for 6 months or more. In contrast, only about
35,000 reservists were on duty supporting worldwide military operations
during an average day in fiscal year 2000. Furthermore, significant
challenges are emerging related to supporting the reserves. For example,
maintaining employers’ continued support for their reservist employees is
critical in order to retain experienced reservists in these times of longer
and more frequent deployments. The expanded use of reserve forces has
raised questions concerning the adequacy and equity of compensation and
support programs for reservists. Given these concerns and the potential for
even greater use of the reserve components, now may well be an
appropriate time to assess the components’ management practices and
policies as well as future roles and missions. Also, significant challenges
exist for the management of DOD’s civilian workforce that has undergone a
sizeable reduction since the end of the Cold War. Additional reductions in
DOD’s civilian workforce are expected at least through fiscal year 2007.

  Benefits represent the indirect compensation above and beyond a servicemember’s
basic pay. The U.S. Bureau of Labor Statistics defines a benefit as “non-wage compensation
provided to employees.” We use the term to include such benefits as retirement, health care,
and educational assistance, as well as certain programs and services that support
servicemembers and their families, including child care, spousal employment assistance,
and relocation assistance.
  Our estimate may understate the total amount appropriated for military compensation
because funds for certain benefits are aggregated into higher-level budget categories and
therefore are not visible in the budget.

Page 16                                                         GAO-03-98 DOD Challenges
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DOD and the Congress Have   Although developed piecemeal in the absence of a strategic approach to
Acted to Improve Military   human capital management, DOD has instituted a number of benefits in
                            response to demographic changes in the active duty force since the military
Personnel Benefits          became an all-volunteer force in 1973. Many of these benefits address one
                            of the most significant demographic changes—an increase in
                            servicemembers with family obligations. For each year between 1980
                            and 2000, at least half of the active duty force consisted of married
                            servicemembers, and active duty servicemembers had about 1.23 million
                            children in 2000. Many servicemembers are in dual-income households,
                            with spouses contributing on average about 25 percent of the family’s
                            income. Figure 2 shows the composition of the active duty force, by family
                            status, in 2000.

                            Page 17                                             GAO-03-98 DOD Challenges
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Figure 2: Composition of Active Duty Force by Family Status (as of Sept. 2000)

                                                     2.5% married joint-service, with children
                                                     6.2% Single, with children
                                                     Married to civilian, with children

      40.8%                        36.5%


                                                     3.2% married joint-service, no children
                                                     Married to civilian, no children

                                                     Single, no children
Source: DOD.

Notes:    Data taken from DOD’s Profile of the Military Community 2000 Demographics Report.

          “Joint-service” refers to a marriage where an active duty member is married to another active
          duty member or to a reservist.
          Percentages do not add up to 100 due to rounding.

Page 18                                                                    GAO-03-98 DOD Challenges
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A second major demographic change in the active military has been the
growing proportion of servicemembers who are women. In 2000, women
comprised about 15 percent of the active duty force, compared with
4 percent in 1974. Up to 10 percent of women in the military become
pregnant each year. We previously reported that of the 28,353 women
without prior military service who enlisted in fiscal year 1993,
2,074 separated because of pregnancy between the 7th and 48th month
of enlistment. Another 706 separated because of parenthood. These
separations accounted for more than one-third of the attrition for female
enlistees who joined the services in 1993. Replacing trained, experienced
personnel who leave is expensive. DOD estimated for fiscal year 1998
that it had spent $35,000 per enlistee by the time each enlistee had been
recruited and trained for 6 months.12

In September 2002, we reported that DOD has responded positively to most
demographic changes by incorporating a number of family-friendly
benefits; however, opportunities exist to improve current benefits in this
area. For example, although DOD has several planned initiatives to assist
the hundreds of thousands of military servicemembers’ spouses who seek
employment largely due to the frequent moves (on average every 2 years)
servicemembers make, it has not systematically tracked and assessed
the effectiveness of the employment assistance that services offered at
military installations. DOD also has not assessed the feasibility, costs, and
benefits of offering extended time off to new parents as a way to increase
retention of trained, experienced personnel.

  This figure includes enlistee’s pay and allowances as well as the cost of the services’
recruiting and training infrastructure.

Page 19                                                           GAO-03-98 DOD Challenges
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                            All the core benefits offered by most private-sector firms—retirement pay,
                            health care, life insurance, and paid time off—are offered by the military. In
                            fact, military benefits in some cases exceed those offered by the private
                            sector. These benefits include free health care for members, free housing or
                            housing allowances, and discount shopping at commissaries and
                            exchanges. During the 1990s, some servicemembers expressed concerns
                            that their benefits were eroding, particularly their health care and
                            retirement benefits. In response to such concerns, the military benefit
                            package has been enhanced. In recent years, for example, the Congress
                            restored retirement benefits that had previously been reduced for some
                            servicemembers and significantly expanded health benefits.13

Strategic Human Capital     A well-developed human capital strategy would provide a means for
Approach for Military       aligning all elements of DOD’s human capital management, including pay
                            and benefits, with DOD’s broader organizational objectives. Pay and
Personnel Compensation Is
                            benefits are tools that an organization can use to shape its workforce, fill
Not Fully Developed         gaps, and meet future requirements.

                            In prior reports and testimony, we have identified strategic human capital
                            management planning as a governmentwide high-risk area and a key
                            challenge. We have stated that agencies, including DOD, need to improve
                            the development of integrated human capital strategies that support the
                            organization’s strategic and programmatic goals. In March 2002, we issued
                            an exposure draft of our model for strategic human capital management to
                            help federal agency leaders effectively lead and manage their people. We
                            also testified on how strategic human capital management can contribute
                            to transforming the cultures of federal agencies.

                            Several DOD studies also have identified the need for a more strategic
                            approach to human capital planning within DOD. The 8th Quadrennial
                            Review of Military Compensation, completed in 1997, strongly advocated
                            that DOD adopt a strategic human capital planning approach. The review
                            found that DOD lacked an institutionwide process for systematically
                            examining human capital needs or translating needs into a coherent
                            strategy. Subsequent DOD and service studies, including the Defense
                            Science Board Task Force on Human Resources Strategy, the Naval

                                 Pub. L. 106-65, sec. 641, Oct. 5, 1999; Pub. L. 106-398, sec. 752, Oct. 30, 2000.

                            Page 20                                                                 GAO-03-98 DOD Challenges
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Personnel Task Force, and the DOD Study on Morale and Quality of Life,
endorsed the concept of human capital strategic planning.

DOD officials have acknowledged the need for a more strategic approach
and in April 2002 issued the first of a three-component human capital plan
to establish personnel priorities for the next 3 to 5 years. The strategic plan
identifies more than 30 initiatives that are organized into five “lines of
operation,” or goals. These five goals are (1) increase the willingness of the
American public to recommend military service to young Americans;
(2) recruit the right number and quality of personnel; (3) develop, sustain,
and retain the force; (4) transition members from active status; and
(5) sustain the process of strategic planning and maintain its viability. A
majority of the initiatives are studies addressing various military personnel
issues. Some of the issues that DOD will study—such as the lateral entry of
civilians into the military workforce, the ramifications of variable career
lengths for officers, and the appropriate grade structure for the manpower
needs of future weapon systems—could lead to proposed changes that
have far-reaching impacts. The strategy does not call for any near-term
changes to pay and benefits. However, DOD plans to study several pay and
benefit issues, such as nonmonetary incentives that support retention.

Since the military personnel strategy is intended to be a dynamic document
that will be assessed and refined periodically, DOD will have opportunities
to incorporate additional elements of human capital strategic planning in
future iterations of the strategy. We recently testified that while DOD has
recognized the need for a strategic approach to managing its human
capital, the military personnel strategy is missing elements that would be
found in a fully realized human capital strategic plan. For example, with the
increased reliance on the 1.3 million reservists that comprise almost half of
the total military force, this opportunity would include also incorporating
the needs of the reservists into DOD’s strategic planning. One area that
DOD plans to study is how to increase employer awareness of the
importance of supporting reserve members.

Page 21                                                GAO-03-98 DOD Challenges
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Increased Use of Reservists   Since the end of the Cold War, a shift has occurred in the way DOD uses the
Can Have Implications         reserve forces.14 Previously, reservists were viewed primarily as an
                              expansion force that would supplement active forces during a major war.
for Retention                 Today, no significant operation can be conducted without reserve
                              involvement. Reservists not only supplement but also replace active forces
                              in military operations and exercises. The current mobilization for the
                              war on terrorism is adding to this increased operational tempo15 and is
                              expected to last a long time. Good relations between reservists and their
                              employers are important, because deployments can be disruptive to
                              employers and difficulties, if not resolved, could lead some reservists to
                              abandon military service.

                              In June 2002, we reported that despite increases in operations since 1992,
                              the average operational tempo of reserves throughout DOD increased
                              only slightly between 1992 and 2001—from 43 to 46 days a year. Normal
                              required training periods accounted for the bulk of this total. Average
                              operational tempos fluctuated for all components over the period but
                              did not appreciably increase, with the exception of the Air Reserve
                              components whose tempos have historically been the highest. Tempos
                              increased from 54 to 65 days in the Air National Guard and from 55 to
                              65 days in the Air Force Reserve.

                              Although component averages have not increased appreciably, all the
                              components contain some individual reservists who are in units or
                              occupations that have been disproportionately affected. For example,
                              during the past 3 years, operational tempos within the Army National
                              Guard averaged between 40 and 44 days a year, but hundreds of National
                              Guard members from units in Texas, Georgia, and Virginia were deployed
                              to Bosnia for 6 months or more. Hundreds more from other units are
                              scheduled to participate in future 6-month deployments. Moreover,
                              reservists in the fields of aviation, special forces, security, intelligence,
                              psychological operations, and civil affairs have experienced operational
                              tempos two to seven times higher than those of the average reservists in

                                “Reserve forces” or “reservists” refers to the collective forces of the Army National Guard,
                              the Air National Guard, the Army Reserve, the Naval Reserve, the Marine Corps Reserve, the
                              Air Force Reserve, and the Coast Guard.
                                 We use the term “operational tempo” to mean the total days reservists spend participating
                              in normal drills, training, and exercises, as well as domestic and overseas operational

                              Page 22                                                           GAO-03-98 DOD Challenges
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their services. As discussed earlier, the war on terrorism has added to the
operational tempos in all the reserve components.

Figure 3 shows that the majority of reservists supporting operations related
to the war on terrorism have been involuntarily called to duty under the
partial mobilization that went into effect in September 2001. Even if the
mobilized force declines in size, the mobilization could have considerable
long-term effects on reserve operational tempos because it allows DOD to
activate reservists involuntarily for as long as 2 years.

Figure 3: Reserve Buildup to Support the War on Terrorism

100       Reservists on dutya (in thousands)












































                           Involuntary federal mobilizations to support Operations Noble Eagle and Enduring Freedom

                           Voluntary service, drills, and training specifically related to Noble Eagle and Enduring Freedom
                           Airport security
                           State active duty–called by state governor (security at nuclear power plants, bridges, tunnels, etc.)

Source: DOD.

Includes Coast Guard Reserves.

Page 23                                                                                               GAO-03-98 DOD Challenges
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We reported that several factors hamper DOD’s outreach efforts to both
employers and reservists.

• DOD lacks complete information on who the reservists’ employers are,
  and it has viewed the Privacy Act16 as a constraint that prevents it from
  requiring reservists to provide this information. Because information is
  incomplete, DOD cannot (1) inform all employers of their rights and
  obligations, (2) identify all exemplary employers for recognition, and
  (3) carry out effective outreach activities.

• DOD relies on volunteers in the field to carry out many of its outreach
  activities. However, these volunteers do not always report their contacts
  with reservists and employers; as a result, DOD does not know the full
  extent of problems that arise and has no assurance that its outreach
  activities are being implemented consistently.

• Although DOD has an active program to address problems that arise
  between reservists and their civilian employers, no such program is in
  place to deal systematically with issues that arise between students and
  their educational institutions. Because students make up an estimated
  one-third of all reservists, it is important that such issues as lost tuition,
  credits, and educational standing be addressed more directly.

• DOD has not fully analyzed data on reservists’ operational tempo and
  recruiting and retention trends on an ongoing basis to determine how
  deployments might be affecting reservists and their employers. More
  analyses of such data would enable DOD to better identify emerging
  problems and formulate outreach activities to address the problems.

DOD’s activities to enhance reserve-employer relations are not as effective
as they could be. DOD has conducted hundreds of briefings each year
for both reservists and employers. However, we reported that a sizable
number of the employers and reservists indicated that they were unsure
of their rights and responsibilities under the Uniformed Services
Employment and Reemployment Rights Act of 199417 and that some had
never been briefed on their rights and responsibilities. While the majority

     5 U.S.C. §552a.
  Pub. L. 103-353, Oct. 13, 1994, 38 U.S.C. §§4301-4333 grants servicemembers
reemployment rights following military duty and addresses the rights and responsibilities of
both reservists and their employers.

Page 24                                                         GAO-03-98 DOD Challenges
                       Major Performance and Accountability

                       of reservists believed their employers complied with legal requirements,
                       some reservists alleged that their rights had been violated. Both employers
                       and reservists claimed that frequently they were not given 30 days’ advance
                       notice of deployments, and some employers wanted the right to verify
                       reserve duty under 30 days on a case-by-case basis. These findings suggest
                       that some changes may be needed in the management of
                       reservist-employer relations to forestall reservists from leaving
                       military service.

Significant Civilian   DOD employs about 700,000 civilians—some 37 percent of all nonpostal
Workforce Management   civilian federal workers. Because it is the largest employer of federal
                       employees in the competitive civil service, how DOD approaches
Issues Exist
                       human capital management sends important signals about trends and
                       expectations for federal employment across government. Moreover, the
                       role that DOD’s civilian workforce plays in support of U.S. national security
                       makes DOD’s approach to managing its people a matter of fundamental
                       public interest.

                       As shown in figure 4, DOD has undergone a sizable reduction in its civilian
                       workforce since the end of the Cold War, and additional reductions are
                       expected at least through fiscal year 2007. Between fiscal year 1989 and
                       2001, DOD reduced its civilian workforce by about 400,000 positions
                       (excluding foreign national employees), from approximately 1,075,000 to
                       672,000—a 37 percent reduction. The President’s fiscal year 2003 budget
                       request projected additional reductions in DOD’s civilian workforce, to
                       a level of 614,865 by fiscal year 2007—a cumulative reduction of nearly
                       43 percent from the fiscal year 1989 level.

                       Page 25                                               GAO-03-98 DOD Challenges
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Figure 4: DOD Civilian Workforce Trends (fiscal years 1989-2001)

1,200 Number of personnel in thousands






        1989          1990   1991   1992   1993        1994        1995        1996        1997       1998        1999        2000        2001
        Fiscal year
Source: DOD.

                                           Notes:    GAO’s analysis of DOD’s data

                                                     Figure does not include indirect hire employees, for example, persons rendering service to
                                                     the federal government under agreements or contracts with a foreign government.

                                           Without an integrated strategic view, DOD’s approach to civilian
                                           downsizing in the early 1990s relied primarily on voluntary turnover
                                           and retirements and varying freezes on hiring authority. DOD also used
                                           existing authority for early retirements to encourage voluntary separations
                                           at activities facing major reductions in force. The fiscal year 1993 National
                                           Defense Authorization Act authorized a number of transition assistance
                                           programs for civilian employees, including financial separation incentives,
                                           or “buyouts,” to induce the voluntary separation of civilian employees
                                           and reduce authorized positions. DOD has credited the use of separation
                                           incentives, early retirement authority, and various job placement
                                           opportunities as ways to avoid nearly 200,000 involuntary demotions
                                           and separations.

                                           While the tools available to DOD to manage its civilian downsizing helped
                                           mitigate the adverse effects of force reductions, DOD’s approach to the
                                           reductions was not oriented toward shaping the makeup of the workforce.
                                           During our work on the early phases of the DOD downsizing, some DOD

                                           Page 26                                                                 GAO-03-98 DOD Challenges
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officials voiced concerns about what was perceived to be a lack of
attention to identifying and maintaining a balanced basic level of skills
needed to maintain in-house capabilities as part of the defense industrial
base. Career civilians possess “institutional memory,” which is particularly
important in DOD because of the frequent rotation of military personnel
and the short tenure of the average political appointee.

The consequences of the lack of attention to force shaping can be seen in
the current age distribution of the civilian workforce in comparison to the
distribution at the start of the drawdown. Today’s workforce is older and
more experienced; but not surprisingly, 58 percent of the workforce will be
eligible for early or regular retirement in the next 3 years. Since 1989, there
has been a 69 percent drop in the number of civilians with 11 to 30 years
of service.

The net effect is a workforce that is not balanced by age or experience
and that puts at risk the orderly transfer of institutional knowledge. The
continuing increase in the number of retirement-age employees could make
it difficult for DOD to infuse its workforce with new and creative ideas and
develop the skilled civilian workers, managers, and leaders it will need to
meet future mission requirements. With senior management attention,
strategic leadership, and results-oriented performance management,
however, DOD can rebuild its civilian workforce to meet future
requirements for specific skills and experience.

These human capital challenges are even more severe in certain areas, such
as acquisition and financial management (see “Confront and Transform
Pervasive, Decades-Old Financial Management Problems to Improve
Financial Accountability” and “Improve DOD’s Ability to Acquire Weapon
Systems in a Cost-Effective and Timely Way”). The acquisition area is a part
of the workforce that the United States has relied upon to maintain the
technological superiority that plays an essential role in the national
security strategy. According to DOD’s Acquisition 2005 task force report,
the rate of reduction in the civilian acquisition workforce has substantially
exceeded that of the rest of the DOD workforce. In the past decade, DOD
has downsized its acquisition workforce by almost half. More than
50 percent of the remaining acquisition workforce will be eligible to retire
by 2005; and in some occupations, DOD projects that half of the current
employees will have retired by 2006.

The 2005 task force report made a series of recommendations to DOD in
October 2000. In April 2002, we reported on DOD’s plans to implement

Page 27                                                GAO-03-98 DOD Challenges
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                     these recommendations. We noted that DOD has made progress in laying
                     a foundation for reshaping its acquisition workforce. However, DOD
                     recognizes that it will be challenging to implement a strategic approach.
                     Consequently, DOD views implementation of the recommendations as
                     long-term efforts with specific outcomes taking years to achieve.

                     In addition, many of DOD’s financial management shortcomings are
                     attributable in part to human capital issues. While DOD’s financial
                     management personnel are struggling to carry out routine day-to-day
                     transaction processing, personnel in world-class financial management
                     organizations are providing value-added analyses and insights about
                     the financial implications of program decisions on their organizations,
                     performance goals, and objectives. DOD has a number of initiatives
                     underway that are directed at improving the competencies and
                     professionalism of its financial management workforce. However, although
                     it concurred with our August 2001 recommendation, DOD has not yet
                     developed a strategic approach to addressing its financial management
                     human capital challenges.18 Lacking such a strategy, DOD will be unable to
                     meet the challenges presented by the increasing number of employees that
                     will be eligible to retire over the next few years.

Key Actions Needed   DOD and the Congress have worked successfully to enhance the
                     military personnel benefit package. To help keep pace with changing
                     demographics and to be competitive with the private sector, we have
                     recommended that DOD (1) develop measures for tracking and assessing
                     the effectiveness of installation-level services offered through its spousal
                     employment assistance program and (2) assess the feasibility, costs, and
                     benefits of offering extended time off to parents of newborn or adopted
                     children as one way to increase retention of trained, experienced
                     personnel. DOD is working to achieve these actions. However, to
                     provide continued focus to meet future challenges, DOD needs to take a
                     strategic approach.

                     Taking an integrated, strategic view of DOD’s approach to human capital
                     and using a measurement tool will be important for DOD to align all
                     elements of its human capital management, including pay and benefits,
                     with its broader organizational objectives. Such measurement tools include

                       U.S. General Accounting Office, Financial Management: DOD Improvement Plan Needs
                     Strategic Focus, GAO-01-764 (Washington, D.C.: Aug. 17, 2001).

                     Page 28                                                   GAO-03-98 DOD Challenges
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our human capital self-assessment checklist and the exposure draft of our
model for strategic human capital management for agency leaders. We
testified that since the DOD military personnel strategy is intended to be a
dynamic document that periodically will be assessed and refined, DOD will
have opportunities to incorporate additional elements of human capital
strategic planning in future iterations of the strategy. Specifically, DOD
needs to

• link human capital goals with its mission and programmatic goals;

• include adequate performance measures for assessing the effectiveness
  of human capital approaches;

• address military workforce requirements or gaps, especially for
  mission-critical skills;

• demonstrate a clear linkage between benefits and its ability to recruit
  and retain a high-quality workforce; and

• address the dissatisfaction that servicemembers have expressed about
  their work conditions.

We have also made several recommendations to enhance DOD’s
management of its reserve forces. Our recommendations are designed
to (1) increase the scope and effectiveness of DOD’s outreach programs,
(2) promote good relations between reservists and their employers
or schools, and (3) increase an understanding of the effects of high19
operational tempos on reservists. The recommendations would achieve
these goals by increasing DOD’s information on reservists’ civilian
employers, specifically addressing the unique needs of student reservists,
enhancing the effectiveness of volunteer members of the Employer
Support to Guard and Reserve organization, and making improved use
of available deployment and retention data. DOD generally concurred
with the recommendations. Some of its planned initiatives include
establishment of a policy requiring that orders be issued 30 days in advance
of deployment, unless operational requirements dictate otherwise, and

  U.S. General Accounting Office, Reserve Forces: DOD Actions Needed to
Better Manage Relations between Reservists and Their Employers, GAO-02-608
(Washington, D.C.: June 13, 2002).

Page 29                                                    GAO-03-98 DOD Challenges
                     Major Performance and Accountability

                     studying reasons why the reserve components sometimes miss the
                     30-day goal.

Overcome Support     DOD’s infrastructure categories include force installations,
                     communications and information infrastructure, science and
Infrastructure       technology programs, acquisition infrastructure, central logistics,
Inefficiencies to    Defense Health Program, central personnel administration and benefits
                     programs, central training, departmental management, and other selected
Reduce Costs and     infrastructure programs such as support of DOD’s intelligence and air
Improve Operations   traffic control activities.20 DOD has been concerned for a number of
                     years over the amount of funding devoted to its support infrastructure
                     and the impact on its ability to devote more funding to weapon system
                     modernization and other critical needs. Our analysis of DOD data
                     contained in its fiscal year 2002 annual report21 and fiscal year 2003
                     Future Years Defense Plan (FYDP)22 showed that approximately
                     $151 billion (44 percent)23 of the $345 billion allocated to mission and
                     support activities was spent on infrastructure in fiscal year 2002. Of the
                     reported $151 billion spent on infrastructure, approximately $25 billion
                     was spent for military installations, including programs to protect the
                     environment, house and support the daily operations of combat units, and
                     sustain, restore, and modernize facilities. In our 2001 performance and
                     accountability series, we reported that regarding specific operations
                     challenges, DOD needed to address inefficiencies in its support
                     infrastructure. Infrastructure management, which we first identified as

                       DOD defines infrastructure as those activities that provide support services to mission
                     programs, such as combat units.
                       U.S. Department of Defense, Annual Report to the President and the Congress for
                     Fiscal Year 2002 (Washington, D.C.: Aug. 15, 2002).
                       The Future Years Defense Plan, or FYDP, is the official document that summarizes the
                     force levels and funding associated with specific programs that the Secretary of Defense
                     would like the Congress to approve. It presents estimated appropriation needs for the
                     budget year for which funds are being requested from the Congress and at least the 4 years
                     following it.
                       Forty-four percent is significantly less than the proportion of planned infrastructure
                     funding reported by DOD in our high-risk series issued in January 2001. Since then, DOD has
                     adjusted its cost data for definitional or accounting changes. The principal adjustments
                     were required by the Army and Air Force reclassifications that moved significant resources
                     from infrastructure to mission categories. These readjustments would have the effect of
                     decreasing the percentage of funding for infrastructure.

                     Page 30                                                         GAO-03-98 DOD Challenges
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                              a high-risk area in 1997, remains on our high-risk list and continues to
                              present major challenges to DOD.

Infrastructure Costs Remain   According to DOD, infrastructure costs continue to consume a larger
a Concern                     than desired portion of its budget—nearly 46 and 44 percent, respectively,
                              in fiscal years 2001 and 2002, with some growth projected in its future
                              spending plans (see fig. 5). Recently, DOD reported that many of its
                              business processes and much of the infrastructure are outdated and must
                              be modernized. While America’s businesses have streamlined and adopted
                              new business models to react to fast-moving changes in markets and
                              technologies, DOD has lagged behind without an overarching strategy to
                              improve its business practices. Left alone, the current organizational
                              arrangements, processes, and systems will continue to drain scarce
                              resources. DOD has also realized that high-priority readiness needs such as
                              weapons modernization can be fulfilled only with a large influx from
                              infrastructure savings.

                              Page 31                                               GAO-03-98 DOD Challenges
                         Major Performance and Accountability

                         Figure 5: Direct Infrastructure Funding Versus the Total Funding Allocated to
                         Mission and Support Activities (fiscal years 1998 through 2007)

                         500 Constant fiscal year 2003 dollars in billions





                               1998          1999        2000   2001     2002   2003   2004      2005    2006    2007

                               Fiscal year
                         Source: DOD.

                         Note: GAO’s analysis of DOD’s data.

Transforming DOD’s       To its credit, DOD has given high-level emphasis to reforming its support
Support Infrastructure   infrastructure, including an emphasis on transforming its associated
                         business processes in recent years. However, many key reforms that
Remains a Long-term
                         may have the greatest impact on managing the support infrastructure and
Challenge                reducing costs are long term in nature and will require many years to be
                         fully implemented.

                         The Defense Reform Initiative, started in 1997, was intended to improve the
                         effectiveness and efficiency of DOD’s business processes and support
                         infrastructure. To varying degrees, some of the former programs are being
                         continued under the current administration’s business transformation

                         Page 32                                                              GAO-03-98 DOD Challenges
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program, which was created in 2001 under the auspices of a Senior
Executive Council, a Business Initiative Council, and an Executive Steering
Committee.24 These groups have focused on launching new initiatives.
Many of the initiatives, such as eliminating unnecessary reports,
streamlining the general and flag officer nomination process, and
implementing cell phone subsidies, have been fairly limited in scope.
However, many others, including efforts to identify noncore functions for
potential transfer to the private sector and a review of defense agencies’
missions, have been broader. Furthermore, the charter for the Business
Initiative Council specifically indicates that the new business
transformation program will address broader reform efforts over time.

Some highly visible, major reform efforts that have been underway include
acquisition and financial management reform, logistics reengineering,
public-private competitions under the Office of Management and
Budget’s Circular A-76 process,25 and elimination of unneeded facilities
infrastructure. The latter includes such actions as demolition of unneeded
buildings, privatization of housing and utilities on military facilities, and
passage of legislation for additional base realignments and closures.
Financial management and acquisition and logistics reform are more fully
discussed in separate sections of this report. These reform efforts offer the
potential for significant improvements in the efficiency and effectiveness of
operations, including savings in terms of reductions in program costs or
cost avoidances.

While it is difficult to quantify the savings precisely, two initiatives
that have yielded the greatest savings over time are the public-private
competitions under the A-76 program and the congressionally approved
defense base realignment and closure actions. While further opportunities

  Membership on the Senior Executive Council includes the Secretary of Defense (chair);
the Deputy Secretary of Defense; the Under Secretary of Defense for Acquisition,
Technology, and Logistics; and the Secretaries of the Army, Navy, and Air Force.
Membership on the Business Initiative Council is similar to the Senior Executive Council
and includes the Under Secretary of Defense for Acquisition, Technology, and Logistics; the
Secretaries of the Army, Navy, and Air Force; and the Vice Chairman of the Joint Chiefs of
Staff. The Comptroller and the Under Secretary for Personnel and Readiness were recently
added. The Executive Steering Committee is composed of designated service three-star flag
and general officers, selected executives from the Office of the Secretary of Defense, and a
Joint Chiefs warfighter liaison.
  Under the A-76 process, agencies conduct competitions to determine whether the public
or private sector will perform selected commercial activities and functions.

Page 33                                                         GAO-03-98 DOD Challenges
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exist for savings through these initiatives, both are not without controversy
because of their potential impact on affected workforces and communities.

DOD has been the most aggressive of all federal agencies in pursuing A-76
cost studies in recent years, completing studies on nearly 117,000 positions
between fiscal year 1997 and 2001. Our work has shown that DOD has
achieved significant savings through this program, even though it has been
difficult to determine precisely the magnitude of those savings. Savings
may be limited in the short term because up-front investment costs
associated with conducting and implementing the results of the studies
must be absorbed before long-term savings begin to accrue. Several of
our reports in recent years have highlighted these issues. The number of
A-76 studies to be completed in the future is somewhat uncertain as
DOD examines other alternatives, such as reengineering, divestiture,
public/private partnering, and privatization, for achieving greater operating
efficiencies. Although largely outside DOD’s control, the work and recent
report of the congressionally mandated Commercial Activities Panel,
chaired by the Comptroller General, have recommended actions to
improve the sourcing decisions of DOD and other federal agencies and to
stimulate the creation of high-performing organizations.26

Currently, the Office of Management and Budget is considering the panel’s
recommendations as it revises A-76 policy.27 Successful implementation of
the recommendations offers the potential for improved decision tools to
facilitate improved operating efficiencies within DOD as well as other
federal agencies. DOD completed four rounds of base realignment and
closures between 1988 and 1995 and has congressional authorization for
another round of base realignments and closures scheduled for 2005. DOD
officials have testified the 2005 round could achieve a 20 to 25 percent
reduction in military infrastructure, with annual savings of about $6 billion.
Our reviews have found that estimated savings from the first four rounds,
while imprecise, are nonetheless substantial in the long term. In addition,
DOD reports that the savings accrued from removing this excess
infrastructure can be better applied to maintaining and revitalizing the
facilities it plans to keep as well as to improving military readiness.

 Commercial Activities Panel, Improving the Sourcing Decisions of the Government,
CAP-02-01 (Washington, D.C.: Apr. 30, 2002).
  On November 19, 2002, the Office of Management and Budget issued a proposed revision
of Circular A-76.

Page 34                                                      GAO-03-98 DOD Challenges
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With or without future base closures, DOD faces the challenge of
adequately maintaining and revitalizing the facilities it plans to retain.
Available information indicates that DOD’s facilities continue to deteriorate
because of insufficient funding for their sustainment, restoration, and
modernization. According to DOD, its facilities have been neglected and
modernization efforts have been postponed for far too long. Our recent
review of the physical condition of recruit barracks confirmed DOD’s
assertion that its facilities have been long neglected and underfunded. We
found that, to varying degrees, most barracks were in need of significant
repair. The most prevalent problems across the services included the lack
of, or inadequate, heating and air conditioning; inadequate ventilation,
particularly in bathing areas; and plumbing-related deficiencies, such as
leaks and clogged drains. Inspection of a parking ramp in January 2002
revealed water damage that affects where a C-130 aircraft can park
(see fig. 6). With limited funds to repair the ramp at an estimated $40,000,
base officials concentrate on higher-priority items, leaving the ramp
problem unresolved, as shown at the time of our visit in August 2002. DOD
officials stated they hope to repair the ramp in February 2003 with fiscal
year 2002 end-of-year funds.

Page 35                                               GAO-03-98 DOD Challenges
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Figure 6: Parking Runway Ramp at Dobbins Air Reserve Base, Georgia
(August 2002)

Source: GAO.

Similar deteriorated conditions exist across the range of DOD’s
infrastructure categories. In DOD’s recent Installations’ Readiness Report,
the military services cited numerous examples of such conditions affecting
their facilities by selected categories:

• Operations and training (includes airfields, piers and wharves,
  training ranges and classrooms, recruit facilities, armories, aircraft
  operations’ parking and hangars, refueling hydrants, and flight
  simulators): According to the Navy, the age, high usage, and overloading
  of runways, taxiways, and aprons are causing rapid deterioration at all
  air stations, resulting in significant foreign object damage, unacceptable
  risks to safety of personnel and damage to aircraft, and restricted
  air operations.

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• Mobility (includes facilities directly related to mobilization of
  forces, including staging areas and transportation systems): According
  to the Air Force, several of its facilities used for mobility purposes do
  not have adequate ventilation systems, lighting, communications
  support, restrooms, or passenger or cargo processing areas. This
  results in inefficient, time-consuming operations and degrades
  readiness capability.

• Maintenance and production (includes vehicle and avionics
  maintenance shops, tactical equipment shops, aircraft maintenance
  hangars, foundries, and ammunition demilitarization facilities):
  According to the Navy, several maintenance hangars and aircraft
  intermediate-maintenance facilities have extensive structural, roof,
  and mechanical and electrical system deterioration due mainly to age,
  environment, and normal wear. In some cases, hangar-bay coatings,
  separating from ceilings and walls, are falling onto exposed equipment,
  personnel, and aircraft.

• Research, development, testing, and evaluation (includes test
  chambers, laboratories, and research buildings): According to the Army,
  many of its research, development, testing, and evaluation facilities are
  deteriorating at an increasingly accelerated rate. As maintenance
  funding for these facilities is scarce, little or no routine or preventive
  maintenance is performed on these facilities.

• Supply (includes warehouses, hazardous material storage, and
  ammunition storage): According to the Navy, many of its deteriorated
  weapons magazines do not meet explosive safety requirements. Some
  magazines and explosive production buildings are operating under
  waivers and exemptions.

• Medical (includes hospitals and medical and dental clinics): According
  to the Army, several of its medical facilities do not meet standards. For
  example, the main health-care delivery facility at Walter Reed Army
  Medical Center, Washington, D.C., has aging mechanical systems that
  must be repaired or replaced. At other Army installations, medical
  facilities also do not meet quality standards due to the poor condition of
  bathrooms, utilities, and heating and air-conditioning systems.

• Administrative (includes office space and computer facilities):
  According to the Navy, the majority of the Atlantic Fleet’s administrative
  facility inventory consists of inefficient temporary and semipermanent

Page 37                                              GAO-03-98 DOD Challenges
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                          structures. Typical deficiencies include inadequate plumbing,
                          air-conditioning, fire protection, and electrical systems and general
                          deterioration of finishes due to age and wear.

                     • Utilities and ground improvements (includes power production,
                       distribution and conservation systems, water and sewage systems,
                       roads and bridges, water pollution abatement, wastewater treatment
                       facilities, and fuel storage tanks and containment areas): According to
                       the Navy, the utilities at its Pacific Missile Range Facility, Hawaii, only
                       minimally support multiple missile launch operations. To improve
                       operations, it needs to upgrade an existing generator; replace the
                       control, power, grounding, and lightning protection systems; install
                       voltage regulators to correct stability problems; replace the
                       communication, video, and surveillance systems; and add an intrusion
                       detection system.

Key Actions Needed   Much work remains for DOD to rationalize and transform its support
                     infrastructure to improve operations, achieve efficiencies, and allow it to
                     concentrate its resources on the most critical needs. DOD organizations
                     throughout the department need to continue reengineering their business
                     processes and striving for greater administrative efficiency. As we have
                     previously recommended, DOD needs to develop a plan to better
                     integrate, guide, and sustain the implementation of its diverse business
                     transformation initiatives in an integrated fashion.28 Although DOD issued a
                     strategic plan for facilities in August 2001, the plan provides only a
                     framework for improving facilities and does not address all facility-related
                     issues that DOD faces.

                     Infrastructure problems are not that much different in civilian
                     agencies than they are in the military. The infrastructure problems in
                     civilian agencies also suggest the possible relevance of a civilian facility
                     closure and realignment process. Issues related to civilian facilities will
                     be covered under a new high-risk, governmentwide designation called
                     “Federal Property.”

                      U.S. General Accounting Office, Major Management Challenges and Program Risks:
                     Department of Defense, GAO-01-244 (Washington, D.C.: Jan. 2001).

                     Page 38                                                   GAO-03-98 DOD Challenges
                        Major Performance and Accountability

Confront and            In the summer of 2001, the President emphasized the need for improved
                        financial accountability throughout the entire federal government.
Transform Pervasive,    Additionally, the Secretary of Defense has recently included improving
Decades-Old Financial   DOD’s financial management as one of his top 10 priorities.29 As we have
                        previously reported, accurate financial information is crucial to making
Management Problems     sound decisions and controlling assets so that DOD’s mission and goals are
to Improve Financial    efficiently and effectively accomplished. However, DOD continues to face
Accountability          financial management problems that are pervasive, complex,
                        long-standing, and deeply rooted in virtually all its business operations.
                        DOD’s financial management deficiencies adversely affect DOD’s ability to
                        control costs, ensure basic accountability, anticipate future costs and
                        claims on the budget (such as for health care, weapons systems, and
                        environmental liabilities), measure performance, maintain control of funds,
                        help prevent fraud, and address pressing management issues. For example,
                        we recently reported on fundamental flaws in DOD’s systems, processes,
                        and overall internal control environment related to

                        • government travel card delinquency rates for the Army and the Navy
                          that nearly doubled those of federal civilian agencies;

                        • pervasive purchase and travel card breakdowns that resulted in
                          numerous instances of potentially fraudulent, improper, and abusive
                          transactions and increased DOD’s vulnerability to theft and misuse of
                          government property;

                        • adjustments to DOD’s closed appropriations that resulted in about
                          $615 million in adjustments that should not have been made, including
                          $146 million that was illegal;

                        • tracking and reporting on the status of earmarked funds that resulted in
                          DOD being unable to ensure the Congress that the $1.1 billion in funds it
                          received for spare parts was used for, and only for, that purpose;

                          Financial management systems are to enable agencies to prepare, execute, and report
                        on their budgets in accordance with the requirements of Office of Management and
                        Budget Circular No. A-11 (Preparation and Submission of Budget Estimates), Office of
                        Management and Budget Circular No. A-34 (Instructions on Budget Execution), and other
                        applicable Office of Management and Budget circulars and bulletins.

                        Page 39                                                     GAO-03-98 DOD Challenges
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                           • managing and reporting on the funding associated with the Air Force’s
                             contracted depot maintenance that resulted in understating the dollar
                             value of year-end carryover work by tens of millions of dollars; and

                           • accountability over critical items, such as chemical and biological
                             protective garments, that resulted in DOD’s excessing and selling
                             unused garment sets for about $3 each, while simultaneously procuring
                             hundreds of thousands of similar garment sets for over $200 per set.

                           Taken together, DOD’s financial management deficiencies represent the
                           single largest obstacle to achieving an unqualified opinion on the
                           U.S. government’s consolidated financial statements. To date, none of the
                           military services or major DOD components have passed the test of an
                           independent financial audit.

                           Overhauling DOD’s financial management operations represents a
                           major management challenge that goes far beyond financial accounting
                           to the very fiber of the department’s range of business operations and
                           management culture. Administrations over the past 12 years have
                           attempted to address these problems in various ways but have largely been
                           unsuccessful despite good intentions and significant effort. Since 1995,
                           DOD’s financial management has been on our list of high-risk areas
                           vulnerable to waste, fraud, abuse, and mismanagement. With the events
                           of September 11, 2001, and the federal government’s short- and long-term
                           budget challenges, it is more important than ever that DOD effectively
                           transform its deficient business operations to ensure that it gets the most
                           from every dollar spent.

Underlying Causes of       As we testified in March 2002 and highlighted in our more recent reports,
Financial Management       four underlying causes of problems have impeded past reform efforts
                           at DOD.
Reform Create Challenges
                           • The lack of accountability and sustained top-level leadership hinders
                             DOD’s ability to meet its performance goals. Major improvement
                             initiatives must have the direct, active support and involvement of the
                             Secretary and Deputy Secretary of Defense to ensure that daily activities
                             throughout the department remain focused on achieving shared,
                             agencywide outcomes and success. Furthermore, sustaining top
                             leadership’s commitment to performance goals is a particular challenge
                             for DOD because the average tenure of DOD’s top political appointees is
                             only 1.7 years. Based upon our survey of best practices of world-class

                           Page 40                                              GAO-03-98 DOD Challenges
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   financial management organizations, it is clear that strong executive
   leadership is essential to (1) making financial management an
   entitywide priority, (2) redefining the role of finance, (3) providing
   meaningful information to decision makers, and (4) building a team of
   people that delivers results.

• Cultural resistance to change and stovepiped operations have impeded
  DOD’s ability to implement broad-based management reforms. We found
  the effectiveness of the Defense Management Council, established
  in 1997, was impaired because members were not able to put aside their
  particular military services’ or DOD agencies’ interests to focus on
  departmentwide approaches. The results of DOD’s past stovepiped
  approaches to financial management reforms are perhaps most evident
  in its current business systems environment. DOD’s recent estimate
  includes 1,700 systems and system development projects—many of
  which were developed in piecemeal fashion and evolved to
  accommodate different organizations, each with its own policies
  and procedures.

• Lack of clear, linked goals and performance measures impedes DOD’s
  ability to attain strategic goals with the risk that units are operating
  autonomously, rather than collectively. In our assessment of DOD’s
  fiscal year 2000 Financial Management Improvement Plan—its most
  recent plan—we found that the plan presented the military services’ and
  DOD components’ individual improvement initiatives but did not clearly
  articulate how their individual efforts would result in a collective,
  integrated DOD-wide approach to financial management improvement.
  In addition, the plan did not include performance measures to
  assess DOD’s progress in resolving financial management problems.
  Furthermore, while DOD plans to invest billions of dollars in
  modernizing its financial management systems, it is in the initial stages
  of developing an overall blueprint, or enterprise architecture, to guide
  and direct these investments.

• Lack of incentives to change existing “business-as-usual” processes,
  systems, and structures contributes to DOD’s inability to carry out
  needed fundamental reform. Traditionally, DOD has focused more on
  justifying its need for more funding and moving programs and
  operations through the process than on achieving better program
  outcomes. It does not (1) reward behaviors that contribute to DOD-wide
  and congressional goals, (2) develop motivational incentives for
  decision makers to guide them toward better program outcomes, or

Page 41                                             GAO-03-98 DOD Challenges
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                        (3) provide congressional focus on more results-oriented and
                        resource-allocation decisions.

Key Actions Needed   On September 10, 2001, the Secretary of Defense recognized the
                     far-reaching nature of DOD’s financial management problems and
                     announced a broad initiative intended to “transform the way the
                     department works and what it works on.” This new broad-based business
                     transformation initiative, led by the Senior Executive Council and the
                     Business Initiative Council, incorporates a number of defense reform
                     initiatives begun under previous administrations but also encompasses
                     additional fundamental business reform proposals. The goals of DOD’s
                     current transformation initiatives are more far-reaching, comprehensive,
                     and have more long-term application than any such efforts in the past. In
                     announcing his initiative, the Secretary recognized that transformation
                     would be difficult and expected the needed changes would take 8 or more
                     years to complete. The Secretary’s initiative is consistent with the findings
                     of an independent study he commissioned that concluded DOD would have
                     to undergo “a radical financial management transformation” and that it
                     would take more than a decade to achieve.

                     Our experience has shown that several key elements, collectively,
                     would enable DOD to effectively address the underlying causes of its
                     long-standing financial management problems. These elements include

                     • addressing the financial management challenges as part of a
                       comprehensive, integrated, DOD-wide business process reform;

                     • providing for sustained leadership by the Secretary of Defense and
                       resource control to implement needed financial management reforms;

                     • establishing clear lines of responsibility, authority, and accountability
                       for such reform tied to the Secretary;

                     • incorporating results-oriented performance measures and monitoring
                       tied to financial management reforms;

                     • establishing an enterprise system architecture to guide and direct
                       financial management modernization investments;

                     Page 42                                               GAO-03-98 DOD Challenges
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                     • ensuring effective oversight and monitoring; and

                     • providing appropriate incentives or consequences for action or inaction.

                     Beginning with the Secretary’s recognition of a need for a fundamental
                     transformation of DOD’s business processes, and building on some of the
                     work begun under past administrations, DOD has taken a number of
                     positive actions in many of these key areas. One ongoing action is the
                     current effort to develop a DOD enterprise architecture that is intended to
                     prescribe a blueprint for operational and technological changes in its
                     financial and related business system operations. At the same time, the
                     challenges remaining in each of these key areas are daunting.

Effectively Manage   To help transform its business functions, DOD has invested heavily in
                     modernizing its information technology environment, and its plans call
Information          for continued heavy investments. However, its success to date has been
Technology           limited, and its future is fraught with risk because of long-standing
                     and pervasive information technology modernization management
Investments          weaknesses. As we have reported, these weaknesses include a lack of
to Transform         (1) integrated enterprise architectures to effectively promote
Business Functions   interoperability and avoid duplication among systems; (2) institutional
                     information technology investment management practices to effectively
                     minimize the inherent risk in very large, multiyear projects and to provide
                     DOD executives with the information needed to make informed investment
                     choices; and (3) institutionalized systems acquisition processes to allow
                     consistent delivery of promised capabilities, on time and within budget.
                     Compounding these modernization management weaknesses are
                     information security weaknesses that limit DOD’s ability to ensure that
                     current and future systems are not compromised. We have made a series of
                     recommendations to strengthen DOD’s ability to successfully modernize
                     and secure its information technology assets.

                     DOD acknowledges that it needs to improve its management of information
                     technology and has agreed to implement most of the recommendations we
                     have made over the last 2 years. However, progress has been inconsistent,
                     and it is unlikely that sufficient management reform of information
                     technology will occur in time to ensure that DOD’s planned information
                     technology investment of $26 billion in fiscal year 2003 will be spent
                     effectively and efficiently. For these reasons, we are again designating
                     DOD’s systems modernization efforts as high risk. Further, the state of

                     Page 43                                              GAO-03-98 DOD Challenges
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                             DOD’s information security continues to be a major reason for us to again
                             designate information security as a governmentwide high-risk area.

Effective Management of      Since the 1990s, DOD has spent billions of dollars each year attempting to
Systems Modernization Is a   leverage the vast power of modern technology to replace outdated ways
                             of doing business. While we recognize that modernization of information
Continuing Challenge         technology is a crucial enabler of such organizational transformation,
                             successful modernization requires a level of information technology
                             management capability that the department has yet to achieve. This
                             capability is embodied in the best information technology management
                             practices of successful public- and private-sector organizations, as well as
                             information technology management guidance issued by GAO, the Chief
                             Information Officers Council, and the Office of Management and Budget.

                             DOD has made some progress in implementing the recommendations
                             that we have made aimed at improving information technology
                             management practices. Nevertheless, DOD remains far from where it needs
                             to be in order to effectively and efficiently manage something of the size
                             and significance of its systems modernization. Since January 2001, when
                             we last reported on DOD management challenges, both we and the DOD
                             Inspector General have continued to report on a variety of long-standing
                             management problems in modernizing information technology. Because
                             of these problems, three of which we briefly describe here, we first
                             designated DOD’s management of information technology modernization
                             as high risk in 1995. It remains so today.

                             First, DOD’s lack of an integrated enterprise architecture for its financial
                             and related business functions continues to be a major obstacle. As we
                             reported in 2001, without such a blueprint to guide and constrain DOD’s
                             investments in revamped business operations and modernized systems, the
                             military services and defense agencies find themselves with duplicative
                             processes and systems that are unnecessarily costly to maintain and do not
                             optimize mission performance. Further, DOD lacks a corporate focus for
                             controlling its information technology budget and making informed
                             decisions about services’ and agencies’ ongoing and planned modernization
                             projects. We also reported that certain DOD components, such as the
                             Defense Logistics Agency and the Defense Information Systems Agency,
                             were investing billions of dollars in information technology modernization
                             projects with no agency-specific architectures aligned with a departmental
                             architecture to guide and constrain the components’ respective

                             Page 44                                               GAO-03-98 DOD Challenges
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Moreover, we reported that DOD did not have programs in place for
creating this needed set of integrated architectures. Accordingly, we
made a series of recommendations to (1) assist DOD and its components in
developing and maintaining enterprise architectures in support of their
modernization efforts and (2) control spending on information technology
projects throughout the department. In particular, we recommended that
DOD centralize the responsibility and authority for its project investments
and, until a financial management architecture is developed, limit its
components’ investments to

• deployment of systems that involve no additional development or
  acquisition cost,

• stay-in-business maintenance needed to keep existing
  systems operational,

• management controls needed to effectively invest in modernized
  systems, and

• new systems or existing system changes that are congressionally
  directed or are relatively small, cost-effective, and low risk.

In its written comments, DOD stated that it would consider our
recommendations as part of its efforts to improve financial management.30

  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); Information Technology: DLA Should Strengthen Business Systems
Modernization Architecture and Investment Activities, GAO-01-631 (Washington, D.C.:
June 29, 2001); Information Technology: Defense Information Systems Agency Can
Improve Investment Planning and Management Controls, GAO-02-50 (Washington, D.C.:
June 29, 2001).

Page 45                                                    GAO-03-98 DOD Challenges
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A second major hurdle in DOD’s quest to modernize its information
technology systems is its lack of effective investment management
practices, both institutional and project-specific. For example, we reported
that while the Defense Logistics Agency had made progress in adopting a
portfolio-based approach to making informed decisions among competing
agency investment options, critical investment management activities that
are practiced by leading public and private organizations, and are
embodied in federal guidance, were missing. Similarly, we reported that the
Defense Information Systems Agency had not yet established most of these
investment management best practices. At the same time, our reviews of
specific billion-dollar DOD system acquisition projects, including the
Defense Logistic Agency’s Business Systems Modernization, DOD’s
Standard Procurement System, and DOD’s Composite Health Care System
II, showed additional investment management shortcomings. Such
shortcomings included not economically justifying information technology
projects on the basis of reliable analyses of benefits, costs, and risks and
not reducing project risk by investing in the projects incrementally, both of
which are practiced by successful public- and private-sector organizations
and advocated by federal guidance. Similarly, the DOD Inspector General
reported on investment management problems with DOD’s Joint Personnel
Adjudication System. Again, we made a series of recommendations to
address DOD’s investment management weaknesses. DOD generally
agreed with our recommendations.31

  GAO-01-631; U.S. General Accounting Office, Information Technology: Greater Use of
Best Practices Can Reduce Risk in Acquiring Defense Health Care System, GAO-02-345
(Washington, D.C.: Sept. 6, 2002).

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A third significant weakness is immature software and systems acquisition
processes, which are key determinants of the quality of software-intensive
information technology systems. Our work continues to show that DOD’s
implementation of mature acquisition management processes is uneven,
as are its proactive efforts to improve these processes. For example, our
review of the Defense Logistics Agency’s system acquisition processes
showed that one major system was following mature processes, while
another was not. Similarly, our review of departmentwide software
and system process improvement activities showed that some DOD
components, such as the Army and the Navy, had active programs while
others, such as the Defense Logistics Agency, did not. We made
recommendations to correct each of these weaknesses. DOD generally
agreed with our recommendations.32

DOD recognizes the need to improve management of its systems
modernization efforts. To this end, it has taken some steps to implement
our recommendations addressing the weaknesses we identified. For
example, DOD has begun to develop a departmentwide enterprise
architecture for its financial and related operations, including ensuring
alignment of this architecture with others in DOD. It also has revised its
acquisition guidance to require that investment decisions for major
projects be made incrementally to better ensure each segment delivers
measurable benefits. Nevertheless, much remains to be accomplished
before DOD will have effectively mitigated the risks it faces in modernizing
its systems.

  U.S. General Accounting Office, Information Technology: Inconsistent
Software Acquisition Processes at the Defense Logistics Agency Increase Project Risks,
GAO-02-9 (Washington, D.C.: Jan. 10, 2002); DOD Information Technology: Software
and Systems Process Improvement Programs Vary in Use of Best Practices, GAO-01-116
(Washington, D.C.: Mar. 30, 2001).

Page 47                                                      GAO-03-98 DOD Challenges
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Information Security      The national defense, like many of the U.S. government’s missions, depends
Remains a Major Concern   on the security of computer operations at a time when dramatic increases
                          in computer connectivity are revolutionizing both communications and
                          operations. This interconnectivity poses significant risks to both DOD
                          computer systems and the operations and infrastructures they support. We
                          designated information security as a governmentwide high-risk area in
                          1997, and it remains so today. The DOD Inspector General noted in 2001
                          that improvements were needed to better manage security. DOD also
                          acknowledged in its fiscal year 2000 performance report33 that its systems
                          and networks are more vulnerable than officials would like, and as we have
                          reported, its information assurance34 program has had problems in meeting
                          its goals, such as poor coordination of technology and operations.

                          Security assessments continue to identify weaknesses that could
                          seriously jeopardize DOD’s operations and compromise the confidentiality,
                          integrity, or availability of sensitive information. For example, in June 2002,
                          we reported that the U.S. Army Corps of Engineers had made substantial
                          progress in resolving systems security weaknesses identified in prior years
                          in its financial management system but that new weaknesses had been
                          found. Specifically, the Corps had not adequately limited user access,
                          developed adequate systems software controls, documented software
                          changes, segregated duties, or addressed continuity needs.

                          The DOD Inspector General also reported on information security
                          weaknesses in several programs during fiscal year 2001. Specifically, the
                          Inspector General found security lapses relating to access to data, risk
                          assessments, sensitive data identification, access controls, password
                          management, audit logs, application development and change controls,
                          segregation of duties, service continuity, and system software controls,
                          among others. In addition, both the Army Audit Agency and Air Force Audit
                          Agency reported similar problems.

                          Weaknesses in departmentwide information security were also a
                          problem. In March 2001 we reported DOD had made limited progress
                          in implementing its information assurance program. Specifically, DOD

                            Department of Defense, Government Performance and Results Act, FY 2000
                          Performance Report (March 2001).
                            The DOD term “information assurance” encompasses the range of security activities and
                          functions used to protect DOD information and systems.

                          Page 48                                                       GAO-03-98 DOD Challenges
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had not tested its draft readiness assessment metrics; implemented
its proposed actions to enhance its human resources; defined the
organizations, policies, and procedures for monitoring and managing
security; or consistently planned and coordinated security management
technologies and operations throughout DOD. Further, management
weaknesses such as the lack of a unified mission and performance goals
and measures, unreliable financial and performance data, and no plan to
leverage technology also limited progress in program implementation. We
also noted weaknesses in attempts to catalog security activities and
address standards, acquisition support, and research. Accordingly, we
recommended a number of actions to improve departmentwide
information security management.

DOD has established computer incident response teams throughout DOD,
but improvements are needed. Specifically, DOD has not coordinated
resource availability, integrated data from a variety of systems and sensors,
periodically reviewed systems and networks for weaknesses, improved
unit reporting on compliance with vulnerability alert tasks, ensured that
components’ responses to heightened security conditions are consistent
and appropriate, or developed departmentwide performance measures to
assess response capabilities. Accordingly, we made recommendations to
improve the effectiveness of its computer incident response capabilities.
The DOD Inspector General also noted the need for improvement in
intrusion detection and response.

In response to our recommendations on departmentwide information
security management and computer incident response capabilities, DOD
is correcting security weaknesses by drafting and obtaining approval of
an information security strategic plan, developing policies that establish
standards, assigning responsibilities, and expanding coordination of
security activities by executives and department staff. In addition, the DOD
Inspector General reports that DOD has implemented a number
of corrective actions and made progress in meeting the information
security challenge.

However, DOD’s fiscal year 2000 performance report, issued in March 2001,
did not provide any data showing measurable progress for improving
information security. Further, DOD has made limited progress on our
recommendation to establish a performance-based management approach
capable of assessing progress in meeting DOD’s goals. The DOD Inspector
General also agreed that, despite DOD’s progress, improvements are
still needed.

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Key Actions Needed      To its credit, DOD has acknowledged that it needs to improve both its
                        information technology modernization management capability and its
                        information security. As we have reported, and as DOD’s past success in
                        overcoming the year 2000 computing challenge shows, the key to effecting
                        meaningful change is executive management leadership and commitment
                        and use of a proven management framework. Accordingly, DOD needs
                        to (1) treat these areas as management priorities and (2) implement
                        frameworks for modernizing and securing systems that are grounded in
                        legislative requirements, federal guidance, and the practices and successes
                        of leading public- and private-sector institutions. We plan to continue
                        working with the Congress and DOD to improve these crucial information
                        technology areas.

Improve DOD’s Ability   Acquiring high performance weapons is central to DOD’s ability to
                        fight and win wars. In fiscal year 2002, DOD spent about $110 billion
to Acquire Weapon       to research, develop, and acquire a wide array of weapon systems.
Systems in              These investments are expected to grow substantially, to an estimated
                        $157 billion by fiscal year 2007, as DOD pushes to transform itself to meet a
a Cost-Effective and    new and challenging range of threats. While DOD’s acquisition process has
Timely Way              produced weapons that provide superior capability, it also routinely yields
                        undesirable outcomes that constrain DOD’s ability to modernize—higher
                        costs, later fielding than planned, and less performance than expected. As
                        we reported in January 2001, these undesirable outcomes often occur
                        because of (1) unrealistic program cost and schedule estimates, (2) the use
                        of immature technologies in launching product development, (3) design
                        and manufacturing problems that are discovered late in test and evaluation,
                        and (4) the failure to consider joint solutions and broader mission
                        requirements when proposing systems.

                        We have reported that weapon systems acquisition has been a high-risk
                        area since 1990, and it continues to remain on our high-risk list. DOD has
                        undertaken a number of policy-level reforms to address long-standing
                        problems with its acquisition process. However, while there have been
                        individual successes, reforms have not produced consistent improvements
                        in program outcomes. Those problems have proven resistant to reform in
                        part because underlying incentives in the competition for funds have not
                        changed. Over the past 2 years, DOD has made significant policy changes
                        that have shaped a more knowledge-based acquisition process that reflects
                        best practices. These are constructive changes for which the long-term
                        effect on individual programs remains to be seen.

                        Page 50                                               GAO-03-98 DOD Challenges
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Cost and Schedule             Our reviews have consistently found that DOD’s weapons system
Increases Continue to Erode   acquisitions take a much longer time and cost much more than originally
                              anticipated, causing disruptions to the department’s overall investment
Buying Power                  strategy and significantly reducing its buying power. When an acquisition
                              program needs more money than planned, it comes at the expense of
                              delaying or canceling other programs. This loss of buying power means
                              that less overall modernization or transformation gets accomplished. The
                              ability to execute a program more predictably within cost and schedule
                              estimates would lessen the need to offset cost increases by disrupting
                              other programs.

                              To illustrate this problem, we compared the development costs, in the
                              aggregate, of eight major weapon programs.35 As shown in figure 7, DOD
                              estimated that in fiscal year 1998 it would cost $47 billion to complete the
                              development of these eight programs; however, by fiscal year 2003 the
                              estimated cost of completing them had grown to about $72 billion. This
                              means an additional $25 billion (more than 50 percent above the fiscal year
                              1998 estimates) would be required to develop the same programs.

                                The eight weapon systems are the Joint Strike Fighter, Comanche, Space Based Infrared
                              System-High, F-22, V-22, AAAV, DDG-51, and SSN-774.

                              Page 51                                                       GAO-03-98 DOD Challenges
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Figure 7: Cumulative Effect of Cost Growth on Development of Eight Weapon System Programs

80   Dollars in billions




      1996      1997       1998   1999    2000     2001       2002   2003   2004   2005   2006   2007   2008   2009      2010   2011   2012

     Fiscal year

               Fiscal year 1998 plan
               Additional investment needed under 2003 plan

                                                                     $24.7 billion           Additional investment
                                                                             •               needed under fiscal
                                                                                             year 2003 plan for
                                           $46.9 billion                                     completing the
                                                  •                                          eight programs

                                                                                             Fiscal year 1998 plan for
                                                                                             completing development
                                                                                             of the eight programs

Source: DOD.

                                                          Page 52                                                           GAO-03-98 DOD Challenges
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                        Individual examples of cost and schedule increases that we have continued
                        to report include the following:

                        • Since the Air Force started the Airborne Laser Program in 1996, the
                          estimated development costs have risen by about 50 percent, from
                          $2.5 billion to $3.7 billion (as of August 2001), and the projected fielding
                          of the system has been extended by 4 years, from 2006 to 2010.

                        • Since the Army’s Comanche Helicopter Program’s first cost estimate
                          in 1985, the research and development price tag has almost quadrupled
                          to $41 billion and the time to obtain an initial operational capability has
                          increased from 9 to 21 years. The program is undergoing another major
                          restructuring, which may result in further cost increases.

                        • Since the Navy’s Extended Range Guided Munition Program began in
                          1996, estimated program acquisition costs have increased more than
                          50 percent, from $386 to $600 million, while estimated development
                          time has more than doubled, from about 4 to 10 years.

                        One of the main reasons why program costs and schedules are routinely
                        underestimated is because the acquisition process tends to assert
                        pressures on program managers to promise more than they can deliver and
                        to push programs forward without sufficient knowledge about a weapon’s
                        technology, design, and production. The intense competition to get
                        programs approved and funded encourages setting requirements that will
                        make the proposed weapon system stand out from others. In addition,
                        organizations that establish requirements often aim for the most capability
                        possible, since it may be many years before they get another opportunity to
                        acquire a new weapon system of the same type. These factors make it
                        difficult to know what resources will be needed to meet requirements
                        before launching a program. Furthermore, within this process, the systems
                        engineering that is necessary to identify potential gaps between program
                        requirements and the resources needed to meet them is not usually done
                        until after programs are launched and cost and schedule targets have
                        been set.

Product Development     Given the complexity of modern weapons, some problems associated
Is Often Started with   with technology development can be expected, but many problems can
                        be predicted and avoided. One such problem is for a new program to
Immature Technologies
                        rely on fledgling technologies for high performance, only to report late
                        in development that not enough time or money has been estimated to

                        Page 53                                                GAO-03-98 DOD Challenges
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mature the technologies and incorporate them into an overall design. Many
weapon programs move forward with immature technologies because the
developers do not understand the level of effort needed to develop the
technologies or, if they do, they defer the effort until later because of
institutional pressures to gain program funding. In many of our reviews, we
have found major weapon systems at risk of not being able to meet
program objectives because critical technologies were immature and
software development was not effectively managed. Some recent examples
of our findings are as follows:

• DOD’s most expensive aircraft program, the Joint Strike Fighter
  Program, which is expected to cost about $200 billion to develop and
  procure, is at risk of not meeting its cost and requirements goals
  because critical technologies, like the integrated flight propulsion
  control system and the radar, were not matured to acceptable levels
  when the program entered product development. Consequently,
  program managers will need to continue developing those technologies
  at the same time they are concentrating on production and
  integration issues.

• A primary reason why the Air Force was unable to meet the Airborne
  Laser Program’s original cost and schedule goals was because it did
  not fully understand the level of effort required to develop the critical
  technologies that the system design depends on. These technologies
  were immature when the program was launched and several of them,
  including the optics and the laser, remain so today. This makes it
  difficult to estimate how long it will take and how much it will cost to
  develop and produce the system.

• The Space-Based Infrared System-Low satellite system, which is
  intended to detect and track ballistic missiles, has also experienced
  significant risk of cost increases and scheduling changes because of
  problems in developing critical technologies and software. The program
  office has determined that five of six critical technologies are at risk of
  not being available when they are needed. In addition, the development
  of key software needed to support the program would not have been
  completed until several years after the first satellites were to be
  launched, thus increasing the risk that the software will not be available
  when needed or perform as required. In recognition of these problems,
  DOD restructured the program to focus on research and development of
  the critical technologies.

Page 54                                               GAO-03-98 DOD Challenges
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Many Design and               The ultimate goal of testing and evaluation is to make sure a weapon
Manufacturing Problems        system works as intended before it is fielded to users. When it is done early
                              enough in development, testing and evaluation can provide a program
Are Discovered Late in Test   manager with an opportunity to validate the technology’s design and to
and Evaluation                identify and effectively correct problems. Ideally, the testing process goes
                              through several phases: early laboratory testing, testing of components and
                              subsystems, testing of the complete system, and finally trial use under
                              realistic operational conditions. To be of value, test results at each phase
                              must be credible and used to improve the product.

                              Our work over the past several years continues to show that weapon
                              system programs suffer from late or incomplete test and evaluation. Design
                              and quality problems with weapon systems are discovered late in the
                              development cycle when they are difficult and costly to resolve. Often,
                              tests of a full system, such as a missile launch, become the vehicle for
                              discovering problems that could have been found earlier and corrected less
                              expensively. When problems are revealed late in development, the
                              response can take several forms: extending schedules to increase the
                              investment in more prototypes and testing, terminating the program, or
                              redesigning and modifying weapons that have already made it to the field.
                              The most frequent corrective action is to restructure the development
                              program by adding time and money so that the weapons can be redesigned
                              and retested before production or so that weapons already in production
                              can be redesigned and retrofitted.

                              In DOD, strong pressures and incentives can work against revealing
                              problems during the testing and evaluation process. We have seen
                              numerous instances where test results have turned into scorecards to show
                              decision makers that the program was ready to proceed to the next
                              acquisition phase or to receive the next funding increment. As a result,
                              testing operated in a penalty environment. If the program did not pass the
                              tests, it might look less attractive and be more vulnerable to funding cuts.
                              Thus, managers had incentives to postpone difficult tests or modify tests by
                              reducing the requirements and demonstrating enough progress to continue
                              the program. Some key examples of our recent findings are as follows:

                              • In our review of the Marine Corps V-22 Aircraft Program, which is
                                already in low-rate initial production, we learned that DOD planned to
                                proceed with a full-rate production decision without knowing whether
                                (1) the new technology could meet the Marine Corps’s requirements;
                                (2) the design would work as required; or (3) the design could be
                                produced within the program’s cost, schedule, and quality targets. This

                              Page 55                                               GAO-03-98 DOD Challenges
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                           knowledge is lacking because developmental testing was deleted,
                           deferred, or inappropriately simulated in order to meet cost and
                           schedule goals. In addition, testing was based on reduced
                           system requirements.

                        • We found that many of the Navy’s Space and Naval Warfare Systems
                          Command information technology systems were being procured and
                          fielded in large quantities during initial low-rate production and before
                          completing operational testing. Program managers were doing this
                          because of a desire to meet user demands for information system
                          improvements. However, several of the systems that were purchased
                          prior to operational testing experienced performance, interoperability,
                          and suitability problems that adversely affected the fleet.

                        • In reviews of the Air Force’s F-22 program, we found continuing
                          problems with the assembly and delivery of development-test aircraft
                          and the flight-test program. The Air Force extended the development
                          test program, delayed the beginning of operational testing, and
                          reduced the content of the test program. As a result, some additional
                          development flight-testing is planned to take place concurrently with
                          operational testing.

DOD Does Not Fully      DOD’s acquisition policies require that analyses of mission needs, costs,
Consider Joint          and weapon system alternatives match the valid needs of users before
                        substantial resources are committed to a particular program. However,
Solutions and Broader   we have found that, while the services conduct considerable analyses in
Mission Requirements    justifying major acquisitions, these analyses are often narrowly focused
                        and do not fully consider alternative solutions, such as a joint acquisition
                        of a system with other services. In addition, DOD often has not considered
                        how individual systems are tied together to meet broader mission needs,
                        including joint operations. Further, lacking complete and accurate overall
                        life-cycle cost information for weapon systems impairs DOD and
                        congressional decision makers’ ability to make fully informed judgments
                        on funding comparable weapon systems. As a result, there is no assurance
                        that DOD and the services are avoiding costly duplication of systems,
                        investing in the most cost-effective and affordable solutions, and
                        optimizing mission performance. Furthermore, since the services plan,
                        acquire, and operate systems to meet their own operational concepts, there
                        is no guarantee that fielded systems will operate effectively together.
                        Examples of our findings are as follows:

                        Page 56                                              GAO-03-98 DOD Challenges
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                              • While DOD has considerable capability to identify and strike most
                                fixed targets, it has limited ability to rapidly identify and strike
                                time-critical targets, such as mobile surface-to-air missile sites. This
                                limited ability is largely because the command, control,
                                communications, intelligence, surveillance, and reconnaissance systems
                                involved in the sensor-to-shooter process have limited interoperability.
                                The systems are often based on different architectures and technical
                                standards and use different frequencies and data formats. Thus, the
                                systems cannot share information directly and must be patched
                                together, making the response time too slow to successfully defeat
                                mobile targets.

                              • In response to a fiscal year 2000 congressional directive, DOD
                                developed an antiarmor munitions master plan to support the military
                                services’ efforts to acquire new antiarmor weapons. Instead of
                                determining how shortfalls in capabilities would be addressed from a
                                joint perspective, the plan presented individual military service-level
                                assessments. The military services did not consider each other’s weapon
                                capabilities or the impact of new systems in a joint warfighting
                                environment. As a result, there is no assurance that the mix and
                                quantities of new weapons being acquired, at an estimated cost of
                                $14 billion, provide the most cost-effective solutions for
                                increasing capabilities.

                              • DOD and the military services have been working for many years to
                                develop combat identification systems to prevent friendly fire in joint
                                and coalition operations. These systems, which are being developed by
                                many different entities within DOD and the military services, will be
                                installed on a broad array of equipment and used in a wide range of
                                military operations. DOD’s efforts in developing improved capabilities
                                have been hampered, however, because it has not developed a
                                well-defined enterprise architecture and management framework
                                to ensure that new combat identification systems are compatible,
                                not duplicative, and supportive of overall department goals.

DOD Could Benefit             DOD would like to get the most out of its investments, and it has
from a Knowledge-based        long-standing goals to develop weapons in half the traditional time and
                              within budget. However, problems that work against delivering new
Acquisition Process Used by
                              weapons within estimates have proven resistant to reform. Promising
Leading Commercial Firms      solutions for DOD can be drawn from the best commercial product
                              development efforts. We have conducted an extensive body of work in

                              Page 57                                             GAO-03-98 DOD Challenges
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recent years that has consistently shown that leading commercial firms
are getting the kinds of outcomes from their development of new products
that DOD seeks. Specifically, these firms are developing increasingly
sophisticated products in significantly less time and at a lower cost than
their predecessors.

They do so by ensuring that a high level of knowledge exists about the
product at key junctures during development. Such a knowledge-based
process enables decision makers to be reasonably certain about critical
facets of the product under development when they need it. The process
can also help offset pressures on program managers to overpromise on
cost and schedule estimates. The process is essential to getting better cost,
schedule, and performance outcomes.

The process followed by leading firms can be broken down into
three cumulative knowledge points:

• at program launch, when a match must be made between the customer’s
  needs and the available resources—technology, time, and funding;

• midway through development, when the product’s design must
  demonstrate its ability to meet performance requirements; and

• at production start, when it must be shown that the product can be
  manufactured within cost, schedule, and quality targets.

As illustrated in figure 8, the attainment of each successive knowledge
point builds on the preceding one. While the knowledge itself builds
continuously without clear lines of demarcation, the attainment of
knowledge points is sequential. In other words, production maturity cannot
be attained if the design is not mature and design maturity cannot be
attained if the key technologies are not mature. Allowing technology
development to spill over into product development puts an extra burden
on program managers and provides a weak foundation for making product
development estimates. It is perhaps the most significant problem in
weapon system programs.

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Figure 8: Knowledge Achieved at Key Points in Product Development Reduces the
Risk of Unknowns

           Best product development practices

                                                                      Production knowledge

                                                    Product design knowledge

                                     Technology knowledge

                 Development start              Mid point               Production start
                 Knowledge point 1          Knowledge point 2          Knowledge point 3

Source: GAO.

Note: GAO’s analysis of best product development practices.

For the most part, all three knowledge points are eventually attained on a
completed product, including weapon systems. The key difference with a
best practices approach is how knowledge is built and how early in the
development cycle each knowledge point is attained. When knowledge is
built more slowly than those points suggest, programs invite greater cost,
schedule, and performance risk because problems are more likely to be
discovered late in the process and be more difficult and costly to correct.

We have found that when DOD programs employed similar practices, they
experienced outcomes similar to leading firms. Programs like the Joint
Air-to-Surface Standoff Missile, which mature technology before going
into product development and stabilize the design by releasing the vast
majority of engineering drawings midway through development, have
experienced minimal cost increases and scheduling delays. Conversely,
problems occur in programs when best practices are not followed. We
know of several cases where programs are launched well before key
technologies are mature, manufacturing of prototypes is done before the
design is stable, and production is begun before reliable manufacturing
processes are in place. The outcomes from these problems include
increases in cost and schedule and degradations in performance
and quality.

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                     DOD wants the kinds of outcomes commercial companies have achieved
                     and thus has revised its 5000 series of acquisition regulations to reform
                     its acquisition process to attain them. Revisions have focused primarily
                     on (1) making sure technologies are demonstrated to a high level of
                     maturity before beginning a weapon system program and (2) taking an
                     evolutionary, or phased, approach to developing a system. Separating
                     technology development from a weapon system development program
                     would help curb incentives to overpromise the capabilities of a new
                     weapon system and to rely on immature technologies. Also, an
                     evolutionary approach to developing requirements and making
                     improvements to a system’s capabilities is different from the historical
                     approach of trying to deliver all desired capabilities in one “big bang.” In
                     addition, it has been reported that DOD plans to begin using program cost
                     estimates from the Office of the Secretary of Defense’s Cost Analysis
                     Improvement Group, rather than those prepared by the military services,
                     which may lead to more realistic cost estimates when pricing programs.

                     While DOD’s policy changes are a positive step, implementation on
                     individual programs will be a challenge. As discussed earlier, we continue
                     to find major weapon programs (e.g., Joint Strike Fighter, Airborne Laser,
                     Comanche, and Space-Based Infrared System-Low) at considerable risk
                     of meeting cost, schedule, and performance objectives because critical
                     technologies were less mature at program start than best practices
                     recommend. There have been some successes with evolutionary
                     acquisitions, such as the Tactical Unmanned Aerial Vehicle program, but so
                     far they are exceptional cases in that they required significant intervention
                     from top leadership in the services and DOD. It would be premature to
                     interpret this progress as evidence that systemic change has occurred
                     across DOD acquisitions. Nonetheless, DOD has continued to make policy
                     reforms, and it has recently issued a new version of the 5000 series of
                     acquisition guidance. According to DOD officials, the objective of the new
                     guidance is to foster greater efficiency, flexibility, and innovation in
                     developing and acquiring weapon systems.

Key Actions Needed   As we have recommended, DOD leadership could improve the acquisition
                     of weapon systems by requiring that individual program decision makers:

                     • Separate technology development from product development and
                       ensure that key technologies are mature before programs proceed into
                       product development. DOD’s use of evolutionary acquisition should

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                             help decision makers to make the right trade-offs necessary to make
                             this separation.

                        • Plan product development such that design and manufacturing
                          knowledge points are attained in accordance with best practices.

                        • Conduct test and evaluation in such a way that the burden of component
                          and subsystem testing does not get deferred until system level testing
                          late in the development cycle.

                        • Establish weapon requirements that routinely consider the full range of
                          alternative solutions, including joint mission needs and aggregate
                          capabilities, to ensure that cost-effective systems are developed.

                        DOD has generally concurred with our recommendations and incorporated
                        best practices into its acquisition policies.36 As we have recommended,
                        policy changes must be supported by a better environment for starting and
                        managing weapon system development programs. Such an environment
                        should more closely approximate a knowledge-based product development
                        process, which provides incentives and funding to capture knowledge early
                        for decision making and uses realistic assumptions in establishing system
                        cost and schedule estimates.

Improve Processes and   DOD spent nearly $163 billion in fiscal year 2001 for goods and services
                        to equip, maintain, and support its military forces and has long been the
Controls to Reduce      largest purchaser in the federal government. The acquisition environment
Contract Risk           in which DOD operates, however, has changed significantly over the past
                        decade. For example, DOD now purchases more services than supplies and
                        equipment; DOD’s acquisition workforce is half the size it was a decade
                        ago; DOD increasingly buys goods and services using contracts awarded
                        and managed by other federal agencies; and changes to laws and
                        regulations have simplified the acquisition process. As we reported in 2001,
                        these environmental changes contribute to the significant contract
                        management-related challenges DOD faces, particularly in regard to
                        (1) improving its acquisition of services, (2) ensuring the appropriate use of
                        contracting techniques and approaches, (3) overcoming long-standing
                        contract payment issues, and (4) managing its health-care contracts.

                          Related reports on acquisition reform and best practices are listed in the “Related GAO
                        Products” section of this report.

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                          Underlying these challenges is DOD’s need to address serious imbalances
                          in the skills and experiences of its remaining workforce and the potential
                          loss of highly specialized knowledge as its acquisition specialists retire.
                          DOD’s acquisition workforce issue is part of a broader human capital crisis
                          that is confronting the federal government as a whole.

                          Individually, the problems in these areas undermine DOD’s ability to ensure
                          that it is acquiring the goods and services needed to meet the warfighters’
                          needs as efficiently as possible. Collectively, these problems point to the
                          complexity inherent in DOD’s current contract management processes and
                          the challenges in embracing new or alternative approaches within a
                          changing acquisition environment. DOD and other federal agencies are
                          taking actions to address these issues. Most of these actions, however, are
                          at the early stages of implementation. It is uncertain whether the corrective
                          actions can be fully and successfully implemented in the near term.
                          Consequently, we continue to identify DOD’s contract management as a
                          high-risk area, as we have since 1992.

Management of DOD’s       DOD spent more than $77 billion in fiscal year 2001 for a wide range
Acquisition of Services   of services, including professional and administrative support,
                          information technology, utilities, medical services, and operation of
Is Not Effective
                          government-owned facilities. However, our work, and the work of
                          DOD’s Inspector General, has found that spending on services is not
                          being managed effectively. Too often, requirements are not clearly
                          defined, alternatives are not fully considered, vigorous price analyses are
                          not performed, and contractors are not adequately overseen. Additionally,
                          there is only limited visibility or control at the DOD or military department
                          level, and information systems that provide reliable data and are capable of
                          being used as a management tool are lacking; and it has few enterprisewide
                          contracting-related performance metrics. Furthermore, DOD lacks a
                          strategic plan that integrates or coordinates ongoing initiatives or that
                          provides a road map for identifying or prioritizing future service
                          contracting-related efforts.

                          The experiences of leading private-sector companies to reengineer their
                          approach to acquiring services offer DOD both valuable insights and a
                          general framework that could serve to guide DOD’s efforts. In January
                          2002, we reported that our work at six leading companies found that each
                          had reengineered its approach to acquiring services to stay competitive,
                          reduce costs, and improve service levels. These changes generally began
                          with a corporate decision to pursue a more strategic approach to acquiring

                          Page 62                                               GAO-03-98 DOD Challenges
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services. Taking a strategic approach involves a range of activities from
developing a better picture of what the company was spending on services
to taking an enterprisewide approach to procuring services and developing
new ways of doing business (see fig. 9). Pursuing such an approach clearly
paid off, as the companies found that they could save millions of dollars
and improve the quality of services received.

Figure 9: Key Elements of Strategic Approach Taken by Leading Companies

                                                                           Obtain improved
        Create supporting
                                                                            knowledge on
      structure, processes,
                                                                           service spending
            and roles

                                          Commitment to
                                         strategic approach

                                           Enable success
                                         through leadership,
                                             and metrics

Source: GAO.

Note: GAO’s analysis of strategic approaches taken by leading companies.

Page 63                                                             GAO-03-98 DOD Challenges
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                       Once top leaders were committed to taking this approach, companies
                       took a hard look at how much they were spending on services and from
                       whom. With this knowledge, they could identify opportunities to leverage
                       their buying power, reduce costs, and better manage their suppliers.
                       The companies also instituted a series of structural, process, and role
                       changes aimed at moving away from a fragmented acquisition process to
                       a more efficient and effective enterprisewide process. For example, the
                       companies we studied often established or expanded the role of corporate
                       procurement organizations to help business managers acquire key
                       services and made extensive use of cross-functional teams to help the
                       companies better identify service needs, select providers, and manage
                       contractor performance.

                       DOD already has in place certain elements critical to taking a strategic
                       approach, such as the commitment by senior DOD leadership to improve
                       practices for acquiring services and to adopt best commercial practices.
                       For example, DOD issued new policy in May 2002 that was intended to
                       elevate the importance and awareness of major purchases of services to
                       the same level as purchases of major defense systems. However, DOD
                       still faces a long journey, as it needs to take on the more difficult tasks
                       of developing a reliable and accurate picture of service spending across
                       DOD; determine what structures, mechanisms, and metrics can be
                       employed to foster a strategic approach; and tailor those structures to meet
                       DOD’s unique requirements. We are continuing our work to identify how
                       specific best practices can be applied to the DOD environment and are
                       monitoring DOD’s efforts to implement a more strategic approach to
                       buying services.

DOD Missed             The past decade heralded numerous changes in the way DOD bought goods
Opportunities in       and services, as the Congress and the executive branch looked for ways to
                       streamline the acquisition process, reduce procurement lead times,
Contracting to         decrease costs, and attract firms that traditionally chose not to work for
Enhance Acquisition    the government. Several trends emerged in DOD’s contracting business,
Savings and Outcomes   including (1) a greater reliance on contracts awarded and managed by
and Reduce Burdens     other agencies, (2) dramatic increases in the use of government purchase
                       and travel cards, (3) an increased reliance on noncost-based pricing
                       approaches, (4) expanded use of performance-based contracting
                       approaches, and (5) the growth of “other transactions” for research and
                       prototype projects. Unfortunately, our work often found federal
                       implementing regulations to be unclear, DOD’s guidance and internal
                       controls were inadequate, and acquisition personnel improperly trained or

                       Page 64                                              GAO-03-98 DOD Challenges
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unaware of new processes and procedures. Consequently, DOD missed out
on opportunities to generate savings, reduce administrative burdens, and
enhance outcomes for its acquisitions. Some of these examples are
as follows:

• Since early 2000, both the Inspector General and we have found
  continuing problems with DOD’s use of the General Services
  Administration’s Federal Supply Schedule program and, more generally,
  multiple-award task order contracts. In March 2000, we reported that
  DOD contracting officers often did not receive competing proposals and
  used broadly defined work descriptions for orders to acquire
  information technology goods and services. Subsequently, in
  November 2000, we reported that DOD contracting officers did not
  consistently follow procedures intended to promote competition,
  ensure fair and reasonable prices, or conduct a meaningful price
  analysis when using the program. Many DOD contracting officers were
  unaware of the General Services Administration’s procedures for buying
  services when using the program, and federal regulations did not even
  mention such procedures. More recently, in September 2001,37 the DOD
  Inspector General concluded that 304 of the 423—or 72 percent—task
  orders it had reviewed were awarded on a sole-source or
  directed-source basis and 264 were improperly supported.

• Over the past 2 years, we have found that DOD’s purchase and travel
  card programs were plagued by a weak overall control environment and
  breakdowns in key internal control activities, leaving DOD vulnerable to
  potentially fraudulent, wasteful, or abusive purchases. For example, in
  July 2002, we issued reports on the Army’s purchase and travel card
  programs, which the Army uses extensively. In fiscal year 2001, about
  109,000 Army purchase cardholders made about 4.4 million transactions
  valued at over $2.4 billion, while the Army’s 430,000 individual travel
  card accounts had incurred about $619 million in related travel
  card charges. However, the Army’s purchase card guidance did not
  adequately identify and direct the implementation of needed actions and
  control activities, while DOD and Army memoranda were inadequate to
  manage the purchase card program. The Army’s travel card program
  was also hampered by a weak overall control environment, flawed
  policies and procedures, and a lack of adherence to valid policies and

  Office of the Inspector General, Department of Defense, Multiple Award Contracts For
Services, Report No. D-2001-189 (Arlington, Va: September 2001).

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     procedures, thereby contributing to significant delinquencies and
     charge-offs and fraud and abuse relating to Army employee
     account balances.

• Several reports issued since 1999 have indicated that inadequate
  guidance and poor training played a role in when DOD personnel did not
  use sound techniques to obtain the best prices for DOD. These
  situations are largely in areas where DOD cannot, or chooses not to, rely
  on cost-based pricing techniques for contracts awarded without
  competition.38 For example, in June 1999 we reported that contracting
  officers often performed price analyses that were too limited to ensure
  that the prices were fair and reasonable in our review of 65 sole-source
  purchases of commercial items. In several cases, contracting officers
  did not use historical pricing information contained in contract files or
  require the sellers to provide certain information, such as sales data, to
  support their offered prices. In April 2002, we reported that DOD was
  waiving the requirement for contractors to submit certified cost or
  pricing data, a key requirement meant to ensure that the government has
  the data it needs to effectively negotiate with the contractor in contracts
  awarded without competition. We found that for 20 waivers, with a total
  value of $4.4 billion, issued by DOD in fiscal year 2000, there was a wide
  variation in the quality of the data and analyses being used by DOD
  contracting officers to determine if the price was fair and reasonable.
  DOD did not have adequate guidance that would help contracting
  officers decide whether a waiver should be granted, help determine
  what type of data and analyses are acceptable, and determine what kind
  of expert assistance should be obtained. The DOD Inspector General
  identified similar problems in a May 2001 report,39 concluding that the
  lack of planning, shortages in staffing, and the absence of senior

  The federal government generally seeks to award its contracts through competition.
However, in instances in which it cannot rely on competition to get the best prices and
values, such as when there is only a single source for products and services, contractors
normally provide cost or pricing data supporting their proposed prices and certify that the
data submitted are accurate, complete, and current. This requirement, established by the
Truth in Negotiations Act, allows the government to pursue remedies, such as a reduction in
contract price, should it later discover that the contractor submitted data that were not
accurate, complete, or current. Contractors offering commercial items are generally exempt
from this requirement, although the government can ask for other types of data to evaluate
the reasonableness of the prices offered.
 Office of the Inspector General, Department of Defense, Contracting Officer
Determinations of Price Reasonableness When Cost or Pricing Data Were Not Obtained,
Report No. D-2001-129 (Arlington, Va: May 30, 2001).

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     leadership oversight contributed to poor pricing analysis and the
     inappropriate use of waivers in a significant number of
     contracts reviewed.

• As part of our recent review of the government’s use of performance-
  based contracts40—a key administration initiative—we found that
  DOD, like other agencies we reviewed, had achieved mixed success in
  incorporating four basic performance-based attributes into its
  contracts.41 For example, only three of the five DOD contracts in our
  review that were for commercial-type services clearly exhibited all four
  performance-based attributes. We found that DOD strived to build in the
  attributes for the five contracts that were for more complex,
  government-unique services; however, DOD found it needed to maintain
  a strong role in specifying how the work should be done as well as
  overseeing the work. We recommended that the Administrator of the
  Office of Federal Procurement Policy clarify existing guidance to ensure
  that performance-based contracting is appropriately used, particularly
  when acquiring more unique and complex services that require strong
  government oversight.

• In April 2000, we reported that DOD needed better guidance to assist
  DOD personnel in using its “other transaction” authority for prototype
  projects—a new tool that embodied alternative approaches to standard
  contracts. We found that DOD had provided only limited guidance to
  defense components, in part, because it did not want to unduly restrict
  the authority’s usage. As a result, DOD did not provide specific
  objectives or criteria for using the authority, define what constituted a
  prototype project, or establish metrics to assess whether the expected
  benefits were actually achieved. Furthermore, we found that the
  services relied on a model agreement that may have led to agreements
  that did not address all relevant issues or include appropriate terms and
  conditions. DOD issued new guidance in December 2000 that laid out
  the conditions for using prototype agreements and provided a
  framework to tailor the terms and conditions appropriate for each

  U.S. General Accounting Office, Contract Management: Guidance Needed for Using
Performance-Based Service Contracting, GAO-02-1049 (Washington, D.C.: Sept. 23, 2002).
  These attributes describe desired outcomes rather than how the services
should be performed, set measurable performance standards, describe how the
contractor’s performance will be evaluated, and identify positive and negative incentives,
as appropriate.

Page 67                                                          GAO-03-98 DOD Challenges
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                                agreement. In October 2002, we reported that this updated guidance
                                complied with our earlier recommendation and should assist
                                DOD personnel.42

DOD Has Difficulty in      Ensuring prompt, proper, and accurate payments—whether for the delivery
Overcoming Long-Standing   of goods and services, for financing the construction of facilities or the
                           production of major weapon systems, or for accomplishment of particular
Contract Payment Issues
                           events or milestones on production contracts—is a key element of a sound
                           contract management process. Yet for DOD, completing such basic tasks
                           has long been a challenge. DOD’s financial management procedures and
                           practices do not fully meet federal accounting standards and financial
                           system requirements or its own accounting policy. As a result, DOD
                           managers do not have important information needed for effective financial
                           management, leading DOD to overpay contractors by billions of dollars
                           over the past 8 years.

                           We first reported on contractor overpayments in 1994. The report,
                           and those issued subsequently, noted that (1) contractors were
                           refunding hundreds of millions of dollars to DOD each year, for a total
                           of about $6.7 billion between fiscal year 1994 and 2001; (2) DOD made
                           overpayments due to duplicate invoices and paid invoices without properly
                           and accurately recovering progress payments; (3) contract administration
                           actions had resulted in significant contractor debt or overpayments;
                           (4) DOD and contractors were not aggressively pursuing the timely
                           resolution of overpayments or underpayments when they were identified;
                           and (5) DOD did not have statistical information on the results of
                           contract reconciliation.

                           In May 2002, we reported that DOD has various short-term corrective
                           actions underway that appear to be having positive results. These actions
                           include redoubling efforts to reconcile contracts, a recovery audit program
                           intended to identify overpayments and ensure that contractors have
                           adequate internal controls to promptly identify and report overpayments,
                           and improved procedures to better identify potential duplicate payments
                           before the invoices are paid. However, cost increases, performance issues,
                           or schedule delays have beset two of DOD’s key long-term initiatives: the

                             U.S. General Accounting Office, Defense Acquisitions: DOD Has Implemented
                           Section 845 Recommendations but Reporting Can Be Enhanced, GAO-03-150
                           (Washington, D.C.: Oct. 9, 2002).

                           Page 68                                                    GAO-03-98 DOD Challenges
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Defense Procurement Payment System, which is intended to be DOD’s
standard contract payment system, and the Standard Procurement System,
which is intended to be DOD’s single, standard system to support
contracting functions and interface with financial management functions,
such as payment processing.

Both the DOD Inspector General and we have reported on performance
problems and schedule delays in the Defense Procurement Payment
System. For example, the Inspector General concluded in September 2001
that the system would not fully eliminate DOD’s disbursement and contract
accounting problems because DOD will still need to make
manual payments for which there is a greater risk of errors being made.
In May 2002, we reported that the system’s implementation would be
delayed by more than 2 years, from August 2001 to October 2003.

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                           We have raised concerns about DOD’s approach to acquiring the
                           Standard Procurement System on a number of occasions. In July 2001,
                           we questioned whether further investment in the system was justified given
                           that DOD did not have a credible cost and benefits analysis, it had not
                           effectively addressed the inherent risks associated with developing
                           the system, and it had not met key program commitments used to justify
                           the system. For example, DOD had committed itself to implementing a
                           commercially available contract management system; however, because
                           it had modified so much of the foundational commercial product, the
                           system had evolved into a customized DOD system. Furthermore, the
                           system had slipped by 3½ years in its target date for full implementation
                           and its projected life-cycle costs had increased from about $3 billion to
                           $3.7 billion. We reiterated our concerns in February 2002, noting that
                           although DOD had taken some positive steps, (1) it still did not have
                           definitive plans for how and when to justify future system releases or major
                           enhancements to existing releases, (2) it was considering making changes
                           to the software that could compound existing problems and further
                           increase costs, and (3) not all defense components had agreed to adopt
                           the system.43

Managing DOD’s Contracts   DOD’s challenges in contract management are further illustrated in
for Health Care            the difficulties it has experienced in implementing contracts under its
                           health-care program, TRICARE. This program, implemented in 1994,
                           currently offers over 8 million eligible beneficiaries a choice of
                           three options through which they can receive health care from either
                           military treatment facilities or civilian providers. Care from civilian
                           providers is arranged and paid for by TRICARE contractors. In fiscal
                           year 2002, approximately $5 billion was budgeted for TRICARE contracts.

                             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 70                                                      GAO-03-98 DOD Challenges
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Beginning in 1994, DOD sequentially awarded 7 contracts covering
11 geographic TRICARE regions. Each contract was originally awarded for
a base period and 5 option years. Each contract has been or is expected
to be extended beyond the base period because of DOD’s difficulties in
designing a new approach for the next round of contracts. In May 2001,
we reported that DOD’s contracting approach for TRICARE was overly
complicated and prescriptive and limited innovation and competition. We
also reported that numerous adjustments to the contracts had created an
unstable program.44

In August 2002, DOD released a solicitation for its next generation
of TRICARE contracts, called T-Nex. DOD plans to implement these
contracts sequentially over the next 2 years. This new approach attempts to
address some of our concerns with the current contracts, including
complexity, numerous contract adjustments, and prescriptiveness.
Additionally, T-Nex represents a major overhaul of the current structure.
DOD has reduced the number of geographic regions from 11 to 3 and
has segregated functions that were previously incorporated in the
current contracts. For example, DOD has segregated health-care delivery,
marketing and education, and retail pharmacy into separate solicitations.

The successful implementation of this approach depends largely on DOD’s
ability to attract sufficient competition and ensure a smooth and seamless
transition for its beneficiaries. However, the reduction in the numbers of
regions and contracts may hinder a smooth transition. For example,
under the new regional structure contractors will be required to develop
provider networks over a greater geographic area. DOD will also face
challenges in integrating the new contracts into a cohesive and seamless
program for beneficiaries while maintaining the existing contracts.
Nonetheless, DOD has heeded our earlier recommendation to allow for
a longer transition period of 10 months. Whether DOD can successfully
launch the new approach and whether the new approach will control costs,
ensure quality, and minimize disruption to beneficiaries remain to be seen.

 U.S. General Accounting Office, Defense Health Care: Lessons Learned from
TRICARE Contracts and Implications for the Future, GAO-01-742T (Washington, D.C.:
May 17, 2001).

Page 71                                                    GAO-03-98 DOD Challenges
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                         DOD also faces continuing challenges in coordinating with the Veterans
                         Administration (VA) to jointly contract for health-care supplies. Since
                         the early 1980s, the Congress has urged DOD and VA to achieve greater
                         efficiencies through improved acquisition processes and increased sharing
                         of medical resources. Last year we reported that DOD and VA had saved
                         over $170 million annually by jointly procuring pharmaceuticals. They
                         achieved these savings by agreeing on, or “standardizing,” particular
                         drugs that their facilities would purchase and then contracting with the
                         manufacturers of these drugs for discounts based on their combined larger
                         volume. However, DOD and VA have not achieved many savings by jointly
                         contracting for medical and surgical supplies. This lack of progress has, in
                         part, been the result of their different approaches to standardizing
                         medical and surgical supplies. DOD reports that it is discussing with VA
                         ways to overcome these differences to develop joint ventures for medical
                         and surgical supplies. Nevertheless, DOD has opted to follow a regional
                         approach to standardization and VA has opted for a national approach;
                         opportunities for national joint procurement will be more difficult to
                         achieve. In addition, neither department has accurate, reliable, or
                         comprehensive procurement information, a basic requirement for
                         identifying potential medical and surgical items to standardize.45

Problems Hamper DOD’s    Properly managing the $163 billion worth of goods and services it
Efforts to Improve the   purchased in fiscal year 2001 requires that DOD have the right skills and
                         capabilities in its workforce. In the past decade, DOD has downsized its
Acquisition Workforce
                         acquisition workforce46 by half to respond to acquisition reforms, base
                         realignment and closures, and congressional direction. At the same time,
                         DOD, like other agencies, is facing growing public demands for better and
                         more economical delivery of products and services. Moreover, the ongoing
                         technological revolution and acquisition reforms require a workforce
                         with new knowledge, skills, and abilities and a transition from a role of
                         technician to that of business manager. Consequently, DOD now faces,

                           U.S. General Accounting Office, VA and Defense Health Care: Potential Exists for
                         Savings through Joint Purchasing of Medical and Surgical Supplies, GAO-02-872T
                         (Washington, D.C.: June 26, 2002).
                           DOD refers to its acquisition workforce as its acquisition, technology, and
                         logistics workforce.

                         Page 72                                                          GAO-03-98 DOD Challenges
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in its opinion, serious imbalances in the skills and experience of its
remaining workforce and the potential loss of highly specialized knowledge
if many of its acquisition specialists retire.47 DOD has initiated a substantial
strategic planning effort that seeks to identify the competencies needed for
the future and address what reshaping of the workforce will be needed to
achieve the desired mix, but it has encountered a number of problems that
have hampered this effort.

Reshaping a workforce is a challenge for any agency. As we have
previously reported, because mission requirements, client demands,
technologies, and other environmental influences change rapidly, a
performance-based agency must continually monitor its staffing needs.
It must identify the best strategies for filling its talent needs through
recruiting and hiring and follow up with the appropriate investments in
training and development. In addition, the agency must match the right
people to the right jobs and, in the face of finite resources, be prepared
to employ matrix management principles, maintaining the flexibility
to redeploy its human capital and realigning its structures and work
processes to maximize economy, efficiency, and effectiveness.

We recently reported that DOD has made progress in laying a foundation
for reshaping its acquisition workforce. As shown in figure 10, DOD
recognizes that it will take a considerable amount of time just to lay a
good foundation for strategic planning, with specific outcomes taking years
to achieve.

  DOD’s estimate of personnel eligible to retire includes early retirement programs and
individuals eligible for retirement with reduced annuities based on March 2001 data from
the Defense Manpower Data Center.

Page 73                                                        GAO-03-98 DOD Challenges
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Figure 10: DOD’s Framework for Developing a Mature Human Capital Strategic
Planning System

                                       Toward a Robust Defense Workforce and Human Capital Strategic Planning Capability

                                       Ad hoc decisions on policies                              Credible business cases support
                                          and practices respond to                                  human capital decisions
                                          emerging problems

                                                                                                                                       Mature Human Capital Strategic Planning System
                                       Limited acquisition functional                            Defense and acquisition strategy
                                          guidance with workforce                                   at all levels affects full range
  Immature Workforce Planning System

                                          implications                                              of human capital decisions

                                       Workforce planning viewed                                 Human capital strategic planning
                                         as burden                                                 viewed as executive priority

                                       Limited strategic workforce      Growth to maturity       Human capital strategic planning
                                          planning expertise                                     expertise resides in HR community

                                       No institutional structure                                Comprehensive institutional
                                          to support strategic                                     structure supports human
                                          workforce planning                                       capital strategic planning

                                       Insufficient information on                               Comprehensive and reliable
                                          workforce characteristics                                information supports human
                                          to support detailed                                      capital planning
                                          workforce planning

                                       Elementary to sophisticated                               Sophisticated projection models
                                          range of projection models                                support human capital
                                          across defense components                                 decisions

                                       FY 01             FY 02             FY 03             FY 04           FY 05             FY 06

Source: DOD.

Note: HR is human resources.

Part of this long-term effort will involve making a cultural shift as well as
developing better data to manage risk by spotlighting areas for attention
before crises develop and to identify opportunities for improving results.
DOD has worked to identify and address problems that have been
hampering this effort. These problems include a lack of (1) accurate,
accessible, and current workforce data; (2) mature models to forecast
future workforce requirements; (3) a link between DOD’s planning and
budgeting processes; and (4) specific planning guidance.

Page 74                                                                                                          GAO-03-98 DOD Challenges
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                     One of DOD’s ongoing initiatives to address various workforce size and
                     structure issues is the Acquisition Workforce Personnel Demonstration
                     Project. The demonstration project started in February 1999, and it is to
                     experiment with various concepts in workforce management, such as
                     those pertaining to recruiting, hiring, and retention. For example, the
                     demonstration project is testing broadbanding48 concepts that are intended
                     to allow managers to set pay and facilitate pay progression. Broadbanding
                     would allow managers to recruit candidates at differing pay rates and to
                     assign employees within broad job descriptions consistent with the needs
                     of the organization and the skills and abilities of the employee. However,
                     participation in the project has been fairly limited. As of September 2001,
                     only 5,300 acquisition personnel—out of a maximum of 95,000 allowed by
                     statute—were participating in the project. A DOD official indicated that
                     DOD intends to significantly increase project participation over the next
                     several years.

Key Actions Needed   With the events of September 11, and the federal government’s short- and
                     long-term budget challenges, it is more important than ever that DOD
                     effectively transform its business processes to ensure that it gets the
                     most from every dollar spent. At the same time, it should be recognized
                     that DOD’s contract management-related challenges are both difficult and
                     deep-rooted and will not be resolved overnight. Two common elements that
                     pervade discussions of ways to address DOD’s key contract
                     management-related challenges—service contracting, contract payment,
                     and human capital—are the need for (1) sustained executive leadership
                     and (2) a strategic, integrated, and enterprisewide approach. In addition,
                     ensuring that these efforts achieve their intended results will require
                     the Congress’s continued involvement and support. For example, the
                     Congress passed legislation in 2001 requiring that DOD establish a
                     management structure to enhance the acquisition of services and to
                     collect data on the purchase of services, which could provide DOD with
                     additional means to take a more strategic approach to acquiring services.
                     Lastly, there remains a continuing need to provide the framework and tools
                     for acquisition personnel to make sound business decisions in obtaining
                     high-quality goods and services at good prices and in a timely manner.

                       Broadbanding is the replacement of the current General Schedule or General Manager
                     system with a system consisting of broad “bands” of career paths.

                     Page 75                                                      GAO-03-98 DOD Challenges
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Provide Logistics             DOD spent an estimated $88.2 billion in fiscal year 2001 for logistics
                              support activities;49 and despite decreasing force structure, logistics
Support That Responds         support costs have continued to increase. Logistics is a complex,
to the Needs of the           multidisciplined function that relates to all aspects of operating and
                              supporting military systems. Weapon systems and the personnel who
Warfighter at an              operate them cannot perform military missions without support systems
Affordable Cost               that keep the weapon systems operating and armed and the personnel
                              supplied with essential supplies. We have reported long-standing problems
                              in DOD’s logistics processes, systems, and operations. As we reported in
                              January 2001, these problems have resulted in decreasing the quality and
                              timeliness of logistics support to operational forces and/or increasing
                              support costs. To its credit, at any one time, various DOD activities
                              have about 400 logistics improvement initiatives ongoing. However,
                              the reported logistics problems seem to transcend time and continue to
                              challenge logistics providers’ efforts to achieve their goal of providing
                              timely support to the warfighter in a cost-effective manner. Furthermore,
                              long-standing problems continue with regard to the acquisition,
                              management, and distribution of spare and repair parts, an area that we
                              have designated as high risk since 1990.

DOD’s Efforts to Address      In 2000, we reported that DOD was attempting to reengineer and
Long-Standing Problems        modernize its logistics program to increase efficiency, improve
                              performance, and reduce system operation costs. We have reported that
of Quality, Timeliness, and
                              inadequate integration and coordination of logistics processes, systems,
Cost of Logistics Support     and operations had occurred within DOD—decreasing the effectiveness
Have Shortcomings             of jointly operated forces in a theater of operations and increasing the
                              cost. We have recommended the development of an adequate
                              overarching logistics strategy to effectively guide the military
                              components development of an efficient and effective logistics system.
                              However, DOD’s efforts in this direction are not comprehensive and do
                              not continue previous efforts.

                              DOD took a positive step in dealing with its logistics planning shortfall
                              when it developed a logistics strategic plan and directed the services and
                              the defense commands to develop implementing plans that reflected the
                              vision, objectives, and metrics of the departmentwide plan. While we

                                Logistics activities include weapon system maintenance, supply management,
                              engineering, storage, distribution, and transportation of military goods.

                              Page 76                                                      GAO-03-98 DOD Challenges
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identified shortcomings in the departmentwide plan and those developed
by the components to implement it, we also recognized that this planning
effort was a step toward improving the economy and efficiency of the
logistics support systems and developing a more coordinated and cohesive
logistics operation.

In December 2002, we reported that DOD had restructured its logistics
improvement initiatives and, as a part of this effort, had discontinued its
strategic planning initiative.50 In implementing its 2001 Future Logistics
Enterprise, DOD is focusing its efforts over the next few years in six
key areas:

• Pursue depot maintenance public-private partnerships to achieve
  greater facility utilization, realize greater investment in organic depots,
  and reduce cost by empowering DOD depots to develop partnerships
  with the commercial sector.

• Use condition-based maintenance to increase the operational
  availability and readiness of weapon systems by improving the services’
  ability to predict failures and maintenance requirements using more
  accurate condition data, thereby reducing unnecessary maintenance.

• Adopt a total life-cycle approach to weapon system management by
  reengineering the life-cycle management of DOD systems to achieve
  effective performance and optimum readiness while reducing
  operations and support costs.

• Pursue end-to-end distribution to streamline supply support to the
  warfighter by providing materiel, including items to be shipped, from
  the source of supply or point of origin to the point of use or disposal, as
  defined by the combatant commander.

• Establish an executive agents determination process to assign
  responsibility to a service or defense agency for providing common
  services and improve planning to ensure that the needed resources
  are available to support the responsible agent.

  U.S. General Accounting Office, Defense Management: New Management Reform
Program Still Evolving, GAO-03-58 (Washington, D.C.: Dec. 12, 2002).

Page 77                                                  GAO-03-98 DOD Challenges
                            Major Performance and Accountability

                            • Enhance enterprise integration by building on service and Defense
                              Logistics Agency software integration efforts and reduce information
                              system support costs by streamlining and changing current DOD
                              business processes and practices so that they are supported by
                              commercially available software.

                            Many details for implementing the Future Logistics Enterprise initiatives
                            have yet to be worked out. During our review51 of the current status of this
                            effort, we found that the new initiatives should result in improvements
                            to the quality of logistics support in the areas addressed. However, the new
                            initiatives are not comprehensive (for example, they do not address critical
                            shortages in strategic mobility assets), and they do not continue prior
                            efforts in developing and implementing a coordinated and comprehensive
                            logistics strategic plan.

                            We continue to believe that the development and implementation of a
                            comprehensive and coordinated logistics support planning process, as
                            we and the Congress have encouraged in the past, is essential to DOD’s
                            ability to improve the quality and the cost-effectiveness of all logistics
                            support processes, systems, and operations, especially those pertaining to
                            supply support.

Inventory Management        Since 1990, we have consistently identified DOD’s management of
Continues to Be High Risk   secondary inventories (spare and repair parts, clothing, medical supplies,
                            and other items to support the operating forces) as a high-risk area because
                            levels of inventory were too high and management systems and procedures
                            were ineffective and wasteful. Many of these same weaknesses regarding
                            excess inventories and the lack of economy, efficiency, and effectiveness in
                            the department’s inventory management practices still exist today.

                            As discussed in the previous section, the long-term solution to these
                            problems necessitates that DOD reengineer its entire logistics operations,
                            to include the development of a long-range strategic vision and a
                            departmentwide, coordinated approach for logistics management. In the
                            short term, however, we have made a number of recommendations in
                            recent years directed at correcting specific long-standing weaknesses in
                            the supply system. Specifically, we recommended that DOD (1) reduce


                            Page 78                                              GAO-03-98 DOD Challenges
Major Performance and Accountability

excess inventories, (2) eliminate material purchases for which no valid
requirement exists, (3) establish better controls and visibility over
material shipped to and from military activities, (4) address key spare
parts shortages, (5) better track how it spends its funds for spare parts,
(6) correct information systems weaknesses, and (7) adopt specific
industry-proven best practices for improving inventory management.
DOD concurred with our recommendation to develop an overarching
strategy, and it is planning to reengineer and transform its logistics system.

While figure 11 shows that DOD’s inventory value for the last 10 years
has generally declined, we reported that almost half of its $63.3 billion
inventory as of September 2001 exceeded war reserve or current operating
requirements. DOD had this excess partly because demands decreased,
fluctuated, or did not materialize; items became obsolete or were phased
out of service; and some of the initial requirements and demand forecasts
were not accurate. We reported in May 2001, however, that DOD does not
have a sound basis for determining which of these excess items should be
retained or disposed of. Several military services had developed models for
making this determination but were not using them. Consequently,
the services cannot guarantee that they are retaining the right items or
the right amount. We also reported that DOD’s quantities of excess
ammunition continue to increase. Specifically, we reported in April 2001
that excess ammunition had increased from 354,000 tons in 1993 to
493,000 tons in 2000.

Page 79                                               GAO-03-98 DOD Challenges
Major Performance and Accountability

Figure 11: Value of DOD’s Secondary Inventory, Fiscal Years 1992-2001

100   Current year dollars in billions

 80               77.5
                                         69.7   68.5
                                                       64.8           64.0              63.3
                                                              61.2             62.3



        1992      1993       1994        1995   1996   1997   1998    1999     2000     2001
        Fiscal year
Source: DOD.

Note: Based on DOD’s latest acquisition cost method of value; data taken from DOD’s Supply System
Inventory Report, September 30, 2001.

As of September 30, 2001, DOD records showed that the department had
inventory on order valued at about $1.6 billion that would not have been
ordered based on current requirements. We have issued several reports
in the past few years highlighting weaknesses in DOD’s requirements
determination processes for materials and its procedures for canceling
orders for items that are no longer needed. For example, we reported in
May 2001 that the Army was unable to accurately identify its requirements
for war reserve spare parts because (1) it was not using the best available
data concerning the rate at which spares would be consumed during
wartime and (2) a potential mismatch existed between how the
Army determines spare parts requirements for war reserves and how
the Army plans to repair equipment on the battlefield. We also reported
in April 2001 that because DOD had not resolved a number of key
issues in its requirements determination process for ammunition, the
services’ munitions requirements were uncertain, which could affect
munitions planning, programming, budgeting, and industrial production
base decisions.

Page 80                                                              GAO-03-98 DOD Challenges
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We reported similarly in May 2001 and July 2002 that the Army still did
not use current data from industry for assessing wartime spare parts
requirements and based its requirements determination on historical
parts procurement data. DOD partially concurred with our findings and
recommendations. We also reported in June 2000 that DOD was unable
to efficiently and effectively cancel orders for material it no longer
needed because the military services do not (1) use the same criteria for
determining the amount of excess inventory on order that should be
canceled, (2) consistently use their computer models for determining
whether it is more economical to cancel orders or not, and (3) review
orders of excess inventory for cancellation frequently enough to avoid
contractor cancellation costs. We recommended that DOD review and
improve its processes for identifying and canceling excess inventory
on order.

One of DOD’s more serious and long-standing inventory management
weaknesses that we have been reporting on for over a decade is DOD’s
inability to maintain adequate accountability over material being shipped
between contractor facilities and DOD activities or between DOD
activities. We reported in July 2002, for example, that the Air Force had not
properly controlled or maintained effective accountability over material
reportedly valued at about $567 million that had been shipped
to contractors for repair or use in the repair process.52 Specifically,
contractors receiving shipped material had not properly recorded
the receipts or routinely reported shipment discrepancies.

Furthermore, Air Force procedures for following up on shipments
that contractors had not confirmed as received were ineffective,
leaving the status of the shipments uncertain. We recommended that
the Air Force strengthen its procedures for controlling shipments of
material and following up on shipment discrepancies. We have reported
similar weaknesses regarding the shipment of chemical and biological
defense equipment that could affect the readiness of overseas Air Force
medical units to operate in a chemically contaminated environment. In
addition, we found weaknesses in the Army’s and the Navy’s procedures for
maintaining visibility over shipped material and following up on
shipment discrepancies.

  U.S. General Accounting Office, Defense Inventory: Air Force Needs to Improve Control
of Shipments to Repair Contractors GAO-02-617 (Washington, D.C.: July 1, 2002).

Page 81                                                      GAO-03-98 DOD Challenges
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The Navy is to be commended for reconciling many of its shipment
discrepancies in response to our March 1999 report and, as a result,
bringing about $2.5 billion worth of material back under its visibility
and control.

In January 2002, we reported that, because of control weaknesses over
excess DOD material, the Military Affiliate Radio System, the Civil Air
Patrol, and the 12th Congressional Regional Equipment Center had
obtained a reported $34 million worth of items between 1995 and 2000
that they were not eligible to receive. Many of these included items
whose use, storage, and disposal were restricted because of military
technology/applications or items that were hazardous to public health
and safety. We made several recommendations aimed at enhancing internal
controls over DOD’s disposal of its excess property and the subsequent
accountability for the property. DOD generally concurred with our

Although much of DOD’s inventory is excess to current requirements, DOD
has experienced equipment readiness problems because of shortages of
key spare parts. We reported in three separate reports in 2001 that the
Army, the Navy, and the Air Force were all experiencing operations
and maintenance problems because of a lack of key spare parts,
specifically aviation spares. While these shortages were caused by a
number of factors, the primary ones that the services cited included
underestimated demands for items, delays in the repair process,
unreliability of parts, inability to obtain parts for aging weapon systems,
and contracting problems.

As shown in table 1, the shortages of key spare parts have directly
contributed to readiness problems. Specifically, table 1 highlights the
nonmission capable rates due to supply problems for selected weapon
systems. Each of the services has a number of initiatives planned or
underway to address these shortages, and we are continuing to monitor
their efforts.

Page 82                                               GAO-03-98 DOD Challenges
                                         Major Performance and Accountability

Table 1: Percentage Rates at Which Selected Aircraft Were Reported as Not Mission Capable due to Supply Problems

                                             Reported not mission capable rates due to supply problems
Fiscal year                           Air Force C-5 aircraft                 Navy F-14D aircraft                        All Navy aircraft
1996                                                  15.6%                                  10.0%                                12.5%
1997                                                    15.2                                   11.7                                 12.4
1998                                                    16.8                                   12.4                                 12.9
1999                                                    17.3                                   11.1                                 12.1
2000                                                    18.1                                    7.6                                 12.9
                                         Source: Navy and Air Force.
                                         Note: GAO’s analysis of Navy and Air Force data based on work completed in July 2001.

                                         Another contributing factor to shortages of key spare parts is defective
                                         parts received from contractors. We reported in August 2001 that the
                                         Navy was not adequately monitoring or reporting defective spare parts
                                         and that, as a result, contractors were not fully reimbursing it for these
                                         defective items. We attributed these weaknesses, to a large extent, to a lack
                                         of management attention, limited training and incentives to report
                                         deficiencies, and competing priorities for staff resources.

                                         We reported in May 2001 that, because of the shortages of key spares
                                         and the related impact on readiness, each of the services had resorted
                                         to extensively cannibalizing parts from other equipment to obtain needed
                                         spares. We pointed out that cannibalizations increased maintenance
                                         costs by increasing mechanics’ workload, adversely affecting morale
                                         and personnel retention, and sometimes taking expensive aircraft out of
                                         service for long periods of time. We made a number of recommendations
                                         aimed at establishing standardized, comprehensive, and reliable
                                         cannibalization data collection procedures and at developing strategies to
                                         reduce the amount of time spent on cannibalizations. DOD concurred with
                                         our recommendations and stated that consistent, complete, and accurate
                                         reporting by the services of all types of maintenance actions, not just
                                         cannibalizations, is essential to effective management oversight of logistics
                                         support processes.

                                         In an attempt to alleviate these spares shortages, the Congress provided
                                         DOD with a $1.1 billion supplemental appropriation in fiscal year 1999
                                         specifically earmarked for spare parts purchases. However, DOD’s financial
                                         reports do not provide the Congress with reasonable assurance about the
                                         amount of funds being spent on spare parts. Specifically, we reported in

                                         Page 83                                                             GAO-03-98 DOD Challenges
Major Performance and Accountability

June 2001 that the $1.1 billion earmarked for spare parts in fiscal year 1999
had been placed in the military services’ operation and maintenance
accounts and that DOD did not separately track the use of these funds.
Consequently, the funds could have been used for other purposes. We
recommended that DOD annually develop detailed financial management
information on the uses of spare parts funding. In an October 2002
follow-up report, we reported that the financial reports that DOD had
submitted in response to our earlier recommendation did not provide an
accurate and complete picture of spare parts funding because the reports
generally presented estimated, not actual, expenditures by the military
services. DOD presented these estimates, which were derived from various
service computations, modeling, and historical data, because the services
do not have reliable expenditure data or a central tracking system to
compile the needed information on their actual spending by commodity.

We recommended that DOD (1) improve its guidance for preparing these
reports to ensure that the services provide actual and complete data on
spare parts spending and (2) require the services to fully comply with its
reporting guidance. In written comments, DOD stated that to have a
comprehensive picture of spare parts spending, information on spare
parts purchased with working capital funds and other investment accounts
needs to be reported. DOD offered to work with the Congress to facilitate
this kind of analysis. In addition, DOD agreed that the services need to
explain deviations between programmed and actual spending but believed
that reporting spare parts quantities purchased, as required by the financial
management regulation, would not add significant value to the information
being provided to the Congress because of the wide range in the unit costs
for parts.53

One primary factor contributing to DOD’s inventory management
weaknesses is its outdated and ineffective management information
systems. While DOD has a number of initiatives planned or underway to
modernize its supply support management information systems, it lacks
an overall information technology enterprise architecture to guide and
constrain its investments. We reported in January 2002, for example, that
the Defense Logistics Agency lacks (1) a mature software acquisition
process across the agency and (2) a software process improvement

 U.S. General Accounting Office, Defense Inventory: Better Reporting on Spare
Parts Spending Will Enhance Congressional Oversight, GAO-03-18 (Washington, D.C.:
Oct. 24, 2002).

Page 84                                                     GAO-03-98 DOD Challenges
                     Major Performance and Accountability

                     program to effectively strengthen its corporate software acquisition
                     processes. We also reported in March 2002 that because information
                     technology investment has only recently become an area of management
                     focus and commitment at the agency, the agency’s ability to effectively
                     manage investments is limited. Consequently, we continue to question
                     the agency’s ability to make informed and prudent investment decisions
                     regarding information technology. We recommended that the agency
                     develop a well-defined process improvement plan and controls to ensure
                     the establishment of a mature investment management capability. DOD
                     generally concurred with our recommendation.

                     We have issued a number of reports in recent years recommending
                     that DOD apply commercial best practices to its logistics operations.
                     We reported in February 2002, for example, that it estimates a
                     $59-billion-a-year expenditure for logistics support to operate and
                     sustain weapon systems, but it believes that better logistics support
                     practices could reduce these costs by as much as 20 percent. In
                     March 2002, we issued a Best Practices Executive Guide, which described
                     fundamental practices and procedures used in the private sector to achieve
                     consistent and accurate physical counts of inventory and related property.
                     DOD responded that it is attempting to improve its logistics support
                     through its new Future Logistics Enterprise Initiative.

Key Actions Needed   Our recent reports have consistently highlighted the need for DOD to
                     reengineer its logistics programs and apply best commercial practices to its
                     logistics operations as a long-term solution to its inventory management
                     weaknesses. In these reports, we recommended that DOD develop an
                     overarching plan that integrates the individual service and defense agency
                     logistics reengineering plans to include an investment strategy for funding
                     reengineering initiatives and details for how DOD plans to achieve its final
                     logistics system end state. DOD recognizes its inventory management
                     weaknesses and has begun corrective actions. In the September 2001
                     Quadrennial Defense Review, the Secretary of Defense also highlighted the
                     need to transform the U.S. military and the DOD establishment. The
                     Secretary’s report stated that, without change, the current DOD program
                     will only become more expensive to maintain over time. In testimony
                     delivered in June 2002 before the House Subcommittee on National
                     Security, Veterans Affairs, and International Relations, Committee on
                     Government Reform, we presented two case studies that clearly
                     demonstrated the need for DOD to reform its business operations. In this
                     testimony, we provided our views of the underlying or root cause of DOD’s

                     Page 85                                              GAO-03-98 DOD Challenges
                      Major Performance and Accountability

                      long-standing inability to successfully reform its business operations,
                      including a lack of sustained top-level leadership, cultural resistance to
                      change, and military service parochialism. In addition, we identified the
                      need for DOD to approach its broad array of management challenges using
                      an integrated, enterprisewide approach.

                      In the short term, we recommend that DOD address the long-standing
                      weaknesses that are limiting the economy and efficiency of its logistics
                      operations. Specifically, we recommend that DOD establish better
                      controls and visibility over material shipments, take actions to address
                      shortages of key spare parts, better track how it is spending its funds
                      for spare parts, and develop a departmentwide strategy for information
                      technology investment.

Sustained Visible     In spite of numerous initiatives and plans to transform DOD’s business
                      processes, much remains to be done as evidenced by the six management
Leadership and        areas that are included on our high-risk list. Over the years, various
Commitment to         administrations have tried to overcome these challenges, with varying
                      degrees of success. At the same time, our work over the years, most
Reform Is Necessary   prominently in the Performance and Accountability and High-Risk Series,
                      has amply documented that many federal agencies, including DOD,
                      suffer from a range of long-standing management problems and a lack of
                      attention to basic stewardship responsibilities. Successfully addressing
                      these challenges will require concerted action and sustained top-level
                      attention over a period of years that span from one administration to the
                      next. The common thread that is needed to tie DOD’s efforts together is
                      sound strategic planning that recognizes the integrated nature of DOD’s
                      management processes and related solutions; the importance of continuity
                      in leadership to achieve process improvements; and an agreement between
                      the executive and legislative branches of government on planned actions
                      and desired results. As we discussed earlier, one option for DOD to address
                      the challenges it faces would be to establish a full-time chief management
                      officer position with long-term “good government” responsibilities that are
                      professional and nonpartisan in nature. These responsibilities, described in
                      a special GAO Roundtable report,54 could include

                       U.S. General Accounting Office, Highlights of a GAO Roundtable: The Chief Operating
                      Officer Concept: A Potential Strategy To Address Federal Governance Challenges,
                      GAO-03-192SP (Washington, D.C.: Oct. 4, 2002).

                      Page 86                                                     GAO-03-98 DOD Challenges
Major Performance and Accountability

• strategic planning,

• organizational alignment,

• core values stewardship,

• human capital strategy,

• performance management,

• communications and information technology management,

• financial management,

• acquisition management,

• knowledge management,

• matrix management, and

• change management.

DOD, with its long-standing management problems in key operational
areas, could be a good first candidate, using its risk-based approach, to try
such a concept.

Page 87                                               GAO-03-98 DOD Challenges
GAO Contacts

               Subjects covered in this report               Contact persons
               Strengthen strategic planning and             Sharon L. Pickup, Director, Defense
               budgeting to achieve desired mission          Capabilities and Management
               outcomes                                      (202) 512-9619
               Hire, support, and retain military and civilian Derek B. Stewart, Director, Defense
               personnel with the skills to meet mission       Capabilities and Management
               needs                                           (202) 512-5559
               Overcome support infrastructure               Barry W. Holman, Director, Defense
               inefficiencies to reduce costs and improve    Capabilities and Management
               operations                                    (202) 512-5581
               Confront pervasive, decades-old financial Gregory D. Kutz, Director, Financial
               management problems to improve financial Management and Assurance
               accountability                            Defense, State, and NASA Financial
                                                         (202) 512-9505
               Effectively manage information technology     Joel C. Willemssen, Managing Director
               investments                                   Information Technology
                                                             (202) 512-6408
               Improve DOD's ability to acquire weapon       Jack L. Brock, Jr., Managing Director
               systems in a cost-effective and timely way    Acquisition and Sourcing Management
                                                             (202) 512-4841
               Improve processes and controls to reduce      brockj@gao.gov
               contract risk
               Provide logistics support that responds       William M. Solis, Director, Defense
               to the needs of the warfighter at an          Capabilities and Management
               affordable cost                               (202) 512-8365

               Page 88                                                          GAO-03-98 DOD Challenges
Related GAO Products

Strategic Planning   Quadrennial Defense Review: Future Review Can Benefit from
                     Better Analysis and Changes in Timing and Scope. GAO-03-13.
                     Washington, D.C.: November 4, 2002.

                     Department of Defense: Status of Achieving Outcomes and
                     Addressing Major Management Challenges. GAO-01-783.
                     Washington, D.C.: June 25, 2001.

                     Major Management Challenges and Program Risks: Department of
                     Defense. GAO-01-244. Washington, D.C.: January 2001.

                     Future Years Defense Program: Risks in Operation and Maintenance and
                     Procurement Programs. GAO-01-33. Washington, D.C.: October 5, 2000.

                     Force Structure: Air Force Expeditionary Concept Offers Benefits but
                     Effects Should Be Assessed. GAO/NSIAD-00-201. Washington, D.C.:
                     August 15, 2000.

                     Force Structure: Army Is Integrating Active and Reserve Combat Forces,
                     but Challenges Remain. GAO/NSIAD-00-162. Washington, D.C.:
                     July 18, 2000.

                     Contingency Operations: Providing Critical Capabilities Poses
                     Challenges. GAO/NSIAD-00-164. Washington, D.C.: July 6, 2000.

                     Observations on the Department of Defense’s Fiscal Year 1999
                     Performance Report and Fiscal Year 2001 Performance Plan.
                     GAO/NSIAD-00-188R. Washington, D.C.: June 30, 2000.

                     Future Years Defense Program: Funding Increase and Planned Savings
                     in Fiscal Year 2000 Program Are at Risk. GAO/NSIAD-00-11.
                     Washington, D.C.: November 22, 1999.

                     Military Operations: Impact of Operations Other Than War on the
                     Services Varies. GAO/NSIAD-99-69. Washington, D.C.: May 24, 1999.

Human Capital        Military Personnel: Active Duty Benefits Reflect Changing
                     Demographics, but Opportunities Exist to Improve. GAO-02-935.
                     Washington, D.C.: September 18, 2002.

                     Page 89                                           GAO-03-98 DOD Challenges
                         Related GAO Products

                         Reserve Forces: DOD Actions Needed to Better Manage Relations
                         between Reservists and Their Employers. GAO-02-608. Washington, D.C.:
                         June 13, 2002.

                         Military Personnel: Active Duty Benefits Reflect Changing
                         Demographics, but Continued Focus Needed. GAO-02-557T.
                         Washington, D.C.: April 11, 2002.

Defense Infrastructure   Defense Infrastructure: Most Recruit Training Barracks Have
                         Significant Deficiencies. GAO-02-786. Washington, D.C.: June 13, 2002.

                         Military Base Closures: Progress in Completing Actions from Prior
                         Realignments and Closures. GAO-02-433. Washington, D.C.: April 5, 2002.

                         Military Base Closures: DOD’s Updated Net Savings Estimate Remains
                         Substantial. GAO-01-971. Washington D.C.: July 31, 2001.

Financial Management     Travel Cards: Control Weaknesses Leave Army Vulnerable to Potential
                         Fraud and Abuse. GAO-02-863T. Washington, D.C.: July 17, 2002.

                         Purchase Cards: Control Weaknesses Leave Army Vulnerable to Fraud,
                         Waste, and Abuse. GAO-02-732. Washington, D.C.: June 27, 2002.

                         DOD Management: Examples of Inefficient and Ineffective Business
                         Processes. GAO-02-873T. Washington, D.C.: June 4, 2002.

                         DOD Financial Management: Important Steps Underway but Reform Will
                         Require a Long-Term Commitment. GAO-02-784T. Washington, D.C.:
                         June 4, 2002.

                         DOD Financial Management: Integrated Approach, Accountability,
                         Transparency, and Incentives Are Keys to Effective Reform. GAO-02-537T.
                         Washington, D.C.: March 20, 2002.

                         Purchase Cards: Continued Control Weaknesses Leave Two Navy Units
                         Vulnerable to Fraud and Abuse. GAO-02-506T. Washington, D.C.:
                         March 13, 2002.

                         Page 90                                            GAO-03-98 DOD Challenges
                         Related GAO Products

                         DOD Financial Management: Integrated Approach, Accountability,
                         Transparency, and Incentives Are Keys to Effective Reform. GAO-02-497T.
                         Washington, D.C.: March 6, 2002.

                         Canceled DOD Appropriations: $615 Million of Illegal or Otherwise
                         Improper Adjustments. GAO-01-697. Washington, D.C.: July 26, 2001.

Information Management   Information Technology: Greater Use of Best Practices Can Reduce Risk
and Technology           in Acquiring Defense Health Care System. GAO-02-345. Washington, D.C.:
                         September 26, 2002.

                         DOD Systems Modernization: Continued Investment in the Standard
                         Procurement System Has Not Been Justified. GAO-01-682.
                         Washington, D.C.: July 31, 2002.

                         Information Security: Corps of Engineers Making Improvements, but
                         Weaknesses Continue. GAO-02-589. Washington, D.C.: June 10, 2002.

                         Information Technology: Defense Information Systems Agency Can
                         Improve Investment Planning and Management Controls. GAO-02-50.
                         Washington, D.C.: March 15, 2002.

                         Information Technology: DLA Needs to Strengthen Its Investment
                         Management Capability. GAO-02-314. Washington, D.C.: March 15, 2002.

                         Information Technology: Inconsistent Software Acquisition Processes
                         at the Defense Logistics Agency Increase Project Risks. GAO-02-9.
                         Washington, D.C.: January 10, 2002.

                         Information Technology: DLA Should Strengthen Business Systems
                         Modernization Architecture and Investment Activities. GAO-01-631.
                         Washington, D.C.: June 29, 2001.

                         Information Technology: Architecture Needed to Guide Modernization of
                         DOD’s Financial Operations. GAO-01-525. Washington, D.C.: May 17, 2001.

                         DOD Information Technology: Software and Systems Process
                         Improvement Programs Vary in Use of Best Practices. GAO-01-116.
                         Washington, D.C.: March 30, 2001.

                         Page 91                                           GAO-03-98 DOD Challenges
                     Related GAO Products

                     Information Security: Challenges to Improving DOD’s Incident Response
                     Capabilities. GAO-01-341. Washington, D.C.: March 29, 2001.

Acquisition Reform   Missile Defense: Knowledge-Based Decision Making Needed to Reduce
                     Risks in Developing Airborne Laser. GAO-02-631. Washington, D.C.:
                     July 12, 2002.

                     Tactical Aircraft: F-22 Delays Indicate Initial Production Rates Should
                     Be Lower to Reduce Risks. GAO-02-298. Washington, D.C.: March 5, 2002.

                     Defense Acquisitions: Steps to Improve the Crusader Program’s
                     Investment Decisions. GAO-02-201. Washington, D.C.: February 25, 2002.

                     Joint Warfighting: Attacking Time-Critical Targets. GAO-02-204R.
                     Washington, D.C.: November 30, 2001.

                     Joint Strike Fighter Acquisition: Mature Critical Technologies Needed to
                     Reduce Risks. GAO-02-39. Washington, D.C.: October 19, 2001.

                     Defense Manufacturing Technology Program: More Joint Projects
                     and Tracking of Results Could Benefit Program. GAO-01-943.
                     Washington, D.C.: September 28, 2001.

                     Defense Acquisitions: Actions to Improve Navy SPAWAR Low-Rate Initial
                     Production Decisions. GAO-01-735. Washington, D.C.: August 7, 2001.

                     Combat Identification Systems: Strengthened Management Efforts
                     Needed to Ensure Required Capabilities. GAO-01-632. Washington, D.C.:
                     June 25, 2001.

                     Defense Acquisitions: Higher Level DOD Review of Antiarmor Mission
                     and Munitions Is Needed. GAO-01-607. Washington, D.C.: June 8, 2001.

                     Defense Acquisitions: Comanche Program Objectives Need to Be Revised
                     to More Achievable Levels. GAO-01-450. Washington, D.C.: June 7, 2001.

                     Defense Acquisitions: Space-Based Infrared System-low at Risk
                     of Missing Initial Deployment Date. GAO-01-6. Washington, D.C.:
                     February 28, 2001.

                     Page 92                                            GAO-03-98 DOD Challenges
                 Related GAO Products

                 Defense Acquisitions: Readiness of the Marine Corps’ V-22 Aircraft for
                 Full-Rate Production. GAO-01-369R. Washington, D.C.: February 20, 2001.

Best Practices   Best Practices: Capturing Design and Manufacturing Knowledge Early
                 Improves Acquisition Outcomes. GAO-02-701. Washington, D.C.:
                 July 15, 2002.

                 Defense Acquisitions: DOD Faces Challenges in Implementing Best
                 Practices. GAO-02-469T. Washington, D.C.: February 27, 2002.

                 Best Practices: Better Matching of Needs and Resources Will Lead to
                 Better Weapon System Outcomes. GAO-01-288. Washington, D.C.:
                 March 8, 2001.

                 Best Practices: A More Constructive Test Approach Is Key to Better
                 Weapon System Outcomes. GAO/NSIAD-00-199. Washington, D.C.:
                 July 31, 2000.

Contracting      Defense Acquisitions: DOD Has Implemented Section 845
                 Recommendations but Reporting Can Be Enhanced. GAO-03-150.
                 Washington, D.C.: October 9, 2002.

                 Contract Management: Guidance Needed for Using Performance-Based
                 Service Contracting. GAO-02-1049. Washington, D.C.: September 23, 2002.

                 Travel Cards: Control Weaknesses Leave Army Vulnerable to Potential
                 Fraud and Abuse. GAO-02-863T. Washington, D.C.: July 17, 2002.

                 Purchase Cards: Control Weaknesses Leave Army Vulnerable to Fraud,
                 Waste, and Abuse. GAO-02-844T. Washington, D.C.: July 17, 2002.

                 VA and Defense Health Care: Potential Exists for Savings through
                 Joint Purchasing of Medical and Surgical Supplies. GAO-02-872T.
                 Washington, D.C.: June 26, 2002.

                 DOD Contract Management: Overpayments Continue and
                 Management and Accounting Issues Remain. GAO-02-635.
                 Washington, D.C.: May 30, 2002.

                 Page 93                                           GAO-03-98 DOD Challenges
Related GAO Products

Acquisition Workforce: Department of Defense’s Plans to Address
Workforce Size and Structure Challenges. GAO-02-630. Washington, D.C.:
April 30, 2002.

Contract Management: DOD Needs Better Guidance on Granting
Waivers for Certified Cost or Pricing Data. GAO-02-502. Washington, D.C.:
April 22, 2002.

Best Practices: Taking A Strategic Approach Could Improve DOD’s
Acquisition of Services. GAO-02-230. Washington, D.C.: January 18, 2002.

DOD Systems Modernization: Continued Investment in the Standard
Procurement System Has Not Been Justified. GAO-01-682.
Washington, D.C.: July 31, 2001.

DOD and VA Pharmacy: Progress and Remaining Challenges in Jointly
Buying and Mailing Out Drugs. GAO-01-588. Washington, D.C.:
May 25, 2001.

Defense Health Care: Lessons Learned from TRICARE Contracts and
Implications for the Future. GAO-01-742T. Washington, D.C.: May 17, 2001.

Contract Management: Not Following Procedures Undermines Best
Pricing Under GSA’s Schedule. GAO-01-125. Washington, D.C.:
November 28, 2000.

Human Capital: A Self-Assessment Checklist for Agency Leaders.
GAO/OCG-00-14G. Washington, D.C.: September 2000.

Acquisition Reform: DOD’s Guidance on Using Section 845 Agreements
Could Be Improved. GAO/NSIAD-00-33. Washington, D.C.: April 7, 2000.

Contract Management: Few Competing Proposals for Large DOD
Information Technology Orders. GAO/NSIAD-00-56. Washington, D.C.:
March 20, 2000.

Defense Health Care: Claims Processing Improvements Are Under Way
but Further Enhancements Are Needed. GAO/HEHS-99-128. Washington,
D.C.: August 23, 1999.

Contract Management: DOD Pricing of Commercial Items Needs
Continued Emphasis. GAO/NSIAD-99-90. Washington, D.C.: June 24, 1999.

Page 94                                            GAO-03-98 DOD Challenges
                          Related GAO Products

Logistics Reengineering   Defense Management: New DOD Management Reform Program Still
                          Evolving. GAO-03-58. Washington, D.C.: December 15, 2002.

                          Defense Inventory: Better Reporting on Spare Parts Spending Will
                          Enhance Congressional Oversight. GAO-03-18. Washington, D.C.:
                          October 24, 2002.

                          Defense Logistics: Improving Customer Feedback Program Could
                          Enhance DLA’s Delivery of Services. GAO-02-776. Washington, D.C.:
                          September 9, 2002.

                          Defense Inventory: Improved Industrial Base Assessments for Army
                          War Reserve Spares Could Save Money. GAO-02-650. Washington, D.C.:
                          July 12, 2002.

                          Defense Inventory: Air Force Needs to Improve Control Over Shipments
                          to Repair Contractors. GAO-02-617. Washington, D.C.: July 1, 2002.

                          DOD Management: Examples of Inefficient and Ineffective Business
                          Processes. GAO-02-873T. Washington, D.C.: June 25, 2002.

                          Defense Inventory: Trends in Services’ Spare Parts Purchased from the
                          Defense Logistics Agency. GAO-02-452. Washington, D.C.: April 30, 2002.

                          Information Technology: DLA Needs to Strengthen Its Investment
                          Management Capability. GAO-02-314. Washington, D.C.: March 15, 2002.

                          Defense Logistics: Opportunities to Improve the Army’s and Navy’s
                          Decision-Making Process for Weapons Systems Support. GAO-02-306.
                          Washington, D.C.: February 28, 2002.

                          Defense Inventory: Control Weaknesses Leave Restricted and Hazardous
                          Excess Property Vulnerable to Improper Use, Loss, and Theft. GAO-02-75.
                          Washington, D.C.: January 25, 2002.

                          Military Aircraft: Services Need Strategies to Reduce Cannibalizations.
                          GAO-02-86. Washington, D.C.: November 21, 2001.

                          Defense Logistics: Actions Needed to Overcome Capability Gaps in the
                          Public Depot System. GAO-02-105. Washington, D.C.: October 12, 2001.

                          Page 95                                            GAO-03-98 DOD Challenges
Related GAO Products

Defense Logistics: Strategic Planning Weaknesses Leave Economy,
Efficiency, and Effectiveness of Future Support Systems at Risk.
GAO-02-106. Washington, D.C.: October 11, 2001.

Defense Logistics: Air Force Lacks Data to Assess Contractor Logistics
Support Approaches. GAO-01-618. Washington, D.C.: September 7, 2001.

Defense Inventory: Navy Spare Parts Quality Deficiency Reporting
Programs Needs Improvement. GAO-01-923. Washington, D.C.:
August 16, 2001.

Army Inventory: Parts Shortages Are Impacting Operations and
Maintenance Effectiveness. GAO-01-772. Washington, D.C.: July 31, 2001.

Navy Inventory: Parts Shortages Are Impacting Operations and
Maintenance Effectiveness. GAO-01-771. Washington, D.C.: July 31, 2001.

Air Force Inventory: Parts Shortages Are Impacting Operations and
Maintenance Effectiveness. GAO-01-587. Washington, D.C.: June 27, 2001.

Defense Inventory: Information on the Use of Spare Parts Funding Is
Lacking. GAO-01-472. Washington, D.C.: June 11, 2001.

Defense Inventory: Approach for Deciding Whether to Retain or
Dispose of Items Needs Improvement. GAO-01-475. Washington, D.C.:
May 25, 2001.

Military Aircraft: Cannibalizations Adversely Affect Personnel and
Maintenance. GAO-01-93T. Washington, D.C.: May 22, 2001.

Defense Inventory: Army War Reserve Spare Parts Requirements Are
Uncertain. GAO-01-425. Washington, D.C.: May 10, 2001.

Defense Inventory: Process for Canceling Inventory Orders Needs
Improvement. GAO/NSIAD-00-160. Washington, D.C.: June 30, 2000.

Defense Logistics: Actions Needed to Enhance Success of Reengineering
Initiatives. GAO/NSIAD-00-89. Washington, D.C.: June 23, 2000.

Defense Inventory: Opportunities Exist to Expand the Use of Defense
Logistics Agency Best Practices. GAO/NSIAD-00-30. Washington, D.C.:
January 26, 2000.

Page 96                                            GAO-03-98 DOD Challenges
Performance and Accountability and
High-Risk Series

              Major Management Challenges and Program Risks: A Governmentwide
              Perspective. GAO-03-95.

              Major Management Challenges and Program Risks: Department of
              Agriculture. GAO-03-96.

              Major Management Challenges and Program Risks: Department of
              Commerce. GAO-03-97.

              Major Management Challenges and Program Risks: Department of
              Defense. GAO-03-98.

              Major Management Challenges and Program Risks: Department of
              Education. GAO-03-99.

              Major Management Challenges and Program Risks: Department of
              Energy. GAO-03-100.

              Major Management Challenges and Program Risks: Department of Health
              and Human Services. GAO-03-101.

              Major Management Challenges and Program Risks: Department of
              Homeland Security. GAO-03-102.

              Major Management Challenges and Program Risks: Department of
              Housing and Urban Development. GAO-03-103.

              Major Management Challenges and Program Risks: Department of the
              Interior. GAO-03-104.

              Major Management Challenges and Program Risks: Department of
              Justice. GAO-03-105.

              Major Management Challenges and Program Risks: Department of Labor.

              Major Management Challenges and Program Risks: Department of State.

              Major Management Challenges and Program Risks: Department of
              Transportation. GAO-03-108.

              Page 97                                        GAO-03-98 DOD Challenges
Performance and Accountability and
High-Risk Series

Major Management Challenges and Program Risks: Department of the
Treasury. GAO-03-109.

Major Management Challenges and Program Risks: Department of
Veterans Affairs. GAO-03-110.

Major Management Challenges and Program Risks: U.S. Agency for
International Development. GAO-03-111.

Major Management Challenges and Program Risks: Environmental
Protection Agency. GAO-03-112.

Major Management Challenges and Program Risks: Federal Emergency
Management Agency. GAO-03-113.

Major Management Challenges and Program Risks: National Aeronautics
and Space Administration. GAO-03-114.

Major Management Challenges and Program Risks: Office of Personnel
Management. GAO-03-115.

Major Management Challenges and Program Risks: Small Business
Administration. GAO-03-116.

Major Management Challenges and Program Risks: Social Security
Administration. GAO-03-117.

Major Management Challenges and Program Risks: U.S. Postal Service.

High-Risk Series: An Update. GAO-03-119.

High-Risk Series: Strategic Human Capital Management. GAO-03-120.

High-Risk Series: Protecting Information Systems Supporting the
Federal Government and the Nation’s Critical Infrastructures. GAO-03-

High-Risk Series: Federal Real Property. GAO-03-122.

Page 98                                           GAO-03-98 DOD Challenges
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