oversight

Information Technology: Improvements Needed in the Reliability of Defense Budget Submissions

Published by the Government Accountability Office on 2003-12-19.

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

                United States General Accounting Office

GAO             Report to the Subcommittee on
                Terrorism, Unconventional Threats, and
                Capabilities, Committee on Armed
                Services, House of Representatives

December 2003
                INFORMATION
                TECHNOLOGY
                Improvements Needed
                in the Reliability of
                Defense Budget
                Submissions




GAO-04-115
                a
                                                December 2003


                                                INFORMATION TECHNOLOGY

                                                Improvements Needed in the Reliability of
Highlights of GAO-04-115, a report to the       Defense Budget Submissions
Subcommittee on Terrorism,
Unconventional Threats, and Capabilities,
Committee on Armed Services, House of
Representatives




The Department of Defense (DOD)                 DOD’s IT budget submission for fiscal year 2004 contains material
spends more on information                      inconsistencies, inaccuracies, or omissions that limit its reliability. For
technology (IT) annually than any               example:
other department or agency,
accounting for about half of the                •       Two primary parts of the submission—the IT budget summary report
$59 billion governmentwide IT
budget in fiscal year 2004. It is thus
                                                        and the detailed Capital Investment Reports on each IT initiative—are
important that consistent, accurate,                    inconsistent. In particular, 15 initiatives that appear in the budget
and complete DOD IT budget                              summary do not appear in the Capital Investment Reports, and
information is available to the                         discrepancies exist between the two types of reports in the amounts
Congress and the Office of                              requested for 73 major initiatives. These discrepancies total about
Management and Budget (OMB) so                          $1.6 billion. (The table below shows the portion of this total difference
that they can make informed                             that is attributable to various DOD organizations.)
decisions among competing                       •       Major initiatives do not consistently use the same type of appropriations
demands for funds. Accordingly,                         to fund the same activities. That is, to fund the same types of activities,
GAO reviewed the department’s                           some DOD organizations used the Research, Development, Test, and
fiscal year 2004 IT budget                              Evaluation appropriations and others used the Operation and
submission to determine whether it
was reliable, including identifying
                                                        Maintenance appropriations.
opportunities for future                        •       The IT budget summary does not include all the costs of the IT
improvement.                                            initiatives, which is contrary to federal guidance. For example, the IT
                                                        budget reports do not always include the costs of military personnel
                                                        working on the initiatives.
To improve the consistency,                     These problems are largely attributable to insufficient management attention
accuracy, and completeness of                   and limitations in departmental policies and procedures, such as guidance in
future DOD IT budget submissions,
                                                DOD’s Financial Management Regulation, and to shortcomings in systems
GAO is making recommendations
to the Secretary of Defense that are            that support budget-related activities. The result is that OMB and the
aimed at establishing appropriate               Congress are constrained in their ability to make informed IT funding
policies, procedures, and                       decisions and conduct effective oversight and control, which could cause
supporting systems to avoid                     decision makers to approve or deny funding for programs that they might
repeating the same problems that                otherwise have treated differently, as well as increasing the chances of funds
GAO found in the department’s                   in an appropriation not being sufficient to cover obligations.
submission for fiscal year 2004.
                                                Discrepancies between Funding Totals from DOD IT Budget Summary and Capital
DOD either agreed or partially                  Investment Reports for Fiscal Year 2004
agreed with GAO’s                                   Dollars in millions
recommendations, and it described
                                                    DOD component                                                                        Discrepancy
actions that it plans to take to
                                                    Department of the Air Force                                                                $362.81
improve the reliability of its IT
budget submissions.                                 Department of the Army                                                                       55.57
                                                    Department of the Navy                                                                      581.89
                                                    Seven agencies and activities and the Office of the Secretary of Defense                     88.96
                                                                             a
                                                    Multiple organizations                                                                      530.61
                                                    Total                                                                                    $1,619.84
www.gao.gov/cgi-bin/getrpt?GAO-04-115.
                                                Source: GAO analysis of DOD data.
To view the full product, including the scope   a
                                                 Of 30 cross-service initiatives, 27 had differences, but these differences could not be attributed to a
and methodology, click on the link above.       single component because more than one component reported funding for each initiative.
For more information, contact Randolph C.
Hite at (202) 512-3439 or hiter@gao.gov.
Contents



Letter                                                                                                  1
                         Results in Brief                                                               2
                         Background                                                                     3
                         DOD’s Fiscal Year 2004 IT Budget Submission Contains Unreliable
                           Information                                                                  6
                         Conclusions                                                                   21
                         Recommendations                                                               22
                         Agency Comments and GAO Evaluation                                            23


Appendix
           Appendix I:   Objective, Scope, and Methodology                                             26


Tables                   Table 1: Information Included in Budget Justification Reports                  4
                         Table 2: Comparison of Total Funding for Three Groupings of Major
                                  Initiatives                                                           9
                         Table 3: Stratified Funding Differences among 176 Initiatives in
                                  Exhibit 300 and IT-1 Reports                                         10
                         Table 4: Net Differences, Total Differences, and Number of
                                  Initiatives with Differences, by DOD Component                       11
                         Table 5: Discrepancies between Sum of Line Items and Total
                                  Amount Reported on Exhibit 300s, by DOD Component                    14




                         Page i                       GAO-04-115 Reliability of Defense Budget Submissions
Contents




Abbreviations

CFO          Chief Financial Officer
CIO          Chief Information Officer
DOD          Department of Defense
FMR          Financial Management Regulation
IT           information technology
O&M          Operation and Maintenance
OMB          Office of Management and Budget
OSD          Office of the Secretary of Defense
RDT&E        Research, Development, Test, and Evaluation

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Page ii                             GAO-04-115 Reliability of Defense Budget Submissions
A
United States General Accounting Office
Washington, D.C. 20548



                                    December 19, 2003                                                                  Leter




                                    The Honorable Jim Saxton
                                    Chairman
                                    The Honorable Martin T. Meehan
                                    Ranking Minority Member
                                    Subcommittee on Terrorism, Unconventional Threats,
                                     and Capabilities
                                    Committee on Armed Services
                                    House of Representatives

                                    To make informed funding decisions among competing demands for
                                    federal funds, the Congress and the Office of Management and Budget
                                    (OMB) need federal departments and agencies to provide consistent,
                                    accurate, and complete budget information. This is particularly important
                                    in the case of the information technology (IT) budget for the Department of
                                    Defense (DOD), because the department spends more on IT annually than
                                    any other department or agency, accounting for about half of the roughly
                                    $59 billion governmentwide IT budget in fiscal year 2004. Among other
                                    things, the department’s IT funding is to provide for modernization,
                                    operation, and maintenance of thousands of information systems that
                                    support such important business functions as accounting, acquisition,
                                    logistics, and personnel management. DOD’s IT funding is also to provide
                                    for modernization, operation, and maintenance of the department’s
                                    technology infrastructure, such as its telecommunication networks.

                                    Because of the importance of DOD’s IT budget information to the
                                    Congress, we evaluated the department’s fiscal year 2004 IT budget
                                    submission. Our objective was to determine whether the submission was
                                    reliable, including identifying opportunities for improving the reliability of
                                    future submissions. To do so, we assessed the funding information in
                                    DOD’s primary IT budget reports to determine whether the information
                                    reported was consistent between reports, whether the reports included all
                                    information that OMB requires, whether the correct appropriations and
                                    budget categories were used, and whether the reports included all relevant
                                    costs. Our objective, scope, and methodology are discussed in detail in
                                    appendix I.




                                    Page 1                          GAO-04-115 Reliability of Defense Budget Submissions
Results in Brief   DOD’s fiscal year 2004 IT budget submission includes inconsistencies,
                   inaccuracies, and omissions that limit its reliability. For example, the
                   Capital Investment Reports, which provide detailed information on each
                   major IT initiative, are inconsistent with DOD’s IT budget summary report.1
                   In particular, 15 major initiatives that appear in the budget summary report
                   do not appear in the Capital Investment Reports, and discrepancies exist
                   between the amounts that the two types of reports included for 73 major
                   initiatives. These discrepancies total about $1.6 billion. The Capital
                   Investment Reports also contain omissions and errors, such as missing life
                   cycle phase information and errors in calculations. Also, the Capital
                   Investment Reports’ amounts for planning and acquisition activities for
                   major initiatives are not always classified as development/modernization,
                   which is the budget category that OMB requires for such activities, and
                   these reports do not consistently use the same appropriations to fund the
                   same activities. Additionally, the IT budget summary does not include all
                   the costs of the IT initiatives, which is contrary to guidance in federal
                   accounting standards and the Federal Financial Management Improvement
                   Act of 1996.2 For example, the budget submission does not always include
                   the costs of military personnel working on the initiatives. These
                   inconsistencies, inaccuracies, and omissions are largely attributable to
                   limitations in departmental regulations and guidance and to shortcomings
                   in the systems that support the development of the budget submission, as
                   well as to insufficient management attention. The result is that OMB and
                   the Congress are forced to make IT funding decisions on the basis of
                   information whose reliability is limited, which could cause decision makers
                   to approve or deny funding for programs that they might otherwise have
                   treated differently and increases the chances of funds in an appropriation
                   not being sufficient to cover obligations.

                   To improve the reliability of DOD’s future IT budget submissions, we are
                   making eight recommendations to the Secretary of Defense aimed at
                   raising the level of management attention to IT budget submission
                   reliability and strengthening the associated management processes and
                   supporting systems. In commenting on a draft of this report, DOD either


                   1
                    According to OMB Circular A-11, Capital Investment Reports, also known as Exhibit 300s,
                   are required for initiatives that OMB defines as major: that is, those initiatives that require
                   special management attention because of their importance to an agency’s mission or that
                   have significant program or policy implications.
                   2
                   Public Law 104-208, section 803(a).




                   Page 2                                 GAO-04-115 Reliability of Defense Budget Submissions
             agreed or partially agreed with our recommendations and described
             actions that it plans to take to improve the reliability of its IT budget
             submissions.



Background   DOD’s IT budget submission for fiscal year 2004 totaled about $28 billion.
             Of this, about $9.1 billion was for what the department termed national
             security systems, such as telecommunications networks and systems that
             perform command and control functions. The remaining approximately
             $18.8 billion was for business initiatives, such as finance and accounting
             systems, military and civilian personnel systems, and logistics systems. The
             roughly $28 billion included about $17.4 billion for operating and
             maintaining existing systems and infrastructure and about $10.5 billion for
             modernizing systems and infrastructure. Examples of major initiatives
             included in this budget submission are the following:

             • the Global Command and Control System, a joint program intended to
               provide the information resources needed by warfighters to accomplish
               their command and control missions;

             • the Defense Information System Network, a communications
               infrastructure initiative that is intended to connect DOD’s mission
               support and armed forces using a combination of government and
               private infrastructure; and

             • the Defense Integrated Military Human Resources System, a military
               personnel and pay system that is expected to integrate personnel and
               pay functions for all military services.

             DOD’s IT budget submission consists of three basic reports:3




             3
              In addition to the three basic reports, the budget submission includes a report called All
             Departments Information Technology/National Security Systems, which presents the budget
             information by DOD organization.




             Page 3                               GAO-04-115 Reliability of Defense Budget Submissions
                                           • Capital Investment Reports, also called Exhibit 300s, which are used by
                                             OMB to determine whether an IT initiative meets budgetary guidelines
                                             for funding. These reports provide detailed information on major IT
                                             initiatives, including budget information by appropriation type and life
                                             cycle phase. They are required for every major IT initiative, according to
                                             OMB Circular A-11.4 The Exhibit 300 is submitted to OMB, and a subset
                                             of the information contained in it is submitted to the Congress.

                                           • The IT budget summary, also known as the IT-1 spreadsheet, which is
                                             intended to capture DOD’s entire IT budget, including both major and
                                             nonmajor initiatives, as well as information on which of two OMB-
                                             defined budget categories each initiative’s funding falls into—
                                             development/modernization or current services. (The Exhibit 300 does
                                             not provide information on budget category.) The IT-1 spreadsheet is
                                             submitted to the Congress.

                                           • The Exhibit 53 provides a high-level summary of information that is in
                                             the IT-1 spreadsheet; thus, it does not include all the information that is
                                             in the IT-1 spreadsheet. This exhibit is provided to OMB.

                                           Table 1 describes the types of budget information provided in these three
                                           reports.



Table 1: Information Included in Budget Justification Reports

Type of                                                                                                       Report in which
information        Information subtype         Description a                                                  information appears
System             Major                       Among other things, those initiatives that require special   Exhibit 300, IT-1
classification                                 management attention because of their importance to an       spreadsheet, Exhibit 53
                                               agency’s mission, or that have significant program or policy
                                               implications (OMB definition)
                   Nonmajor                    Investments or initiatives that do not meet the criteria for
                                               major initiatives (DOD classification)
                   All other                   An additional DOD classification for certain initiatives




                                           4
                                           OMB Circular A-11, Preparation, Submission, and Execution of the Budget.




                                           Page 4                                 GAO-04-115 Reliability of Defense Budget Submissions
(Continued From Previous Page)
Type of                                                                                                               Report in which
information          Information subtype          Description a                                                       information appears
Appropriation type   Procurement                  Funds for the acquisition of such items as hardware,                Exhibit 300, IT-1
used to fund IT b                                 infrastructure, software, and services                              spreadsheet
                     Research, Development,       Funds for research, development, test, and evaluation
                     Test, and Evaluation         activities
                     Military Personnel           Funds for military personnel who are planning, acquiring,
                                                  developing, or maintaining IT initiatives
                     Operation and                Generally, funds for operating and maintaining IT systems
                     Maintenance                  or infrastructure
Budget category      Development/                 Funds for developing new IT systems or making major                 IT-1 spreadsheet,
                     modernization                enhancements to existing systems                                    Exhibit 53
                     Steady state (referred to by Funds for operating and maintaining systems at current
                     DOD as “current services”) levels (i.e., without major enhancements)
Life cycle phase     Planning                     Funds for planning IT initiatives                                   Exhibit 300
                     Acquisition                  Funds for acquiring or developing IT systems
                     Maintenance                  Funds for operating and maintaining IT systems
Sources: OMB, DOD.
                                              a
                                              Descriptions of budget information are based on OMB Circular A-11, DOD’s Financial Management
                                              Regulation, Exhibit 53, Exhibit 300s, and IT-1 spreadsheet for fiscal year 2004.
                                              b
                                               In addition, some IT initiatives are funded through working capital funds, which may be used for any
                                              type of cost by organizations that are financed in this way. (Working capital fund organizations sell
                                              goods or services—e.g., network services or financial services—to other DOD organizations and use
                                              the income from these sales to fund the production of their respective goods or services.)


                                              The types of information in these budget justification reports are
                                              interrelated. For example, according to an official from the DOD
                                              Comptroller’s office, the life cycle phase in which a cost is to be incurred is
                                              key to determining the proper appropriation type for funding that cost, as
                                              well as to determining the proper budget category
                                              (development/modernization or current services). Similarly, Circular A-11
                                              states that funding for all activities that occur during the planning or
                                              acquisition phases should be placed in the development/modernization
                                              budget category.




                                              Page 5                                   GAO-04-115 Reliability of Defense Budget Submissions
                         The DOD Chief Information Officer (CIO), who is also the Assistant
                         Secretary of Defense for Networks and Information Integration, is
                         responsible for compiling and submitting the department’s IT budget
                         reports to OMB and the Congress. The CIOs and Comptrollers for DOD’s
                         component organizations are responsible for the reliability of the
                         information about their respective initiatives in the submission.5 Because
                         of the importance of the budget submission, these officials are required to
                         certify in writing as to their reliability. According to a DOD CIO official, the
                         information in the submission is initially prepared by component program
                         offices and processed through the CIO and Comptroller chains of
                         command for the components. The information is then forwarded to the
                         DOD CIO office, where it is consolidated before being sent to OMB and the
                         Congress.



DOD’s Fiscal Year 2004   The House Report6 on the Bob Stump National Defense Authorization Act
                         for Fiscal Year 2003 emphasized the need for reliable IT budget
IT Budget Submission     information. Specifically, the report stated:
Contains Unreliable
                         “In the past, the [Armed Services Committee] has received information technology
Information              documents that describe the various information technology initiatives and provide budget
                         data on these initiatives. These documents, however, are too often inaccurate, misleading,
                         and incomplete. The Department must provide the committee accurate and precise
                         information and data on information technology systems. The committee will rely on the
                         documents, submitted pursuant to this provision, when making recommendations.”




                         5
                          DOD components consist of the military services and DOD agencies and activities, such as
                         the Defense Information Systems Agency and the Defense Human Resources Activity.
                         6
                         H.R. Rep. No. 107-436, at 298 (May 3, 2002).




                         Page 6                               GAO-04-115 Reliability of Defense Budget Submissions
Federal agencies also need reliable IT budget information to comply with
the requirements of the Clinger-Cohen Act, which specifies that agencies
should design capital planning and investment control processes for
selecting, controlling, and evaluating IT investments and should integrate
those processes with the agencies’ processes for making budget-related
decisions.7 IT investment management best practices, as well as OMB
guidance, recognize the importance of reliable information, including the
correct use of budget categories and the consistent use of appropriation
types, to support these processes and decisions.8

DOD’s fiscal year 2004 IT budget submission includes inconsistent,
inaccurate, and incomplete information, as follows:

• The Exhibit 300 Capital Investment Reports and the IT-1 spreadsheet
  contain different numbers of major initiatives, and the reports’ funding
  amounts for major initiatives also differ significantly.

• The Exhibit 300s contain omissions and errors, such as missing life
  cycle phase information and errors in calculations.

• The Exhibit 300s contain funding amounts for planning and acquisition
  activities that do not use the correct budget category—
  development/modernization.

• The Exhibit 300s do not consistently use the same appropriation types
  to fund the same IT development and modernization activities.

• The IT-1 spreadsheet does not include all the direct and indirect costs
  required to fund IT initiatives, such as the direct costs of military
  personnel working on the initiatives and the indirect costs of resources
  that are jointly used by multiple initiatives or organizations.




7
40 U.S.C. § 11312.
8
 U.S. General Accounting Office, Information Technology Investment Management: A
Framework for Assessing and Improving Process Maturity, GAO/AIMD-10.1.23
(Washington, D.C.: May 1, 2000).




Page 7                            GAO-04-115 Reliability of Defense Budget Submissions
                             These inconsistencies, inaccuracies, and omissions are attributable in part
                             to insufficient management attention to the reliability of the reports as well
                             as ambiguities in DOD’s Financial Management Regulation (FMR)9 and a
                             lack of supporting systems and control processes for ensuring consistency
                             between reports. Without accurate and complete IT budget information,
                             OMB and the Congress are not provided with sufficient information to
                             make informed decisions about DOD’s portfolio of competing IT
                             investment options or to adjust the level of funding devoted to IT. Without
                             sufficient information, decision makers could approve or deny funding for
                             programs that might otherwise have been treated differently. Moreover,
                             inconsistency in how DOD uses appropriation accounts reduces
                             congressional and departmental oversight and control of how the
                             department uses the accounts. Further, this inconsistency increases the
                             risk of violations of the Anti-deficiency Act, which can occur when funds
                             that have been apportioned from an appropriation are insufficient to cover
                             obligations.10



DOD’s Exhibit 300s Are Not   Information in DOD’s Exhibit 300 Capital Investment Reports, reported for
Consistent with Its IT-1     its major IT initiatives as part of the fiscal year 2004 budget submission, is
                             not consistent with funding information in DOD’s fiscal year 2004 IT budget
Budget Spreadsheet
                             summary, which DOD submits to the Congress in the form of the IT-1
                             spreadsheet and to OMB in the form of the Exhibit 53. Discrepancies were
                             evident in the number of major initiatives that appear in these two reports,
                             as well as in the amounts for 41 percent of the major initiatives that appear
                             on both reports. DOD reported 191 major initiatives in the IT-1 spreadsheet
                             and 179 major initiatives in the Exhibit 300s. While the two reports have
                             176 major initiatives in common, the IT-1 spreadsheet includes 15
                             initiatives that are not in the Exhibit 300s, and the Exhibit 300s classify 3
                             initiatives as major that the IT-1 spreadsheet classifies as nonmajor.11
                             Table 2 compares the total amounts reported for these three groupings of
                             major initiatives.


                             9
                              DOD’s Financial Management Regulation includes rules on the use of appropriations and
                             definitions of development/modernization and current services.
                             10
                              31 U.S.C. §§ 1341(a), 1517(a). These sections of the Anti-deficiency Act prohibit obligations
                             or expenditures in excess of available funds.
                             11
                              The IT-1 spreadsheet classifies each initiative as major, nonmajor, or all other. OMB
                             requires that an Exhibit 300 be prepared for each major initiative, but not for the other
                             categories.




                             Page 8                                GAO-04-115 Reliability of Defense Budget Submissions
Table 2: Comparison of Total Funding for Three Groupings of Major Initiatives

Dollars in millions
                                                                    Funding
                                                          IT-1
Major initiatives                                  spreadsheet Exhibit 300s           Differencea
176 on both Exhibit 300 and IT-1
spreadsheet                                              $14,527          $14,823          –$296
15 on IT-1 spreadsheet only                                    83                —            83
3 classified as nonmajor on IT-1
spreadsheet                                                    —                57           –57
Total                                                    $14,610          $14,880          –$270
Sources: GAO, DOD.

Note: GAO analysis of DOD’s Exhibit 300s and IT-1 spreadsheet.
a
Difference is the IT-1 spreadsheet total amount minus the Exhibit 300 total amount.


DOD officials cited various reasons why 15 major initiatives on the IT-1
spreadsheet did not have Exhibit 300s. For example, an official
representing the Department of the Army’s CIO office told us that one of
the Exhibit 300s was omitted because responsibility for the initiative was
not assigned to the Army in time to prepare the report. The same official
told us that another was omitted because after preparing the IT-1
spreadsheet, senior DOD officials decided not to fund the initiative.12
However, the root cause of these omissions is that DOD does not provide
sufficient management attention to IT budget submission reliability.
Additionally, DOD does not have the management processes (e.g., policies
and procedures) and support systems needed to ensure that the two
reports are consistent.

Significant discrepancies also appear in the total dollar amounts reported
in the Exhibit 300s and the IT-1 spreadsheet for the 176 major initiatives
that were included in both reports. Specifically, DOD’s IT-1 spreadsheet
totals about $14.5 billion for these initiatives. For the same major IT
initiatives on DOD’s Exhibit 300s, the total dollar amount is about $14.8
billion, about a $300 million difference. This discrepancy can be traced to
73 of the 176 initiatives (41 percent), of which 44 (25 percent) had


12
 For 5 of the 15 initiatives without Exhibit 300s, no funding was included for fiscal year
2004. However, for 9 other initiatives, Exhibit 300s were submitted even though no funding
was included for fiscal year 2004.




Page 9                                   GAO-04-115 Reliability of Defense Budget Submissions
differences over $1 million, and 4 had differences of more than $100
million. Table 3 provides a summary of funding totals for the 176 initiatives
stratified by differences between the initiatives’ funding on the IT-1
spreadsheet and Exhibit 300s.



Table 3: Stratified Funding Differences among 176 Initiatives in Exhibit 300 and IT-1
Reports

                                                                               Initiatives
Amount of difference (thousands)                                            Number           Percent
More than $100,000                                                                  4                 2
$50,001 to $100,000                                                                 1                 1
$10,001 to $50,000                                                                 14                 8
$1,001 to $10,000                                                                  25             14
Subtotal: differences over $1 million                                              44             25
$501 to $1,000                                                                      9                 5
$101 to $500                                                                        9                 5
$51 to $100                                                                         5                 3
$1 to $50                                                                           6                 3
No difference                                                                     103             59
Total                                                                             176            100
Sources: GAO, DOD.

Note: GAO analysis of 176 initiatives that appear both in DOD’s Exhibit 300 and in IT-1 spreadsheet
budget reports.




Page 10                                  GAO-04-115 Reliability of Defense Budget Submissions
                                          The net difference between the total amount reported for all major
                                          initiatives on the IT-1 spreadsheet and that reported on the Exhibit 300s is
                                          around $296 million.13 A much greater value results when we sum the
                                          differences for each initiative between the IT-1 spreadsheet and the Exhibit
                                          300s: about $1.6 billion.14 Of the 73 initiatives that account for these
                                          differences, the Army and the Department of the Air Force each had 12, and
                                          the Department of the Navy had 6. The Navy accounts for the largest share
                                          of the total dollar difference, followed by the Air Force. About 95 percent of
                                          Navy’s total dollar difference can be attributed to the Navy Marine Corps
                                          Intranet program.15

                                          Table 4 breaks down the 73 initiatives by component, showing both the
                                          different amounts on the two reports and the difference between the total
                                          amounts reported.



Table 4: Net Differences, Total Differences, and Number of Initiatives with Differences, by DOD Component

                                                                 Initiatives with differences              Difference (millions)
                                               Total number
DOD component                                   of initiatives         Number             Percent                  Neta            Totalb
Air Force                                                  22                12                 55             $357.99          $362.81
Army                                                       28                12                 43               54.37             55.57
Navy                                                       32                  6                19             –559.13            581.89
American Forces Information Service                         1                  1               100               18.01             18.01
Defense Commissary Agency                                   1                  0                 0                    0                    0
Defense Finance and Accounting Service                     16                  2                13                 1.09             1.09
Defense Human Resources Activity                            3                  0                 0                    0                    0



                                          13
                                            We computed the net difference between the total amounts reported for 176 major
                                          initiatives on both reports by subtracting the total amount reported for all major initiatives
                                          on the IT-1 spreadsheet from the total amount reported for all major initiatives on the
                                          Exhibit 300s.
                                          14
                                            We computed the sum of the differences between the amounts for each initiative in the two
                                          reports by first finding the difference between the amounts for each of the 176 major
                                          initiatives in the two, converting any negative differences to positive values, and then
                                          summing all the differences. The sum of the differences is larger than the difference
                                          between the IT-1 spreadsheet and Exhibit 300 total amounts because for this calculation,
                                          the positive and negative differences between the two reports do not cancel each other out.
                                          15
                                           The Navy Marine Corps Intranet is to provide the Navy with a single, secure network for all
                                          Navy and Marine Corps military and civilian personnel, including deployed forces.




                                          Page 11                                  GAO-04-115 Reliability of Defense Budget Submissions
(Continued From Previous Page)
                                                              Initiatives with differences                    Difference (millions)
                                         Total number
DOD component                             of initiatives              Number              Percent                     Neta              Totalb
Defense Information Systems Agency                   14                       4                 29                   –0.09                8.37
Defense Logistics Agency                              5                       1                 20                   –0.17                0.17
Defense Security Service                              1                       1                100                 –12.89               12.89
Office of the Secretary of Defense                    4                       3                 75                    7.00              11.14
Transportation Command                                9                       0                   0                       0                   0
             c
TRICARE                                               7                       3                 43                   37.22              37.22
Washington Headquarters Service                       3                       1                 33                    0.07                0.07
                                 d
Multiple-component initiatives                       30                      27                 90                –199.52              530.61
Total                                              176                       73                 41              –$296.05           $1,619.84
Sources: GAO, DOD.

                                     Note: GAO analysis of Exhibit 300s and IT-1 spreadsheet.
                                     a
                                     Net is the IT-1 spreadsheet total amount minus the Exhibit 300 total amount.
                                     b
                                      The total difference was calculated by computing the difference between the amounts for each of the
                                     176 major initiatives in the two reports, converting any negative differences to positive values, and then
                                     summing all the differences.
                                     c
                                      TRICARE is a regionally managed health care program for active duty and retired members of the
                                     uniformed services and their families and survivors.
                                     d
                                      Of the 30 cross-service initiatives, 27 had differences, but these differences could not be attributed to
                                     a single component because more than one component reported funding for each initiative.


                                     These inconsistencies among initiatives on the IT-1 spreadsheet and the
                                     Exhibit 300s occurred in part because DOD’s management attention to its
                                     budget submission has not been sufficient, and because it does not have
                                     the management processes (e.g., policies and procedures) and support
                                     systems that are needed to ensure consistency. For example, the DOD CIO
                                     official who is responsible for compiling the IT budget submission said that
                                     the department does not have support systems that allow funding
                                     information to be input once and then used to create both the IT-1
                                     spreadsheet and Exhibit 300s. Rather, DOD’s budgeting systems require
                                     that similar, but not identical, information be input into multiple databases,
                                     in different formats. According to program offices, this practice contributes
                                     to inaccuracies and inconsistencies in the budget submission.

                                     Additionally, DOD does not have management processes to ensure the
                                     accuracy of changes made to the exhibits by component- and department-
                                     level officials after the exhibits are prepared by program offices. For
                                     example, officials from two of the six program offices that provided
                                     information about this matter told us that information that they reported on
                                     the Exhibit 300s was changed when it was incorporated into the IT-1



                                     Page 12                                      GAO-04-115 Reliability of Defense Budget Submissions
                             spreadsheet by their component CIO offices, and that program offices were
                             not consulted to ensure that the changes were accurate. Furthermore,
                             these officials said that the component CIO offices did not inform program
                             offices of changes made to the IT-1 spreadsheets, and that they did not
                             have access to the information needed to update Exhibit 300s to reflect
                             changes.



DOD’s Exhibit 300s Contain   DOD’s fiscal year 2004 Exhibit 300 Capital Investment Reports contain
Omissions and Errors         three types of omissions or errors. First, the reports do not include
                             complete information on the life cycle phase of the major initiatives, as
                             required by Circular A-11. According to this circular, Exhibit 300s must
                             summarize funding data by life cycle phase: that is, planning, acquisition, or
                             maintenance. OMB officials stated that this information is used to
                             determine whether IT initiatives have an appropriate balance of planning,
                             acquisition, and maintenance activities. However, of the 197 DOD Exhibit
                             300s for fiscal year 2004 (representing 179 initiatives),16 20 exhibits did not
                             classify the funds by life cycle phase.

                             Second, the total dollar amount reported on 45 Exhibit 300s does not equal
                             the sum of their respective line items. As shown in table 5, the Navy
                             accounts for the majority of these cases—about 69 percent of the 45
                             exhibits and almost all of the total dollar difference. The discrepancies can
                             be traced to a variety of causes. For example, among the 31 Navy Exhibit
                             300s with differences, 13 erroneously treated the fiscal year (2004) as a
                             value and added $2,004 million to the funding total. That is, the numeral
                             “2004” was incorrectly treated as a line of funding in the summary of
                             spending. These 13 errors account for about $26 billion of the Navy’s
                             approximately $39 billion difference.




                             16
                              For major initiatives that involve two or more components, each component may submit a
                             separate Exhibit 300 for the same initiative. As a result, components collectively submitted
                             197 Exhibit 300s for 179 initiatives.




                             Page 13                              GAO-04-115 Reliability of Defense Budget Submissions
                           Table 5: Discrepancies between Sum of Line Items and Total Amount Reported on
                           Exhibit 300s, by DOD Component

                                                                Fiscal year 2004 amounts (millions)                   Number of
                                                                                        Total                             Exhibit
                                                                      Sum of          amount             Total         300s with
                           DOD component                           line items        reported     differencea        differences
                           Air Force                                   $435.3          $445.8            $10.6                    5
                           Army                                         336.0            214.5           121.5                    6
                           Navy                                       1,934.6        40,791.2         38,856.6                    31
                           Defense Finance and
                           Accounting Service                              8.3              8.8             0.5                   1
                           Defense Logistics Agency                        8.0              7.8             0.2                   1
                           Transportation Command                         44.9               —             44.9                   1
                           Total                                     $2,767.1       $41,468.1       $39,034.3                     45
                           Sources: GAO, DOD.

                           Note: GAO analysis of Exhibit 300s and IT-1 spreadsheet.
                           a
                            We computed the total difference by first calculating the actual sum of the Exhibit 300 line items,
                           subtracting DOD’s reported total for the Exhibit 300 from it, converting any negative differences to
                           positive values, and then summing the differences.


                           Third, although OMB requires an Exhibit 300 for each major initiative and
                           specifies a defined format to use to present funding information for each
                           initiative, DOD components did not consistently adhere to this format. For
                           example, the Defense Information Systems Agency combined the funding
                           information for seven initiatives in a format that did not clearly provide
                           OMB and congressional decision makers with the funding amounts for
                           each initiative. This inconsistency occurred because the Office of the
                           Secretary of Defense (OSD) does not have clearly defined and consistently
                           applied management controls to ensure that organizations adhere to a
                           specified format for displaying funding information in the Exhibit 300.



Some Development/          Circular A-11 requires planning and acquisition activities to be categorized
Modernization Activities   as development/modernization and activities related to operation and
                           maintenance of existing systems to be categorized as steady state, which
Were Improperly            DOD refers to as current services. Using the appropriate budget categories
Categorized                is important, according to Circular A-11, because it permits understanding,
                           and thus informed decision making, about the relative amounts being spent
                           on developing and modernizing IT versus operating and maintaining the
                           status quo IT environment. Moreover, OMB officials stated that using the




                           Page 14                                   GAO-04-115 Reliability of Defense Budget Submissions
proper budget category is also important because it triggers the
appropriate OMB review process for an initiative. If
development/modernization activities are miscategorized as current
services, the required OMB review process will not be invoked.

DOD’s fiscal year 2004 IT budget submission incorrectly categorized the
funding reported for some initiatives’ planning and acquisition activities as
current services, rather than as development/modernization. This incorrect
categorization affected both DOD’s Operation and Maintenance (O&M) and
its Military Personnel appropriation accounts. For example, the budget
submission for the department’s new integrated personnel and pay system
included about $14 million to fund program office costs from the O&M
appropriation and categorized these costs as current services. However,
because DOD intends to perform planning and acquisition activities for this
program during fiscal year 2004, a portion of the funding should have been
categorized as development/modernization. This means that the
development/modernization funding amount for this initiative is
understated and the current services amount is overstated. As another
example, the IT-1 spreadsheet shows that every major initiative that
included funding from the Military Personnel appropriation categorized the
amount as current services, regardless of the activities the military
personnel were to perform. The DOD CIO official who is responsible for
compiling the IT budget submission acknowledged that such
miscategorization occurs, but stated that information is not readily
available to determine the total number of initiatives and the associated
amount of funding that is miscategorized departmentwide.

Officials representing the Navy CIO office stated that the Navy categorizes
all IT funding from the O&M appropriation as current services, even if the
funding is to be used for development/modernization activities. This
miscategorization occurs, in part, because the FMR does not provide clear
guidance on categorizing activities as either development/modernization or
current services. Specifically, the FMR states that budgeted costs funded
from the O&M and Military Personnel appropriations are to be considered
expenses, and it defines expenses similarly to current services, in that both
refer to the costs of operating and maintaining systems. However, Circular
A-11 states that funding for activities that occur during either the planning
or acquisition phases of a new IT initiative must be classified as
development/modernization. This means that costs budgeted for planning
or acquisition activities should be classified as
development/modernization, regardless of whether the O&M, Military
Personnel, or another appropriation is used to fund the activities. Further, a



Page 15                         GAO-04-115 Reliability of Defense Budget Submissions
DOD Comptroller official who is responsible for advising components on
IT budgeting told us that if appropriations are used to fund the planning or
acquisition of a system, the costs should be classified as
development/modernization, rather than current services.

Our analysis of the FMR confirmed that it does not clearly distinguish
between development/modernization and current services costs. More
specifically, it defines the two terms as follows:

• development/modernization costs are those for “new applications and
  infrastructure capabilities” and for “any change or modification to an
  existing [information system] program, and/or initiative that results in
  improved capability or performance of the baseline activity,” and the
  definition includes “personnel costs for Project Management” and

• current services costs are those required to maintain “operations at a
  current capability and performance level” and include “certain overhead
  costs associated with PM [program management] offices.”

The FMR definitions are confusing regarding the classification of project
management costs because current services costs include “certain
overhead costs associated with PM [program management] offices,” and
development/modernization includes “personnel costs for Project
Management.” Also, the definitions do not clearly state that for new IT
initiatives, all funding for planning or acquisition activities should be
classified as development/modernization. Furthermore, for modifications
of existing systems, the definitions do not provide sufficient criteria for
determining whether modifications will result in “improved capability or
performance” (development/modernization) or will maintain “operations at
a current capability and performance level” (current services).

OSD and Navy CIO officials stated that decisions regarding the amounts
that should be categorized as development/modernization or current
services for an individual initiative are complicated by the practical fact
that the same personnel and equipment are sometimes used to perform
both development/modernization and current services activities for the
initiative. This occurs because DOD uses a generally accepted system life
cycle management practice that involves sequentially developing and
deploying subsystems, rather than waiting until the system is completely
developed to deploy it. As a result, at various points in the system’s life
cycle, some subsystems may be in the maintenance phase while others are
in the planning or acquisition phases. In these cases, these officials stated



Page 16                        GAO-04-115 Reliability of Defense Budget Submissions
                            that most DOD program offices do not have process controls and
                            supporting systems to enable them to accurately estimate the amount that
                            should be budgeted for development/modernization and current services
                            activities.



IT Budget Submission Does   Appropriations provide the legal authority for federal agencies to obligate
Not Use Appropriation       funds and make payments from the Treasury for specified purposes. In the
                            report of the House Committee on Appropriations17 accompanying the
Accounts Consistently
                            Department of Defense Appropriations Bill, 1999, the Congress expressed
                            concern about DOD’s inconsistent use of appropriation accounts to fund IT
                            development/modernization activities. In response, DOD acknowledged
                            the inconsistencies and took steps to correct them by transferring funds
                            from the incorrect appropriation accounts to the correct accounts and by
                            issuing clarifications to its FMR guidelines. Additionally, DOD’s Office of
                            the Comptroller issued a memorandum on this issue stating that

                            “Cross-Service and Agency consistency is important…. In determining what appropriation
                            to use, the purpose of the funding must fall logically within the appropriation’s purpose and
                            conform with the expense and investment criteria.”

                            However, the inconsistent use of appropriation accounts is continuing to
                            occur. DOD’s fiscal year 2004 IT budget submission does not consistently
                            use the same appropriations accounts to fund the same types of activities.
                            That is, defense components used two different appropriations—the
                            Research, Development, Test, and Evaluation (RDT&E) and O&M—to fund
                            the same types of activities (the cost of civilian personnel and other costs
                            for performing or managing development/modernization activities).
                            According to officials representing 7 of the 10 major initiatives that
                            provided information on this topic, their respective budget reports
                            included funding from the O&M appropriation for civilian personnel costs
                            and other costs for performing or managing development/modernization
                            activities, while according to officials representing 3 other initiatives, their
                            budget reports included funding for these activities from the RDT&E
                            appropriation. Officials from the DOD Comptroller’s office stated that the
                            O&M appropriation is the correct one to fund these costs, but that research
                            and development organizations are allowed to use RDT&E appropriations
                            for these costs, because such organizations do not receive O&M
                            appropriations. However, according to a representative of the Army CIO’s


                            17
                                 H.R. Rep. No. 105-591, at 173-174 (June 22, 1998).




                            Page 17                                  GAO-04-115 Reliability of Defense Budget Submissions
office, two of the three organizations that used RDT&E appropriations
were not research and development organizations (both were Army
programs) and, according to the DOD Comptroller official, should have
used O&M appropriations.

A representative of the Army CIO’s office explained that the reason the
Army program offices used the RDT&E appropriation to fund the cost of
civilian personnel and other costs for performing or managing
development/modernization activities was that his office advised them to
do so. He stated that this advice was based on the Army CIO office’s
interpretation of the FMR and on an October 1999 memorandum from the
DOD Comptroller containing the following language:

“The RDT&E funds are typically used for developing new capability. Expenses—the
resources used to operate and maintain organizations and current services—are generally
budgeted in the O&M appropriations. Investments are costs to acquire capital assets and
have a long-term benefit….”

This official further stated that FMR sections, as well as the language in this
memorandum, indicate that the costs to develop new IT capabilities,
including the costs of civilian personnel and other costs for managing and
performing IT development and modernization activities, should be funded
with the RDT&E appropriation. However, the official added that the FMR is
ambiguous on this matter because other sections indicate that the O&M
appropriation may be the correct one to use to fund these costs.

Our analysis of the FMR shows that the FMR is ambiguous regarding the
proper appropriation types for funding the costs for
development/modernization activities—specifically, the cost of civilian
personnel and other costs for managing and performing these activities.
The following excerpts from the FMR illustrate its ambiguity in this area.
The section on “Budgeting for Information Technology and Automated
Information Systems” supports the Army CIO’s position that the RDT&E
appropriation should be used to fund these activities:

“In general, all developmental activities involved in bringing a program to its objective
system[18] are to be budgeted in RDT&E.”




18
 DOD’s FMR states that bringing a program to its objective system means developing the
system to the point that it meets the requirements defined in the system’s requirements
documents.




Page 18                               GAO-04-115 Reliability of Defense Budget Submissions
However, other sections of the regulation support the DOD Comptroller
officials’ position that the O&M appropriation is the correct appropriation
for funding the cost of civilian personnel and other costs for managing and
performing development/modernization activities. For example, the
section on funding policies states that

“Costs budgeted in the Operation and Maintenance (O&M) and Military Personnel
appropriations are considered expenses….

“The following guidelines shall be used to determine expense costs: Labor of civilian,
military, or contractor personnel….

“The cost of civilian personnel compensation and other direct expenses (i.e., travel, office
equipment leasing, maintenance, printing and reproduction) incurred in support of
procurement and/or production programs by departmental headquarters staff, contracting
offices, contract audit offices, system project offices, and acquisition managers are
expenses.”

These FMR sections provide conflicting guidance regarding which
appropriation should be used to fund civilian personnel and other costs for
development/modernization activities, which can result in the inconsistent
use of appropriations. As we have previously reported,19 use of the wrong
appropriation account constitutes a violation of the Purpose Statute20 and
can lead to a violation of the Anti-deficiency Act.21 For example, we
reported that the Navy incorrectly purchased component parts for IT
systems with the O&M appropriation account rather than with the
Procurement appropriation. Subsequent actions to correct the improper
use of the O&M appropriation account resulted in an overobligation of the
amount that had been apportioned from Procurement appropriations,
thereby violating the Anti-deficiency Act. Further, we reported that the
violations resulted from misunderstanding, confusion, or misapplication of
financial management regulations and guidance regarding procurement
and fund management.




19
   U.S. General Accounting Office, Navy Anti-Deficiency Act Training, GAO/AIMD-96-53R
(Washington, D.C.: Apr. 12, 1996).
20
     31 U.S.C. § 1301(a) is commonly referred to as the Purpose Statute.
21
     Anti-deficiency Act (31 U.S.C. § 1517(a)).




Page 19                                   GAO-04-115 Reliability of Defense Budget Submissions
DOD’s Submission Does Not      Contrary to federal accounting guidance, DOD’s budget submission does
Include All Relevant Project   not include all the costs required to fund IT initiatives. Federal accounting
                               standards and guidance from the Chief Financial Officers (CFO) Council
Costs                          both support the preparation of budget submissions that include the full
                               cost of initiatives—including all direct costs, such as military personnel
                               costs—and those indirect costs that can be allocated or traced to an
                               initiative. Further, the Federal Financial Management Improvement Act of
                               1996 requires federal agencies to comply with federal accounting
                               standards,22 including the Statement of Federal Financial Accounting
                               Standard Number 4, “Managerial Cost Accounting Concepts and Standards
                               for the Federal Government.” According to this statement, organizations
                               should report full costs in general purpose financial reports, including the
                               salaries and other benefits of employees who work directly on producing
                               outputs (such as IT initiatives), as well as indirect costs that can be
                               allocated to producing outputs. The statement continues that the cost data
                               in the organization’s budget should be consistent with the full cost data
                               reported in the financial reports. Also, the CFO Council’s Cost Accounting
                               Implementation Guide states that preferably, the cost of all significant
                               inputs that can be traced to the achievement of a program’s outputs and
                               intended outcomes should be included in the program’s budget.

                               DOD’s fiscal year 2004 IT-1 spreadsheet, which summarizes the IT budget
                               and provides information on the budget submission for each major
                               initiative, does not include all the direct costs of the initiatives. Specifically,
                               for numerous initiatives, the spreadsheet did not consistently include IT
                               funding for military personnel who are part of DOD’s IT workforce. On the
                               basis of the average pay and benefits for military personnel, we estimated
                               that the total amount of these workers’ salary and benefits is about $4
                               billion annually. In its fiscal year 2004 budget submission, DOD’s IT-1
                               spreadsheet included about $1 billion from the Military Personnel
                               appropriation, meaning that the department’s fiscal year 2004 IT budget is
                               potentially understated by as much as $3 billion. According to the DOD CIO
                               official responsible for assembling the IT budget submission, a portion of
                               this $3 billion might have been included in the IT-1 spreadsheet as either
                               reimbursable costs or working capital funds, and some of the costs
                               associated with DOD’s IT military personnel are not included in the IT
                               budget submission because these personnel work on embedded or satellite
                               system programs, which are not in DOD’s IT budget. The official also stated


                               22
                                    Public Law 104-208, section 803(a).




                               Page 20                                    GAO-04-115 Reliability of Defense Budget Submissions
              that information is not readily available to determine the number or cost of
              IT military personnel erroneously omitted from the IT budget reports.
              However, officials from five of the six program offices that provided
              information about this matter told us that they planned to use military
              personnel during fiscal year 2004, but they did not include these costs in
              their respective IT budget reports because the military services, rather than
              the initiatives, are responsible for budgeting and accounting for these
              personnel.

              Further, program offices did not include all indirect costs of the
              initiatives—that is, costs that are used jointly with other initiatives or DOD
              component organizations—in their fiscal year 2004 IT budget reports.23
              Officials of both the Army and Navy CIO offices stated that program offices
              generally do not include all indirect costs in their IT budget reports,
              because these costs are budgeted by the other DOD organizations that may
              be stakeholders in the respective initiatives, and the program offices are
              not generally provided with information on the amount of these shared
              costs that can be attributed to their respective initiatives. These officials
              also stated that with a few exceptions, department organizations have
              neither cost accounting systems nor cost estimating processes in place to
              determine the amount of indirect costs that should be allocated to each IT
              initiative.



Conclusions   DOD has not devoted sufficient management attention and it does not have
              adequate management controls and supporting systems in place to ensure
              that its IT budget submissions provide consistent, accurate, and complete
              cost information for major IT initiatives. The result is that DOD, OMB, and
              congressional decision makers are forced to make IT funding decisions for
              major IT initiatives on the basis of conflicting, uncertain, and inaccurate
              information regarding the cost of these initiatives. Without reliable budget
              information, decision makers are unnecessarily impaired in their ability to
              execute effective departmental control and oversight by linking budgetary
              inputs to outputs and outcomes, to compare full budgeted and actual costs
              of IT initiatives, and to make decisions on the relative merits of competing
              initiatives.



              23
               Indirect costs include such shared costs as those for general administrative services;
              general research and technical support; security; employee health and recreation facilities;
              and operation and maintenance of buildings, equipment, and utilities.




              Page 21                               GAO-04-115 Reliability of Defense Budget Submissions
Recommendations   To improve the consistency, accuracy, and completeness of future DOD IT
                  budget submissions, we recommend that the Secretary of Defense direct
                  the OSD and component CIOs, in consultation with the OSD and
                  component Comptrollers, to increase management attention and establish
                  the appropriate management controls and supporting systems to avoid the
                  weaknesses described in this report, including revising the FMR and other
                  guidance for preparing the DOD IT budget to clearly reflect these policies
                  and procedures. At a minimum, we recommend that revisions to policies,
                  procedures, and supporting systems ensure that

                  • Exhibit 300s and IT-1 spreadsheets are consistent in terms of (1) the
                    major initiatives that are included in each report (unless otherwise
                    explained) and (2) the funding reported for each of these initiatives;

                  • Exhibit 300s are complete, accurate, and internally consistent, in that
                    (1) funding information is provided for each life cycle phase for each
                    initiative; (2) total amounts reported for each initiative equal the sum of
                    the individual line items for the initiative; and (3) the format used to
                    display the funding information clearly shows the total funding amount
                    for each initiative;

                  • amounts are properly categorized as development/modernization or
                    current services in the IT budget submission, so that OMB and
                    congressional decision makers are provided with accurate information
                    on the funding required to (1) develop new systems or significantly
                    improve existing systems and (2) operate and maintain existing
                    systems;

                  • budget submissions are consistent in the costs that are funded with the
                    RDT&E appropriation and those that are funded with the O&M
                    appropriation; and

                  • budget submissions fully account for all relevant costs, including
                    military personnel costs and indirect costs, to the extent that these costs
                    can be identified and properly allocated to each initiative, so that OMB
                    and congressional decision makers are provided with complete budget
                    information for each initiative.

                  We further recommend that the OSD and component CIO offices, in
                  consultation with the OSD and component Comptroller offices,




                  Page 22                        GAO-04-115 Reliability of Defense Budget Submissions
                      • assess the costs and benefits of alternative approaches for establishing
                        cost accounting systems or cost estimating processes to determine the
                        amount of indirect costs attributable to each IT initiative and the
                        amounts that should be categorized as development/modernization and
                        current services, and implement the more cost-effective approach;

                      • assess approaches to reduce or eliminate requirements for duplicative
                        manual entry of information by program offices and components into
                        systems supporting the preparation of the IT budget reports; and

                      • review the IT budget submission for fiscal year 2004 and the IT budget
                        submission for fiscal year 2005 from the O&M and RDT&E
                        appropriations and transfer, as necessary, the amounts for civilian
                        personnel and other costs associated with IT planning or acquisition
                        activities to the proper appropriation account, to ensure consistent use
                        of these accounts, provide for congressional and departmental oversight
                        of DOD’s use of appropriations accounts, and reduce the risk of
                        violations of the Anti-deficiency Act.



Agency Comments and   DOD provided what it termed “official oral comments” on a draft of this
                      report from the CIO, OSD, who is also the Assistant Secretary of Defense
GAO Evaluation        for Networks and Information Integration. In commenting, DOD either
                      agreed or partially agreed with our recommendations and described
                      actions that it plans to take to establish the appropriate controls and
                      systems needed to correct many of the weaknesses described in this
                      report, including revising the FMR. Examples of DOD’s planned actions
                      include

                      • providing the Congress with a list of initiatives for which Exhibit 300s
                        were provided to OMB, but not to the Congress, along with explanations
                        for differences;

                      • negotiating with OMB a later submission date for DOD’s exhibits, to
                        provide additional time to ensure that exhibits are reliable;

                      • establishing a common, consistent data source to use in producing
                        Exhibit 300s and the IT-1 spreadsheets;

                      • modifying the process for producing Exhibit 300s to ensure that correct
                        funding amounts are captured;




                      Page 23                       GAO-04-115 Reliability of Defense Budget Submissions
• using a standardized format for Exhibit 300s;

• working with OMB to ensure the use of consistent definitions of and
  terminology for development/modernization and current services;

• updating the FMR to clarify areas of concern or inconsistencies in (1)
  the information presented in Exhibit 300s, (2) the use of
  development/modernization and current services categories, and (3) the
  categorization of costs as RDT&E or O&M;

• assessing, on a departmentwide basis, the establishment of a cost
  accounting system;

• evaluating approaches to reduce or eliminate duplicative data entry; and

• considering appropriations realignments during the fiscal year 2006
  budget cycle.

Notwithstanding DOD’s agreement with our recommendations, as well as
its planned actions to improve its submissions’ consistency, accuracy, and
completeness, DOD also provided mitigating reasons for the discrepancies
and problems that we reported. For example, DOD stated that Exhibit 300s
and IT-1 spreadsheets are not consistent in terms of the major initiatives
included in each report because DOD does not necessarily report all major
initiatives in the Exhibit 300s. Instead, DOD and OMB agree as to which
major initiatives are to be reported in the Exhibit 300s based on a goal of
reporting a dollar percentage of all initiatives. Similarly, DOD stated that its
IT-1 spreadsheet does not include all relevant costs, such as military
personnel costs and indirect costs, because the spreadsheet is an extract of
the budget justification documents and does not include full life cycle costs
or total cost of ownership. Nevertheless, DOD added that it will assess its
guidance on reporting the cost of military personnel and other relevant
costs.

While we do not question the information that DOD provided to explain the
discrepancies and problems discussed in our report, this information does
not eliminate the need to provide congressional decision makers with
reliable information upon which to make informed decisions. Thus, for
DOD to fully respond to our recommendations, it will need to take
additional actions beyond those provided in its comments. For example, it
will need to provide the Congress with a list of major initiatives included in
the IT-1 spreadsheet that are not included in Exhibit 300 (with an



Page 24                         GAO-04-115 Reliability of Defense Budget Submissions
explanation of these differences). Also, beyond modifying the FMR, it will
need to revise related guidance and implement controls to ensure that
costs are correctly categorized as (1) development/modernization or
current services and (2) RDT&E or O&M.


We are sending copies of this report to other interested congressional
committees and the other Members of the Senate and House Committees
on Armed Services; the House and Senate Committees on Appropriations,
Subcommittees on Defense; the Director, Office of Management and
Budget; the Secretary of Defense; the Assistant Secretary of Defense
(Networks and Information Integration)/Chief Information Officer; the
Under Secretary of Defense (Comptroller); and the Under Secretary of
Defense (Acquisition, Technology, and Logistics). We will also provide
copies to others on request. This report will also be available at no charge
on our Web site at http://www.gao.gov.

If you have any questions concerning this report, please contact me at (202)
512-3439 or by e-mail at hiter@gao.gov. Other key contributors to this letter
are Barbara Collier, Alison Jacobs, George L. Jones, Nick Marinos, Daniel
Wexler, and Robert Williams, Jr.




Randolph C. Hite
Director, Information Technology Architecture
 and Systems Issues




Page 25                        GAO-04-115 Reliability of Defense Budget Submissions
Appendix I

Objective, Scope, and Methodology                                                                AA
                                                                                                  ppp
                                                                                                    ep
                                                                                                     ned
                                                                                                       n
                                                                                                       x
                                                                                                       id
                                                                                                        e
                                                                                                        x
                                                                                                        Iis




              Our objective was to determine whether the fiscal year 2004 information
              technology (IT) budget submission for the Department of Defense (DOD)
              was reliable, including identifying opportunities to improve its reliability in
              the future. To do so, we assessed the funding information in DOD’s primary
              IT budget reports to determine whether the information reported was
              consistent between reports, whether the reports included all the funding
              information that the Office of Management and Budget (OMB) requires,
              whether the correct budget categories and consistent appropriation types
              were used to fund the initiatives, and whether the submission included all
              costs of the initiatives.

              We reviewed OMB Circular A-11 to obtain requirements and guidelines for
              preparing budget submissions and confirmed our understanding of the
              guidelines through interviews with OMB officials. We also assessed DOD’s
              Financial Management Regulation (FMR) and its budget submission
              guidance, and we interviewed DOD departmental and component officials
              to determine DOD’s criteria for budget submissions. Finally, we reviewed
              federal accounting standards to determine additional guidance for budget
              preparation.

              To identify inconsistencies between the reports, we assessed the Exhibit
              300 Capital Investment Reports and the IT-1 budget summary spreadsheet.
              We compared the Exhibit 300s with the IT-1 spreadsheet and not with the
              Exhibit 53 because the Exhibit 53 presents essentially the same
              information as the IT-1 spreadsheet, but in less detail. We counted the
              number of major initiatives that appeared in both reports, as well as the
              number appearing in only one of the reports. We also calculated the
              differences in the funding amounts between the Exhibit 300s and the IT-1
              spreadsheet and made comparisons among the initiatives and components,
              as well as between totals, for each report. We interviewed departmental,
              component, and program officials to determine causes for the
              inconsistencies.

              To select which program officials to contact, we chose a cross section of
              DOD’s organizations, including the Office of the Secretary of Defense; the
              Departments of the Air Force, Army, and Navy; and seven agencies and
              activities (the American Forces Information Service, Defense Contract
              Management Agency, Defense Human Resources Activity, Defense
              Information Systems Agency, Defense Security Service, TRICARE, and
              Washington Headquarters Service). From each program office, we obtained
              explanations of its funding submission related to one or more of the
              following issues: inconsistencies between the reports, omissions and errors



              Page 26                         GAO-04-115 Reliability of Defense Budget Submissions
Appendix I
Objective, Scope, and Methodology




in Exhibit 300s, improper categorization of development/modernization
activities, inconsistent use of appropriations, and costs that were not
included in the submission.

To determine whether the reports included all information required by
OMB, we analyzed the Exhibit 300 Capital Investment Reports to identify
omissions and inconsistencies in the information for each initiative. We
tallied the number of initiatives that omitted life cycle information. We also
identified initiatives with total funding amounts that were not equal to the
sum of the amounts reported for individual line items and calculated the
totals by component. To determine causes for these inconsistencies, we
interviewed departmental, component, and program officials.

To determine whether the correct budget categories were used to fund the
initiatives, we examined programs that included activities for development
and modernization and determined how their funding amounts were
categorized. We interviewed program officials to determine what activities
were planned and then assessed whether the budget categories were
consistent with OMB criteria. We also interviewed component and
departmental officials to determine the guidance they were providing to
program officials, and we assessed DOD’s FMR to determine whether its
guidance was clear and consistent with OMB guidelines.

To determine whether consistent appropriation types were used to fund
initiatives, we determined what appropriation types were included for
funding development and modernization activities. We identified three
program offices that were using the Research, Development, Test, and
Evaluation appropriation for these purposes and seven that were using the
Operation and Maintenance appropriation, and contacted them to
determine the reasons that they selected these appropriations. We
reviewed DOD’s prior actions to correct similar inconsistencies. We also
analyzed the language in the FMR for its clarity on these issues.

To determine whether the submission included all costs of the initiatives,
we assessed the appropriation activities reflected in the IT-1 spreadsheet.
From this assessment and interviews with program officials, we
determined that many programs did not include funding for military
personnel. To confirm that such costs should be included, we interviewed
officials representing OMB, the DOD Comptroller, and the DOD Chief
Information Officer, and we reviewed the FMR and budgeting guidance in
the Statement of Federal Financial Accounting Standard Number 4,
“Managerial Cost Accounting Concepts and Standards for the Federal



Page 27                             GAO-04-115 Reliability of Defense Budget Submissions
           Appendix I
           Objective, Scope, and Methodology




           Government.” We also interviewed program officials to determine why they
           did not include funding for military personnel costs in their budget reports.
           We used Defense Manpower Data Center information to estimate the
           potential amount that military personnel costs are understated in the fiscal
           year 2004 IT budget submission. To do this, we calculated the difference
           between the cost of military personnel performing IT functions and the
           amount of funding in DOD’s IT budget submission that was to be funded
           using the Military Personnel appropriations. To estimate the cost of IT
           military personnel, we used Defense Manpower Data Center information
           on the number of military personnel performing IT work in each of the four
           services—Air Force, Army, Navy, and the U.S. Marine Corps—and
           multiplied the number at each rank for each service by the respective
           average annual pay and benefits. We included only active military
           personnel in IT duty positions in our estimate. We also assessed federal
           accounting standards and interviewed program officials to determine the
           requirements and practices for including indirect costs in budget reports.

           We conducted our work at GAO and at DOD headquarters during June to
           October 2003 in accordance with generally accepted government auditing
           standards.




(310252)   Page 28                             GAO-04-115 Reliability of Defense Budget Submissions
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