oversight

Department of Defense: Improving Management to Meet the Challenges of the 1990s

Published by the Government Accountability Office on 1990-07-25.

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

‘1                      United States General Accounting Of!Rce / f/g        b 7              ’
                        Testimony                                                             ‘
     * GAO
                                                                      141863

     For Release        Department of Defense:   Improving   Management to
     on Delivery        Meet the Challenges of the 1990s
     Expected at
     9:00 a.m.
     Wednesday
     July 25, 1990




                        Statement of
                        Charles A. Bowsher, Comptroller   General
                        of the United States
                        Before the
                        Committee on Armed Services
                        United States House of Representatives




     GAO/T-NSIAD-9047
                                                                        GAO Form 160 (12/87
                                                                              c
Mr. Chairman             and Members of the Committee:


I am pleased             to be here             today      to discuss           opportunities           for
improving         the management of defense                           programs           and the potential
savings        associated           with        those      actions.           As this       Committee         is well
aware,        recent       and continuing                developments               in Eastern        Europe and the
USSR are greatly                 altering          the national              security       environment             and
will       significantly            affect         the future             course      of the budget           for
national        defense.            At the same time,                     as evidenced         by the ongoing
budget        summit there           is a need to find                     solutions        to address         the
mounting        deficit        .crisis          which      also     effects         defense       spending          levels.


All    of these          factors         set      the stage         for      historic       changes      to the
composition            of U.S. military                  forces,          the threats         they will        defend
against,         and where they will                     be deployed            around      the world.              As
these       decisions          are being           made I think              this       is also      an opportune
time       to take       stock      of how our defense                     programs        are managed and to
initiate         actions         to correct             longstanding            management problems.
Managing         defense         programs          during         a significant            restructuring             of
forces        and declining              budgets         presents          a formidable           challenge.


Successfully             meeting         this      challenge          will      require       that     defense
managers         take      actions         that     will     allow         them to achieve             national
security         goals      in the most economic                      and efficient            manner possible.
The actions            taken       can not reflect                 a business           as usual       approach           of
cutting          a little        here and there,                   while    retaining            the same
inefficient            or outdated           organizational                 structures            and systems.


More fundamental                 changes       are needed to ensure                       that      organizational
structures           are economic            and efficient                 and information                     systems
provide          the data        needed to provide                   effective           stewardship               over
defense          activities.             I do not believe                  those        conditions              exist       today.
There are a number of actions                               that     I believe           are needed.                  Before        I
discuss          them in detail            I would           like      to summarize              the main areas
where corrective                 actions       are needed.


--        DOD's 5 year            spending           plan     needs to reflect                   fiscal          reality           and
          recent       world      events.            As in the past,                   DOD continues               to plan
          for     more weapon systems                  than         the nation           can afford              to build,
          operate,          and support.              The proposed               1991 budget              reflects             a
          1990-1994            defense     budget           projection           totaling         $1.5          trillion.
          However,          the total        planned          spending           for     individual              programs
          exceeds        this     amount by over                   $100 billion.             This         is because               DOD
          has not yet decided                  where to make all                       the reductions                 needed to
          achieve        the $1.5         trillion           spending        level.          Further,              the budget
          resolution            also     indicates           the 5 year            spending         level          is too
          high.


--        DOD needs to more fully                      test         the weapon systems                    it     is
          developing            and correct           identified            problems         to assure                itself
          that      these       systems      perform          as required               before      they         are
          J

                                                              2
procured.         During        the past       10 years,            billions           of dollars            were
wasted       on systems         because       this        was not done.                The reason
usually       given     for     following          this      practice       was that             systems
were needed quickly                to meet the Soviet                   threat.           The B&lB
bomber is just           one example.                Many other          programs,              such as the
SSN-21 submarine               and its      advanced          combat system,                  are following
the same path           today.


We believe        such programs              should        be reexamined               because         the
urgency       to produce         systems       to meet the Soviet                      threat         is
not as great           as it     was previously.                   The funding            for     these
and other       programs         with      similar         uncertainties               that      we
have reviewed           represent          about      $17 billion              in DOD's fiscal
year      1991 budget          request.        I would            suggest       that      all     such
programs       should      be examined             closely         as the Committee
considers       making         reductions.


DOD needs to adopt               management philosophies,                         controls,            and
organizational           structures           that        place     a high        value         on economy,
efficiency,           and accountability                  in the     inventory            system.            Such
a management culture                has been particularly                       absent          during       this
past    decade.         For example,           as of September                  30, 1989,             the
defense       wholesale         inventory          of spare         parts       and other             secondary
items      exceeded      $109 billion              of which         $34 billion               has been
identified        by DOD as exceeding                     current       operating             and war
reserve       requirements.               Also unneeded             stock      exists           at the

                                               3
     retail      level.           Further,      there       have been numerous                reports         of
     theft      from the system.                These are longstanding                  problems,             but
     DOD      has not made the fundamental                         changes     to correct           them.
     Based on our work,                   we believe        that     there     is potential           to
     reduce      the DOD’s proposed                  1991 funding            levels    for     secondary
     inventory          items        by at least          10 to 20 percent            or about        $2 to $4
     billion.


     Financial          systems         are needed that             provide      decision       makers with
     accurate          data     on the actual             cost     of programs,        assets        and
     operations.               My observation             from working         on major        financial
     crises      involving             New York City,             the Chrysler        Corporation,             and
     the Savings           and Loan industry                is that      accurate       financial
     information           was not available                to decision          makers.        Defense
     managers          face     similar      problems.             Our financial        audit        of the
     Air      Force     shows the Air           Force       lacks     accurate        cost     data     for
     almost      all      of its        nonrcash      assets        such as inventory,
     equipment,           aircraft         and missiles.             You simply        can not manage
     effectively           without         accurate        cost     information.


-*   DOD managers              need to commit themselves                     to developing           and
     implementing              an effective          system of management controls.                            Our
     reviews       of the implementation                    of the Federal            Managers
     Financial          Integrity          Act of 1982 have shown that                       DOD tends         to
     be reactive              rather      than proactive            in identifying            and
     auddressing          internal         control        weaknesses.          The lack        of effective

                                                      4
     controls            is a recurring               theme in the specific                         areas    I am
     addressing            today.


     Duplicative             and wasteful                 DOD organizations                  and systems            need to
     be eliminated                or streamlined.                    For too          long we have seen such
     systems        among the services                       for     common activities.                     Many of
     these      were identified                    in DOD’s Defense                  Management Report.
     Given      that       our     recommendations                   relating          to operations            and
     maintenance             expenditures                 have resulted               in reductions           of about
     $1.7      billion           over     the past           3 years          for     non inventory           related
     activities,             we believe              that     operations             and maintenance                funding
     is also        a candidate              for      reductions.


--   DOD needs to closely                     look          at opportunities                 for     reducing        the
     overall        size         of its     military               forces.          Removing troops             from
     overseas          locations           will       not by itself                 result         in substantial
     savings;          such savings                will      only      occur        by removing          personnel
     and reducing                the force          structure.                The Secretary             of Defense
     has discussed                personnel           reductions              of about        25 percent            by
     1995.         This      would        represent           about          400,000       personnel         less        than
     we have today.                 Similarly,               reductions             will     be needed in
     battle        carrier         groups,          divisions,               and air       wings.        Changes in
     these      areas,           in turn,          lead      to opportunities                 to reduce         or
     eliminate           weapon system programs                         required           by the current
     force      structure.
         Closely          tied      to such reductions                  is the need to develop                     a more
         efficient           military         base infrastructure                         at home and abroad.
         The structure               that     exists         today      is widely            recognized          as being
         inefficient              and as DOD reduces                  its       force       structure       it    is also
         the perfect              time      to attack         this      problem            as well.       This     is an
         area      that      we will         be examining             as events             in Europe continue              to
         unfold.


Before      I provide            more specifics               let     me first             say that      I recognize
that     managing           the DOD is an enormously                          difficult         and complex         job--
perhaps      the most difficult                      in government.                  I do not want to leave
the     impression           that     Secretary         Cheney and his                     assistants      are not
attempting           to address             these    problems.                For example,            the Secretary
of Defense's              Management Report                  calls      for      $39 billion            in savings        and
he also      announced              plans     for    about          $17 billion             in budget       reductions
from adjustments                  to 6 major         aircraft          programs.


I also     want to stress,                   while     I am focusing                 on opportunities              for
management change and budget                           savings          there        will      also     be some costs
associated           with        the changes          that     will         be occurring.               For example,
there     will       be costs         associated             with     closing           overseas        bases,     from
separating           foreign         national        employees,               and correcting
environmental               problems     among/ other things.  In the long run money
will     be saved,           but     in some areas it is going to cost in the short
run.
.
    \




        THE MOUNTING DEFICIT INCREASES
        PRESSURETO REDUCE DEFENSE SPENDING


        To set           the     framework           for         addressing              defense         management issues                     I
        think       it         is first       necessary                  to discuss            the overall           budget
        situation.                   The mounting                deficit          crisis         is having         a significant
        impact           on defense           spending                 levels          and the need to institute
        management practices                         that         emphasize              economy and efficiency.


        When the President's                         budget              was published                 in January,        it      estimated
        that       the deficit               for     fiscal              year         1990 would         be $122 billion,
        dropping               to $100.5           in fiscal              year         1991,     on a path         projected              to lead
        to a surplus                  in 1995.             It         is now clear             that      those     estimates              were
        wildly           off     the mark.


        OMB recently                  estimated            that          the deficit             for     this     year will          be
        $218.5           billion          and $231.4                  billion          in fiscal         year     1991.         If   all           of
        the cost               of the savings                   and loan              clean-up         -Lincluding        interest
        payments               and administrative                        expenses--            is excluded            the deficit
        would       be $161.3              billion              for      fiscal         year     1990 and $168.8                billion             in
        fiscal           year        1991.


        The projected                  deficit         with            RTC excluded              for     fiscal       year      1991 is
        $104.8           billion          above the Gramm-RudmansHollins                                    baseline           of $64
        billion.                If    no action            is taken               to adjust            the baseline            deficit,
        outlays will have to be reduced by $104.8 billion,                                                            one-half            of
               0
        which, or $52.4 billion would come from defense.                                                             In order         to
                                                                                  7
achieve       an outlay             reduction            of $52.4            billion          in DOD military
accounts,          fiscal          year       1991 budget             authority              would need to be
reduced       by $96.3             billion.             This     assumes that                 military             personnel
accounts          are     exempted            from the cuts.


After      five     years          of relying            on the GrammgRudman approach,                                     the
deficit       is again             out of control.


But reality              is even worse.                  The true            deficit          situation             is masked
because       we are using                larger         and larger               amounts of trust                   fund
surpluses          (from       Social          Security,             Military           and Civil            Service
Retirement,              and other            programs)          to pay current                  operating               expenses.
This      year CBO estimates                     that     the federal                  government            will        use about
$123 billion              of trust            fund      surpluses            to pay for           current            operations.
In 1991,          that      will      rise       to $135 billion.                       If    these         trust        fund
surpluses          are excluded,                 the CBO deficit                   estimate           for      the general
fund will          exceed          $317 billion                in 1990 and reach                  $367 billion                   in
1991.


If   we continue             along        this       same path,              CBO estimates                  that     the
national          debt      will      increase           to $4.9            trillion          by fiscal             year     1995.
A debt      of this          magnitude            would entail                 annual         interest             payments           of
$351 billion              or more,            which      could        represent              the largest             single
item      in the federal                budget.           As we look               to attack           the deficit                by
controlling              spending         and reducing                it     wherever          possible,             all
spending          programs          must be examined                       very    closely.            This         is

                                                                 8
particularly               true      of defense,           in light          of changing               circumstances
around       the world.


With      this      as     a    backdrop        let     me turn          to what needs to be done to
improve          defense          management and those                    areas       where there              is potential
to reduce           defense          spending.


FIVE YEAR DEFENSE PLAN
MUST BE REALISTIC


A pressing           management issue                   that        must be addressed                  is the need for
a 5 year defense                   plan      that     reflects           fiscal       realities,             and is based
on current           threats          and warfighting                 strategies.               DOD essentially
lacked       this         during      the     1980s and while                the situation                  has improved
somewhat,           the problem              is still          exists.            without       a realistic
financial           resources              road map program               management suffers                    and
effective           budget         oversight          can not be accomplished.                              This     is a
major       reason         why DOD has more weapon systems                                  in development              and
production           than         is affordable.                As a result,               DOD and the Congress
annually          debate          on cancelling,               delaying,           or stretching               out
programs.


The President's                   1991 proposed           budget          request           reflects         a fiscal         year
1990 to 1994 defense                       budget       projection           of $1.5           trillion.             After
adjusting           for        inflation       estimate             changes,        this      will         require      $212
billion          in reductions               to the April             1989 Five            Year Defense              Program.
Howevdr , DOD has not decided                            where to take                over      $100 billion             in
                                                                9
programmatic              reductions            to reach         the $1.5         trillion             projected            budget
for     the 1990 to 1994 period.                            Difficult          as it          will     be to accomplish
these       reductions,             they will           still        only     bring      the defense               program         in
line      with      the President's               1991 budget               submission.                The events            in
Eastern          Europe and the Soviet                      Union along           with         the mounting              federal
deficit          will     likely       result          in further           reductions.


If     these      events         continue       on their             present      course,             with      the rise          of
democracy           in Eastern             Europe       and a diminishing                     Soviet         military
threat         in Central           Europe,       DOD will             face    the even more daunting                         task
of restructuring                   the military            establishment                for      a radically
different           national         security           environment.              In time,             that      may well
permit         substantial           additional             reductions          in defense              plans         and
required          funding.


While       Pentagon         spending           is coming down from the ambitious
projections              of the 19809,            it     will        take major          restructuring                  over a
number of years                  to achieve            the substantial                savings          that      may be
possible.               Achieving          such savings              will     require          cuts     throughout            the
defense          budget&&in          areas      such as personnel,                     operations               and
maintenance,              and weapon systems                    acquisition.                   For example,             DOD
must see that              duplicate          weapon systems                  and forces              are not being
created          to defend          against       the same threat.                     Those decisions                  cannot
be made hastily                  or without            an overall           strategic            framework.             That       is
why we have been urging                       DOD to move expeditiously                               to develop            a 5
year defense              plan      that     reflects           the dramatically                     changed national

                                                                10
    security       environment.                 Otherwise            defense        management will               continue
    to annually          adjust         programs           to reflect           reality,        while     at the same            -
    time,      planning         for      future         expenditures            that       are unrealistic.               That
    practice      creates             ineffective           and inefficient                 programs      and impedes
    Congressional           oversight.


    LONGSTANDINGACQUISITION AND
    INVENTORY MANAGEMENTPROBLEMS


    Now I want to discuss                    the critical                 need to correct            longstanding
    acquisition          and inventory                  management problems                  along      with      some
,
    solutions       and opportunities                      for      potential          budget     reductions.             Last
    summer, to help              avoid       another             HUD type       scandal,        we launched          a major
    effort      to identify             areas       that         are at risk           to mismanagement,              fraud,
    and abuse.           We identif'ied                 2 areas          in defense;gmajor              system
    acquisition          and inventory                  management&sthat                are "vulnerable"             and
    targeted      them for             special          attention.


    Weapon System Acquisition


    Problems      with      defense          acquisition                 have been known for              a long         time.
    Over the past           20 years,             numerous studies                  have identified              problems
    in the way DOD acquires                       its      weapon systems               and other        goods and
    services.        Unfortunately,                     the problems            that       have plagued          defense
    acquisition          over         that   period--cost                 growth,       schedule        delays,      and
    performance          shortfalls-istill                       exist     today.          Delivering          capable     and
          p1
    supportable          weapons to the user when and where they                                        are needed and
                                                                   11
at a reasonable            cost     has been the exception                     in defense          acquisition
rather      than    the rule.            Today,     I will     discuss          three          key problem
areas--affordability,                concurrency,            and the acquisition                   process.


Affordability


As previously           mentioned,          there     is currently             a mismatch          between           the
programs        being     planned        and the level         of funding              that      can
realistically           be expected.              There are over             100 major           acquisition
programs        in various        stages      of development                and procurement.                   The
estimated        acquisition         cost     of these        programs          is over          $1 trillion,
with     well    over half        that      amount yet        to be spent.               There are also
many other         smaller      programs.


DOD needs to decide               which      of the planned            programs           it     can afford.
Overoptimistic            planning        tends     to obscure         defense          priorities             and
delay     tough     decisions        and tradeoffs.                 This     practice           leads     to
unstable        program      funding,        costly     program            stretch      outs,       and
terminations.


Concurrency


DOD must also           end management practices                     that      in the past&-and
particularly            in the last         decade"-have            proven      very     costly.           As noted
above weapon systems                currently         in development                 or production             are
expected        to cost      over    $1 trillion.             All     too often          costly         new weapon

                                                      12
1)
     ,




         system s h a v e b e e n r u s h e d into                        p r o d u c tio n       without            a d e q u a tely            testin g
         their       ability           to p e r fo r m         a n d b e s u p p o r te d           as intended.                      The
         justification                 was     usually          th a t      th e r e       w a s a n i m m i n e n t th r e a t                  a n d th e
         system w a s u r g e n tly               required               to c o u n ter         th e th r e a t.                O n ly later,
         a fter      s p e n d i n g billions              o f dollars              w e r e d e fects              discovered                  th a t
         impaired          th e ability             o f th e system to m e e t m ission                                     r e q u i r e m e n ts.


         In s o m e cases,              this      led to costly                   retrofits;               in o thers,                it       led to
         proposals              for    still      o th e r ,      e v e n m o r e costly                n e w system s to fill                           th e
         supposed gap.                  T h e A r m y 's A p a c h e helicopter,                          a n d th e A ir Force's
         B -l aircraft                are examples.


         W ith th e diminishing                     c o n v e n tio n a l         Soviet          th r e a t,       w e should reject
         th e “urgency”                a r g u m e n t a n d insist               th a t      n e w w e a p o n system s b e fully
         a n d realistically                   testedzs in te r m s o f th e m issions                                      th e y a r e
         intended          to carry            o u t zsbefo r e           w e decide w h e th e r                  or n o t to b u y th e m
         a n d start            h i g h rates       o f p r o d u c tio n .                S imilarly,             concurrency                  should
         b e r e d u c e d as m u c h as possible.


         I w a n t to c a u tio n              h e r e th a t       I a m n o t a d v o c a tin g                  th a t      programs
         should b e stretched                     o u t.        This        is a practice                 th a t       I strongly                 advise
         against         b e c a u s e it       results           in increased                  p r o g r a m cost.                What I am
         saying        is th a t        D O D n e e d s to follow                  m a n a g e m e n t practices                      th a t      will
         result        in th e economical p r o d u c tio n                            o f system s th a t                   m e e t c o n tract
         p e r fo r m a n c e     specifications.



                                                                             13
Based on our work,                  let     me suggest               some programs               for     review.          We
estimate       that-these            and other               programs           with     similar         characteristics
represent        funding          requests           totaling            more than            $17 billion           in DOD's
fiscal       1991 budget            request.            If         reductions           to    programs          must be
made, we would             suggest           these     programs                as candidates             for     review.


The B-2 Bomber:                  In February           of this              year,       we testified             before       this
Committee        that      it     would be prudent                     to reduce             the pace of funding
and production             for     the B=2 until                    critical           performance             elements       of
the aircraft,            such as its               integrated               offensive          and defensive
.avionics,       were adequately                   demonstrated.                    At that        time,        we said       that
under     the DOD acquisition                      plan,           3I B&2 aircraft               would be on order
and over       $48 billion                would be appropriated                         before         anyone knew
whether       this      airplane           will     do its           job.        As you know, Secretary                       of
Defense      Cheney recently                  announced              his       intention         to buy 75 rather
than     132 Bs2 bombers.                   Under Secretary                     Cheney's         plan,         the fiscal
year     1991 buy is reduced                      from 5 to 2 aircraft                        and the 1992 buy from
10 to 6 aircraft.                  As a result,                    24 rather           than    31 B"2s will           be on
order     before        testing           is completed.                 We remain             concerned,          however,
that     production             of this       plane          is continuing               without         adequate
assurance        that      it     can perform                its     mission.


The C-17A Aircraft:                       In August           1989 we reported                   that      the CL17A
program       faced      significant               cost,           schedule,           and performance                    *
challenges.             On April           26, 1990,               the Secretary              of Defense          proposed
to significantly                 restructure           the CL17A program                       by reducing           (1) the

                                                               14
program       from 210 to 120 production                        aircraft,             (2) the pending                fiscal
year     1991 budget              request      from 6 to 2 aircraft,                       and (3) advanced
procurement             funds      from 12 to 6 aircraft                   in fiscal           year       1992.        This
proposal         also      reduced      the fiscal         year       1991 budget              request        from
about      $2.7    to $1.7 billion.


On the basis             of current           schedule     delays          and the resulting                  funding
buildup,         we believe          that      Congress        should       consider           further        reducing
the proposed             fiscal      year      1991 buy of two C&l7A aircraft                              and the
advanced         procurement           funds     for     6 aircraft           in fiscal            year     1992.
This     could     provide          an opportunity             to further            reduce        concurrency             in
the program          by having          the Air         Force    limit        production                commitments
until      the critical             elements      of a realistic                   and achievable             flight
test     program         are completed           and any identified                    problems           resolved.


Rail     Garrison:             The initial        low rate         production                decision       for      the
Rail     Garrison          is scheduled          before        the first            test      flight       of the
complete         weapon system.               We recommended that                    the      initial       production
decision         be deferred          until      the Air        Force has conducted                       some
operational             test      and evaluation          of the complete                    weapon system.
While      the Air        Force has delayed               the    initial            production            decision
from April         1990 to February               1991,        the first            flight       test      of the
complete         weapon system              is not scheduled               until       the third           quarter         of
fiscal      year        1992.       Therefore,          we believe          that       the $1.62           billion         in
the fiscal         year         1991 budget       for     the procurement                    of the rail          launch
cars     ($1.35      billion)         and construction              of the garrisons                      ($269

                                                          15
million)         should              be deferred              pending            completion       of operational                    tests
and      evaluation.                  We also          believe           that      the $102.6           million          in
advanced           procurement                 funding           and the $104.8               million       in military
construction              funding,              which was appropriated                          in fiscal          year        1990,

should       be rescinded.                      Indeed,             the entire            strategic        missile            basing
program        should           be reviewed                  in light            of the changes            in the world.


The M&l Block                  II      Program:            Last       November,            we reported            that        the
benefits        of the modified                        M&l       Block      II     (MlA2)      tank      had not been
demonstrated.                   We recommended that                         the Army not proceed                     into
production             until           the Army demonstrated                        that      the MlA2 tank would
increase        warfighting                   capabilities                enough to justify                 the more than
$300,000        per unit                   increase        associated              with     the modifications.                       We
were concerned                      that     the results              of the Army's              analysis          supporting
the cost-effectiveness                            of the modified                   tank      were invalid               because           of
poor assumptions                      used in their                  models.          Subsequently,               the Army
decided        some modifications                          would         not be incorporated                  into        the
tank,       thus       further              calling          into     question            the results         of the Army's
analysis.              We were also                   critical           of their          acquisition            strategy
because        some key modifications                                would not be tested                   before         making           a
production             decision.


The Army did              not reevaluate                      the MlA2 effectiveness                       in light            of    its
reduced        capabilities.                      However,            the Secretary              of Defense,              in his
fiscal       year       1991 budget                   request         limited        production            to 62 tanks.



                                                                     16
In an attempt               to field       the MlA2 tank within                 the prescribed              time
frame,       the Army adopted               a compressed          acquisition            strategy.            We
believe       this      is risky        because          key components             of the modification
package       are in the early                 stages      of development,             and testing            and
evaluation           will     not be completed               before       certain      production
decisions           are made.           Under current            plans       the Army will           commit
$81.2     million           in advanced         procurement           funding        received      in fiscal
year      1990 and the $178.3                  million       requested        in fiscal         year     1991
before       test     results       are available              and cost-effectiveness                  is
demonstrated.


We believe           no funds       should        be spent       unti.1      the Army justifies                the
MlA2 capabilities.


The DOG-51:             The DOG251 will              replace      retiring           destroyers        and will
be equipped           with      the AEGIS combat system.                      The DDG"5l's           contractor
has experienced               problems         in designing           and constructing             the      lead
ship.        Because of these              problems          and since        the Navy has changed
the contract's               requirements,           costs      have increased            substantially,
and the expected                delivery        schedule        has slipped           about     17 months           from
the original            estimate.           In January          1990,      we issued          a report        on the
DOG&51 program               in which we recommended that                       the Secretary            of
Defense       ensure         that   sufficient            information         exists      on the DOG"51
program       development           and affordability                 to justify         the award of
additional           follow-on         ships      beyond the seven awarded                     to date.



                                                          17
In February             1990,      the Navy awarded contracts                      for        5 follow&on          ships
and now has a total                     of 12 follow&on          ships      under         contract.
Furthermore,             the Navy could             have as many as 17 followron                           ships
under construction                  or awarded before               the lead           ship     has finished
testing         and has been delivered                    in February           1991.          We believe          the
DDG=;Sl program                should      be reexamined.              For fiscal          year      1991,       DOD has
requested         $3.6 billion              to purchase         another         five      ships.


The Advanced Combat System for                            Submarines:            The SSN"21 Seawolf
attack         submarine          and its     combat system,             the AN/BSYg2 are
multibillion             dollar         programs.         In May 1990, we reported'that                            as
many as 15 of 29 planned                      SSNr2ls       worth       more than             $21 billion,             will
be under         contract          before     the first         ship     is available              for
operational             testing.            The AN/BSY;2 is crucial                      to the performance
of the SSN"2ls                 mission      and one of the most technically                              challenging
and complex             software          development       efforts       for      a submarine             which will
require         up to 800 personnel                 to develop          and integrate              about      3.2
million         lines     of computer          code.        Timely       operational              test     and
evaluation          on critical             subsystems         such as the AN/BSY'2 should                             be
conducted.


We reported             that      the Navy can not demonstrate                         the AN/BSY-2 combat
system's         potential          for     improved       effectiveness               over prior          systems
until     it     is operationally               tested.         Such tests             are scheduled             for        two
years     after         the delivery          of the first             system.           Problems         encountered
during         such tests          could     require       redesign       and/or          configuration

                                                          18
changes      to SSNu2ls delivered                   and under        construction,           which      could
further.delay            deliveries          and increase           costs.       This    has already
occurred.          In fiscal          year    1991,     the Navy'is           requesting        $3.5     billion
for    the second and third                  ships,     two combat systems,                 and long      lead
time      items    for    the fiscal          year     1993 program.


Attachment         I contains          examples        of other         DOD programs         where we have
similar      concerns.


Improving         the Acquisition             Process


The need to improve                the acquisition              process        is another       area of
long-standing            concern       identified           by various        studies       including       the
Packard      Commission.            A number of initiatives                     resulting       from
Secretary         Cheney's       defense       management review                (completed       in July
1989) are directed               at correcting              these    problems.          Some initiatives
have been completed                while      others        are still        in process.


In our recently             issued. report,            "Defense         Acquisition:          Perspectives
on Key Elements            for     Effective          Management:            (GAO/NSIAD-90L90,
May    14,   1990),       we discuss          seven key elements               we believe        are
necessary         for    an effective          acquisition           process.          These include:


L- strong,         sustained          leadership        by the Secretary               of Defense,




                                                       19
-- a highly         qualified,             technically          competent          acquisition       workforce
     operating          together          as a team,


--   a mirrored           organization           structure         between         the Office       of the
     Secretary          of Defense           and the military             services,


-- a free        flow      of current           and objective            information        both     up and
     down the organization,


--   compliance           with     an effective           internal        control       system,


-- a requirements                 determinations           process        that      considers       fiscal
     constraints           right      from the start,              and


a- a strong         link         between      DOD's weapon system decision                        process    and
     its    resource        allocation           process.


We are encouraged                 by the parallels              between      the areas           addressed     in
Secretary        Cheney's          July      1989 Defense          Management Report               and those
GAO believes            are necessary            to resolve          long&standing          acquisition
problems.          However,         highly       publicized          initiatives         have in the past
come and gone without                     effectively          solving     the tough management
issues      surrounding            defense       acquisition.             Strong,       long-term
leadership         by the Secretary                and teamwork          on the part             of the
services,        combined          with      timely      and objective             information       and strong
compliance         with     internal          controls,         are essential           to break      down

                                                          20
existing         cultural       barriers       that,      to date,         have      precluded,       lasting
improvement          in defense        acquisition.


More Economical      Approaches to
Managing  Inventories      Are Needed



Now     let     me turn     to DOD's inventory              management practices&-another
area of longstanding                concern.           Over the last               20 years,      we have
issued         more than       100 reports       dealing          with     specific       aspects      and
problems         in DOD's inventory             management.               On March 26, 1990, we
issued         a report     to the Secretary              of Defense          that     summarizes        our

evaluations          of DOD's inventory                management.            The problem          areas we
identified          include      growth      in unrequired               inventory,       buying      spare
parts         too early,       not terminating            contracts          for     excess      on-order
material,         duplicative        inventory          due to multiple               inventory       levels,
inaccurate          records,       inadequate          controls          over material           and equipment
furnished          to government           contractors,           inadequate          physical       security,
lax controls          over      shipments,       deficiencies              in supply       cataloging,           and
computer         system delays         and cost         overruns.


Here are a few examples                    of these       problems         that      we and others          have
identified:


-- DOD's secondary               wholesale        inventory,             such as spare           and repair
      parts,      grew by 152 percent              in the 1980s,              while      unrequired
      inventory increased by 237 percent.                                As of September           30, 1989,
         u
      about $34 billion  of DOD's secondary                              wholesale       inventory       was in
                                                       21
     unrequired           stock,            i.e.,       stock          that      is above requirements                    for
     current          needs and reserves                        for     future      wars.


--   All     the services              buy spare               parts          too early       and in amounts that
     exceed current               needs.              For example,               we recently           reported           that
     two Army buying                  commands had initiated                         item purchases                earlier
     than      they      should        have and also                    made purchases               exceeding
     authorized           requirements.                    In August              1989,     we reported            that         31
     items      with      an estimated                  cost          of $87 million           procured       by the
     Army Tank;Automotive                           Command had been bought                      prematurely.                   Of
     these       buys,     about'$30                 million,           or more than           34 percent           of the
     original          purchase         amount,            was no longer               needed to meet
     requirements              that     had been projected                         at the time           the purchases
     were initiated.                   We found            this         practice          is still       occurring              and
     in February           1990 issued                  a letter              to the Army about            this.


-- The services                often         have millions                    of dollars       of excess material
     on order.            In November 1989,                           DOD's Office          of the       Inspector
     General          issued      a summary report                       of past       DOD and GAO reports                       on
     excess       onzorder            material           for          the Army, Navy,            and Air      Force.
     These reports              identified               excess          assets      totaling          $1.8 billion.
     As of September                  30,      1988,       DLA's supply              centers          reported        $471
     million       of excess material                          on order.


--   Inventory           is being            purchased            which         is already           in an excess
     position.            Item managers                  at the retail               level       often     have not

                                                                  22
    reported         their      excess      items;      consequently,             managers      at the
    wholesale         level      buy items       unnecessarily.              For example,            in
    January         1990,     we reported        that        13 Army divisions              had $184
    million         worth     of spare       and repair          parts     that     were excess           to
    their      needs and had not been reported                           to the buying          commands.
    At the same time,               we found         that     three      Army buying          commands were
    buying      1,669        of these       same items         worth      $66.9 million


DOD has promised              corrective        actions        in response          to our
recommendations              in these       areas,      and it        has made some improvements,
such as amending              policies       and procedures              to increase          inventory
accuracy       by determining            and correcting               the cause of inventory
inaccuracies.               Such initiatives            are encouraging,             but      substantial
problems       in DOD’s         inventory      management remain.


Now let       me turn        to what we see as some necessary                         steps     to
correcting          the problems           in inventory          management that              I have been
discussing.           Fundamental           to this         process      is strong      leadership             and a
change       in management philosophy.                       A key element          is a management
agenda that          places      a greater       value        on economy and efficiency                     than
exists      today     and that       puts      in place        the structures           and systems             for
more effective           management.            The agenda should                 include      a number of
changes.




                                                       23
--   A commitment              is needed to update              the supply              system and take
     advantage          of management innovations                     and technologies                   that      have
     taken      place      over    the last          10 years.


-- Accurate         and useful            management information                      should      be available
     to managers.              Inaccurate          inventory         records,           coupled         with     poor
     physical       security,           make DOD's inventories                    highly         vulnerable             to
     theft,       diversions,           and other       abuses.          As I will              discuss
     financial          data    on inventory           costs     is one area that                   needs
     improvement.


     Management incentives                  should      discourage             buying          unnecessary
     inventory.            Our inventory            growth     work shows that                   buying         large
     quantities           of future        stock      is very        risky.           DOD's supply              system
     responds        to the operational                imperative             to fill          orders     within         a
     specific        time      frame and to obligate                  the funds           allocated             to the
     supply       mission.         However,         a corresponding                  emphasis       on reducing
     costs       and promoting            economy and efficiency                      is lacking.               DOD
     needs to change              its     mind-set      and introduce                 a new culture              into
     the way it           manages its         supply       system.            This      means both
     requiring          and rewarding          efficient         management practices                          while
     satisfying           customer        demands.


i-   Annual       goals      must be established               for      reducing          existing
     inventory          to minimize         the system's             overall          vulnerability              to
     mismanagement,              fraud,     and abuse.           The sheer              size     of the

                                                        24
     inventory            complicates          the management of an already                       cumbersome
     system.


a- Accountability                  needs to be built               into     the system,           One must
     seriously            question        the adequacy          of management controls                    in a
     system        that      is allowed           to generate        $34 billion            in unneeded
     inventory.              Similarly,           accountability            for     safeguarding          and
     accounting            for     inventory         is also       lacking.          The DOD has reported
     that    theft         from the        inventory          system       is a major          problem.


-- Managers must have systems                          that     provide           information       on the
     quantities            and locations            of items        in the wholesale              and retail
     inventory            within     and among the services.                        The systems       in place
     today        do not provide            for     such visibility.                 Therefore,       managers
     could        be purchasing            items      unnecessarily               because      they do not
     know whether                needs could        be satisfied            by items        already       in the
     inventory.


--   Every component                of the requirements                   process      needs to be
     critically            examined.           Indications          are that         requirements
     computations                are adjusted         to ensure           funds     are obligated           rather
     than    to ensure             the economy and efficiency                       of purchases.


As I mentioned              we have been looking                   at this         area very      closely.
Based on our prior                  and ongoing         work we believe                there     is potential
to reduce          DOD's fiscal            1991 request          of $2.8 billion                in direct

                                                         25
procurement          funds     for      secondary        inventory          items     and about        $20.8
billion,      mostly         operations        and maintenance               funds,      to purchase
inventory          items     from DOD's stock             funds      in fiscal          year      1991.


We believe          that     funds     to be used to acquire                  secondary           inventory
items      can be reduced             by 10 to 20 percent                  or between       $2 and $4
billion       in operations            and maintenance              funds     and $280 to $560
million       in procurement             funds.      This     estimate          is based principally
on DOD's propensity                  to overstate         requirements,             the impending               force
reductions,          and the excesses             that     exist      in the system today.                       Our
recent      work shows that              excess     on-order         for     material       for      the Army
and DLA represented                  about    10 percent       of orders            as of September               30,
1988.       In December 1989 DOD reduced                      obligational              authority         for     its
stock      funded      items    by 20 percent             to account          for     similar        factors.
Therefore,         we believe          our estimates          for     potential          reductions             are
conservative.


FINANCIAL MANAGEMENT: DOD NEEDS BETTER
INFORMATION TO REDUCECOSTS AND INCREASE
EFFICIENCY


As I remarked              at the outset,         the lack          of accurate          financial         data
for     decision      makers was a critical                 problem          in the New York City,
Chrysler      Corporation,             and Savings         and Loan crises.                 A similar            lack
of financial          data     exists        in DOD today.            To be successful,                any
efforts       to improve        overall        management at DOD must include                          as a

                                                     26
primary        component       major,       comprehensive               changes         in its         approach      to
financial         management.            As cost           effectiveness             becomes more important
to DOD management,               improvements               in program         management can be
accomplished.


However,        such improvements                 will      not be realized              unless         DOD
organizations             develop       and operate             sound financial               and accounting
systems        capable       of reliably           reporting          on assets,             operations        and
costs,        and use such information                      to measure efficiency.                       Such data
can only        be produced            by fully          functional          and complete              accounting
systems        disciplined          by independent                audits.


Our evaluations              of DOD's practices                   clearly       show that         it     does not
adequately         control       its     resources;             provide       its    managers,           the
Congress,         or the public           with       a true        accounting          for     the financial
assets        entrusted       to it;       or effectively              control         costs.           DOD needs
accurate,         and comprehensive                information              on costs,         assets,
liabilities         and funding.


Absent        such information             the following              situations             can occur.


-- Operating          costs     of ships,            air     wings,         bases,     depots,          and
     commands cannot            be consistently                   compared and evaluated.


--   Losses       from mismanagement,                    fraud,     and abuse may not be
     identified           and their       causes dealt              with.

                                                           27
-- Cost factors              may not be properly                     considered        when deciding           to
       replace     or upgrade              existing       weapons systems.


Recently         Reported          Financial
Management Problems                  At The
U.S.     Air     Force


We recently            testified           before      this        Committee's        Subcommittee        on
Readiness         on    problems           noted      by our audit            of the Air       Force's      fiscal
year     1988 financial              statements.               We have no reason              to believe         the'
kinds        of problems           which     we found          are confined           to the Air        Force.
Rather,        we expect           they     exist      to varying           degrees     in other        DOD
organizations.               I will         briefly       highlight           some problems        found by
the Air        Force      audit:


--   Accounting           Systems:           Air      Force accounting              systems     do not
     provide       accurate          cost      data     for        almost     70 percent       of its     assets,
     such as weapons,                inventory,           and equipment.               The General
     Accounting           and Finance              System was intended                to serve     as the Air
     Force's       general          ledger,         but a number of very                significant
     accounts          were not           included.           Certain       data,     such as aircraft
     values       ($82 billion)              and accounts             payable       amounts      ($18 billion)
     had to be derived                 from property                systems      or from extracts          of
     budgetary          data.


         Y




                                                              28
     As a result             both        the summary         data     included        in financial
     statements             and the historical                cost     information,           which       should     be
     included         in management reports                       to all     levels     of management,              is
     inaccurate.


--   Internal         Controls:                 We found     that     billions        of dollars          in
     adjustments             were made which                could     not be supported             or explained
     by finance             officials.             For example,            the Space Systems
     Division's             trial      balance       for     March 31, 1988 differed                  from its
     subsidiary             records        by $2.4 billion.                 To get     the two systems              to
     agree,       officials              simply     "plugged"         the accounts.             As a result,
     accountability                  was lost       and an opportunity                to deal      with
     possible         mismanagement,                fraud,        or abuse was missed.


--   Weapons System Costs:                         We compared the accounting                    system costs
     to Selected             Acquisition            Reports         (SARs) accounting,             and to
     expenditures              from budgetary               reports        and found      significant
     differences.                   For example,           the B21 bomber acquisition                     cost     per
     aircraft         is recorded                in the accounting               system at $150 million
     and in the SARs at $202 million                                in 1981 dollars           and about          $274
     million       in then year dollars.                          The more accurate             amount is over
     $316 million              in then year dollars.                       The SARs do not adequately
     disclose         all      costs       associated         with     major       weapon systems.
     While      we believe               that     our estimate         is closer        to the actual
     cost,      the     fact         is that       no one has actual               figures.
     Additionally,                  the Air       Force accounting               systems do not capture

                                                             29
     all      operating         and support      costs        associated         with     weapons
     systems.          As a result,           the Congress            is not getting          accurate          and
     complete         data      on weapon systems             life     cycle     costs.


--   Inventories:               To maintain      and support            its     operations       and weapon
     systems,         the Air      Force manages about                 1.6 million         different
     kinds      of spare parts             and supply         items     valued     at about
     $64 billion.               However,     systems         used to track         and value           these
     immense inventories                  do not maintain             accurate     data      supporting
     either       the quantities            or values.           As a result,            inventory
     management is weak, excess quantities                              are being         purchased;           and
     losses      and unnecessary             carrying         costs     are being         incurred.


Needed Improvements                To Financial          Management


Improvement           of financial          management in DOD will                 require       a strong
organization,             well-planned         systems        improvements         coupled       with     the
preparation           of auditable          financial         statements,         and associated
financial        management reports.


Many of the problems                we pointed          out     in the Air        Force      audit      are
included        in the defense             management review              initiatives.           We strongly
believe        that    fixing      these     problems         will     require     both      a strong
financial        management organization                     at the top of DOD as well                   as a
carefully         thought        out systems       improvement           plan.          In the latter
respeqt,        we believe         that     the shortsterm             repair     and modification               of

                                                        30
existing          systems       to provide             good controls           and basic          information          is
vitally         necessary,            as well         as a longer&term,               DODawide systems
improvement            plan,     designed             to move incrementally                toward      an
integrated            DODrwide system.                  I say incrementally                because much needs
to be done to upgrade                     and correct            existing           systems,      before     major
changes         are    implemented.


We also         believe        that     these         systems     improvements            must be made in
conjunction            with     a program             of annual         financial       statement          audits.
Audited         financial        statements             can be viewed           as a report           card which
will      point       out seriously             deficient         systems       and control          problems;
identify          the causes           of the problems             and their           effects,      point       the
way to solutions,                and gauge progress                  made on previously                identified
weaknesses.


Aside         from the role            in helping           to assure         that     better      financial
information            is available             for     OSD and service               management,          audited
financial          statements           will     provide         benefits           to Congress       in carrying
out     its     oversight        role.          More reliable             and consistent            information
on many areas               including          weapon systems             costs,       inventory       levels,
and budgetary               issues,      would assist             the congressional                oversight
process.


We are convinced                that     periodic         preparation           and audit          of agency
financial          statements           can be a key element                   in achieving          needed
systems         improvements,            encouraging             cost     effectiveness,            and

                                                            31
,




    enhancing               Congressional               oversight.           We believe            that     so much is at
    stake          that      it      is appropriate            at this        time       to move legislatively                       to
    require           such statements.


    ELIMINATING AND/OR STREAMLINING
    DUPLICATIVE AND INEFFICIENT ADMINISTRATIVE
    AND SUPPORT ACTIVITIES

    In previous                   reports       we and others             have recommended changes                         that
    would          result          in more efficient               and economical               management.                For
    example,              we have recommended consolidating                               supply          depots         and
    maintenance                   facilities,           centralizing          payroll          functions,            reducing
    supply          system costs,                establishing             realistic        aircraft              spare
    requirements,                    and streamlining              the acquisition                 process.


    The July              1989 Defense            Management Report                   incorporates               initiatives
    that     address               many of our past               recommendations.                  DOD     is projecting
    that      it     will          save $39 billion               between       fiscal         years       1991 and 1995 by
    implementing                   some of these            initiatives.                 Of the savings                  DOD   has
    identified,                   $2.3 billion           is related          to the       fiscal          year      1991 budget.
    DOD    has not yet                  attached         savings       to all         of its       initiatives.
    Savings          are anticipated                    by streamlining               the operations                of
    organizations,                     reducing         the numbers of civilian                     and military
    personnel              associated            with     these      activities           and reducing               purchases
    of inventories.




                                                                     32
I would           like     to emphasize               that      the anticipated                 savings        from the
Defense       Management Report                       are merely              projections.             To a large
extent,           the     initiatives           to achieve                 these     savings        are proposed           in
broad       terms;         statements           on these              initiatives            do not contain          the
detailed           plans      or milestones                  that      will        be required         to successfully
implement            the     initiatives.               Also,          the     initiatives            are in differing
stages       of development.                    Some are still                     in the decision             making
stage,       some are in the planning                               stage      and others           are moving          into
implementation.                     The savings              referred          to in the report                are targets
based on judgments                      and past        experience.                  It     is too early         to tell
whether       these         projected           savings             will      be achieved.


I want to further                    caution          you as you start                     to look     at these      savings
that       they     are tied            into    the planning                  reality        problem      I mentioned
earlier.            We estimated               that     the fiscal                 year     1989 Ssyear defense
plan I needed to be reduced                            by $212 billion                     in order     to bring
spending           into      line       with    the President's                     budget.          So part     of the $39
billion       helped          to bring          things          into        line     with     the revised         5 year
total       of $1.5         trillion.             So I am not so sure                        that     these     are savings
or just       a matter              of facing          reality.               As I look         at the 1991 budget
proposal           I see only            a 1 percent                reduction             in real     growth     (using
1991 constant               dollars)           in the operations                     and maintenance             accounts
where it           appears          most of Defense                  Management Report                 savings     are
related       to.




                                                                33
We have not done specific                    work focusing               on the overall                operations
and maintenance            account.          However,              based on our recommendations                        the
Congress       has reduced            operations         and maintenance                 funding        in the last
three      fiscal     years      by about         $1.7 billion            for       non inventory           related
activities.           Thus,      given     the proposed               force       structure         reductions,
and the       inefficiencies             we have seen in this                     area    in the past,            it
seems to me there               is opportunity               for     additional          reductions         in this
area.


I certainly          want to support              the    initiatives              DOD proposes           in its
Defense       Management Report.                  As I stated            earlier,         many are based on
GAO and others            recommendations               and offer         opportunities                to achieve
significant          savings,      while      at the same time,                     streamlining          the
operations          of the Defense          Department.                Most important,                 in my
opinion,       is that        these      changes        need to improve               accountability
while      saving     money.       DOD's track               record      in carrying             out    such long=
term initiatives            has not been good.                       I understand          there        is already
considerable          controversy          concerning               the proposed          DOD initiatives.
This    is particularly               the case regarding                 the consolidation                of
various       functions        and activities.                     So achieving          these      management
improvements          and savings          will     require           a sustained          effort        on the
part    of DOD’s management.




                                                        34
REFOCUSING GAO'S EFFORTS TO
MEET CHANGING NEEDS


Before      closing           my statement,                I want to briefly               discuss         how we are
refocusing            our defense               work to address               the dramatic          changes            that
are taking            place      in Eastern              Europe.


A key issue            that     we will            be focusing          on is the restructuring                         of the
Armed Forces             in response               to changes          in Eastern          Europe.          As DOD
undertakes            this     task,       we believe           that      sound planning             will         be
essential        if      readiness              and force       quality         are to be preserved                     during
this      turbulent           period.            In my view,           the defense          forces         would be
better      served           by ensuring            that     a smaller          force      is well         trained            and
equipped       than by trying                    to maintain           a larger         force      with     no muscle.
Further,       these          forces       must be structured                   to reflect          the post            cold
war threat.              Otherwise              opportunities           for     substantial          savings            will
be missed.


DOD's planning                is complicated                by a still'evolving                  definition             of the
threat,       ongoing          conventional                and strategic          arms negotiations,                      and
budgetary        pressures               that     may force        deeper;thansanticipated                         cuts        in
defense       spending.             It      is important           to recognize             that     while         some
budgetary        savings          will          result      from reducing           U.S.        forces      in Europe
substantial            savings          can only           be achieved          by reducing          the overall
size      of the force.                We plan           to monitor       DOD's evolving                  plans        and to
report      as necessary                on the reasonableness                    of the criteria                  used in

                                                              35
making major                force       restructuring               decisions         as well       as the
efficiency             and effectiveness                    of other         planned         changes.


An initial             effort         we have made along                    these     lines     is a report            we
 issued        last     year         on the U.S. military                    presence         in Europe.          The
report         shows that             more than            723,000      servicemen            and women, U.S.
civilian          employees,               dependents,          and foreign            national         employees           were
stationed             in Europe.              The report            provides         a baseline         of data        that
your       and other              committees         can use in assessing                     the President's
proposal          to reduce            U.S.        forces     in Europe and concerns                     about      the
,costs      associated              with      maintaining            U.S.     overseas         commitments.
Similarly,             in    May      1990,        we issued         a report         that     provides.baseline
information             on military                force     structure,          modernization              programs
and readiness,                    and sustainability                 measures.           This      information
should         be useful             in assessing            proposed         reductions           to the military
force       structure.


We will         also        be focusing             on areas         that     will     be impacted           by
restructuring                the forces             such as manpower,                 logistics,         facilities,
weapon systems                    acquisition,             the defense          industrial          base,     and
strategy          and doctrine.                    Some issues          included        here are:


;* How will             the return             of troops            and equipment             to the United            States
     alter       deployment                plans     and affect             of logistical           support       and
     strategic              air     and sealift             requirements?
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                                                               36
-A Are proposals                to close         domestic       and overseas          bases,         and plans
     for    military          construction           and land          acquisition          consistent        with
     the overall             changes       being     made to the force               structure?


-i   As budgetary             pressures          intensify       the debate          over      the future        of
     key weapon acquisition                      programs       and force          modernization           plans,
     how will         the resulting              decisions       impact       the U.S. defense
     industrial             base?


--   To what extent              will      the anticipated              conventional           and strategic
     arms control             agreements           require      a reassessment              of basic       mi.litary
     strategies             and doctrine?            For example,           will     major      decisions        on
     the naval         force         structure       be needed as land               forces      are withdrawn
     from Europe and will                   changes be needed to the way reserve                              forces
     are employed,              trained,         and equipped?


We have a series                of ongoing          and planned          assignments           to address
these      as well          as other       issues.




In closing,           let     me reemphasize            that     the convergence              of a
dramatically           changing          national       security         environment           and worsening
budget      deficit          situation       are setting              the stage      for     significant
changes      to U.S. military                forces.           This     situation          creates     a window
of oppgrtunity              -&that      may well       not appear          again     for     some timezzto

                                                         37
put   into     place    management practices                 that    can help     to solve    many of
the longstanding              problems     that     have plagued        defense     programs.          It
is my goal        to work with           the Congress         and DOD to ensure        that     this
unique       opportunity        to improve         defense     management is realized.


Mr.   Chairman,        this     concludes         my prepared        statement.      I would be
pleased       to answer questions            at this         time.




                                                    38
.




    ATTACHMENT I                                                               ATTACHMENTI




                                       PROGRAMCONCERNS




                                                   Research, Development,
                                                   Test and Evaluation    (RDT&E)/
                                                   Procurement Funding Request
    Program name                                   Fiscal Year (FY) 1991
    Line-of-Sight                                  $235.6 million   for     procurement
    Forward Heavy                                  plus $36.2 million       for advance
    Air Defense System                             procurement
                  Operational    testing  of the Line-of-Sight       Forward Heavy
    A
    F??r De ense System was completed in May 1990.             The Army did not
    demonstrate     that the system c'ould meet its operational
    requirements.        Thus, as mandated in the fiscal       year 1989 Defense
    Authorization      Act, the Secretary     of the Army may not obligate
    procurement     funds for fiscal     years 1990 or 1991. However, a
    decision    on the future      of the program is pending;      the Army may
    decide to delay the production         decision   and continue     with system
    development.       Such a decision    would require    RDT&E funding.     We
    believe    production     of the system should be deferred.


    NAVY
                                                   RDT&E/Procurement
    Program name                                   Funding Request (FY 1991)
    Navy T-45                                      $14.9 million     for RDT&E plus
    Training  System                               $329.9 million      for procurement

    ief’          The T-45 training     system has been in low-rate               production
             iscal year 1988, but the Navy still             does not have a proven
    stable aircraft     design.     After initial       test failures,         the Navy
    postponed aircraft      tests involving       carrier    suitability         and other
    critical    issues.   We believe     the Navy's 1991 procurement                of 12
    aircraft    and 3 of 5 simulators       should be deferred           until    those tests
    are completed and a stable aircraft            design is demonstrated.



                                              39
Attachment    I                                                         Attachment   I



                                             RDTCE/Procurement
Program name                                 Funding Request (FY 1991)
Tactical   Airborne                          Amount of funding         requested
Reconnaissance                               is classified.
Program
            The Navy's Tactical          Airborne   Reconnaissance       Program is
9%=:
SC e uled to fund procurement
Reconnaissance   System (ATARS)
                                         of the Advanced Tactical
                                         in fiscal   year 1991.
                                                                          Airborne
                                                                      Plans call for
integrating       ATARS into a modified       F/A-18 aircraft       and medium range
unmanned aerial       vehicle.      A ground station     is also needed to
receive     data from ATARS. The ATARS, F/A-18 modifications                  and
unmanned aerial       vehicle    and ground stations       are being concurrently
developed.       Because development of the ground station              and unmanned
aerial    vehicle    have slipped significantly,         we believe     that funding
for ATARS procurement          should be deferred     until    fiscal   year 1992.


                                             RDT&E/Procurement
Program name                                 Funding Request (FY 1991)
Low frequency      active
sonar systems
--Ship Sonar                                  $158.9   million   for     RDT&E
   AN/SQQ-89 (I)
--Air    Deployable                           $11.7    million   for     RDT&E
   Active Receiver
   (ADAR)
--Active  Surface Towed                       $26.9    million   for     RDT&E
   Array Surveilance
   System (SURTASS)
           To counter the quiet          Soviet submarine threat,          the Navy is
PF
 eve oplng the following
sonar systems:
                           three
                  the AN/SQQ-89
                                         near-term     low-frequency
                                        (I), ADAR and active
                                                                         active
                                                                    SURTASS. During
fiscal    years 1990/91 these systems, are scheduled to transition                into
full   scale development.        Our work to date indicates           the Navy has
not demonstrated       that it has minimized certain           technical     and
operational      risks involving     the development       and use of low-
frequency     active   sonar systems.       Therefore,     we believe    that the
Navy should keep these systems in advanced development                   until
technjcal     and operational     risk have been minimized.
                                        40
Attachment     I                                                         Attachment     I




                                                RDT&E/Procurement
Program name                                    Funding Request (FY 1991)
Airborne   Self-                                $5.0 for RDTbE and $168.4
Protection   Jammer                             million  for procurement
(ASPJ)
               The ASPJ is currently        in low rate initial          production.
F=:
 perational
marginally
                 testing
                effective
                            by Navy has shown that the ASPJ is only
                             and marginally      operationally        suitable.      We
believe     that low-rate      production     should be slowed to the minimum
rate necessary to avoid a break in production                   until    required
performance      is demonstrated.         As a result,     DOD's fiscal        year 1991
request'for       $168 million     in procurement      funding,is      not needed.


AIR   FORCE

                                                RDT&E/Procurement
Program name                                    Funding Request (FY 1991)
Advanced Medium                                 $1.34   billion   for   procurement
Range Air-to-Air
Missile  (AMRAAM)
Summary: In our report "Missile              Procurement:    Further      Production
of AMRAAMShould Not Be Approved Until Questions Are Resolved,"
 (GAO/NSIAD-900146),         May 4, 1990, we suggested that "...the                Congress
should deny the $1.34 billion            requested    for AMRAAMprocurement            in
fiscal    year 1991 because the missile's           performance,      reliability,
producibility,         and affordability     remain questionable.          Moreover,
missile     deliveries     from the first     production   year are at least 6
months behind schedule,           and additional    delays appear likely.
Because        funds have already been appropriated          for three additional
production        years, it is highly     unlikely    that additional       procurement
funds will be necessary before fiscal              year 1992..."




                                           41
Attachment                 I                                                                              Attachment    I



                                                                                 RDT&E/Procurement
Program name                                                                     Funding Request (FY i991)
ALQ-184                                                                          $120.4   million   for   procurement
Jammer
Summary: The Air Force began low rate production                     of the ALQ-184
Jammer     before beginning        operational     testing.      Subsequent
operational        testing    revealed significant        performance    problems.  To
correct      these problems the Air Force began an improvement program.
Although the modifications              have not been operationally         tested
production       is continuing       and previously      produced jammers are being
retrofitted.          We believe     that production      should be slowed to the
minimum rate necessary to avoid a break in production,                      pending
demonstration         of satisfactory      performance.
-------------------------------------------------------------------

                                                                                 RDT&E/Procurement
Program name                                                                     Funding Request (FY 1991)
ALQ-135             (E'31)                                                    $259.4 million      in prior   year
                                                                              unobligated     procurement    funds.
                                                                              Funds requested       for this program
                                                                              in fiscal    year 1991 are included
                                                                              as part of the F-15 procurement
                                                                              funding.     Air Force officials
                                                                              stated that they plan to
                                                                              allocate    $137 million     of F-15
                                                  funding             for    procurement    of the
                   ALQ-135             (P31).
!ummary:    The Air Force began production               of the ALQ-135 (P31)
jammer before conducting           operational     testing'and      subsequently
discovered     a software development problem.               Production    has
continued   while the Air Force has attempted                to correct    the problem.
To date operational        testing     still   has not been conducted.           All
ALQ-135 (P31) jammers produced were placed in storage since they
were not functional.          We believe      that production       should be slowed
to the minimum rate necessary' to avoid a break in production,
pending solution      of the software development              problem and completion
of operational     testing.



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