oversight

Military Personnel: DOD Needs More Effective Controls to Better Assess the Progress of the Selective Reenlistment Bonus Program

Published by the Government Accountability Office on 2003-11-13.

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

                United States General Accounting Office

GAO             Report to the Subcommittee on
                Defense, Committee on Appropriations,
                House of Representatives


November 2003
                MILITARY
                PERSONNEL
                DOD Needs More
                Effective Controls to
                Better Assess the
                Progress of the
                Selective
                Reenlistment Bonus
                Program




GAO-04-86
                                                November 2003


                                                MILITARY PERSONNEL

                                                DOD Needs More Effective Controls to
Highlights of GAO-04-86, a report to the        Better Assess the Progress of the
Subcommittee on Defense, Committee on
Appropriations, House of Representatives        Selective Reenlistment Bonus Program



The Department of Defense (DOD)                 Despite congressional concerns about the SRB program, DOD’s May 2003
uses the Selective Reenlistment                 report stated that the program is managed carefully, bonuses are offered
Bonus (SRB) program to reenlist                 sparingly, and the services need flexibility in administering the program.
military personnel in critical                  However, DOD’s responses did not thoroughly address four of the five SRB
specialties. In fiscal years                    program concerns contained in the mandate. As a result, Congress does not
1997-2003, the program budget rose
138 percent, from $308 million to
                                                have sufficient information to determine if the program is being managed
$734 million (see fig.). In fiscal year         effectively or efficiently. For example,
2003, the House Appropriations                  •   DOD has not issued replacement program guidance and did not allow
Committee directed the Secretary                    us to review the guidance that has been drafted. DOD’s report focused
of Defense to reassess program                      primarily on criteria for designating occupations as critical, but the
efficiency and report on five                       report did not address an important change—the potential elimination of
concerns: (1) how effective the                     the requirement for conducting annual program reviews. In response to
program is in correcting retention                  our 2002 report, DOD stated that this requirement would be eliminated
shortfalls in critical occupations,                 from future program guidance. DOD recently told us that the new
(2) how replacement guidance will                   guidance will require periodic reviews, but neither the frequency nor the
ensure targeting critical specialties               details of how these reviews would be conducted was explained.
that impact readiness, (3) how
DOD will match program execution
                                                •   DOD conducted a limited evaluation to address the congressional
with appropriated funding, (4) how                  concern about how well the services are administering their programs.
well the services’ processes for                    The response consisted largely of program descriptions provided by
administering the program work,                     the services. Among other things, DOD did not use a consistent set of
and (5) advantages and                              procedures and metrics to evaluate each of the services’ programs.
disadvantages of paying bonuses                     Consequently, it is difficult to identify best practices, or to gain other
in lump sum payments. The                           insights into ways in which the effectiveness and efficiency of the
committee also directed GAO to                      services’ programs could be improved.
review and assess DOD’s report.
                                                DOD thoroughly addressed the congressional concern pertaining to the
                                                advantages and disadvantages of paying SRBs as lump sums.
GAO recommends that the
Secretary of Defense direct the                 SRB Program Budget Growth, Fiscal Years 1997-2005
Undersecretary of Defense for
Personnel and Readiness to
(1) retain the requirement for an
annual review of the SRB program
and (2) develop a consistent set
of methodologically sound
procedures and metrics for
reviewing the effectiveness and
efficiency of all aspects of each
service’s SRB program
administration. DOD agreed with
the recommendations.


www.gao.gov/cgi-bin/getrpt?GAO-04-86.

To view the full product, including the scope
and methodology, click on the link above.
                                                a                           b                                 c
For more information, contact Derek Stewart     In-year (or current) estimate. Fiscal year 2004 budget request. Fiscal year 2005 budget estimate.
at (202) 512-5559 or stewartd@gao.gov.
Contents


Letter                                                                                                   1
              Results in Brief                                                                          3
              Background                                                                                4
              DOD’s Report Did Not Thoroughly Address Congressional
                Concerns                                                                                 7
              Conclusions                                                                               15
              Recommendation for Executive Action                                                       16
              Agency Comments                                                                           16

Appendix I    Scope and Methodology                                                                     17



Appendix II   Comments from the Department of Defense                                                   18



Figure
              Figure 1: SRB Program Budget Growth, Fiscal Years 1997-2005                               5




              Abbreviations


              DOD      Department of Defense
              OMB      Office of Management and Budget
              OSD      Office of the Under Secretary of Defense
              SRB      Selective Reenlistment Bonus




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              Page i                                                     GAO-04-86 Military Personnel
United States General Accounting Office
Washington, DC 20548




                                   November 13, 2003

                                   The Honorable Jerry Lewis
                                   Chairman
                                   The Honorable John Murtha
                                   Ranking Minority Member
                                   Subcommittee on Defense
                                   Committee on Appropriations
                                   House of Representatives

                                   To meet its total active-duty force requirements, the Department of
                                   Defense (DOD) must reenlist about 150,000 personnel each year. The
                                   Selective Reenlistment Bonus (SRB) program is intended to help the
                                   services increase reenlistments in occupational specialties, such as
                                   linguists and information technology specialists, that the Secretary of
                                   Defense deems to be critical. Concerned about missing their overall
                                   retention goals in the late 1990s, all the services expanded their use of
                                   SRBs to help retain more enlisted personnel. As a result, the cost of the
                                   program more than doubled—from $308 million1 in fiscal 1997 to
                                   $791 million in fiscal 2002. During the last few years, Congress also
                                   approved DOD requests for basic pay increases above the rate of inflation
                                   to address the services’ retention concerns. Despite military pay increases
                                   and improved overall retention, funding for the services’ SRB budget is
                                   expected to rise to over $800 million in fiscal year 2005. Moreover, about
                                   one-third of all current reenlistments receive SRBs.

                                   To facilitate closer monitoring of the SRB program, congressional defense
                                   committees requested our 1995 and 2002 reviews of the program. The
                                   House Appropriations Committee also mandated2 our current review of
                                   DOD's recently issued report on the program. In our 2002 report,3 we
                                   identified several management and oversight concerns. For example, some



                                   1
                                     All budget information in this report has been converted to constant fiscal year 2004
                                   dollars, except where noted otherwise.
                                   2
                                     House Report (H.R. Rep. 107-532), June 25, 2002, accompanying H.R. 5010, Department of
                                   Defense Appropriations Bill, 2003.
                                   3
                                    U.S. General Accounting Office, Military Personnel: Management and Oversight
                                   of Selective Reenlistment Bonus Program Needs Improvement, GAO-03-149
                                   (Washington, D.C.: Nov. 25, 2002).



                                   Page 1                                                       GAO-04-86 Military Personnel
services were not using all the criteria they had established for selecting
occupational specialties to receive bonuses; the numbers of both
reenlistments and SRB-eligible specialties had grown substantially since
1998; and critical program guidance canceled in 1996 had not been
reissued. Among other things, we recommended that DOD conduct annual
reviews of the services’ SRB programs as required by its directive. In
concurring with our recommendation, DOD noted that a future DOD
directive would not require formal annual reviews of the program. Rather,
these reviews would be accomplished through other means that we
concluded were very limited in scope. In our 1996 report,4 we also
raised concerns about SRB program management and oversight. Our
recommendations included that DOD (1) provide more explicit guidance
and criteria for determining SRB skills and (2) monitor the services’
adherence to this guidance. DOD did not concur with either of these
recommendations.

In a House Report accompanying the Department of Defense fiscal year
2003 appropriation bill, you expressed concern that DOD guidance and
oversight of the SRB program was limited and that “a reassessment of the
program was warranted to ensure it is being managed efficiently.” The
Committee directed the Secretary of Defense to report back to the
committee on five concerns and directed us to review and assess the DOD
report.5 Those five concerns were (1) effectiveness of the SRB program in
correcting retention shortfalls in critical occupations, (2) replacement
program guidance and how that guidance will ensure that the program
targets only critical specialties that impact readiness, (3) steps DOD
will take to match program execution with appropriated funding,
(4) evaluation of the process the services use to administer the program,
and (5) advantages and disadvantages of paying bonuses as a single lump
sum payment. DOD issued its report in May 2003.6 In introductory
remarks, DOD’s report stated that the services manage their SRB
programs carefully, offer bonuses sparingly, have management standards
and practices to conduct a review of each skill receiving a bonus, and do


4
 U.S. General Accounting Office, Retention Bonuses: More Direction and Oversight
Needed, GAO/NSIAD-96-42 (Washington, D.C.: Nov. 24, 1995).
5
 The Senate Appropriations Committee also directed the Under Secretary of Defense for
Personnel Readiness to report on other aspects of DOD’s SRB program.
6
  Department of Defense, Report on Selective Reenlistment Bonus Program: Report
to the Committees on Appropriations of the United States Senate and House of
Representatives, Office of the Under Secretary of Defense Personnel and Readiness,
(Washington, D.C.: May 2003).



Page 2                                                    GAO-04-86 Military Personnel
                   an excellent job tailoring their SRB programs to changing demands for
                   specific skills. Also, the need for flexibility in administering the program
                   was a theme present throughout DOD’s report.

                   In August 2003, we briefed your staff on our preliminary observations
                   of DOD’s report. We provide our final assessment in this review. Our
                   objective was to determine the extent to which DOD’s report thoroughly
                   addressed the five SRB program management concerns raised in the
                   congressional mandate.

                   To conduct our work, we examined DOD’s mandated report on its SRB
                   program, along with supporting documentation from the services and the
                   Office of the Secretary of Defense (OSD). We also referred to our 2002
                   report and DOD’s comments on that report. We conducted our review and
                   assessment from June through September 2003 in accordance with
                   generally accepted government auditing standards. Additional information
                   on our scope and methodology is presented in appendix I.


                   DOD’s May 2003 report on the Selective Reenlistment Bonus (SRB)
Results in Brief   program did not thoroughly address four of the five program concerns
                   raised in the congressional mandate. As a result, Congress does not have
                   sufficient information to determine if the program is being managed
                   effectively and efficiently. In responding to the first concern, DOD’s report
                   did not directly address the SRB program’s effectiveness or efficiency in
                   correcting shortfalls in critical occupations. Instead, the report discussed
                   the general benefits of using bonuses to increase the retention of military
                   personnel rather than how well the services are selectively applying
                   bonuses to critical occupations. With regard to the second concern, DOD
                   has not issued replacement program guidance and did not allow us to
                   review the guidance that has been drafted. DOD’s report focused primarily
                   on changes that would provide greater flexibility to the services in
                   designating occupations as critical. The report did not address an
                   important change—the potential elimination of the requirement for
                   conducting annual program reviews. In response to our 2002 report, DOD
                   stated that this requirement would be eliminated from future program
                   guidance. DOD recently told us that the new guidance will require periodic
                   reviews, but neither the frequency nor the details of how these reviews
                   would be conducted was explained. Although the third concern mandated
                   that DOD describe steps that it will take to match program execution with
                   appropriated funding, DOD did not describe such steps. Instead, DOD
                   stated that the services need execution flexibility and have operated
                   consistent with the law and within the overall Military Personnel


                   Page 3                                             GAO-04-86 Military Personnel
             appropriation. Our analyses showed that in fiscal years 1999-2002 the
             services spent a combined total of $259 million more than Congress
             appropriated for the SRB program. In responding to the fourth concern,
             regarding an evaluation of how the each service administers its SRB
             program, DOD’s limited assessment consisted primarily of program
             descriptions provided by the services. Because different procedures and
             metrics were used to evaluate the services’ programs, it is difficult to
             identify best practices and other insights into ways in which the
             effectiveness and efficiency of the services’ programs could be improved.
             As mandated in the fifth concern, DOD identified the most salient
             advantages and disadvantages that could result from implementing a lump
             sum payment option for paying retention bonuses. We generally concur
             with DOD’s observations about the positive and negative aspects of using
             lump sum bonuses.

             We are making recommendations to DOD to improve management
             and oversight of the SRB program with more methodologically rigorous
             evaluations. We are recommending that DOD (1) retain the requirement
             for an annual review of the SRB program and (2) develop a consistent
             set of methodologically sound procedures and metrics for reviewing the
             effectiveness and efficiency of all aspects of each service’s SRB program
             administration. DOD agreed with the recommendations.


             Over the past 7 years, DOD has increasingly used the SRB program to
Background   address retention shortfalls. The program’s budget has grown from
             $308 million in fiscal year 1997 to an estimated $734 million in fiscal year
             2003—a 138 percent increase after the effect of inflation was held constant
             (see fig. 1). The budget is estimated to grow to $803 million in fiscal year
             2005, with most of the projected growth resulting from increases in the
             Air Force SRB program budget. Our 2002 report noted that in fiscal year
             2001 the Air Force extended reenlistment bonuses to 80 percent of
             its specialties.




             Page 4                                            GAO-04-86 Military Personnel
Figure 1: SRB Program Budget Growth, Fiscal Years 1997-2005




a
    In-year (or current) estimate.
b
    Fiscal year 2004 budget request.
c
    Fiscal year 2005 budget estimate.


In recent years, Congress has appropriated less money than the
services have requested for the SRB program. Based on our work, in
fiscal 2003 Congress appropriated $32 million less than DOD requested.
Congressional committees proposed further SRB budget reductions
during their reviews of DOD’s fiscal year 2004 budget request. The House
Appropriations Committee proposed a $44.6-million reduction; the Senate
Appropriations Committee, a $22-million reduction; and the Senate Armed
Services Committee, a $46-million reduction. The Senate Armed Services
Committee additionally noted concerns about proposed SRB program
budget increases at a time when overall retention rates are robust and the
benefits of military service are increasing overall. DOD appealed these
proposed reductions, noting that “the effects of an improving economy



Page 5                                             GAO-04-86 Military Personnel
and the waning emotional patriotic high of the decisive victory in
Operation Iraqi Freedom will combine to increase pressures on both
the recruiting and retention programs.” For fiscal year 2004, Congress
appropriated $697 million for the SRB program, which was a reduction of
$38.6 million from the amount DOD requested.

Despite increased use of the SRB program, DOD has cited continued
retention problems in specialized occupations such as air traffic
controller, linguist, and information technology specialist. A more
favorable picture is present with regard to overall retention. All of the
services reported that they met overall retention goals for fiscal year 2002
and, with the exception of the Air Force missing its retention goal for
second term airmen, expect to meet overall retention goals in fiscal year
2003. Further bolstering these retention expectations are recent survey
results showing improvements in servicemembers’ attitudes toward
remaining in the military. For example, the 2002 DOD-wide status of forces
survey found that the career intent of military personnel had improved
between 1999 and 2002, rising from 50 to 58 percent. The survey results
showed that retention attitudes were particularly better for junior enlisted
(up 11 percent) and junior officers (up 13 percent). In addition, the 2002
Air Force-wide quality of life survey found that 66 percent of enlisted
personnel reported they would make the Air Force a career, which is an
increase from 58 percent, reported in 1997. According to DOD officials,
the effects of more recent events such as extended deployments and other
higher operations tempo issues could change servicemembers’ attitudes
toward remaining in the military.

Congressionally approved reforms in basic pay implemented during the
last 3 years were intended in part to address retention problems,
particularly with mid-grade enlisted personnel. In the 2002 Quadrennial
Review of Military Compensation,7 DOD attributed the increased use of
SRBs in the late 1990s to a growing pay discrepancy between civilians
and the mid-career enlisted force. For that period, the review noted an
increased use of bonuses for personnel with 10 to 14 years of service. DOD
noted that while bonuses are a very important compensation tool, their
use is intended for specific purposes and for relatively short periods
of time. According to that review, bonuses are appropriate for use within
particular skill categories, not as a tool for resolving military and



7
 Department of Defense, Report of The Ninth Quadrennial Review of Military
Compensation, Vol. 1, (Washington, D.C., 2002).




Page 6                                                 GAO-04-86 Military Personnel
                           civilian pay differentials across an entire segment of the force. The
                           report noted that widespread pay differentials should be remedied
                           through pay table restructuring. Pay table restructuring began in fiscal
                           year 2001, and additional military pay adjustments have been approved
                           in subsequent budgets.


                           DOD’s May 2003 report did not thoroughly address four of the five
DOD’s Report Did Not       congressional concerns about effective and efficient management of
Thoroughly Address         the SRB program. First, the report indirectly addressed SRB program
                           effectiveness and efficiency by discussing bonuses as a general military
Congressional              retention tool instead of the effectiveness and efficiency of the program in
Concerns                   targeting bonuses to improve retention in selected critical occupations.
                           Second, DOD did not permit us to review the draft guidance, but—based
                           on DOD’s comments on our 2002 SRB report, excerpts of draft criteria
                           contained in DOD’s mandated report, and our discussions with DOD
                           officials—the replacement guidance could expand the SRB program by
                           giving the services more flexibility in designating occupations as critical
                           and either eliminate or weaken the requirement for annual SRB program
                           reviews. Third, OSD did not outline steps to match program execution to
                           appropriated funding as the mandate required; instead, OSD reiterated the
                           need for program-execution flexibility. Fourth, OSD’s evaluation of the
                           services’ administration of their SRBs program was limited, relied largely
                           on service-provided descriptions, and did not use consistent procedures
                           and metrics. Finally, as required by the fifth concern in the mandate, DOD
                           identified the most salient advantages and disadvantages resulting from
                           paying SRBs as lump sums.


DOD Report Indirectly      DOD’s report did not directly discuss how effectively and efficiently each
Addressed Program          service is currently using the SRB program to address retention problems
Effectiveness and          in critical occupations. Although the mandate noted, “a reassessment of
                           the program is warranted to ensure it is being managed efficiently,” DOD’s
Efficiency in Correcting   response to concern one did not provide sufficient detail to document the
Retention Shortfalls       effective and efficient use of the program in awarding SRBs. In response to
                           one of the other four congressional concerns, DOD stated that the “intent
                           of retention bonuses is to influence personnel inventories in specific
                           situations in which less costly methods have proven inadequate or
                           impractical.” The report did not, however, document what methods had
                           been used previously or the cost-effectiveness of those methods in
                           achieving desired retention levels.




                           Page 7                                            GAO-04-86 Military Personnel
    Also absent from the report was a discussion of how key factors influence
    the current use of SRBs. Examples of key factors include the effects of
    changes in the basic pay, overall retention rates, and civilian
    unemployment. For example:

•   Despite increasing basic pay to address the discrepancy between military
    and civilian pay noted in the 2002 Quadrennial Review of Military
    Compensation, the budgets for the SRB program are projected to grow to
    $803 million in fiscal year 2005. In comments received on our preliminary
    observations briefing, DOD officials noted that our use of constant 2004
    dollars in our budget trend analysis did not fully account for the effects of
    the basic pay changes that exceeded the inflation level and thus increased
    the size of individual bonuses. At the same time, future SRB program
    budgets do not show decreases that might be expected as these pay table
    changes address overall military-civilian pay discrepancies and problems
    identified within various pay grades.
•   The report did not address the extent to which recent higher levels of
    overall retention offer opportunities for reducing the number of
    occupations eligible for SRBs or the bonus amounts8 awarded for
    reenlistment. DOD officials have noted that all of the services met or
    exceeded their aggregate retention goals in fiscal year 2002 and that strong
    overall retention is expected to continue. However, they cited retention
    shortfalls in some occupational specialties as areas of concern. Although a
    generally positive aggregate retention climate might present DOD with
    opportunities to curtail use of its SRB program, the report did not discuss
    under what conditions reductions in the program might or might not be
    appropriate at this time.
•   Despite noting a relationship between civilian unemployment rates
    and military retention, DOD’s report did not indicate whether civilian
    unemployment—which is at a 9-year high—might result in the need for
    fewer SRBs being offered and possibly at lower bonus levels. One study
    cited in DOD’s report noted that there is a relationship between higher
    unemployment rates and improved overall military retention. In part of its
    answer to concern three, DOD noted that changes in the economy and
    labor market drive changes in actual reenlistment rates. Just as periods of
    relatively lower civilian unemployment might suggest the need for greater



    8
     Total bonus amounts are determined by multiplying (1) the servicemember’s current
    monthly basic pay by (2) the number of additional years of obligated service and by (3) a
    bonus multiple that can range from 0.5 to 15. The bonus multiples are determined by each
    service for all specialties they deem critical. Under current SRB program authority, the
    services are allowed to pay reenlistment bonuses of up to $60,000, though some services
    have set lower maximums.




    Page 8                                                     GAO-04-86 Military Personnel
                          use of the SRB program, periods of relatively higher unemployment might
                          conversely suggest less need for SRBs. Despite civilian unemployment
                          being at its highest rate in several years, the SRB program budget is
                          projected to increase in fiscal year 2005.

                          Instead of directly addressing program effectiveness and efficiency,
                          the 2003 report discussed the general benefits of using bonuses to
                          retain military personnel. DOD’s report cited numerous studies that
                          demonstrated or postulated this effect. However, findings from some
                          studies may not be readily generalized to the way that the SRB program
                          is currently managed or to the economic conditions that currently exist.
                          More specifically, some studies used outdated retention data obtained in
                          the mid-1970s or were performed in a very different retention environment
                          (e.g., the increase in force size during the 1980s and the large draw-down
                          of military forces in the 1990s). Even given our concerns about some of the
                          findings, we believe DOD presented sufficient support for its conclusion
                          that bonuses can be effective in promoting retention. A largely
                          unaddressed, but more pertinent issue is how effectively and efficiently
                          DOD applied this tool to improve retention in critical occupations under
                          recent and current economic conditions.


Replacement Program       DOD did not permit us to review the draft guidance9 that will replace the
Guidance Not Issued but   current DOD directive and the DOD instruction canceled in 1996. Our
Proposed Changes Could    findings for this concern are based on DOD’s comments on our 2002 SRB
                          report, excerpts of draft criteria contained in DOD’s mandated report, and
Weaken Controls for       our discussions with DOD officials. Changes to the guidance could lower
Targeting SRBs            the threshold required for designating occupations as critical and may
                          eliminate or weaken the requirement for formal annual reviews of the
                          SRB program.

                          DOD’s planned changes to the replacement guidance could provide the
                          services with greater flexibility for designating a specialty as critical but
                          could weaken the controls for targeting the specialties receiving SRBs
                          by lowering the threshold required for making such a designation. The



                          9
                           Issuance of DOD Directive 1304.21; Policy on Enlistment, Accession of Officers in
                          Critical Skills, Selective Reenlistment, and Critical Skills Retention Bonuses for Active
                          Members; and DOD Instruction 1304.22, Administration of Enlistment, Accession of
                          Officers in Critical Skills, Selective Reenlistment, and Critical Skills Retention Bonuses
                          for Active Members; are expected in fall 2003 instead of August 2003 as had been specified
                          in DOD’s report.




                          Page 9                                                     GAO-04-86 Military Personnel
canceled 1996 instruction required the services to consider five criteria10
before designating a specialty critical and making it eligible for SRBs,
but DOD’s 2003 report stated that the revised program instruction would
require occupations to meet a lower threshold—meeting “at least” one of
five criteria. For the period since 1996 when the instruction was canceled,
our 2002 report found that, in some cases, the services had already been
using only one of the five criteria to designate occupations for inclusion in
the program. This allowed the services to define broadly what constituted
a critical occupation and included more occupations than would have
likely qualified if all five criteria had been considered.

DOD’s planned changes could also eliminate or weaken the requirement
for formal annual reviews of the SRB program and thereby weaken the
ability of Congress and DOD to monitor the program and ensure that it
targets only critical specialties. To implement the SRB program, DOD
Directive 1304.21 assigns specific responsibilities for administering the
program to the OSD and to the service Secretaries. According to this
directive, the Assistant Secretary of Defense for Force Management
Policy, under the Under Secretary of Defense for Personnel and
Readiness, is responsible for annually reviewing and evaluating the
services’ enlisted personnel bonus programs in conjunction with the
annual budget cycle. These reviews are to include an assessment of the
criteria used for designating critical military specialties. As a result of
these reviews, the OSD is to make the revisions needed to attain specific
policy objectives. Our 2002 report found that DOD had not conducted any
of the required annual program reviews since 1991. In its response to our
2002 SRB report, DOD stated that it plans to eliminate those requirements
from the replacement guidance. More recently, a DOD official stated that
the new guidance will require periodic reviews, but neither the frequency
nor the details of how these reviews would be conducted was explained.
In its report to Congress, DOD maintained that much of the SRB program
oversight takes place during ongoing internal service program budget
reviews. In contrast, we concluded in our 2002 report that those program
budget reviews were limited in scope and did not provide the detailed
evaluation needed to ensure the program was being implemented as



10
  The canceled instruction required the services to identify critical specialties by
providing a balanced evaluation of five factors: (1) serious understaffing in adjacent
years, (2) persistent shortages in total career staffing, (3) high replacement costs, (4) the
arduousness or unattractiveness of the work, and (5) whether the specialty is essential to
the accomplishment of defense missions.




Page 10                                                       GAO-04-86 Military Personnel
                        intended. A more in-depth discussion of the current limited oversight is
                        provided when we discuss DOD’s response to the fourth concern.

                        In contrast to the previously mentioned changes, DOD’s report noted
                        some steps that we believe could strengthen controls on the SRB program.
                        According to the report, the new SRB program instruction will (1) require
                        the services to establish parameters to define “critical shortages” and
                        (2) base those requirements on factors such as the potential impact of a
                        shortage on mission accomplishment. In addition, DOD has recently
                        established a working group that has been tasked with developing a
                        “common understanding and definition of critical skills.” Previously, we
                        found that DOD had not clearly defined the criteria the services were to
                        use in designating critical occupations since the SRB program instruction
                        was canceled in 1996.


DOD Report Outlined     Contrary to the mandate, DOD’s 2003 report did not outline steps that
No New Steps to Match   it will take to match program execution with appropriated funding.
Program Execution       Instead, DOD stated that the services need execution flexibility and have
                        operated consistent with the law and within the overall Military Personnel
with Appropriations     appropriation. Our trend analysis in current year dollars showed that the
                        services spent a combined total of $259 million more than Congress
                        appropriated for the SRB program in fiscal years 1999-2002. DOD’s use
                        of this flexibility has resulted in the services overspending their SRB
                        budgets by as much as $111 million in a single year—fiscal year 2001.
                        More recently, two of the services stayed within their appropriated
                        budgets. In fiscal year 2002, the Air Force and Marine Corps spent,
                        respectively, $26 million and $4 million less than their fiscal year 2002 SRB
                        appropriation. However, the Army and Navy exceeded their appropriated
                        SRB budgets by $38 million and $21 million, respectively.

                        DOD noted that the services can reallocate funds within the Military
                        Personnel appropriation without seeking congressional authority. In the
                        report, DOD did not agree with the congressional concern that program
                        expenditures needed to match funding levels appropriated specifically for
                        the SRB program. Rather, DOD maintained that monies were available
                        from other parts of the Military Personnel appropriation if a service
                        needed additional SRB funding in a fiscal year. DOD’s response noted that
                        budget submission timelines require reenlistment forecasts up to 2 years
                        prior to execution and that intervening changes in the economy and labor
                        market can add uncertainty and drive changes in actual reenlistment rates.
                        Using the services in-year, or current estimates—created during the year
                        of program execution—we found that the services had exceeded their


                        Page 11                                           GAO-04-86 Military Personnel
                          fiscal year 1999-2002 estimates for the number of expected SRB
                          reenlistments by a combined total of 32,466 personnel. Furthermore, our
                          current trend analysis on their budget justifications showed that for the
                          Army and Navy, reallocation or reprogramming of funds had become a
                          reoccurring pattern of activity. In our 2002 report, we concluded that
                          better OSD program oversight and management would have required the
                          services to justify their need to exceed appropriations during fiscal years
                          1997-2001.


Evaluation of Services’   DOD’s limited evaluation of the services’ SRB programs relied primarily
Processes for             on program descriptions provided by the services. The report presented
Administering the         different issues for each service and used inconsistent procedures and
                          metrics to reach conclusions about each service’s program administration
Program Was Limited       effectiveness and efficiency. Absent was a discussion of key performance
                          indicators, the means used to verify and validate the measured values, and
                          other characteristics such as those GAO identified in its report assessing
                          agency annual performance plans.11 The absence of a consistent, explicit
                          methodology made it difficult to determine (1) best practices that might
                          be applied from one service to another and (2) other insights that could
                          result in each service more effectively and efficiently administering its
                          SRB program.

                          Although OSD assembled a multi-service panel to discuss the evaluation,
                          DOD’s response consisted largely of program descriptions that the
                          services supplied. Each service made statements about the effectiveness
                          of its program but provided insufficient documentation to support those
                          statements. OSD conducted its last comprehensive review of the SRB
                          program in 1991. As noted earlier in our assessment of DOD’s response
                          to the second concern, DOD stated that it intends to eliminate the
                          requirement to perform detailed annual program reviews when its
                          replacement program directive is issued.

                          In introductory comments to the 2003 report, DOD stated that the SRB
                          program is evaluated annually within the context of three Planning,
                          Programming, and Budgeting System activities. In our 2002 report, we
                          found that those reviews, conducted by the DOD Comptroller and the




                          11
                           U.S. General Accounting Office, The Results Act: An Evaluator’s Guide to Assessing
                          Agency Annual Performance Plans, GAO/GGD-10.1.20 (Washington, D.C.: Apr. 1998).




                          Page 12                                                  GAO-04-86 Military Personnel
    Office of Management and Budget (OMB), and the testimony provided to
    Congress were limited.

•   When the services prepare budget submissions for the SRB program, they
    discuss the small sample of occupations included in their justification
    books. As we noted in our 2002 report, the DOD Comptroller stated that
    the budget submissions are not detailed programmatic evaluations.
•   DOD’s 2003 report also cited OMB reviews as part of an evaluation of the
    programs. During the preparation of our 2002 report, OMB officials told us
    that their reviews were limited and did not constitute a detailed
    assessment of the services’ programs.
•   DOD’s 2003 report stated that the services’ out-year budgets were carefully
    reviewed during congressional testimony. It is our view that congressional
    testimony does not represent a detailed programmatic review of a program
    this complex. For example, in March 11, 2003, DOD’s testimony before the
    Military Personnel Subcommittee of the Senate Armed Services
    Committee12 included very limited statements about the SRB program.

    DOD’s report listed some positive steps that the services have proposed to
    administer the SRB program more effectively and efficiently. For example,
    the Navy and Army are validating and improving the models used to
    manage their SRB programs, and the Air Force has created a new bonus
    review board to keep its leaders apprised of how the SRB program is
    functioning. At the time of our review, the services were just starting to
    implement these steps to improve their programs, and there was no data
    to determine how effective and efficient these efforts are.




    12
      Department of Defense, Prepared Statement of the Honorable David S. C. Chu, Under
    Secretary of Defense (Personnel and Readiness), Before the Military Personnel
    Subcommittee, Senate Armed Services Committee (Washington, D.C.: Mar. 11, 2003).




    Page 13                                                 GAO-04-86 Military Personnel
DOD Report Identified   DOD identified the most salient advantages and disadvantages resulting
Advantages and          from implementing a lump sum payment method for paying retention
Disadvantages of        bonuses.13 We generally concur with DOD’s observations about the
                        positive and negative aspects of using lump sum bonuses. DOD’s report
Using a Lump Sum        cited a 1985 GAO study14 that found lump sum payments had three main
Payment Option          advantages: more cost-effective, better visibility to Congress, and more
                        adaptable to budget cuts than paying bonuses incrementally. The 2003
                        DOD report cited another important consideration in awarding bonuses
                        in lump sum payments. Because enlisted personnel prefer “up-front”
                        payments and are willing to receive less money initially than more money
                        offered in the future, we believe that the federal government could reenlist
                        more personnel for the same amount of money if bonuses were paid in a
                        lump sum.

                        DOD cited several disadvantages to using a lump sum payment option. For
                        example, there are significant up-front costs associated with paying both
                        lump sum SRB payments in the implementation year and completing the
                        anniversary payments for SRBs awarded previously. The first year of
                        change would require the largest budget increase, and each subsequent
                        transition year would become less costly. The implementation of a lump
                        sum SRB program could become cost neutral over the long term if
                        bonuses paid in a lump sum eliminated the need for equal amounts of
                        anniversary payments in succeeding years. It could even save money if
                        sufficient reenlistees were attracted with less money because up-front
                        compensation—even if less—is more attractive than compensation
                        promised in the future.

                        DOD’s report addressed other potential disadvantages of using a lump sum
                        payment method. These include the possibility that a recipient will fail to
                        stay in the military for the full reenlistment period after receiving a bonus
                        and the problem associated with recouping all or part of bonus amounts
                        from personnel who do not complete their obligated term of service.
                        Despite these disadvantages, our 1985 report stated our support for the
                        use of lump sum retention bonuses. The Marine Corps began using the
                        lump sum payment option for its SRB program in fiscal year 2001 and is



                        13
                          The Army, Navy and Air Force currently pay 50 percent of the reenlistment bonus
                        up front, and they pay the remaining 50 percent in equal installments over the term
                        of reenlistment.
                        14
                         U.S. General Accounting Office, Navy Management and Use of the Selective
                        Reenlistment Bonus Program, GAO/NSIAD-85-143 (Washington, D.C.: Sept. 9, 1985).




                        Page 14                                                    GAO-04-86 Military Personnel
              the only service currently using this payment method. In February 2004,
              the Marine Corps expects to have preliminary results from an evaluation
              of its use of lump sum payments.

              Although not required by the mandate to do so, DOD and the services
              could have made the response to concern five more informative for
              Congress by identifying alternative strategies for implementing the lump
              sum option and estimating the costs of each strategy for each service. For
              example, one strategy might be to phase in the lump sum payment option.
              Phasing in lump sum payments could provide DOD with increased
              program administration flexibility and decreased budgetary problems
              caused by switching from installment payments in a single year.


              Overall, our analysis of DOD’s May 2003 congressionally mandated report
Conclusions   on the SRB program showed that DOD’s report did not provide sufficient
              information to enable Congress to determine whether the program is being
              managed effectively and efficiently. With one exception, DOD’s report did
              not thoroughly address congressional concerns about the effective and
              efficient management of the SRB program. Of DOD’s responses to the five
              congressional concerns, three were incomplete or nonresponsive—those
              regarding program effectiveness and efficiency in correcting retention
              shortfalls in critical occupations, DOD actions to match program
              execution with appropriations, and DOD’s evaluation of the services’
              program administration. A fourth response—regarding replacement
              program guidance—did not provide information essential for us to make
              an independent determination as to the response’s adequacy. DOD directly
              and fully addressed one of mandated concerns—the advantages and
              disadvantages of lump sum bonus payments. Although the SRB program is
              expected to grow to over $800 million in fiscal year 2005, the report did
              not address factors that may have reduced the services’ retention
              concerns and could reduce SRB program cost. Underlying many of these
              shortcomings is a lack of empirically based information caused by DOD’s
              limited reviews of the SRB and inconsistent use of evaluation procedures
              and metrics. DOD’s possible elimination of the requirement for a detailed
              annual review and continued reliance on service-specific procedures
              and metrics could further weaken Congress’s ability to monitor the
              SRB program.




              Page 15                                          GAO-04-86 Military Personnel
                     To assist Congress in its efforts to monitor the management of the SRB
Recommendation for   program and to ensure that DOD is effectively and efficiently targeting
Executive Action     retention bonuses to critical occupations, we recommend that the
                     Secretary of Defense direct the Office of the Under Secretary of
                     Defense for Personnel and Readiness to (1) retain the requirement for
                     an annual review of the SRB program and (2) develop a consistent set
                     of methodologically sound procedures and metrics for reviewing the
                     effectiveness and efficiency of all aspects of each service’s SRB
                     program administration.


                     In written comments on a draft of this report, DOD concurred with
Agency Comments      our recommendations. DOD further stated that, with regard to our
                     recommendation to develop review procedures and metrics, it would
                     (1) conduct research to develop meaningful metrics for reviewing the
                     effectiveness and efficiency of all aspects of each service’s administration
                     of the SRB program and (2) implement those metrics so that they are
                     consistent with DOD’s Human Resource Strategy Plan. DOD’s comments
                     are reprinted in their entirety in appendix II.


                     We are sending copies of this report to the Secretary of Defense. We will
                     also make copies available to appropriate congressional committees and
                     to other interested parties on request. In addition, the report will be
                     available at no charge at the GAO Web site at http://www.gao.gov.

                     If you or your staff have questions about this report, please call me
                     at (202) 512-5559. Key staff members contributing to this report were
                     Jack E. Edwards, Kurt A. Burgeson, Nancy L. Benco, and M. Jane Hunt.




                     Derek B. Stewart
                     Director, Defense Capabilities and Management




                     Page 16                                           GAO-04-86 Military Personnel
             Appendix I: Scope and Methodology
Appendix I: Scope and Methodology


             We reviewed the Department of Defense’s (DOD) May 2003
             congressionally mandated report and documents used in the preparation
             of that report. That information was supplemented with prior Selective
             Reenlistment Bonus (SRB) program guidance, budget request
             documentation, and other information gathered during our 2002 review of
             the SRB program. To assess the adequacy and accuracy of the information
             contained in DOD’s report, we obtained and reviewed documentation used
             by the Office of the Secretary of Defense (OSD) to support its responses.
             For example, we reviewed the eight studies cited in DOD’s response to
             concern one in the mandate. In addition, we reviewed information
             provided by each of the services, as well as past GAO and DOD reports on
             the SRB program. We compared findings from these past reports to DOD’s
             mandated responses to assess the validity of what was presented. We
             updated the program budget analysis from our 2002 review using budget
             data contained in DOD’s Military Personnel budget justification books
             prepared for Congress. We sought to review updated SRB program
             guidance, but DOD indicated that these pre-decisional documents would
             not be released until the final versions had been approved.

             We met with DOD officials to update information obtained during our 2002
             review of the SRB program. Interviews were primarily conducted with
             officials in the Office of the Under Secretary of Defense for Personnel and
             Readiness because these officials were the primary authors of DOD’s
             report. We also met with personnel responsible for administering the
             services’ SRB programs. We obtained updated retention data contained in
             prepared statements used by DOD during congressional hearings. We also
             reviewed the results of DOD’s 2002 status of forces survey and the Air
             Force’s 2002 quality of life survey.

             We conducted our review from June through September 2003 in
             accordance with generally accepted government auditing standards.




             Page 17                                          GAO-04-86 Military Personnel
             Appendix II: Comments from the Department
Appendix II: Comments from the Department
             of Defense



of Defense




             Page 18                                     GAO-04-86 Military Personnel
                Appendix II: Comments from the Department
                of Defense




Now on p. 16.




Now on p. 16.




(350389)
                Page 19                                     GAO-04-86 Military Personnel
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