oversight

Defense Headquarters: Further Efforts to Examine Resource Needs and Improve Data Could Provide Additional Opportunities for Cost Savings

Published by the Government Accountability Office on 2012-03-21.

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

             United States Government Accountability Office

GAO          Report to Congressional Committees




March 2012
             DEFENSE
             HEADQUARTERS
             Further Efforts to
             Examine Resource
             Needs and Improve
             Data Could Provide
             Additional
             Opportunities for Cost
             Savings




GAO-12-345
                                              March 2012

                                              DEFENSE HEADQUARTERS
                                              Further Efforts to Examine Resource Needs and
                                              Improve Data Could Provide Additional
                                              Opportunities for Cost Savings
Highlights of GAO-12-345, a report to
congressional committees




Why GAO Did This Study                        What GAO Found
The Department of Defense’s (DOD)             The Department of Defense (DOD) has taken some steps to examine its
headquarters and support                      headquarters resources for efficiencies, but additional opportunities for cost savings
organizations have grown since 2001,          may exist by further consolidating organizations and centralizing functions. For
including increases in spending, staff,       purposes of the Secretary of Defense’s efficiency initiative, DOD components were
and numbers of senior executives and          asked to focus in particular on headquarters and administrative functions, support
the proliferation of management layers.       activities, and other overhead in their portfolios. DOD’s fiscal year 2012 budget
In 2010, the Secretary of Defense             request included several efficiencies related to headquarters organizations or
directed DOD to undertake a                   personnel. GAO found that these efficiencies generally fell into two categories: (1)
departmentwide initiative to reduce           consolidating or eliminating organizations based on geographic proximity or span of
excess overhead costs. In response to         control and (2) centralizing overlapping functions and services. The DOD efficiencies
a mandate, GAO evaluated the extent           that GAO reviewed to reduce headquarters resources are expected by DOD to save
to which DOD (1) examined its                 about $2.9 billion through fiscal year 2016, less than 2 percent of the $178 billion in
headquarters resources for efficiencies       savings DOD projected departmentwide. GAO’s work indicates that DOD may be
and (2) has complete and reliable             able to find additional efficiencies by further examining opportunities to consolidate
headquarters information available for        organizations or centralize functions at headquarters. DOD may not have identified all
use in making efficiency decisions. For       areas where reductions in headquarters personnel and operating costs could be
this review, GAO analyzed documents           achieved because the department was working quickly to identify savings in the fiscal
and interviewed officials regarding           year 2012 budget and used a top-down approach that identified several targets of
DOD’s headquarters resources and              opportunity to reduce costs, including headquarters organizations, but left limited time
information.                                  for a detailed data-driven analysis. In February 2012, DOD proposed $61 billion in
                                              additional savings over fiscal years 2013 to 2017, but provided limited information as
What GAO Recommends                           to what portions of these savings were specific to headquarters. Without systematic
GAO recommends that DOD continue              efforts to reexamine its headquarters resources on a more comprehensive basis,
to examine opportunities to consolidate       DOD may miss opportunities to shift resources away from overhead.
organizations and centralize functions
and services and revise DOD                   An underlying challenge facing DOD is that it does not have complete and reliable
Instruction 5100.73 to include all            headquarters information available for use in making efficiency assessments and
headquarters organizations, specify           decisions. According to GAO’s internal control standards, an agency must have
how contractors performing                    relevant, reliable, and timely information in order to run and control its operations.
headquarters functions will be                DOD Instruction 5100.73 guides the identification and reporting of headquarters
identified and included in reporting,         information. However, GAO found that this instruction is outdated and does not
clarify how components are to compile         identify all headquarters organizations, such as component command headquarters
information needed to respond to              at U.S. Africa Command and certain Marine Corps headquarters. Also, although
headquarters reporting requirements,          some of the services and functions performed by contractors could be considered as
and establish time frames for                 headquarters activities, the instruction does not address the tracking of contractors
implementing these actions. DOD               that perform these functions. DOD has delayed updating the instruction to allow time
concurred with GAO’s first                    for components to adjust to the statutory changes enacted by Congress in 2009 that
recommendation and partially                  created new headquarters reporting requirements. According to DOD officials, ever-
concurred with GAO’s second                   changing statutory reporting requirements have contributed to DOD’s failure to report
recommendation.                               to Congress about the numbers of headquarters personnel. As the department did
                                              not have reliable headquarters data, DOD compiled related information from other
                                              sources to inform its 2010 efficiency initiative. Because of the short timelines given to
                                              identify efficiencies and limitations on the sharing of information, this information was
                                              not validated before decisions were made. As a result, some of the information used
                                              to identify headquarters-related efficiencies was inaccurate and some adjustments in
                                              resource allocations will have to be made during implementation to achieve planned
View GAO-12-345. For more information,
                                              savings. Looking to the future, until DOD has updated its instruction to ensure that it
contact John Pendleton at (404) 679-1816 or   has complete and reliable headquarters data, the department will not have the
pendletonj@gao.gov.                           information it needs, which could affect its efforts to direct resources to its main
                                              priorities during future budget deliberations.
                                                                                         United States Government Accountability Office
Contents


Letter                                                                                    1
               Background                                                                 5
               DOD’s Efficiencies Include Headquarters-Related Reductions, but
                 Additional Opportunities for Cost Savings May Exist                      7
               Lack of Complete and Reliable Headquarters Information Hinders
                 Efforts to Identify and Implement Efficiencies                         13
               Conclusions                                                              17
               Recommendations for Executive Action                                     17
               Agency Comments and Our Evaluation                                       18

Appendix I     Scope and Methodology                                                     25



Appendix II    Descriptions of Headquarters-Related Efficiency Initiatives               29



Appendix III   Examples of DOD’s Headquarters Organizations                              35



Appendix IV    Comments from the Department of Defense                                   41



Appendix V     GAO Contact and Staff Acknowledgments                                     44



Tables
               Table 1: DOD Efficiency Initiatives and Projected Savings Planned
                        for Fiscal Years 2012 through 2016                                6
               Table 2: Examples of Headquarters-Related Efficiency Initiatives
                        DOD Is Implementing and DOD’s Estimate of Personnel
                        and Cost Savings                                                  8


Figures
               Figure 1: Examples of DOD’s Headquarters Organizations                     3




               Page i                                        GAO-12-345 Defense Headquarters
Figure 2: Examples of Headquarters-Related Efficiency Initiatives
         DOD Is Implementing by Consolidating or Eliminating
         Organizations Based on Geographic Proximity or Span of
         Control                                                                          10
Figure 3: Examples of Headquarters-Related Efficiency Initiatives
         DOD Is Implementing by Centralizing Overlapping
         Functions and Services                                                           11
Figure 4: Department of the Air Force                                                     35
Figure 5: Department of the Army                                                          36
Figure 6: Department of the Navy                                                          37
Figure 7: Office of the Secretary of Defense                                              38
Figure 8: Unified Combatant Commands                                                      39
Figure 9: The Joint Chiefs of Staff                                                       40




Abbreviation

DOD       Department of Defense.



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Page ii                                                  GAO-12-345 Defense Headquarters
United States Government Accountability Office
Washington, DC 20548




                                   March 21, 2012

                                   Congressional Committees

                                   In 2010, the Secretary of Defense expressed concerns about the
                                   dramatic growth in the Department of Defense’s (DOD) headquarters and
                                   support organizations that had occurred since 2001, including increases
                                   in spending, staff, and numbers of senior executives and the proliferation
                                   of management layers. In 2010, the Secretary of Defense also directed
                                   DOD to undertake a departmentwide initiative to assess how the
                                   department is staffed, organized, and operated, with the goal of reducing
                                   excess overhead costs and reinvesting these savings toward sustainment
                                   of DOD’s current force structure and modernizing its weapons portfolio.
                                   This effort identified efficiency initiatives totaling about $178 billion in
                                   projected savings across the military departments and other DOD
                                   components from fiscal year 2012 through fiscal year 2016, about
                                   $24.1 billion of which is estimated to be achieved in fiscal year 2012.
                                   DOD’s efficiency initiatives included a broad range of efforts, such as
                                   holding the civilian workforce at fiscal year 2010 levels; reducing the
                                   numbers of senior leaders, both officer and civilian; and reducing reliance
                                   on service support contractors. Some headquarters were planned to be
                                   closed and their missions and functions absorbed in other organizations,
                                   while others were reorganized. More recently, in January 2012, the
                                   administration released strategic guidance to direct defense priorities and
                                   spending over the coming decade. It lays out several principles to guide
                                   the development of DOD’s force structure, such as reducing DOD’s cost
                                   of doing business by finding further efficiencies in headquarters and other
                                   overhead.

                                   DOD has multiple layers of headquarters management with complex,
                                   overlapping relationships. Such layers include, but are not limited to, the
                                   Office of the Secretary of Defense, the Joint Staff, and portions of the
                                   military departments, defense agencies, and DOD field activities. In DOD
                                   Instruction 5100.73, Major DOD Headquarters Activities, DOD defines
                                   those headquarters whose primary mission is to manage or command the
                                   programs and operations of DOD and its components, and their major
                                   military units, organizations, or agencies as major DOD headquarters




                                   Page 1                                         GAO-12-345 Defense Headquarters
activities. 1 These headquarters are primarily responsible for overseeing,
directing, and controlling subordinate organizations or units; these
responsibilities include developing guidance, reviewing performance,
allocating resources, conducting mid-to long-range budgeting, and, in the
case of combatant headquarters, planning for the employment of U.S.
military forces. See figure 1 for examples of DOD’s multiple layers of
headquarters organizations.




1
 Department of Defense Instruction 5100.73, Major DOD Headquarters Activities (Dec. 1,
2007).




Page 2                                                GAO-12-345 Defense Headquarters
Figure 1: Examples of DOD’s Headquarters Organizations

                                                                   Interactivity instructions
                        Click on a gray box to expand the selection. Click the “x” to clear. See appendix III for the non-interactive version.


                                                                                   Secretary
                                                                                   of Defense
                                                                                 Deputy Secretary
                                                                                   of Defense




         Office of the                                   Military                                            Unified combatant                                             Joint Chiefs
     Secretary of Defense                              departments                                              commands                                                     of Staff




 ACS: Assistant Chief of Staff
 DCNO: Deputy Chief of Naval Operations
 DCS: Deputy Chief of Staff

                                                         Source: GAO analysis of DOD data.
                                                         Notes: Graphic is for illustrative purposes only; it is not intended to depict all organizations, their functions, or their legal or command
                                                         and control relationships. In some organizations only the headquarters is considered a major DOD headquarters activity, while in
                                                         other organizations only some personnel perform major DOD headquarters activities’ functions.



                                                      Page                                                                                    GAO-12-345 Defense Headquarters
Our prior work has shown that DOD has long-standing challenges
identifying headquarters-related personnel and operating costs, which
can affect DOD’s ability to manage its resources. For example, in October
1997, we reported that the number of personnel and costs associated
with major DOD headquarters activities were significantly higher than
DOD reported to Congress because of inconsistencies in how DOD
tracked major DOD headquarters activity data. 2 In subsequent work in
February 1999 and September 2000, we reported that DOD continued to
have problems accurately accounting for personnel and there were
inconsistencies in how DOD was designating positions as headquarters. 3
In response, we made a number of recommendations to improve the
accuracy of DOD’s headquarters-related resources, to which DOD
generally agreed.

A statutory mandate directs us to conduct routine investigations to identify
federal programs, agencies, offices, and initiatives with duplicative goals
and activities within departments and governmentwide. 4 In response to
this mandate, this report evaluates the extent to which DOD (1) examined
its headquarters resources for efficiencies and (2) has complete and
reliable headquarters information available for use in making efficiency
decisions.

To conduct this work, we selected and assessed DOD efficiency
initiatives related to headquarters based on our analysis of information
included with DOD’s fiscal year 2012 budget request and the Secretary of
Defense’s Track Four Efficiency Initiatives Decisions memo. We selected
efficiency initiatives affecting components within the military departments
and the Office of the Secretary of Defense as well as the defense
agencies, the DOD field activities, and the combatant commands. We did
not include some headquarters-related efficiency initiatives within the
scope of our review. For example, we did not include the



2
 GAO, Defense Headquarters: Total Personnel and Costs Are Significantly Higher Than
Reported to Congress, GAO/NSIAD-98-25 (Washington, D.C.: Oct. 30, 1997).
3
 GAO, Defense Headquarters: Status of Efforts to Reduce Headquarters Personnel,
GAO/NSIAD-99-45 (Washington, D.C.: Feb. 17, 1999), and Defense Headquarters: Status
of Efforts to Redefine and Reduce Headquarters Staff, GAO/NSIAD-00-224 (Washington,
D.C.: Sept. 6, 2000).
4
    Pub. L. No. 111-139, § 21 (2010).




Page 4                                               GAO-12-345 Defense Headquarters
             disestablishment of Joint Forces Command because we have ongoing
             work examining this efficiency initiative. To assess the extent to which
             DOD examined its headquarters resources for efficiencies we obtained
             and analyzed documentary and testimonial evidence on selected
             headquarters-related efficiency initiatives announced by DOD, including
             the analysis conducted to identify headquarters-related resources and the
             approach taken to develop headquarters-related efficiency initiatives. To
             assess the extent to which DOD has complete and reliable headquarters
             information available for use in making efficiency decisions, we obtained
             and analyzed documentary and testimonial evidence from DOD
             components detailing the policies and procedures, as well as roles and
             responsibilities, for tracking and reporting headquarters personnel and
             operating costs. We also obtained and analyzed documentary and
             testimonial evidence on the processes and data DOD components used
             to identify their headquarters-related resources when developing selected
             headquarters-related efficiency initiatives. For details on our scope and
             methodology, see appendix I.

             We conducted this performance audit from September 2010 to March
             2012 in accordance with generally accepted government auditing
             standards. Those standards require that we plan and perform the audit to
             obtain sufficient, appropriate evidence to provide a reasonable basis for
             our findings and conclusions based on our audit objectives. We believe
             that the evidence obtained provides a reasonable basis for our findings
             and conclusions based on our audit objectives.

             In September 2011, we reported on DOD’s approach to examining itself
Background   for efficiencies, including the parameters used to guide the Secretary of
             Defense’s efficiency initiative. 5 The initiative targeted both shorter and
             longer-term improvements in a wide range of areas across the
             department, including its organizational structure, business practices, and
             modernization programs, and instituted reductions to its personnel levels.
             As part of its fiscal year 2012 budget request, DOD projected savings of
             $178 billion to be realized over a 5-year period beginning in fiscal year
             2012, as shown in table 1.




             5
              GAO, Streamlining Government: Key Practices from Select Efficiency Initiatives Should
             Be Shared Governmentwide, GAO-11-908 (Washington, D.C: Sept. 30, 2011).




             Page 5                                                 GAO-12-345 Defense Headquarters
Table 1: DOD Efficiency Initiatives and Projected Savings Planned for Fiscal Years
2012 through 2016

 Dollars in millions
                                                                                          Fiscal year   Fiscal years
                                                                                                2012      2012-2016
 DOD efficiency initiatives                                                                  savings        savings
 Army efficiency initiatives                                                                   2,665         29,540
 Navy efficiency initiatives                                                                   4,302         35,070
 Air Force efficiency initiatives                                                              3,384         33,284
 Special Operations Command efficiency initiatives                                               389          2,280
 Civilian workforce freeze                                                                     2,510         13,277
 Defense agency, Office of Secretary of Defense and                                            1,334         11,237
 combatant command baseline review
 Health system reforms                                                                           179          6,901
 Service support contracts reduction                                                             812          5,696
 Joint Forces Command disestablishment                                                           292          1,870
 Reports, studies, boards and commissions reduction                                              275          1,249
 Intelligence Community review                                                                    41            372
 Business Transformation Agency disestablishment                                                  98            337
 Civilian Senior Executive position reduction                                                     (4)           111
 Assistant Secretary of Defense (Networks and                                                     13             65
 Information Integration) and Joint Staff J6 (Command,
 Control, Communications, and Computer Systems)
 disestablishment
 General/flag officer reduction                                                                     -            11
 Economic and other adjustments (includes General                                              7,841         37,141
 Schedule pay freeze in fiscal year 2012)
 Total                                                                                        24,131        178,441
Source: Department of Defense Efficiency Initiatives Fiscal Year 2012 Budget Estimates.

Notes: DOD calculated these efficiencies by comparing the fiscal year 2011 President’s Budget
request to the fiscal year 2012 President’s Budget request. While DOD is reporting these projected
savings, we did not independently verify this information, including whether DOD’s projections
reflected cost savings or cost avoidances.


Of the $178 billion in projected savings proposed by the department,
$100 billion identified by the military departments and Special Operations
Command was reinvested in high-priority needs and the remaining
$78 billion was reduced from DOD’s budget from fiscal years 2012
through 2016. This reflects a 2.6 percent reduction from DOD’s fiscal year
2011 budget submission over the same period. Some of these savings
and reductions were from headquarters-related resources, such as
personnel and operating costs.



Page 6                                                                             GAO-12-345 Defense Headquarters
                        DOD Instruction 5100.73 establishes a system to identify and manage the
                        number and size of major DOD headquarters activities. As previously
                        stated, the instruction defines major DOD headquarters activities as those
                        headquarters whose primary mission is to manage or command the
                        programs and operations of DOD and its components and their major
                        military units, organizations, or agencies. 6 Since the mid-1980s, Congress
                        has enacted statutory limits on the number of major DOD headquarters
                        activity personnel, to include those in the Office of the Secretary of
                        Defense; the headquarters of the combatant commands; the Office of the
                        Secretary of the Army and the Army Staff; the Office of the Secretary of
                        the Air Force and the Air Staff; the Office of the Secretary of the Navy, the
                        Office of the Chief of Naval Operations, and the Headquarters, Marine
                        Corps; and the headquarters of the defense agencies and DOD field
                        activities. 7 In addition, Congress has enacted various reporting
                        requirements related to major DOD headquarters activity personnel. As
                        previously stated, our prior work has shown that DOD has encountered
                        challenges both in identifying major DOD headquarters activity personnel
                        and in reporting this information to Congress.

                        DOD has taken some steps to examine its headquarters resources for
DOD’s Efficiencies      efficiencies, but additional opportunities for cost savings may exist by
Include Headquarters-   further consolidating organizations and centralizing functions. For the
                        purposes of the Secretary of Defense’s efficiency initiative, DOD
Related Reductions,     components, including the military departments, were asked to focus in
but Additional          particular on headquarters and administrative functions, support activities,
Opportunities for       and other overhead in their portfolios. DOD’s fiscal year 2012 budget
                        request, describing its planned efficiency initiatives for fiscal years 2012
Cost Savings May        to 2016, included several initiatives related to headquarters organizations
Exist                   or personnel. Two organizations, Joint Forces Command and the
                        Business Transformation Agency, were disestablished and some of their
                        functions were absorbed in other organizations. DOD estimated that
                        closing these two organizations would save approximately $2.2 billion


                        6
                            Department of Defense Instruction 5100.73, Major DOD Headquarters Activities.
                        7
                         Applicable limits to major DOD headquarters personnel are included in sections 143, 194,
                        3014, 5014, and 8014 of Title 10 of the U.S. Code. In some circumstances, statutory
                        waivers, exceptions, exemptions, and authorities to adjust those limits may apply. For
                        example, acquisition personnel hired under an expedited hiring authority are exempt from
                        the statutory baseline personnel limitations, established under the previously mentioned
                        sections of Title 10.




                        Page 7                                                   GAO-12-345 Defense Headquarters
                                        through fiscal year 2016. Table 2 provides other examples of
                                        headquarters-related efficiency initiatives DOD is implementing in the
                                        military departments and in other DOD components that we reviewed.
                                        See appendix II for a further description of these headquarters-related
                                        efficiency initiatives.

Table 2: Examples of Headquarters-Related Efficiency Initiatives DOD Is Implementing and DOD’s Estimate of Personnel and
Cost Savings

DOD component                  Examples of efficiencies DOD is implementing          Estimated personnel and cost savings
Navy                           Merging the U.S. Fleet Forces Command and U.S.        Eliminated 344 military positions for
                               2nd Fleet staff because the missions of the two       estimated savings of $10.5 million in fiscal
                               organizations were found to have converged over       year 2012 and expected cumulative savings
                               time, an integrated staff could better adapt to       of $100.8 million by fiscal year 2016.
                               changing missions, and doing so would eliminate
                               redundant personnel.
                               Reducing fleet shore personnel at U.S. Pacific        Reduced fleet shore military personnel by 5
                               Fleet and U.S. Fleet Forces Command based on          percent for estimated savings of $88.3 million
                               the finding that more effective training has          for fiscal year 2012 and expected cumulative
                               decreased shore manpower needs and personnel          savings of $858.1 million by fiscal year 2016.
                               could be moved to higher-priority missions.
Air Force                      Removing Air Force installation service support       Expected to eliminate 36 positions for an
                               functions, such as civil engineering, environmental   estimated savings of $2.4 million in fiscal year
                               quality and planning programs, real property          2012 and expected cumulative savings of
                               programs, and family support services, among          $148.1 million and 354 positions by fiscal
                               others, from commands and centralizing them at        year 2016.
                               field operating agencies or Air Force headquarters.
                               Consolidate two air and space operations centers      Eliminated three headquarters organizations
                               and two numbered air forces with other Air Force      and associated support staff removing 256
                               commands by merging them to achieve greater           positions for an estimated savings of
                               oversight and reduce layers of headquarters           $4.8 million for fiscal year 2012 and total
                               management.                                           estimated savings of $143.7 million by fiscal
                                                                                     year 2016.
Army                           Streamlining installation management services and Reducing, eliminating, and rescoping
                               programs.                                         services and programs across the Army’s
                                                                                 installations, with an estimated savings of
                                                                                 $1.1 billion for fiscal years 2012 to 2016.
Office of the Secretary of     Consolidating the Office of the Secretary of          Reduction of 110 contractor personnel for an
Defense                        Defense for Policy’s technical support and            estimated savings of $14.6 million in fiscal
                               administrative and enterprise services by reducing    year 2012 and expected cumulative savings
                               contractors.                                          of $77.7 million by fiscal year 2016.
Defense agency                 Eliminating paper leave and earning statements,       Elimination of 227 contract personnel and 6
                               reducing manual processing through increase in        civilian positions in combination with other
                               electronic commerce, and eliminating contract and     efficiency initiatives for an estimated savings
                               civilian personnel at Defense Finance and             of $41.3 million in fiscal year 2012 and
                               Accounting Service.                                   expected cumulative savings of
                                                                                     $206.5 million from fiscal year 2012 to 2016.




                                        Page 8                                                    GAO-12-345 Defense Headquarters
DOD component        Examples of efficiencies DOD is implementing           Estimated personnel and cost savings
DOD field activity   Consolidate Washington Headquarters Service            Elimination of 52 civilian positions for an
                     from 12 to 8 organizational elements by merging        estimated savings of $7.2 million for fiscal
                     directorates that perform similar services and         year 2012 and expected cumulative savings
                     functions and eliminating lower-priority missions.     of $57 million for fiscal years 2012 to 2016.
Combatant commands   Reducing lower priority missions, consolidating        Elimination of 13 support positions for an
                     staff functions at U.S. Northern Command and           estimated savings of $12.6 million for fiscal
                     North American Aerospace Defense Command,              year 2012 and expected cumulative savings
                     eliminating support billets and reducing reliance on   of $87.8 million from fiscal year 2012 to 2016.
                     service support contractors.
                     Eliminating positions and reducing expenditures at     Elimination of 86 military and civilian positions
                     headquarters by 10 percent at U.S. European            for an estimated saving of $17 million in fiscal
                     Command by removing resources from lower-              year 2012 and $84.8 million by fiscal year
                     priority missions and programs.                        2016.
                              Source: GAO analysis of DOD data.



                              In compiling and comparing the headquarters-related efficiency initiatives
                              from across the department, we found that the approach that was taken
                              and level of detail differed markedly across the various DOD components.
                              For instance, some DOD components focused on specific organizations
                              and provided detail about planned actions, while others promised
                              significant reductions but provided only broad descriptions of what is
                              planned to achieve them. For example, the Navy provided detailed
                              information on the number of positions that will be eliminated and
                              estimated cost savings for the Navy’s merger of U.S. Fleet Forces
                              Command and U.S. 2nd Fleet staff. In contrast, the Army planned more
                              than $1 billion in savings by streamlining its installation management
                              services and programs but did not specify how this will be achieved.

                              In reviewing these headquarters-related efficiency initiatives, however, we
                              found that they generally fell into two categories: (1) consolidating or
                              eliminating organizations based on geographic proximity or span of
                              control, and (2) centralizing overlapping functions and services (see figs.
                              2 and 3). 8




                              8
                               Span of control refers to the number of subordinates or activities under the control of a
                              single commander.




                              Page 9                                                     GAO-12-345 Defense Headquarters
Figure 2: Examples of Headquarters-Related Efficiency Initiatives DOD Is
Implementing by Consolidating or Eliminating Organizations Based on Geographic
Proximity or Span of Control




Page 10                                          GAO-12-345 Defense Headquarters
Figure 3: Examples of Headquarters-Related Efficiency Initiatives DOD Is
Implementing by Centralizing Overlapping Functions and Services




The DOD efficiencies that GAO reviewed to reduce headquarters
resources are expected by DOD to save about $2.9 billion through fiscal
year 2016, less than 2 percent of the $178 billion in savings DOD
projected departmentwide. Our work indicates that DOD may be able to
find additional efficiencies by further examining opportunities to
consolidate organizations or centralize functions at headquarters. In its
January 2012 strategic guidance, DOD recognized that it would need to
find further efficiencies in headquarters and other overhead in order to
meet the demands of the new strategy. To achieve these efficiencies,
DOD could consider a number of different options, including reducing
organizational layers, consolidating administrative offices, and simplifying
management processes. However, the department does not have a
definition of what constitutes overhead or standards for assessing
headquarters resources. Given the size and complexity of the
department, setting common standards would be difficult. Nonetheless,
DOD officials we spoke with recognized that additional efficiencies could
be achieved by further examination of headquarters resources. The



Page 11                                             GAO-12-345 Defense Headquarters
following are examples of areas that officials said DOD was considering
for potential efficiencies.

•   According to Navy officials, the Deputy Under Secretary of the Navy is
    having ongoing discussions with Navy components and conducting
    analysis to identify potential future efficiencies, such as consolidating
    or streamlining facilities management services and functions provided
    at various Navy installations. Officials commented that these issues
    are complicated and that as of December 2011, the estimates of the
    savings had not been determined.
•   The Army is, among other things, implementing and integrating
    previous efforts approved by the Secretary of Army, such as planning
    to optimize materiel development and sustainment by eliminating
    overlapping or redundant responsibilities between the Army’s program
    executive offices and the Army Materiel Command. The Army expects
    this effort to include reductions in personnel for an estimated annual
    savings of $3 billion by the end of fiscal year 2015.
•   The Air Force is currently examining opportunities to provide better
    command and control over air and space operations centers. As of
    December 2011, Air Force officials could not provide further details
    regarding this effort because decisions were still pending.
•   Defense Finance and Accounting Service officials are examining
    travel and supplies, postage and printing, and other areas to identify
    additional savings, which it estimates at $63 million by fiscal year
    2017.
DOD may not have identified all areas where reductions in headquarters
personnel and operating costs could be achieved because, according to
DOD officials, the department was working quickly to identify savings in
the fiscal year 2012 budget. To accomplish this quickly, DOD used a top-
down approach that identified several targets of opportunity to reduce
costs, including headquarters organizations, but left limited time for a
detailed data-driven analysis. In February 2012, in DOD’s fiscal year 2013
budget request, the department proposed an additional $61 billion in
savings from fiscal years 2013 to 2017 through reductions in overhead
and support requirements, and improved business practices. However, it
provided limited information as to what portions of these savings were
specific to headquarters and how they would be achieved. Without
systematic efforts to reexamine its headquarters resources on a more
comprehensive basis, DOD may miss opportunities to shift resources
away from overhead.




Page 12                                         GAO-12-345 Defense Headquarters
                            DOD does not have complete and reliable major DOD headquarters
Lack of Complete and        activity data available for use in making efficiency assessments and
Reliable Headquarters       decisions because the department continues to have challenges in
                            identifying and tracking personnel and other resources devoted to
Information Hinders         headquarters. According to our internal control standards, an agency
Efforts to Identify and     must have relevant, reliable, and timely information in order to run and
                            control its operations. 9 In reviewing DOD’s guiding instruction we found
Implement                   that it does not identify all current major DOD headquarters activity
Efficiencies                organizations or address the tracking of contractors that perform
                            headquarters functions. DOD officials stated that they have delayed
                            updating the instruction to allow time for components to adjust to the
                            statutory changes enacted by Congress in 2009 that created new
                            reporting requirements for major DOD headquarters activity personnel.
                            According to DOD officials, the ever-changing statutory reporting
                            requirements have contributed to DOD’s failure to report to Congress
                            about the numbers of headquarters personnel. As the department did not
                            have reliable major DOD headquarters activity data, DOD gathered
                            information from multiple sources to compile headquarters-related
                            information for the Secretary of Defense’s 2010 efficiency initiative. Some
                            of the information DOD compiled to identify headquarters-related
                            efficiency initiatives was inaccurate, and as a result, some adjustments
                            will need to be made during implementation to achieve planned savings.
                            Without a proper accounting of headquarters personnel and operating
                            costs, to include contractors, DOD will not have complete and reliable
                            information on the universe of headquarters resources. Complete and
                            reliable headquarters information will be even more important in
                            supporting an examination of DOD resources in light of changes in DOD’s
                            strategic priorities for the next decade.


The DOD Instruction Does    According to our internal control standards, an agency must have
Not Include All Major DOD   relevant, reliable, and timely information in order to run and control its
Headquarters Activity       operations. This information is required to develop external reporting and
                            to make operating decisions, monitor performance, and allocate
Organizations or Address    resources. Moreover, we have reported that accurate, timely, and useful
Tracking of Contractors


                            9
                             GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1
                            (Washington, D.C.: November 1999).




                            Page 13                                              GAO-12-345 Defense Headquarters
financial management information is essential for sound management
analysis, decision making, and reporting within DOD. 10

DOD Instruction 5100.73, Major DOD Headquarters Activities, establishes
a system to identify and manage the number and size of major DOD
headquarters activities. The Director of Administration and Management,
within the Office of the Secretary of Defense, is responsible for issuing
guidance, as required, and maintaining the list of major DOD
headquarters activity organizations. However, significant revisions to the
instruction have not been made since 2007 and the instruction does not
identify all current major DOD headquarters activity organizations. For
example, Navy officials noted several Marine Corps components, which
are parallel to Navy components in the major DOD headquarters activity
functions they perform, are not included in the instruction. Also, the
instruction does not reflect the component command headquarters of the
Departments of Navy and Air Force at U.S. Africa Command, which were
established in October 2008 and October 2009, respectively, and would
likely be considered major DOD headquarters activities.

Additionally, the instruction does not explicitly address how and to what
extent the thousands of contractors who work at headquarters around
DOD should be included as part of its major DOD headquarters activity
data. DOD has increasingly relied on contractors to provide a range of
services at headquarters, such as management and administrative
support, information technology, and base operations support. 11 Some of
the services and functions performed by contractors could be considered
part of major DOD headquarters activities. Our work over the past decade
on DOD’s contracting activities has noted the need for DOD to obtain
better data on its contracted services and personnel to enable it to make
more informed management decisions, ensure departmentwide goals and
objectives are achieved, and have the resources to achieve desired



10
     GAO, High-Risk Series: An Update, GAO-11-278 (Washington, D.C.: February 2011).
11
  Headquarters-related activities performed by contractors would not include activities
classified as inherently governmental functions that must be performed by federal
employees. Examples of inherently governmental functions, set out in subpart 7.503 of the
Federal Acquisition Regulation, include the direct conduct of criminal investigations, the
conduct of foreign relations, the direction and control of intelligence and
counterintelligence operations, the determination of agency policy, and the determination
of federal program priorities for budget requests.




Page 14                                                 GAO-12-345 Defense Headquarters
outcomes, which could include reducing overhead. In January 2011, we
reported that further action was needed by DOD to better implement its
requirements for conducting an inventory of its service contractor
activities and made two recommendations, including that DOD develop a
plan of action to collect manpower data from contractors. 12 In response to
GAO’s report, DOD has outlined its approach for collecting these data,
but does not anticipate complete reporting until 2016.

The root of the problem is that DOD Instruction 5100.73, which guides the
identification and reporting of headquarters information, is outdated. DOD
officials stated that they have delayed updating the instruction to allow
time for components to adjust to the statutory changes enacted by
Congress in 2009 that created new reporting requirements for major DOD
headquarters activity personnel. According to DOD officials, the ever-
changing statutory reporting requirements have contributed to DOD’s
failure to report to Congress about the numbers of headquarters
personnel. DOD is required to report major DOD headquarters activities
annually in the Defense Manpower Requirements Report, which is to be
submitted to Congress no later than 45 days after the President’s
budget. 13 Specifically, DOD is to report the number of military and civilian
personnel assigned to major DOD headquarters activities in the
preceding fiscal year and estimates of such numbers for the current and
subsequent fiscal year. It must also include a summary of the
replacement of contract work years providing support to major DOD
headquarters activities with military or civilian personnel during the
preceding fiscal year, including an estimate of the number of contract
work years associated with the replacement of contracts performing
inherently governmental or exempt functions. DOD must also report on
the plan for continued review of contract personnel supporting major DOD
headquarters activities for possible conversion to military or civilian
positions in accordance with other legal requirements. Additionally, DOD



12
  GAO, Defense Acquisitions: Further Action Needed to Better Implement Requirements
for Conducting Inventory of Service Contract Activities, GAO-11-192 (Washington, D.C.:
Jan. 14, 2011).
13
  National Defense Authorization Act for Fiscal Year 2010, Pub. L. No. 111-84, §1109
(2009), codified at 10 U.S.C. §115a. The Defense Manpower Requirements Report is an
annual report to Congress that provides DOD’s manpower requirements, to include those
for military personnel and civilians, as reflected in the President’s budget request for the
current fiscal year.




Page 15                                                   GAO-12-345 Defense Headquarters
                             must report the amount of any adjustment in personnel limits made by the
                             Secretary of Defense or the secretary of a military department and, for
                             each adjustment made pursuant to section 1111(b)(2) of the fiscal year
                             2009 National Defense Authorization Act, the purpose of the
                             adjustment. 14 DOD officials are aware of the reporting requirements and
                             expect to report some major DOD headquarters activity data to Congress
                             in the fiscal year 2012 Defense Manpower Requirements Report;
                             however, it is unclear what information will be included in the report.

Some Information DOD         As the department did not have reliable major DOD headquarters activity
Used to Identify             data, DOD gathered information from multiple sources to compile
Headquarters-Related         headquarters-related information for the Secretary of Defense’s 2010
                             efficiency initiative. The military departments used existing budget review
Efficiency Initiatives Was   processes to identify potential efficiency initiatives for fiscal years 2012 to
Inaccurate and Some          2016, while the Secretary of Defense established a temporary task force,
Resource Adjustments Will    chaired by his Chief of Staff, to identify specific areas in which immediate
Be Made during               action could be taken departmentwide, such as holding the civilian
Implementation               workforce at fiscal year 2010 levels. Because of the short timelines given
                             to identify efficiencies and limitations on the sharing of information
                             imposed on personnel by DOD to prevent disclosure of the decisions, this
                             information was not validated with the DOD officials responsible for
                             implementing the decisions to ensure that it was accurate. As a result,
                             some information used to identify headquarters-related efficiency
                             initiatives was inaccurate and some adjustments in resource allocations
                             will have to be made during implementation to achieve planned savings.

                             Some of the implementation challenges that resulted from inaccurate
                             information were significant, involving hundreds of millions of dollars. The
                             most prominent example we found was an Air Force efficiency initiative to
                             consolidate installation support services, such as environmental quality
                             and civil engineering services, real property programs and services,
                             vehicle and fuel management, operational contracting, security forces,
                             and some family services, at field operating agencies and Air Force



                             14
                                Section 1111 of the Duncan Hunter National Defense Authorization Act for Fiscal Year
                             2009, Pub. L. No. 110-417 (2008), allows for the adjustment of statutory personnel limits
                             to fill a gap in DOD’s civilian workforce identified by the Secretary of Defense in a strategic
                             human capital plan submitted to Congress or to accommodate increases in workload or
                             modify the type of personnel required to accomplish work for purposes specified in section
                             1111(c) of the act.




                             Page 16                                                    GAO-12-345 Defense Headquarters
                      headquarters. When initially developed in July 2010 as part of its
                      preparations for the fiscal year 2012 budget, the initiative was estimated
                      to save $685 million by eliminating 1,371 positions by fiscal year 2016.
                      However, according to an Air Force official, the initial savings estimate
                      was developed at senior levels on an extremely short time line and
                      proved overly optimistic. According to Air Force officials, in December
                      2010, after further analysis by the Air Force staff was completed, the
                      estimate was revised to a savings of $148.1 million by eliminating 354
                      positions by fiscal year 2016. Air Force officials told us that they now have
                      to reduce operating costs or personnel from other functional areas to
                      make up the $537 million difference in savings and the 1,017 difference in
                      personnel reductions estimated as part of DOD’s fiscal year 2012 budget.
                      In other examples, we found DOD components had overestimated the
                      number of personnel or incorrectly identified the amount of contractor-
                      related resources at affected organizations, potentially affecting estimated
                      savings.


                      With the long-term fiscal challenges facing the nation, additional efforts to
Conclusions           find cost savings at DOD will likely be necessary. As DOD considers its
                      future resources and the key military capabilities it will need to meet its
                      new strategic priorities, the department will need to consider further
                      efficiencies in overhead, such as personnel and operating costs at DOD
                      headquarters. While DOD has taken some steps to trim its headquarters,
                      these initial efforts were uneven across the department and modest in
                      contrast to the defense budget. The savings DOD projected over 5 years
                      from the headquarters reductions taken to date represent a small fraction
                      of the defense budget over the same period. Additional headquarters-
                      related efficiencies may be identified by further examining opportunities to
                      consolidate organizations or centralize functions. To ensure that
                      appropriate levels of resources are applied to overhead, it is critical for
                      DOD to have complete and reliable information to use to inform its
                      decision-making and prioritize its resources. Without updating its guiding
                      instruction to ensure that it has complete and reliable data on
                      headquarters personnel and operating costs, DOD will not have the
                      information it needs, which could affect its efforts to direct resources
                      toward its main priorities.

                      We recommend that the Secretary of Defense take the following two
Recommendations for   actions.
Executive Action
                      To further DOD’s efforts to reduce overhead-related costs in light of the
                      recent changes in DOD’s strategic priorities, we recommend that the


                      Page 17                                         GAO-12-345 Defense Headquarters
                     Secretary of Defense direct the secretaries of the military departments
                     and the heads of the DOD components to continue to examine
                     opportunities to consolidate or eliminate military commands that are
                     geographically close or have similar missions, and to seek further
                     opportunities to centralize administrative and command support services,
                     functions, or programs.

                     To improve DOD’s ability to identify how many headquarters personnel it
                     has, including military, civilian and contractor personnel, and improve the
                     information Congress and DOD need to ensure that headquarters
                     organizations are appropriately sized and overhead positions are reduced
                     to the extent possible, we recommend that the Secretary of Defense
                     direct the Director of Administration and Management, in consultation with
                     the Under Secretary of Defense for Personnel and Readiness, to revise
                     DOD Instruction 5100.73, Major DOD Headquarters Activities, to

                     •   include all major DOD headquarters activity organizations,
                     •   specify how contractors performing major DOD headquarters activity
                         functions will be identified and included in headquarters reporting,
                     •   clarify how components are to compile the major DOD headquarters
                         activities information needed to respond to the reporting requirements
                         in section 1109 of the fiscal year 2010 National Defense Authorization
                         Act, and
                     •   establish time frames for implementing the actions above to improve
                         tracking and reporting headquarters resources.

                     In written comments on a draft of this report, DOD concurred with our first
Agency Comments      recommendation and partially concurred with our second
and Our Evaluation   recommendation. DOD’s comments are reprinted in their entirety in
                     appendix IV. DOD also provided technical comments, which we
                     incorporated into the report as appropriate.

                     DOD fully concurred with our recommendation that the Secretary of
                     Defense direct the secretaries of the military departments and the heads
                     of the DOD components to continue to examine opportunities to
                     consolidate or eliminate military commands that are geographically close
                     or have similar missions, and to seek further opportunities to centralize
                     administrative and command support services, functions, or programs. In
                     its comments, DOD stated that it would continue to assess its
                     organizational structure and personnel to optimize output and eliminate
                     inefficiencies.




                     Page 18                                        GAO-12-345 Defense Headquarters
DOD partially agreed with our second recommendation that the Secretary
of Defense direct the Director of Administration and Management, in
consultation with the Under Secretary of Defense for Personnel and
Readiness, to revise DOD Instruction 5100.73, Major DOD Headquarters
Activities, to (1) include all major DOD headquarters activity
organizations, (2) specify how contractors performing major DOD
headquarters activity functions will be identified and included in
headquarters reporting, (3) clarify how components are to compile the
major DOD headquarters activities information needed to respond to the
reporting requirements in section 1109 of the fiscal year 2010 National
Defense Authorization Act, and (4) establish time frames for implementing
the actions above to improve tracking and reporting of headquarters
resources. In its written comments, DOD stated that it concurs with the
intent of this recommendation and supports the refinement and update of
DOD Instruction 5100.73, Major DOD Headquarters Activities. It then
separately addressed three elements of our recommendation—including
all major DOD headquarters activity organizations, reporting on
contractors performing major DOD headquarters activities, and clarifying
how components are to compile these data to respond to reporting
requirements.

With regard to including all major DOD headquarters activity
organizations in the instruction, DOD stated that the department uses the
designation of major DOD headquarters activities in DOD Instruction
5100.73 to identify and manage the size of organizations in order to
comply with statutory limitations, not as a tool to manage the
organizational efficiency of the department or its components. It further
stated that shortcomings in the instruction have limited impact on the
management of the department. As we noted in our report, the purpose of
the instruction is to establish a system to identify and manage the number
and size of major DOD headquarters activities, and the guidance does
address statutory limitations. However, the instruction certainly has
implications for the management of the department that extend beyond
the need to comply with relevant statutory limits. For example, the
instruction directs the department to take certain steps, including
maintaining an approved list of major DOD headquarters activities, in
order to provide a framework for implementing the DOD policy that major
DOD headquarters activities shall be organized and staffed in a manner
that permits the effective accomplishment of assigned responsibilities with
a minimum number of personnel. Additionally, the department expressed
concerns about revising the definition of major DOD headquarters
activities in DOD Instruction 5100.73 because there are references to that
definition in statute. However, we did not recommend that the department


Page 19                                       GAO-12-345 Defense Headquarters
revise the definition. As noted by the department, section 194 of Title 10
of the United States Code sets out limitations on military and civilian
personnel involved in management headquarters activities or
management headquarters support activities of the defense agencies and
the DOD field activities. The statute specifies that the terms “management
headquarters activities” and “management headquarters support
activities” are to be defined as those terms were defined in the January 7,
1985, version of DOD Directive 5100.73. Our recommendation is not
aimed at revisions to the definition; rather, as explained in our report, the
recommendation is based on the fact that the list of major DOD
headquarters activities found in enclosure 4 of the instruction is outdated.
As such, we disagree with the assertion that updating the guidance
consistent with our recommendations would in any way threaten the
“foundational basis” prescribed by Title 10 or require statutory relief.
Furthermore, we note that in addition to the administrative change from
directive to instruction in 2009 mentioned by the department, other
revisions have been made to the guidance since 1985, including changes
made in 1999 revising the way the definitions of management
headquarters activities, management headquarters support activities, and
other terminology are presented.

With regard to specifying how contractors performing major DOD
headquarters activity functions will be identified and included in
headquarters reporting, DOD stated that it submitted a plan to the
congressional defense committees in November 2011 for its Inventory of
Contracts for Services that established both near-term and long-term
actions needed to improve overall visibility and accountability of all
contracted services, including those performed in support of major DOD
headquarters activities. This plan and subsequent guidance issued in
December 2011 describe the steps being taken to account for the level of
effort of contracted support, based on the activity requiring the service.
DOD also noted that aligning contract support with the requiring activity,
as opposed to contracting activity, will ensure that the department can
reflect contractor full-time equivalents, based on direct labor hours
collected from contractors, supporting major DOD headquarters activities.
While we support DOD efforts to improve visibility and accountability of
contracted services, particularly those supporting major DOD
headquarters activities, as noted in our report, DOD does not anticipate
complete reporting on contractor manpower data until 2016. We continue
to believe that DOD should make it a priority to obtain better data on its
contracted services and personnel to enable it to make more informed
management decisions, ensure departmentwide goals and objectives are



Page 20                                         GAO-12-345 Defense Headquarters
achieved, and have the resources to achieve desired outcomes, which
could include reducing overhead.

With regard to clarifying how components are to compile information
needed to respond to the reporting requirements for major DOD
headquarters activity of Section 1109 of the fiscal year 2010 National
Defense Authorization Act, DOD stated that it has incorporated this
requirement into the Defense Manpower Requirements Report. The
department stated that the DOD components reported aggregate civilian
and military data for inclusion in the fiscal year 2012 Defense Manpower
Requirements Report that will be included in the fiscal year 2013 report
as well. The department also stated that a more accurate reflection of
major DOD headquarters activity data is being incorporated into the
annual Inherently Governmental and Commercial Activities Inventory. It
further noted that the inventory guidance issued in October 2011 included
the major DOD headquarters activity requirement and the fiscal year 2012
inventory will include these data. In its written comments, DOD stated that
this revision will provide greater analytic capability for DOD function
codes, manpower mix criteria, location of services, and specific
unit/organization of billets designated as major DOD headquarters
activities. Again, we support DOD’s efforts to include major DOD
headquarters activity data in the Inherently Governmental and
Commercial Activities Inventory, but note that DOD did not provide a time
frame for when the fiscal year 2012 inventory would be issued. Further,
while DOD noted that it will include aggregate civilian and military data in
the fiscal year 2012 and fiscal year 2013 Defense Manpower
Requirements Report, neither of these reports has been issued, and we
are therefore unable to determine whether the data were included.

Despite DOD’s concerns, we continue to believe that it is important for
DOD to take actions to revise the instruction to include all major DOD
headquarters activity organizations, specify how contractors will be
identified and included in headquarters reporting, and clarify how
components are to report this information as well as establish time frames
for implementing these actions to improve tracking and reporting of
headquarters resources.


We are sending copies of this report to interested congressional
committees, the Secretary of Defense, the Under Secretary of Defense
for Personnel and Readiness, the Director of Administration and
Management, the Deputy Chief Management Officer, and the secretaries



Page 21                                        GAO-12-345 Defense Headquarters
of the military departments. In addition, this report is available at no
charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact
me at (404) 679-1816 or pendletonj@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. GAO staff who made key contributions to this
report are listed in appendix V.




John Pendleton, Director
Defense Capabilities and Management




Page 22                                          GAO-12-345 Defense Headquarters
List of Committees

The Honorable Carl Levin
Chairman
The Honorable John McCain
Ranking Member
Committee on Armed Services
United States Senate

The Honorable Kent Conrad
Chairman
The Honorable Jeff Sessions
Ranking Member
Committee on the Budget
United States Senate

The Honorable Daniel K. Inouye
Chairman
The Honorable Thad Cochran
Ranking Member
Subcommittee on Defense
Committee on Appropriations
United States Senate

The Honorable Howard P. “Buck” McKeon
Chairman
The Honorable Adam Smith
Ranking Member
Committee on Armed Services
House of Representatives

The Honorable Paul Ryan
Chairman
The Honorable Chris Van Hollen, Jr.
Ranking Member
Committee on the Budget
House of Representatives




Page 23                                 GAO-12-345 Defense Headquarters
The Honorable C.W. Bill Young
Chairman
The Honorable Norman D. Dicks
Ranking Member
Subcommittee on Defense
Committee on Appropriations
House of Representatives




Page 24                         GAO-12-345 Defense Headquarters
Appendix I: Scope and Methodology
             Appendix I: Scope and Methodology




             We conducted this work in response to a statutory mandate that directed
             us to conduct routine investigations to identify federal programs,
             agencies, offices, and initiatives with duplicative goals and activities within
             departments and governmentwide. 1 This report evaluated the extent to
             which the Department of Defense (DOD) (1) examined its headquarters
             resources for efficiencies and (2) has complete and reliable headquarters
             information available for use in making efficiency decisions.

             To conduct this work, we selected and assessed DOD efficiency
             initiatives related to headquarters based on our analysis of information
             included with DOD’s fiscal year 2012 budget request and the Secretary of
             Defense’s Track Four Efficiency Initiatives Decisions memo. We used the
             Department of Defense Efficiency Initiatives Fiscal Year 2012 Budget
             Estimates justification book to select two efficiency initiatives affecting
             each of the military departments based on their relevancy to
             headquarters. Using this sample of headquarters-related efficiency
             initiatives, we chose to interview components responsible for
             implementing the selected efficiency initiatives based on the amount of
             savings they are responsible for achieving. We used the Secretary of
             Defense’s Track Four Efficiency Initiatives Decisions memo to select two
             combatant commands and one organization from each of the following:
             the Office of Secretary of Defense, the defense agencies, and the DOD
             field activities. We selected organizations rather than specific efficiency
             initiatives because their estimated personnel and cost savings reflected
             several DOD efficiency initiatives, including the defense agency, Office of
             Secretary of Defense, and combatant command baseline review and the
             service support contracts reduction. We selected the organizations based
             on the amount of estimated personnel cuts and savings they were
             responsible for achieving. The efficiency initiatives and organizations we
             selected are further discussed in appendix II.

             To assess the extent to which DOD examined its headquarters resources
             for efficiencies, we obtained and analyzed documentary and testimonial
             evidence on selected headquarters-related efficiency initiatives
             announced by DOD, including the analysis conducted to identify
             headquarters-related resources and the approach taken to develop
             headquarters-related efficiency initiatives. To assess the extent to which



             1
                 Pub. L. No. 111-139, § 21 (2010).




             Page 25                                          GAO-12-345 Defense Headquarters
Appendix I: Scope and Methodology




DOD has complete and reliable headquarters information available for
use in making efficiency decisions, we obtained and analyzed
documentary and testimonial evidence from DOD components detailing
the policies and procedures, as well as roles and responsibilities, for
tracking and reporting headquarters personnel and operating costs, such
as DOD Instruction 5100.73, Major DOD Headquarters Activities. 2 We
also obtained and analyzed documentary and testimonial evidence on the
processes and data DOD components used to identify their headquarters-
related resources when developing selected headquarters-related
efficiencies.

In addition to conducting interviews with the components responsible for
executing selected efficiency initiatives, we collected documentary and
testimonial evidence from the military department’s deputy chief
management offices, financial management and budget offices, and other
DOD components that were involved in developing the efficiency
initiatives directed by the Secretary of Defense and included as part of
DOD’s fiscal year 2012 budget request. We interviewed officials, and
where appropriate obtained documentation, at the organizations listed
below:

Office of Secretary of Defense

•   Office of the Director of Cost Assessment and Program Evaluation
•   Office of the Under Secretary of Defense for Policy
•   Office of the Director of Administration and Management
•   Office of the Under Secretary of Defense for Personnel and
    Readiness
•   Office of the Under Secretary of Defense (Comptroller)
Joint Staff

•   Manpower and Personnel Division
Combatant commands

•   U.S. European Command
    U.S. Northern Command


2
  Department of Defense Instruction 5100.73, Major DOD Headquarters Activities (Dec. 1,
2007).




Page 26                                                GAO-12-345 Defense Headquarters
Appendix I: Scope and Methodology




Defense agency

•   Defense Finance and Accounting Services
DOD field activity

•   Washington Headquarters Services
Department of the Air Force

•   Office of the Under Secretary of the Air Force, Deputy Chief
    Management Officer
•   Office of the Deputy Chief of Staff for Logistics, Installations and
    Mission Support
•   Office of the Deputy Chief of Staff for Manpower, Personnel and
    Services, Directorate of Manpower, Organization and Resources
•   U.S. Air Forces in Europe
•   Air Combat Command
•   Air Education and Training Command
•   First Air Force (Air Forces North)
•   Third Air Force (Air Forces Europe)
•   Air Force Real Property Agency
•   Air Force Services Agency
•   Air Force Center for Engineering and the Environment
Department of the Army

•   Office of Deputy Under Secretary of the Army
•   Office of the Assistant Secretary of the Army (Financial Management
    and Comptroller), Office of the Director, Army Budget
•   Office of the Assistant Chief of Staff for Installation Management
•   U.S. Army Installation Management Command, Headquarters
•   U.S. Army Installation Management Command, Atlantic Region
•   Office of the Deputy Chief of Staff for Programs, Directorate of
    Program, Analysis, and Evaluation
•   Office of the Deputy Chief of Staff for Personnel, Directorate of Plans
    and Resources
•   Office of the Assistant Secretary of the Army for Manpower and
    Reserve Affairs
•   U.S. Army Europe
•   U.S. Army North
Department of the Navy

•   Office of the Deputy Under Secretary of the Navy, Deputy Chief
    Management Officer


Page 27                                         GAO-12-345 Defense Headquarters
Appendix I: Scope and Methodology




•   Office of the Deputy Chief of Naval Operations (Manpower,
    Personnel, Education and Training)
•   Office of the Deputy Chief of Naval Operations (Integration of
    Capabilities and Resources)
•   Office of the Assistant Secretary of the Navy (Financial Management
    and Comptroller), Office of Budget
•   Headquarters, Marine Corps
•   U.S. Marine Forces Europe
•   U.S. Naval Forces Europe
•   U.S. Fleet Forces Command
•   Naval Air Systems Command
•   Navy Reserve Force Command
•   U.S. Pacific Fleet
We conducted this performance audit from September 2010 to March
2012 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit to
obtain sufficient, appropriate evidence to provide a reasonable basis for
our findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.




Page 28                                       GAO-12-345 Defense Headquarters
Appendix II: Descriptions of Headquarters-
                            Appendix II: Descriptions of Headquarters-
                            Related Efficiency Initiatives



Related Efficiency Initiatives

                            For this review, we selected and assessed headquarters-related
                            efficiency initiatives specific to the military departments as well as
                            organizations affected by DOD-wide efficiency initiatives, discussed in
                            detail below. The efficiency initiatives we reviewed did not include all the
                            headquarters-related efficiency initiatives DOD has announced. We
                            chose to review the efficiency initiatives based on the organizations
                            affected as well as the estimated number of personnel and the amount of
                            cost savings involved.


                            As part of the Secretary of Defense’s efficiency initiative, the military
Military Departments’       departments and Special Operations Command were instructed to find at
Efficiency Initiatives      least $100 billion in savings from fiscal years 2012 to 2016 that could be
                            reinvested in force structure and modernization efforts, starting with the
                            fiscal year 2012 budget. Some of these initiatives included reductions to
                            headquarters personnel and operating costs, as shown below.


Department of the Navy:     Under this Navy initiative, U.S. 2nd Fleet was disestablished and its staff
Merging U.S. Fleet Forces   was merged into U.S. Fleet Forces Command. Prior to this merger, U.S.
Command and U.S. 2nd        2nd Fleet was responsible for training, certifying, and providing maritime
                            forces to respond to global contingencies while U.S. Fleet Forces
Fleet Staff                 Command served to provide operational and planning support to the
                            combatant commanders and worked with U.S. Pacific Fleet to organize,
                            man, train, maintain, and equip Navy forces. The Navy found that the
                            missions of the two organizations had converged over time, and decided
                            that an integrated staff could better adapt to changing missions than two
                            separate staffs and the merger could eliminate redundant personnel. As a
                            result of the merger, U.S. Fleet Forces Command now assumes both its
                            previous responsibilities as well as U.S. 2nd Fleet’s former missions. The
                            efficiency initiative eliminated one Navy flag officer at the rank of vice
                            admiral, 160 active component positions, and 184 reserve component
                            positions. The consolidation resulted in estimated savings of $10.5 million
                            in fiscal year 2012, with expected cumulative savings of $100.8 million by
                            fiscal year 2016. The consolidation began in May 2011 and was
                            functionally completed on September 30, 2011.




                            Page 29                                         GAO-12-345 Defense Headquarters
                              Appendix II: Descriptions of Headquarters-
                              Related Efficiency Initiatives




Department of the Navy:       Under this Navy initiative, shore military positions at both U.S. Pacific
Reducing Fleet Shore          Fleet and U.S. Fleet Forces Command were eliminated and personnel
Command Personnel by 5        associated with these positions were redirected to higher-priority
                              missions, including filling personnel shortages of operational ships at sea.
Percent at U.S. Pacific       Navy officials stated that new capabilities and systems on operational
Fleet and U.S. Fleet Forces   ships, such as ballistic missile defense, have led to increased manpower
Command                       requirements at sea. Additionally, more effective training has decreased
                              shore manpower needs, freeing up manpower for operational ships at
                              sea. The associated funding for the reduced shore military positions,
                              $88.3 million, has been removed from the budget for fiscal year 2012.
                              From fiscal years 2012 to 2016, the expected cumulative savings is
                              $858.1 million.


Department of the Air         This is an Air Force initiative to consolidate installation support services at
Force: Consolidating          Air Force headquarters and field operating agencies, which are Air Force
Installation Support          components that perform specialized activities in support of Air Force-
                              wide missions. To achieve the estimated personnel and cost savings, the
Services at Field Operating   Air Force is consolidating environmental quality and civil engineering
Agencies and Air Force        services, real property programs and services, vehicle and fuel
Headquarters                  management, operational contracting, security forces, and some family
                              services by shifting positions from major command staffs that provide
                              these services to field operating agencies or Air Force headquarters and
                              eliminating others. Planning for the implementation of this initiative is still
                              underway and implementation will be phased from fiscal years 2012 to
                              2016. When initially developed in July 2010 as part of the Air Force’s
                              preparations for the fiscal year 2012 budget, the initiative was estimated
                              to save $685 million and eliminate 1,371 positions by fiscal year 2016.
                              However in December 2010, after further analysis was completed, the
                              estimate was revised to eliminate 354 positions by fiscal year 2016 along
                              with a savings of $2.4 million in fiscal year 2012 and $148.1 million by
                              fiscal year 2016. The Air Force may now have to reduce operating costs
                              or personnel from other functional areas to make up the $537 million
                              difference in savings estimated as part of DOD’s fiscal year 2012 budget.


Department of the Air         This is an Air Force initiative to consolidate air and space operations
Force: Consolidating Air      centers in Europe and in the continental U.S. and to inactivate numbered
and Space Operations          air forces. Numbered air forces provide operational leadership to
                              subordinate units, such as wings, or are designated as component
Centers and Numbered Air      numbered air forces that perform operational and warfighting missions for
Forces                        U.S. combatant commanders. Air and space operations centers provide
                              command and control of Air Force operations and coordinate with other


                              Page 30                                          GAO-12-345 Defense Headquarters
                            Appendix II: Descriptions of Headquarters-
                            Related Efficiency Initiatives




                            components and military services. The Air Force consolidated the 617th
                            Air and Space Operations Center, which supports U.S. Africa Command,
                            with the 603rd Air and Space Operations Center, which supports U.S.
                            European Command, resulting in the elimination of 55 positions and one
                            headquarters organization, resulting in a savings of $4.2 million in fiscal
                            year 2012 and a cumulative savings of $37.8 million from fiscal years
                            2012 to 2016. The consolidation was completed on October 1, 2011. Air
                            Force officials stated that the transition has gone smoothly because
                            personnel in these organizations had practiced being integrated while
                            executing military operations in Libya as part of Operation Odyssey
                            Dawn. The merged organizations will now provide operational and
                            command and control support to both combatant commands. The Air
                            Force planned to consolidate the 601st and 612th Air and Space
                            Operations Centers, supporting U.S. Northern Command and U.S.
                            Southern Command, respectively; however, this was formally halted on
                            August 30, 2011, by Air Force officials in favor of developing an Air Force-
                            wide solution to provide more effective operational command and control.
                            As of December 2011, Air Force officials could not provide further details
                            regarding this solution because decisions were still pending. The Third Air
                            Force (Air Forces Europe) and the 17th Air Force (Air Forces Africa) are
                            also being consolidated with the headquarters of U.S. Air Forces in
                            Europe, thereby eliminating one headquarters organization and 183
                            positions for a cumulative savings of $95.1 million from fiscal years 2012
                            to 2016. This effort is estimated to be completed by May 2012. The 19th
                            Air Force, which supports Air Education and Training Command, will be
                            consolidated with the command’s headquarters, thereby eliminating 18
                            positions and saving $0.6 million in fiscal year 2012 with cumulative
                            savings of $10.8 million by fiscal year 2016. This initiative is to be
                            completed by June 2012. Although Air Education and Training Command
                            has identified 18 positions to be eliminated, this effort was initially
                            designed to eliminate 40 positions. Air Education and Training Command
                            has informed Air Force leadership that some of these personnel were
                            performing safety- and compliance-related inspections and could not be
                            eliminated; therefore Air Force leadership is considering adjusting the
                            number of positions that may be removed.


Department of the Army:     This is an Army initiative to reduce, eliminate and re-scope services and
Streamlining Installation   programs across the Army’s installations, with an estimated cumulative
Management Services and     savings of $1.1 billion ($456 million in fiscal year 2015 and $667 million in
                            fiscal year 2016). Services and programs to be reviewed include human
Programs                    resources, information technology, logistics, public works, and security,
                            and other services provided on Army installations. On August 29, 2011,


                            Page 31                                         GAO-12-345 Defense Headquarters
                           Appendix II: Descriptions of Headquarters-
                           Related Efficiency Initiatives




                           the Army established the Installation Management Reform Task Force—
                           which includes representatives of the Army commands and organizations,
                           such as the Army Installation Management Command—to assist in
                           streamlining installation management and reducing overhead costs,
                           among other things. Specifically, the representatives of the task force are
                           responsible for conducting a detailed analysis of the services provided on
                           Army installations. In September 2011, the Army began its holistic review
                           of installation services and infrastructure costs to evaluate opportunities
                           to develop efficiencies, among other things. Army commands, such as the
                           Installation Management Command, were directed to seek ways to
                           reduce shared contracted services or eliminate services and programs
                           perceived to be of little value to reduce costs. They are also looking at the
                           effects of reduced population (both military and civilians) on the demands
                           for installation services. According to officials at the Office of Assistant
                           Chief of Staff for Installation Management, the office leading this
                           efficiency initiative, they are in the early stages of identifying the services
                           and programs to be reduced, eliminated, or re-scoped, and the effort is
                           scheduled to be executed in fiscal year 2015 and fiscal year 2016.


                           As part of DOD’s efficiency initiative, the Secretary of Defense directed a
Defense-wide               series of initiatives designed to reduce duplication, overhead, and excess
Efficiency Initiatives     across the department. For example, the Secretary directed components
                           of the Office of the Secretary of Defense, the Joint Staff, combatant
                           commands, the defense agencies, and DOD field activities to conduct
                           baseline reviews of how they use personnel and budgetary resources to
                           carry out their missions in order to rebalance resources. This and other
                           departmentwide efforts were projected to yield about $78 billion in
                           savings through fiscal year 2016. The efficiencies for the components
                           discussed below originate from both the baseline reviews and other
                           departmentwide efficiency initiatives.


Office of the Under        The Office of the Under Secretary of Defense for Policy is a component of
Secretary of Defense for   the Office of the Secretary of Defense that advises the Secretary of
Policy                     Defense on the formulation of national security and defense policy. To
                           identify efficiencies, the Office of the Under Secretary of Defense for
                           Policy conducted a study that found its ratio of administrative support to
                           senior executives was 3 to 1, which was above the industry standard; it
                           therefore determined that it could make reductions in administrative
                           overhead. The Office of the Under Secretary of Defense for Policy cut 68
                           technical support contractors and 42 administrative support contractors
                           for an estimated savings of $14.6 million in fiscal year 2012, and


                           Page 32                                          GAO-12-345 Defense Headquarters
                          Appendix II: Descriptions of Headquarters-
                          Related Efficiency Initiatives




                          expected cumulative savings of $77.7 million from fiscal years 2012 to
                          2016. Officials with the Office of the Under Secretary of Defense for
                          Policy stated that the component is on target to meet all directed
                          initiatives.


Defense Finance and       The Defense Finance and Accounting Service is a defense agency that
Accounting Service        provides finance and accounting services for the DOD civilians and
                          military members. It is enacting several efficiencies and plans to eliminate
                          227 contractor positions and six civilian positions. Additionally, it is
                          planning to eliminate paper leave and earning statements that it provides
                          to DOD personnel and reduce manual processing of transactions by
                          increasing electronic commerce to pay for contractor mission support.
                          The associated savings for these initiatives, $41.3 million, has been
                          removed from the budget for fiscal year 2012. From fiscal years 2012 to
                          2016, the expected cumulative savings is $206.5 million. Although the
                          associated funding of $41.3 million has been removed for fiscal year
                          2012, officials said that 100 percent elimination of paper leave and
                          earning statements and increase in e-commerce transactions depend on
                          the demands of the agency’s customers.


Washington Headquarters   The Washington Headquarters Services is a field activity organization that
Services                  supplies administrative support services across the department, such as
                          information technology, facilities management, and human resources.
                          According to Washington Headquarters Service officials, they identified
                          the efficiencies by focusing on critical services and devolving noncritical
                          and completed missions. The Washington Headquarters Services
                          reduced the number of organizational elements it has from 12 to 8 by
                          merging directorates that performed similar services and functions. It
                          combined its Information Technology Management and Office of the
                          Secretary of Defense Networks directorates to form the Enterprise
                          Information Technology Services directorate. The former directorates of
                          Defense Facilities and Pentagon Renovation were combined to form
                          Facilities Services, while three directorates that performed similar
                          administrative functions were consolidated to form the Enterprise
                          Management directorate. Through these efforts, Washington
                          Headquarters Services will eliminate a total of 52 civilian positions and
                          generate an estimated savings of $7.2 million for fiscal year 2012 and an
                          expected cumulative savings of $57 million from fiscal years 2012 to
                          2016. Officials said the associated funding has been removed for fiscal
                          year 2012 and, as of January 2012, 50 of the 52 civilian positions have
                          been removed.


                          Page 33                                        GAO-12-345 Defense Headquarters
                        Appendix II: Descriptions of Headquarters-
                        Related Efficiency Initiatives




U.S. Northern Command   U.S. Northern Command is a unified combatant command whose mission
                        is to conduct homeland defense, civil support, and security cooperation.
                        U.S. Northern Command is implementing several efficiencies, to include
                        eliminating lower-priority functions, consolidating U.S. Northern
                        Command’s and North American Aerospace Defense Command’s staff
                        functions, eliminating 13 additional support billets, and reducing reliance
                        on service support contractors. According to officials, these actions have
                        resulted in an estimated savings of $12.6 million for fiscal year 2012 and
                        expected cumulative savings of $87.8 million from fiscal years 2012 to
                        2016. To achieve the efficiencies, U.S. Northern Command reviewed low-
                        priority tasks and eliminated manpower and other associated costs such
                        as supplies and computer support. Officials said civilian positions have
                        been eliminated and phased contract reductions will be complete by
                        September 2013.


U.S. European Command   U.S. European Command is a unified combatant command whose
                        mission is to conduct military operations, international military
                        engagement, and interagency partnering to enhance U.S. and
                        transatlantic security. U.S. European Command has implemented several
                        efficiencies to achieve savings. The command reorganized its
                        headquarters to promote interagency cooperation by realigning staff and
                        reduced headquarters manpower and expenditures by 10 percent by
                        realigning resources to higher-priority missions. These actions were
                        estimated to eliminate 86 military and civilian positions and save
                        $17 million in fiscal year 2012, with expected cumulative savings of
                        $84.8 million by fiscal year 2016. According to officials, U.S. European
                        Command has already completed the reorganization of its headquarters,
                        and the funding for the eliminated positions has been removed from the
                        fiscal year 2012 budget.




                        Page 34                                        GAO-12-345 Defense Headquarters
Appendix III: Examples of DOD’s
                                        Appendix III: Examples of DOD’s Headquarters
                                        Organizations



Headquarters Organizations

                                        Figures 4 through 9 contain the information on DOD headquarters
                                        organizations presented in noninteractive format.

Figure 4: Department of the Air Force




                                        Notes: Graphic is for illustrative purposes only; it is not intended to depict all organizations, their
                                        functions, or their legal or command and control relationships. In some organizations only the
                                        headquarters is considered a major DOD headquarters activity, while in other organizations only
                                        some personnel perform major DOD headquarters activities’ functions.




                                        Page 35                                                             GAO-12-345 Defense Headquarters
                                   Appendix III: Examples of DOD’s Headquarters
                                   Organizations




Figure 5: Department of the Army




                                   Notes: Graphic is for illustrative purposes only; it is not intended to depict all organizations, their
                                   functions, or their legal or command and control relationships. In some organizations only the
                                   headquarters is considered a major DOD headquarters activity, while in other organizations only
                                   some personnel perform major DOD headquarters activities’ functions.




                                   Page 36                                                             GAO-12-345 Defense Headquarters
                                   Appendix III: Examples of DOD’s Headquarters
                                   Organizations




Figure 6: Department of the Navy




                                   Notes: Graphic is for illustrative purposes only; it is not intended to depict all organizations, their
                                   functions, or their legal or command and control relationships. In some organizations only the
                                   headquarters is considered a major DOD headquarters activity, while in other organizations only
                                   some personnel perform major DOD headquarters activities’ functions.




                                   Page 37                                                             GAO-12-345 Defense Headquarters
                                          Appendix III: Examples of DOD’s Headquarters
                                          Organizations




Figure 7: Office of the Secretary of Defense




                                          Notes: Graphic is for illustrative purposes only; it is not intended to depict all organizations, their
                                          functions, or their legal or command and control relationships. In some organizations only the
                                          headquarters is considered a major DOD headquarters activity, while in other organizations only
                                          some personnel perform major DOD headquarters activities’ functions.




                                          Page 38                                                             GAO-12-345 Defense Headquarters
                                       Appendix III: Examples of DOD’s Headquarters
                                       Organizations




Figure 8: Unified Combatant Commands




                                       Notes: Graphic is for illustrative purposes only; it is not intended to depict all organizations, their
                                       functions, or their legal or command and control relationships. In some organizations only the
                                       headquarters is considered a major DOD headquarters activity, while in other organizations only
                                       some personnel perform major DOD headquarters activities’ functions.




                                       Page 39                                                             GAO-12-345 Defense Headquarters
                                      Appendix III: Examples of DOD’s Headquarters
                                      Organizations




Figure 9: The Joint Chiefs of Staff




                                      Notes: Graphic is for illustrative purposes only; it is not intended to depict all organizations, their
                                      functions, or their legal or command and control relationships. In some organizations only the
                                      headquarters is considered a major DOD headquarters activity, while in other organizations only
                                      some personnel perform major DOD headquarters activities’ functions.




                                      Page 40                                                             GAO-12-345 Defense Headquarters
Appendix IV: Comments from the
             Appendix IV: Comments from the Department
             of Defense



Department of Defense




             Page 41                                     GAO-12-345 Defense Headquarters
Appendix IV: Comments from the Department
of Defense




Page 42                                     GAO-12-345 Defense Headquarters
Appendix IV: Comments from the Department
of Defense




Page 43                                     GAO-12-345 Defense Headquarters
Appendix V: GAO Contact and Staff
                  Appendix V: GAO Contact and Staff
                  Acknowledgments



Acknowledgments

                  John Pendleton, (404) 679-1816 or pendletonj@gao.gov
GAO Contact
                  In addition to the contact named above, Patricia Lentini, Assistant
Staff             Director; Erin Behrmann; Pat Bohan; Grace Coleman; Richard Geiger;
Acknowledgments   Jeffrey Hubbard; Cynthia Saunders; John Van Schaik; Angela Watson; K.
                  Nicole Willems and Weifei Zheng made key contributions to this report.




(351629)
                  Page 44                                     GAO-12-345 Defense Headquarters
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