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Performance and Accountability Series:



January 2003:



Major Management Challenges and Program Risks:



Department of Defense:



GAO-03-98:



A Glance at the Agency Covered in This Report



The Department of Defense provides the military forces needed to deter 

war and to protect the security of our country. U.S. defense strategy 

seeks to defend the freedom of the United States and its allies and 

friends, and to secure an international environment of peace that 

makes other goals possible. The department has developed the following 

four goals to help achieve its mission:



* assure allies and friends by maintaining an overseas presence;

* dissuade future military competition by maintaining or enhancing 

U.S. advantage in key areas of military capability;

* deter threats against U.S. interests by having a range of military 

options, emphasizing peacetime forward deterrence in critical areas 

of the world, and enhancing the capability of forward deployed and 

stationed forces; and finally, * defeat any adversary decisively, if 

deterrence fails.



The Department of Defenseís Budgetary and Personnel Resources:



[See PDF for Image]



[A] Budgetary resources include new budget authority (BA) and 

unobligated balances of previous BA.

[B] Budget and staff resources are actuals for FY 1998-2001. FY 2002 

are estimates from the FY 2003 budget, which are the latest publicly 

available figures on a consistent basis as of January 2003. Actuals 

for FY 2002 will be contained in the Presidentís FY 2004 budget to 

be released in February 2003.

[C] Does not include guard and reserve personnel, which are an 

all-volunteer force of about 1.3 million (almost half of the total 

military force), or retired reserve personnel.



[End of Figure]



This Series:



This report is part of a special GAO series, first issued in 

1999 and updated in 2001, entitled the Performance and 

Accountability Series: Major Management Challenges and Program Risks. 

The 2003 Performance and Accountability Series contains separate 
reports 

covering each cabinet department, most major independent agencies, and 

the U.S. Postal Service. The series also includes a governmentwide 

perspective on transforming the way the government does business in 

order to meet 21st century challenges and address long-term fiscal 

needs. The companion 2003 High-Risk Series: An Update identifies 

areas at high risk due to either their greater vulnerabilities to 

waste, fraud, abuse, and mismanagement or major challenges associated 

with their economy, efficiency, or effectiveness. A list of all of the 

reports in this series is included at the end of this report.



GAO Highlights:



Highlights of GAO-03-98, a report to Congress included as part of GAOís 

Performance and Accountability Series.



PERFORMANCE AND ACCOUNTABILITY SERIES

Department of Defense



Why GAO Did This Report:



In its 2001 performance and accountability report on the Department 

of Defense (DOD), GAO identified systemic and specific problems with 

management processes related to strategic planning, human capital, 

support infrastructure, financial and information management, 

acquisition reform, contracting processes, and logistics 
reengineering. 

The information GAO presents in this report is intended to help to 

sustain congressional attention; facilitate a 

departmental focus on continuing to make progress in addressing these 

challengesóand others that have arisen since 2001; and ultimately 

overcome them. This report is part of a special series of reports 

on governmentwide and agency-specific issues.



What GAO Found:



DOD is transforming its business operations, and its current 

leadership places high priority and great attention on transformation. 

However, significant management problems continue to impact the 
economy, 

effectiveness, and efficiency of DODís business processes. This places 

mission capabilities at risk by unnecessarily spending funds that could 

be directed to higher priorities such as modernization and readiness.



* Strengthen strategic planning and budgeting. DOD developed a new 

strategic plan and management framework, but shortcomings in strategic 

planning and budgeting processes provide little assurance that DOD 
manages 

and operates programs effectively or ensures adequate program 

accountability.

* Hire, support, and retain military and civilian personnel. DOD 

has instituted benefits, but junior officer shortages, retention 

problems, and civilian workforce reductions and imbalances create a 

workforce not balanced by age or experience and that puts at risk 

the orderly transfer of institutional knowledge.

* Overcome support infrastructure inefficiencies. DOD emphasizes 

reform but lacks an overarching business transformation strategy; 

infrastructure costs continue to consume nearly 44 percent of 

its budget, detracting from DODís ability to spend funds on more 

critical needs such as weapon system modernization and readiness.

* Confront and transform pervasive, decades-old financial 

management problems. DOD has adopted business transformation 

initiatives, but long-standing financial management problems 

adversely affect its ability to control costs, ensure basic 

accountability, anticipate future costs and claims on the budget, 

measure performance, maintain funds control, prevent fraud, and address 

pressing management issues.

* Effectively manage information technology investments. DOD is 

investing heavily in modernizing its information technology, 

but management weaknesses have limited success. At the same time, 

information security weaknesses limit DODís ability to ensure 

that current and future systems are not compromised.

* Improve DODís weapons acquisition process. DOD has undertaken

 acquisition reforms, but cost increases, schedule delays, and 

performance shortfalls pervade the acquisition process; reforms 

have not produced consistent improvements in program outcomes.

* Improve processes and controls to reduce contract risk. DOD 

is trying to reduce contract risk, but problems in service 

contracting, techniques and approaches, payments, health 

contract management, and human capital undermine DODís ability 

to effectively acquire goods and services.

* Improve quality of logistics support. DOD has 400 improvement 

initiatives ongoing, but longstanding problems in logistics 

processes, systems, and operations result in decreases in the 

quality and timeliness of logistics support. This is particularly 

the case for its high-risk inventory area.



What Remains to Be Done:



DOD needs a strategic approach to transition its business 

processes that includes the

* integrated nature of the departmentís management challenges 

and related solutions;

* importance of continuity in leadership to achieve process 

improvements; and

* agreement between the executive and legislative branches of 

government on planned actions, time frames, and desired results.



Legislatively establishing a chief management officer may be one 

option to help achieve these goals.



To view the full report, click on the link above.

For more information, contact Henry L. Hinton, Jr., at 

(202) 512-4300 or hintonh@gao.gov.



Contents:



Transmittal Letter:



Major Performance and Accountability Challenges:



GAO Contacts:



Related GAO Products:



Performance and Accountability and High-Risk Series:



This is a work of the U.S. Government and is not subject to copyright 
protection in the

United States. It may be reproduced and distributed in its entirety 
without further

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Permission from the copyright holder may be necessary should you wish 
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copyrighted materials separately from GAOís product.



Transmittal Letter January 2003:



The President of the Senate and the

Speaker of the House of Representatives:



This report addresses the major management challenges and program risks 

facing the Department of Defense (DOD) as it seeks to support and 

defend the Constitution of the United States; provide for the common 

defense of the nation, its citizens, and its allies; and protect and 

advance U.S. interests around the world.



The report discusses the actions that DOD has taken and that are 

underway to address the challenges GAO identified in its Performance 

and Accountability Series 2 years ago. It also discusses major events 

that significantly influence the environment in which the department 

carries out its mission. GAO summarizes the challenges that remain, new 

ones that have emerged, and further actions that it believes are 

needed.



This analysis is intended to help the new Congress and the 

administration carry out their responsibility and improve government in 

order to benefit the American people. For additional information about 

this report, please contact Henry L. Hinton, Jr., Managing Director, 

Defense Capabilities and Management, at (202) 512-4300 or at 

hintonh@gao.gov.



David M. Walker

Comptroller General of the United States:

Signed by David M. Walker:



[End of section]



Major Performance and Accountability Challenges:



The United States began the new millennium with military forces second 

to none. The effectiveness of U.S. forces has been well evidenced by 

experiences in the Persian Gulf, Bosnia, and Kosovo. However, the 

Department of Defense (DOD) has reached a pivotal point, with the 

tragic terrorist attacks of September 11, 2001, permanently changing 

the defense landscape. These terrorist attacks underlined the 

importance of change in equipping DOD to meet unconventional threats 

and asymmetrical warfare. The attacks also resulted in DODís 

requirement for additional resources to meet a broad array of needs 

that support the readiness of U.S. forces. DOD has undertaken a number 

of initiatives to transform its forces and improve its business 

operations. However, unless these initiatives are addressed in a 

unified, integrated fashion, DOD will continue to see billions of 

dollars consumed to support inefficiencies in its business functions 

that if reformed, could be directed to other higher priorities such as 

modernization and readiness. Such opportunities will be achieved 

only through transformations involving challenges in the following 

key functions: (1) strategic planning and budgeting, (2) human 

capital, (3) infrastructure, (4) financial management and 

accountability, (5) information technology, (6) weapons acquisition 

process, (7) contracting, and (8) logistics support.



We have reported on many of these challenges for years and highlighted 

them all in our January 2001 Performance and Accountability Series. As 

we reported then, and as is the case today, limitations in DODís 

strategic planning and budgeting processes led to difficulties in 

assessing DODís mission achievements and in planning and executing 

DODís budget. We also reported our concerns on human capital challenges 

in recruiting and retaining military personnel as well as ensuring that 

the civilian workforce is properly constituted in key areas such as 

acquisition management. We identified DODís human capital problems as 

part of a broader pattern of human capital shortcomings that have 

eroded mission capabilities across the federal government, and this 

problem persists. In addition, much of DODís infrastructure was 

inadequately funded and maintained, with scarce resources being devoted 

to inefficient and unneeded facilities. Indeed, aging and substandard 

housing exacerbates human capital issues. Furthermore, decades-old 

financial management and accountability problems continued. Such 

problems also involved ineffectively managed information technology 

investments and the overbudget, untimely weapons acquisition process. 

In addition, numerous contract management difficulties were related to 

payment issues and service acquisitions. DOD revealed that it had not 

effectively managed even the most basic processes relating to contract 

payment, resulting in millions of dollars of overpayments. Such 

financial management and contracting challenges in turn affected the 

quality and timeliness of logistics support for the warfighter.



DODís senior civilian and military leaders appear to be committed to 

transforming the department and improving its business operations. 

Since our last report, DOD has emphasized force transformation as 

necessary to effectively anticipate, counter, and eliminate the 

emergence of unconventional threats overseas and domestically. DOD 

believes force transformation will create an environment of greater 

precautions, heightened intelligence, and greater homeland security, 

all while DOD is simultaneously fighting the war on terrorism. As part 

of the transformation process, DOD has committed to adopt a 

capabilities-based approach to planning based on clear goals and to 

improve the linkage between strategy and investments. At the same time, 

DOD has embarked on a series of efforts to improve its business 

processes, including support infrastructure reforms, the issuance of a 

new human capital resource plan, and the adoption of a new management 

approach to balancing risks. Additionally, in acknowledging DODís 

numerous ongoing financial difficulties, the Secretary of Defense has 

laid out an 8-year plan to reform financial management and 

accountability and instituted new contract management policies and 

programs aimed at increasing the importance given to these processes. 

While DOD recognizes the need for internal transformation and budget 

reform, its goals are challenging, and its strategic plan is currently 

not set up to allow DOD to implement and measure progress toward 

achieving its performance goals in an integrated fashion.



As old problems persist for DOD and new problems emerge, the eight 

areas we identified in January 2001 continue to challenge DOD in its 

attempts to develop world-class operations and activities to support 

its forces. Six of the eight are included on our high-risk list. As the 

security environment shifted from a Cold War structure to one of many 

and varied threats, DOD did not keep pace with the changing 

capabilities and productivity of the modern business environment. 

Indeed, transformation applies not just to what DOD does but also to 

how DOD does it and who implements it. As we have reported, if these 

and related support problems are not addressed, inefficiencies will 

continue to make the cost of carrying out assigned missions 

unnecessarily high and, more importantly, increase the risk associated 

with those missions. Each dollar that is spent inefficiently is a 

dollar that is unavailable for other departmental priorities such as 

weapon system modernization and readiness.



However, effectuating departmental transformation also requires 

cultural transformation and business process reengineering that take 

years to accomplish and a commitment from both the executive and 

legislative branches of government. Although sound strategic planning 

is the foundation upon which to build, sustained leadership is needed 

to maintain continuity. One way to ensure sustained, committed 

leadership would be to create a full-time position, such as a chief 

management officer position. Such a position would provide the 

sustained attention essential for addressing key stewardship 

responsibilities such as strategic planning, performance management, 

and financial management in an integrated manner while helping to 

facilitate the transformation processes within DOD. Equally important 

is the Congressís responsibility to provide the necessary review and 

visible leadership to demonstrate its commitment to reform 

and oversight.



This report summarizes ours and, where appropriate, the DOD Inspector 

Generalís findings and recommendations to address DODís challenges. 

We continue to consider all or part of six areas relating to support 

infrastructure, financial management, information technology, 

acquisitions, contracts, and logistics to be high risk.



[See PDF for image] - graphic text:



[End of figure] - graphic text:



Strengthen Strategic Planning and Budgeting to Achieve Desired Mission 

Outcomes:



Strategic planning that clearly lays out DODís mission and goals and 

the resources needed, strategies to be followed, assigned 

responsibilities, and performance measures for tracking goal 

accomplishments is crucial to fully focusing DODís activities on 

achieving desired mission outcomes. However, as we reported in January 

2001, limitations in DODís strategic planning and budgeting processes 

have led to difficulties in assessing its performance in achieving 

mission outcomes and in planning and executing the budget. This 

condition has not changed, and key actions needed to improve planning 

and budgeting have not been accomplished. Consequently, the same 

strategic management challenges we previously noted continue to exist. 

While DOD has developed a new strategic plan, it has not yet updated 

its mission outcomes or linked those outcomes to the budget. 

Additionally, shortcomings in the strategic planís underlying analyses, 

the absence of performance plans for fiscal years 2002 and 2003, and 

the failure to link budget resources to mission outcomes provide 

little assurance to DOD and congressional decision makers that DOD 

is adequately managing its programs and operations and being held 

accountable for doing so.



DODís Strategic Planning Has Limitations:



The Presidentís management agenda for fiscal year 2002 emphasizes 

the need to fully integrate performance measures in the federal budget 

process so that resource allocation is tied to specific outcomes. The 

Government Performance and Results Act of 1993 provides a framework for 

DOD and other federal agencies to accomplish this task and to achieve 

greater accountability in their programs and operations. Under the 

Results Act, DOD is to develop a strategic plan and subsequent annual 

performance plans to establish performance goals and measures covering 

a given fiscal year and directly link its longer-term strategic goals 

to day-to-day activities. Annual performance reports are to disclose 

the degree to which those performance goals were met. At the request of 

the Congress, DOD conducts the Quadrennial Defense Review, a 

comprehensive analysis of its defense strategy, every 4 years. The 

review--DODís strategic plan--forms the foundation for DODís mission 

and vision statements and strategic goals.[Footnote 1]



In January 2001, as DOD was preparing to conduct its next Quadrennial 

Defense Review, we reported that it must follow results-oriented 

management principles in performing its next review and that the review 

should have an explicit strategy for achieving force structure goals. 

DOD subsequently issued its review report in September 2001, which, as 

we have reported, has both strengths and weaknesses. On the positive 

side, sustained involvement of senior DOD officials, including the 

Secretary of Defense, enhanced the review and led to the adoption of a 

new defense strategy that underscores the need to transform the force 

to meet future military threats and adopt more efficient business 

practices. However, weaknesses in the Quadrennial Defense Review 

process, analysis, and reporting limited the reviewís usefulness as a 

means for fundamentally reassessing U.S. defense plans and programs.



* The Secretary of Defenseís decision to delay the Quadrennial Defense 

Reviewís start until late spring 2001, when DOD completed a series of 

strategic reviews led by outside defense experts, imposed additional 

time constraints on the reviewís already tight schedule.



* A clear link between the specific legislative reporting 

requirements[Footnote 2] and the issues assigned to study teams for 

analysis did not always exist because the principal guidance document 

of the Quadrennial Defense Review was designed to emphasize the 

Secretaryís priorities and not the reporting requirements.



* The varied thoroughness of DODís analysis and reporting on issues 

mandated by legislation limited the Quadrennial Defense Reviewís 

usefulness, and some significant issues were not addressed or were 

deferred to follow-on studies. For example, limitations in the 

assessment of force structure requirements--such as the lack of focus 

on longer-term threats and requirements for critical support 

capabilities--provided few insights into how future threats and planned 

technological advances in U.S. capabilities would affect future force 

requirements. Additionally, DODís Quadrennial Defense Review report 

provided little information on some required issues such as the 

specific assumptions used in the analysis and deferred analysis of some 

issues, such as the role of the reserves, for later studies.



As a result of these shortcomings, the Congress did not receive 

comprehensive information on all of the legislatively mandated issues, 

DOD lacks assurance that it has optimized its force structure to 

balance short-and long-term risks, and the Quadrennial Defense Review 

resulted in few specific decisions on how existing military forces and 

weapons modernization programs may need to be changed in response 

to emerging threats. We recommended that DOD clearly assign 

responsibility for addressing legislatively required review issues 

and provide the Congress with more complete information on key 

assumptions, scenarios, analytical methods, and alternatives used in 

assessing DODís force structure requirements.[Footnote 3] DOD partially 

concurred with our recommendations, indicating that clear assignment 

of responsibilities is important to the success of the review. However, 

DOD noted that the Secretary of Defense must be allowed to manage the 

review in a manner that focuses on issues of primary importance. DOD 

also stated that, given the scope and timing of the review, it 

effectively used a combination of analytical tools and professional 

judgment to reach its conclusions on force structure.



The weaknesses with the Quadrennial Defense Review permeate throughout 

DODís planning and budgeting processes--from initial planning, to 

programming, and to budgeting resources. The review forms the backbone 

for the development and integration of DODís missions and strategic 

priorities, and it also is the foundation from which DODís 

results-oriented performance goals flow and from which achievement of 

those goals is measured. In June 2001, we reported on the need for DOD 

to have sound strategic planning to guide improvements to DODís 

operations and to tie plans to desired mission outcomes. At that time, 

we noted that:



DOD had made efforts to improve its overall reporting.[Footnote 4] 

However, we reported that progress in achieving selected outcomes was 

unclear[Footnote 5] and noted that it was difficult to assess 

performance shortfalls in DODís strategies and measures for the 

outcomes identified at that time. Affected areas included combat 

readiness, support infrastructure reduction, force structure needs, and 

matching resources to program spending plans. We also pointed out that 

DODís fiscal year 2002 performance plan--which has yet to be developed 

and finalized--could have provided DOD with an opportunity to address 

these shortfalls and that the conduct of the review could have provided 

DOD with another opportunity to include the necessary qualitative and 

quantitative information that could contribute to providing a clearer 

picture of performance.



However, to date, DOD has not issued performance plans for fiscal years 

2002 and 2003 or reported on fiscal year 2001 results.[Footnote 6] 

According to the Deputy Secretary of Defense, DOD has not finalized 

performance plans and reports because it introduced a new management 

framework and has undertaken a fundamental restructuring of defense 

priorities and programs. According to the Deputy Secretary, most of the 

performance targets established in 2000 have been replaced by new or 

revised standards derived from the September 2001 Quadrennial Defense 

Review. Thus, while DOD is taking actions to improve its performance 

planning and reporting, it does not have a strong basis to optimize 

decision making in an integrated manner across diverse activities 

and programs.



Currently, DOD is formulating new performance goals and metrics to 

align with outcomes described in the September 2001 Quadrennial Defense 

Review. DOD hopes that its new goals and measures will meet or exceed 

the intent of the Results Act and, when available, provide the 

President and the Congress with up-to-date, useful information with 

which to assess its performance. DOD had hoped to submit a new 

performance plan for fiscal years 2002 to 2003 and a report for fiscal 

year 2001 by the end of August 2002, but DOD did not meet its target. 

It expects to publish its next performance plan in February 2003.



Budget Formulation and Execution Have Continuing Weaknesses:



We previously reported that DOD employs overly optimistic planning 

assumptions in its budget formulation. Figure 1 illustrates that DODís 

budget has increased significantly over the last few years and shows 

plans for continued growth. Nevertheless, DOD still plans more programs 

than it can fund, and costs for functions such as health care could 

possibly put additional pressure on DODís budget. Also, in some cases, 

DOD has limited ability to track expenditures from operating and 

supplemental appropriations to ensure that funds are expended as 

intended. Moreover, DOD has not always effectively managed and 

monitored its use of appropriated funds. These system weaknesses, which 

DOD has recognized, limit the information available to DOD and 

congressional decision makers in planning and overseeing DODís budget.



Figure 1: DODís Budget from Fiscal Year 2000 through Fiscal Year 2007:



[See PDF for image] - graphic text:



Notes:  GAOís analysis of DODís data. 



Data for fiscal years 2000-2003 are appropriated funds; data for fiscal 

years 2004-2007 are projected funds.



[End of figure] - graphic text:



Since the mid-1980s, we have reported that DOD employs overly 

optimistic planning assumptions in its budget formulation. As a result, 

DOD has too many programs for the available dollars, which often leads 

to program instability, costly program stretch-outs, and program 

termination. In 2000, we reported that because the fiscal year 2001 

programís projected cost was about $16 billion more than the cost 

projected for the same elements in the fiscal year 2000 program, DOD 

could not implement its operation and maintenance and procurement 

programs as planned. Over the past few years, the mismatch between 

programs and budgets has continued, especially in the area of weapon 

systems acquisition. For example, as discussed in more detail later, 

the estimated cost of developing eight major weapon systems has 

increased from about $47 billion in fiscal year 1998 to about 

$72 billion by fiscal year 2003.



In executing the budget, DODís ability to effectively manage and track 

expenditures from operating and supplemental appropriations is limited. 

The net effect of DODís problems in this area is that it does not know 

with certainty the amount of funding available. Such information is 

essential for DOD and the Congress to determine if funds are available 

that could be reprogrammed or transferred to meet other critical 

program needs.



While DOD has some flexibility in how to use its annual operating 

appropriation and often transfers funds among its operating accounts, 

it has not developed systems that can sufficiently track the movement 

of funds. For example, DOD does not have reports to show how it used 

much of $47 billion appropriated from fiscal years 1999 through 2001 

that it moved among or into its operation and maintenance accounts. 

While it does track the movement of some high-priority readiness 

accounts, it has frequently used some of these funds for purposes other 

than intended. For example, we reported that over a 4-year period--

fiscal year 1997 to fiscal year 2000--one service moved almost 

$1 billion (about 21 percent) of the nearly $4.8 billion that the 

Congress had provided for training to finance other expenses such as 

base operations and real property maintenance.



Moreover, DOD does not always effectively use its funds from its 

operating appropriations. For example, in 2002, we reported that DOD 

had to return an annual average of $1 billion in unexpended balances 

from its operation and maintenance accounts to the Department of 

Treasury for fiscal years 1992 through 1996. We reported that in one 

service, fund managers had failed to make required reviews that could 

have freed up funds no longer needed for their original purpose and 

could have been used for other appropriate purposes.



DOD has similar problems in tracking and managing funds from 

supplemental appropriations. From February 1991 to May 2002, 

DOD reported $44 billion in incremental costs for overseas contingency 

operations and the war on terrorism. In May 2002, we reported that 

DOD had not provided adequate guidance and monitoring for some of 

these funds. We recommended that DOD provide better guidance 

for contingency fund use and improve oversight of contingency fund 

expenditures. In its written response, DOD recognized the need to make 

these improvements and stated that it would more closely monitor the 

execution of funds to avoid the situations discussed in our 

report.[Footnote 7]



For contingency operations in the Balkans and Southwest Asia, we 

reported that DOD spent as much as $101 million of $2.2 billion in 

fiscal years 2000 and 2001 on questionable expenditures. Some expenses 

did not appear to be specifically for the contingency, other 

expenditures were for items already in the theater, and some 

expenditures were for seemingly unneeded items such as cappuccino 

machines, golf memberships, and decorator furniture.



In addition, a continuing inability to capture and report the full cost 

of its programs represents one of the most significant impediments 

facing DOD. DOD does not have the systems and processes in place to 

capture the required cost information from hundreds of millions of 

transactions it processes each year. Lacking complete and accurate 

overall life-cycle cost information for weapon systems impairs DODís 

and congressional decision makersí ability to make fully informed 

judgments on funding comparable weapon systems. DOD has acknowledged 

that the lack of a cost accounting system is the largest impediment to 

controlling and managing weapon system costs. Further, an April 2001 

report on the results of an independent study of DODís financial 

operations commissioned by the Secretary of Defense concluded that DOD 

lacked the ability to routinely generate cost-based metrics needed to 

link financial management to DODís goals.[Footnote 8]



The Secretary of Defense, in the most recent Quadrennial Defense Review 

report (September 2001), acknowledged that DODís financial systems are 

outdated and incompatible with one another. The report also noted that 

many of DODís business processes must be modernized and simplified, 

including the planning, programming, and budgeting system. According 

to the report, over the next several years, DOD will explore options to 

redesign the way it plans and budgets.



Key Actions Needed:



DOD is taking a number of actions to better align its planning, 

budgeting, and execution functions. However, to help overcome 

inefficiencies in its strategic planning processes and to promote more 

realistic budgeting, DOD must follow results-oriented management 

principles, beginning with improvements to the Quadrennial Defense 

Review process.



A number of options are available to enhance the usefulness of future 

quadrennial defense reviews. In November 2002, we recommended that 

the Secretary of Defense clearly assign responsibility for addressing 

all legislative requirements and provide the Congress with more 

complete information on DODís analyses to meet legislative reporting 

requirements, particularly DODís examination of force structure 

requirements. In addition, we suggested that the Congress consider 

extending the time frame for the review, reassessing and focusing the 

legislative requirements on a clear set of high-priority issues, and 

establishing an advisory panel to identify the critical issues that the 

next review should address.



As previously discussed, DOD believes that clear assignment of 

responsibilities is important to the success of the Quadrennial Defense 

Review and that its briefings to the Congress provide sufficient 

visibility into its decisions. With regard to the timing of the review, 

DOD proposed extending the time frame for the review. The Bob Stump 

National Defense Authorization Act for Fiscal Year 2003 included 

language that extended the time frame.[Footnote 9]



As we have reported, sound plans linked to DODís overall strategic 

goals are critical to achieving needed reforms and to holding DOD 

accountable for achieving intended results. To ensure that DOD has a 

strong basis to make sound decisions about its activities and programs, 

it is imperative that DODís future performance plans be linked directly 

to the Quadrennial Defense Reviewís goals and outcomes.



DOD has a critical need for funds for weapon systems, readiness, and 

other operations. Failure to accurately account for what it spends 

has enormous implications for DOD and could prevent the effective 

allocations of funds to those programs most in need. To promote more 

realistic budgeting and execution, DOD needs to incorporate more 

realistic assumptions into its planning processes and enhance the 

reporting and monitoring of its expenditures. The implementation of 

such actions may put DOD in a better position to more realistically and 

effectively allocate resources to those key needs for weapon systems, 

readiness, and other operations.



Hire, Support, and Retain Military and Civilian Personnel with the 

Skills to Meet Mission Needs:



Effective human capital management is key to enabling DOD to have the 

right number of military and civilian personnel with the right 

knowledge, skills, and abilities to accomplish its mission. In January 

2001, we reported that human capital management represented a huge 

challenge that affected virtually every DOD activity. The department 

was dealing with military personnel issues such as shortages of junior 

officers for the career force, problems in retaining certain skills, 

and the military servicesí failure to meet recruiting goals. DOD also 

faced significant challenges in managing its civilian workforce. With 

the exception of recruiting and retention, this situation remains, in 

general, unchanged. In fiscal year 2001, all of the active and reserve 

components--except the Air National Guard--met their numeric goals for 

recruitment and retention. However, retention challenges continued for 

those personnel holding technical and scientific skills that are in 

demand in the private sector. Also of significance, is DODís issuance, 

in 2002, of a three-component human capital strategic plan addressing 

military and civilian personnel management and policies and quality of 

life issues affecting servicemembers and their families.



DOD uses pay and benefits as tools to recruit and retain military 

personnel.[Footnote 10] In fiscal year 2002, the Congress appropriated 

more than $100 billion in compensation for military personnel.[Footnote 

11] Although DOD provides a wide array of benefits to its people, its 

benefit package was developed piecemeal in the absence of a strategic 

approach to human capital management. DOD has faced many challenges in 

providing an employee benefit package to servicemembers that responds 

to their changing needs and is competitive with private-sector 

companies. However, DOD may face increased competition for qualified 

people over the next few years because of continued increases in the 

number of high school graduates going on to college and labor shortages 

projected through at least 2010. In addition, the recent war on 

terrorism has added to the operational tempos in all the reserve 

components, and on March 19, 2002, more than 95,000 reservists were on 

duty. Many of these reservists had been mobilized for 6 months or more. 

In contrast, only about 35,000 reservists were on duty supporting 

worldwide military operations during an average day in fiscal year 

2000. Furthermore, significant challenges are emerging related to 

supporting the reserves. For example, maintaining employersí continued 

support for their reservist employees is critical in order to retain 

experienced reservists in these times of longer and more frequent 

deployments. The expanded use of reserve forces has raised questions 

concerning the adequacy and equity of compensation and support programs 

for reservists. Given these concerns and the potential for even greater 

use of the reserve components, now may well be an appropriate time to 

assess the componentsí management practices and policies as well as 

future roles and missions. Also, significant challenges exist for the 

management of DODís civilian workforce that has undergone a sizeable 

reduction since the end of the Cold War. Additional reductions in DODís 

civilian workforce are expected at least through fiscal year 2007.



DOD and the Congress Have Acted to Improve Military Personnel Benefits:



Although developed piecemeal in the absence of a strategic approach to 

human capital management, DOD has instituted a number of benefits in 

response to demographic changes in the active duty force since the 

military became an all-volunteer force in 1973. Many of these benefits 

address one of the most significant demographic changes--an increase in 

servicemembers with family obligations. For each year between 1980 

and 2000, at least half of the active duty force consisted of married 

servicemembers, and active duty servicemembers had about 1.23 million 

children in 2000. Many servicemembers are in dual-income households, 

with spouses contributing on average about 25 percent of the familyís 

income. Figure 2 shows the composition of the active duty force, by 

family status, in 2000.



Figure 2: Composition of Active Duty Force by Family Status 

(as of Sept. 2000):



[See PDF for image] - graphic text:



Notes: 	Data taken from DODís Profile of the Military Community 2000 

Demographics Report. 



ďJoint-serviceĒ refers to a marriage where an active duty member is 

married to another active duty member or to a reservist.



Percentages do not add up to 100 due to rounding.



[End of figure] - graphic text:



A second major demographic change in the active military has been the 

growing proportion of servicemembers who are women. In 2000, women 

comprised about 15 percent of the active duty force, compared with 

4 percent in 1974. Up to 10 percent of women in the military become 

pregnant each year. We previously reported that of the 28,353 women 

without prior military service who enlisted in fiscal year 1993, 

2,074 separated because of pregnancy between the 7th and 48th month 

of enlistment. Another 706 separated because of parenthood. These 

separations accounted for more than one-third of the attrition for 

female enlistees who joined the services in 1993. Replacing trained, 

experienced personnel who leave is expensive. DOD estimated for fiscal 

year 1998 that it had spent $35,000 per enlistee by the time each 

enlistee had been recruited and trained for 6 months.[Footnote 12]



In September 2002, we reported that DOD has responded positively to 

most demographic changes by incorporating a number of family-friendly 

benefits; however, opportunities exist to improve current benefits in 

this area. For example, although DOD has several planned initiatives to 

assist the hundreds of thousands of military servicemembersí spouses 

who seek employment largely due to the frequent moves (on average every 

2 years) servicemembers make, it has not systematically tracked and 

assessed the effectiveness of the employment assistance that services 

offered at military installations. DOD also has not assessed the 

feasibility, costs, and benefits of offering extended time off to new 

parents as a way to increase retention of trained, 

experienced personnel.



All the core benefits offered by most private-sector firms--retirement 

pay, health care, life insurance, and paid time off--are offered by the 

military. In fact, military benefits in some cases exceed those offered 

by the private sector. These benefits include free health care for 

members, free housing or housing allowances, and discount shopping at 

commissaries and exchanges. During the 1990s, some servicemembers 

expressed concerns that their benefits were eroding, particularly their 

health care and retirement benefits. In response to such concerns, the 

military benefit package has been enhanced. In recent years, for 

example, the Congress restored retirement benefits that had previously 

been reduced for some servicemembers and significantly expanded 

health benefits.[Footnote 13]



Strategic Human Capital Approach for Military Personnel Compensation Is 

Not Fully Developed:



A well-developed human capital strategy would provide a means for 

aligning all elements of DODís human capital management, including pay 

and benefits, with DODís broader organizational objectives. Pay and 

benefits are tools that an organization can use to shape its workforce, 

fill gaps, and meet future requirements.



In prior reports and testimony, we have identified strategic human 

capital management planning as a governmentwide high-risk area and a 

key challenge. We have stated that agencies, including DOD, need to 

improve the development of integrated human capital strategies that 

support the organizationís strategic and programmatic goals. In March 

2002, we issued an exposure draft of our model for strategic human 

capital management to help federal agency leaders effectively lead and 

manage their people. We also testified on how strategic human capital 

management can contribute to transforming the cultures of 

federal agencies.



Several DOD studies also have identified the need for a more strategic 

approach to human capital planning within DOD. The 8th Quadrennial 

Review of Military Compensation, completed in 1997, strongly advocated 

that DOD adopt a strategic human capital planning approach. The review 

found that DOD lacked an institutionwide process for systematically 

examining human capital needs or translating needs into a coherent 

strategy. Subsequent DOD and service studies, including the Defense 

Science Board Task Force on Human Resources Strategy, the Naval 

Personnel Task Force, and the DOD Study on Morale and Quality of Life, 

endorsed the concept of human capital strategic planning.



DOD officials have acknowledged the need for a more strategic approach 

and in April 2002 issued the first of a three-component human capital 

plan to establish personnel priorities for the next 3 to 5 years. The 

strategic plan identifies more than 30 initiatives that are organized 

into five ďlines of operation,Ē or goals. These five goals are 

(1) increase the willingness of the American public to recommend 

military service to young Americans; (2) recruit the right number and 

quality of personnel; (3) develop, sustain, and retain the force; 

(4) transition members from active status; and (5) sustain the process 

of strategic planning and maintain its viability. A majority of the 

initiatives are studies addressing various military personnel issues. 

Some of the issues that DOD will study--such as the lateral entry of 

civilians into the military workforce, the ramifications of variable 

career lengths for officers, and the appropriate grade structure for 

the manpower needs of future weapon systems--could lead to proposed 

changes that have far-reaching impacts. The strategy does not call for 

any near-term changes to pay and benefits. However, DOD plans to study 

several pay and benefit issues, such as nonmonetary incentives that 

support retention.



Since the military personnel strategy is intended to be a dynamic 

document that will be assessed and refined periodically, DOD will 

have opportunities to incorporate additional elements of human capital 

strategic planning in future iterations of the strategy. We recently 

testified that while DOD has recognized the need for a strategic 

approach to managing its human capital, the military personnel strategy 

is missing elements that would be found in a fully realized human 

capital strategic plan. For example, with the increased reliance on the 

1.3 million reservists that comprise almost half of the total military 

force, this opportunity would include also incorporating the needs of 

the reservists into DODís strategic planning. One area that DOD plans 

to study is how to increase employer awareness of the importance of 

supporting reserve members.



Increased Use of Reservists Can Have Implications for Retention:



Since the end of the Cold War, a shift has occurred in the way DOD uses 

the reserve forces.[Footnote 14] Previously, reservists were viewed 

primarily as an expansion force that would supplement active forces 

during a major war. Today, no significant operation can be conducted 

without reserve involvement. Reservists not only supplement but also 

replace active forces in military operations and exercises. The current 

mobilization for the war on terrorism is adding to this increased 

operational tempo[Footnote 15] and is expected to last a long time. 

Good relations between reservists and their employers are important, 

because deployments can be disruptive to employers and difficulties, if 

not resolved, could lead some reservists to abandon military service.



In June 2002, we reported that despite increases in operations since 

1992, the average operational tempo of reserves throughout DOD 

increased only slightly between 1992 and 2001--from 43 to 46 days a 

year. Normal required training periods accounted for the bulk of this 

total. Average operational tempos fluctuated for all components over 

the period but did not appreciably increase, with the exception of the 

Air Reserve components whose tempos have historically been the highest. 

Tempos increased from 54 to 65 days in the Air National Guard and from 

55 to 65 days in the Air Force Reserve.



Although component averages have not increased appreciably, all the 

components contain some individual reservists who are in units or 

occupations that have been disproportionately affected. For example, 

during the past 3 years, operational tempos within the Army National 

Guard averaged between 40 and 44 days a year, but hundreds of National 

Guard members from units in Texas, Georgia, and Virginia were deployed 

to Bosnia for 6 months or more. Hundreds more from other units are 

scheduled to participate in future 6-month deployments. Moreover, 

reservists in the fields of aviation, special forces, security, 

intelligence, psychological operations, and civil affairs have 

experienced operational tempos two to seven times higher than those of 

the average reservists in their services. As discussed earlier, the war 

on terrorism has added to the operational tempos in all the 

reserve components.



Figure 3 shows that the majority of reservists supporting operations 

related to the war on terrorism have been involuntarily called to duty 

under the partial mobilization that went into effect in September 2001. 

Even if the mobilized force declines in size, the mobilization could 

have considerable long-term effects on reserve operational tempos 

because it allows DOD to activate reservists involuntarily for as long 

as 2 years.



Figure 3: Reserve Buildup to Support the War on Terrorism:



[See PDF for image] - graphic text:



[A] Includes Coast Guard Reserves.



[End of figure] - graphic text:



We reported that several factors hamper DODís outreach efforts to both 

employers and reservists.



* DOD lacks complete information on who the reservistsí employers are, 

and it has viewed the Privacy Act[Footnote 16] as a constraint that 

prevents it from requiring reservists to provide this information. 

Because information is incomplete, DOD cannot (1) inform all employers 

of their rights and obligations, (2) identify all exemplary employers 

for recognition, and (3) carry out effective outreach activities.



* DOD relies on volunteers in the field to carry out many of its 

outreach activities. However, these volunteers do not always report 

their contacts with reservists and employers; as a result, DOD does not 

know the full extent of problems that arise and has no assurance that 

its outreach activities are being implemented consistently.



* Although DOD has an active program to address problems that arise 

between reservists and their civilian employers, no such program is in 

place to deal systematically with issues that arise between students 

and their educational institutions. Because students make up an 

estimated one-third of all reservists, it is important that such issues 

as lost tuition, credits, and educational standing be addressed 

more directly.



* DOD has not fully analyzed data on reservistsí operational tempo and 

recruiting and retention trends on an ongoing basis to determine how 

deployments might be affecting reservists and their employers. More 

analyses of such data would enable DOD to better identify emerging 

problems and formulate outreach activities to address the problems.



DODís activities to enhance reserve-employer relations are not as 

effective as they could be. DOD has conducted hundreds of briefings 

each year for both reservists and employers. However, we reported that 

a sizable number of the employers and reservists indicated that they 

were unsure of their rights and responsibilities under the Uniformed 

Services Employment and Reemployment Rights Act of 1994[Footnote 17] 

and that some had never been briefed on their rights and 

responsibilities. While the majority of reservists believed their 

employers complied with legal requirements, some reservists alleged 

that their rights had been violated. Both employers and reservists 

claimed that frequently they were not given 30 daysí advance notice of 

deployments, and some employers wanted the right to verify reserve duty 

under 30 days on a case-by-case basis. These findings suggest that some 

changes may be needed in the management of reservist-employer relations 

to forestall reservists from leaving military service.



Significant Civilian Workforce Management Issues Exist:



DOD employs about 700,000 civilians--some 37 percent of all nonpostal 

civilian federal workers. Because it is the largest employer of federal 

employees in the competitive civil service, how DOD approaches 

human capital management sends important signals about trends and 

expectations for federal employment across government. Moreover, the 

role that DODís civilian workforce plays in support of U.S. national 

security makes DODís approach to managing its people a matter of 

fundamental public interest.



As shown in figure 4, DOD has undergone a sizable reduction in its 

civilian workforce since the end of the Cold War, and additional 

reductions are expected at least through fiscal year 2007. Between 

fiscal year 1989 and 2001, DOD reduced its civilian workforce by about 

400,000 positions (excluding foreign national employees), from 

approximately 1,075,000 to 672,000--a 37 percent reduction. The 

Presidentís fiscal year 2003 budget request projected additional 

reductions in DODís civilian workforce, to a level of 614,865 by fiscal 

year 2007--a cumulative reduction of nearly 43 percent from the fiscal 

year 1989  level.



Figure 4: DOD Civilian Workforce Trends (fiscal years 1989-2001):



[See PDF for image] - graphic text:



Notes: 	GAOís analysis of DODís data



Figure does not include indirect hire employees, for example, persons 

rendering service to the federal government under agreements or 
contracts 

with a foreign government.



[End of figure] - graphic text:



Without an integrated strategic view, DODís approach to civilian 

downsizing in the early 1990s relied primarily on voluntary turnover 

and retirements and varying freezes on hiring authority. DOD also used 

existing authority for early retirements to encourage voluntary 

separations at activities facing major reductions in force. The fiscal 

year 1993 National Defense Authorization Act authorized a number of 

transition assistance programs for civilian employees, including 

financial separation incentives, or ďbuyouts,Ē to induce the voluntary 

separation of civilian employees and reduce authorized positions. DOD 

has credited the use of separation incentives, early retirement 

authority, and various job placement opportunities as ways to avoid 

nearly 200,000 involuntary demotions and separations.



While the tools available to DOD to manage its civilian downsizing 

helped mitigate the adverse effects of force reductions, DODís approach 

to the reductions was not oriented toward shaping the makeup of the 

workforce. During our work on the early phases of the DOD downsizing, 

some DOD officials voiced concerns about what was perceived to be a 

lack of attention to identifying and maintaining a balanced basic level 

of skills needed to maintain in-house capabilities as part of the 

defense industrial base. Career civilians possess ďinstitutional 

memory,Ē which is particularly important in DOD because of the frequent 

rotation of military personnel and the short tenure of the average 

political appointee.



The consequences of the lack of attention to force shaping can be seen 

in the current age distribution of the civilian workforce in comparison 

to the distribution at the start of the drawdown. Todayís workforce is 

older and more experienced; but not surprisingly, 58 percent of the 

workforce will be eligible for early or regular retirement in the next 

3 years. Since 1989, there has been a 69 percent drop in the number of 

civilians with 11 to 30 years of service.



The net effect is a workforce that is not balanced by age or experience 

and that puts at risk the orderly transfer of institutional knowledge. 

The continuing increase in the number of retirement-age employees could 

make it difficult for DOD to infuse its workforce with new and creative 

ideas and develop the skilled civilian workers, managers, and leaders 

it will need to meet future mission requirements. With senior 

management attention, strategic leadership, and results-oriented 

performance management, however, DOD can rebuild its civilian workforce 

to meet future requirements for specific skills and experience.



These human capital challenges are even more severe in certain areas, 

such as acquisition and financial management (see ďConfront and 

Transform Pervasive, Decades-Old Financial Management Problems 

to Improve Financial AccountabilityĒ and ďImprove DODís Ability to 

Acquire Weapon Systems in a Cost-Effective and Timely WayĒ). The 

acquisition area is a part of the workforce that the United States has 

relied upon to maintain the technological superiority that plays an 

essential role in the national security strategy. According to DODís 

Acquisition 2005 task force report, the rate of reduction in the 

civilian acquisition workforce has substantially exceeded that of the 

rest of the DOD workforce. In the past decade, DOD has downsized its 

acquisition workforce by almost half. More than 50 percent of the 

remaining acquisition workforce will be eligible to retire by 2005; and 

in some occupations, DOD projects that half of the current employees 

will have retired by 2006.



The 2005 task force report made a series of recommendations to DOD in 

October 2000. In April 2002, we reported on DODís plans to implement 

these recommendations. We noted that DOD has made progress in laying 

a foundation for reshaping its acquisition workforce. However, DOD 

recognizes that it will be challenging to implement a strategic 

approach. Consequently, DOD views implementation of the recommendations 

as long-term efforts with specific outcomes taking years to achieve.



In addition, many of DODís financial management shortcomings are 

attributable in part to human capital issues. While DODís financial 

management personnel are struggling to carry out routine day-to-day 

transaction processing, personnel in world-class financial management 

organizations are providing value-added analyses and insights about 

the financial implications of program decisions on their organizations, 

performance goals, and objectives. DOD has a number of initiatives 

underway that are directed at improving the competencies and 

professionalism of its financial management workforce. However, 

although it concurred with our August 2001 recommendation, DOD has not 

yet developed a strategic approach to addressing its financial 

management human capital challenges.[Footnote 18] Lacking such a 

strategy, DOD will be unable to meet the challenges presented by the 

increasing number of employees that will be eligible to retire over the 

next few years.



Key Actions Needed:



DOD and the Congress have worked successfully to enhance the 

military personnel benefit package. To help keep pace with changing 

demographics and to be competitive with the private sector, we have 

recommended that DOD (1) develop measures for tracking and assessing 

the effectiveness of installation-level services offered through its 

spousal employment assistance program and (2) assess the feasibility, 

costs, and benefits of offering extended time off to parents of newborn 

or adopted children as one way to increase retention of trained, 

experienced personnel. DOD is working to achieve these actions. 

However, to provide continued focus to meet future challenges, DOD 

needs to take a strategic approach.



Taking an integrated, strategic view of DODís approach to human capital 

and using a measurement tool will be important for DOD to align all 

elements of its human capital management, including pay and benefits, 

with its broader organizational objectives. Such measurement tools 

include our human capital self-assessment checklist and the exposure 

draft of our model for strategic human capital management for agency 

leaders. We testified that since the DOD military personnel strategy is 

intended to be a dynamic document that periodically will be assessed 

and refined, DOD will have opportunities to incorporate additional 

elements of human capital strategic planning in future iterations of 

the strategy. Specifically, DOD needs to:



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



* include adequate performance measures for assessing the effectiveness 

of human capital approaches;



* address military workforce requirements or gaps, especially for 

mission-critical skills;



* demonstrate a clear linkage between benefits and its ability to 

recruit and retain a high-quality workforce; and:



* address the dissatisfaction that servicemembers have expressed about 

their work conditions.



We have also made several recommendations to enhance DODís management 

of its reserve forces. Our recommendations are designed to (1) increase 

the scope and effectiveness of DODís outreach programs, (2) promote 

good relations between reservists and their employers or schools, and 

(3) increase an understanding of the effects of high[Footnote 19] 

operational tempos on reservists. The recommendations would achieve 

these goals by increasing DODís information on reservistsí civilian 

employers, specifically addressing the unique needs of student 

reservists, enhancing the effectiveness of volunteer members of the 

Employer Support to Guard and Reserve organization, and making improved 

use of available deployment and retention data. DOD generally concurred 

with the recommendations. Some of its planned initiatives include 

establishment of a policy requiring that orders be issued 30 days in 

advance of deployment, unless operational requirements dictate 

otherwise, and studying reasons why the reserve components sometimes 

miss the 30-day goal.



Overcome Support Infrastructure Inefficiencies to Reduce Costs and 

Improve Operations:



DODís infrastructure categories include force installations, 

communications and information infrastructure, science and 

technology programs, acquisition infrastructure, central logistics, 

Defense Health Program, central personnel administration and benefits 

programs, central training, departmental management, and other selected 

infrastructure programs such as support of DODís intelligence and air 

traffic control activities.[Footnote 20] DOD has been concerned for a 

number of years over the amount of funding devoted to its support 

infrastructure and the impact on its ability to devote more funding to 

weapon system modernization and other critical needs. Our analysis of 

DOD data contained in its fiscal year 2002 annual report[Footnote 21] 

and fiscal year 2003 Future Years Defense Plan (FYDP)[Footnote 22] 

showed that approximately $151 billion (44 percent)[Footnote 23] of the 

$345 billion allocated to mission and support activities was spent on 

infrastructure in fiscal year 2002. Of the reported $151 billion spent 

on infrastructure, approximately $25 billion was spent for military 

installations, including programs to protect the environment, house and 

support the daily operations of combat units, and sustain, restore, and 

modernize facilities. In our 2001 performance and accountability 

series, we reported that regarding specific operations challenges, DOD 

needed to address inefficiencies in its support infrastructure. 

Infrastructure management, which we first identified as a high-risk 

area in 1997, remains on our high-risk list and continues to present 

major challenges to DOD.



Infrastructure Costs Remain a Concern:



According to DOD, infrastructure costs continue to consume a larger 

than desired portion of its budget--nearly 46 and 44 percent, 

respectively, in fiscal years 2001 and 2002, with some growth projected 

in its future spending plans (see fig. 5). Recently, DOD reported that 

many of its business processes and much of the infrastructure are 

outdated and must be modernized. While Americaís businesses have 

streamlined and adopted new business models to react to fast-moving 

changes in markets and technologies, DOD has lagged behind without an 

overarching strategy to improve its business practices. Left alone, the 

current organizational arrangements, processes, and systems will 

continue to drain scarce resources. DOD has also realized that high-

priority readiness needs such as weapons modernization can be fulfilled 

only with a large influx from infrastructure savings.



Figure 5: Direct Infrastructure Funding Versus the Total Funding 

Allocated to Mission and Support Activities (fiscal years 1998 through 

2007):



[See PDF for image] - graphic text:



Note: GAOís analysis of DODís data.



[End of figure] - graphic text:



Transforming DODís Support Infrastructure Remains a Long-term 

Challenge:



To its credit, DOD has given high-level emphasis to reforming its 

support infrastructure, including an emphasis on transforming its 

associated business processes in recent years. However, many key 

reforms that may have the greatest impact on managing the support 

infrastructure and reducing costs are long term in nature and will 

require many years to be fully implemented.



The Defense Reform Initiative, started in 1997, was intended to 

improve the effectiveness and efficiency of DODís business processes 

and support infrastructure. To varying degrees, some of the former 

programs are being continued under the current administrationís 

business transformation:



program, which was created in 2001 under the auspices of a Senior 

Executive Council, a Business Initiative Council, and an Executive 

Steering Committee.[Footnote 24] These groups have focused on launching 

new initiatives. Many of the initiatives, such as eliminating 

unnecessary reports, streamlining the general and flag officer 

nomination process, and implementing cell phone subsidies, have been 

fairly limited in scope. However, many others, including efforts to 

identify noncore functions for potential transfer to the private sector 

and a review of defense agenciesí missions, have been broader. 

Furthermore, the charter for the Business Initiative Council 

specifically indicates that the new business transformation program 

will address broader reform efforts over time.



Some highly visible, major reform efforts that have been underway 

include acquisition and financial management reform, logistics 

reengineering, public-private competitions under the Office of 

Management and Budgetís Circular A-76 process,[Footnote 25] and 

elimination of unneeded facilities infrastructure. The latter includes 

such actions as demolition of unneeded buildings, privatization of 

housing and utilities on military facilities, and passage of 

legislation for additional base realignments and closures. Financial 

management and acquisition and logistics reform are more fully 

discussed in separate sections of this report. These reform efforts 

offer the potential for significant improvements in the efficiency and 

effectiveness of operations, including savings in terms of reductions 

in program costs or cost avoidances.



While it is difficult to quantify the savings precisely, two 

initiatives that have yielded the greatest savings over time are the 

public-private competitions under the A-76 program and the 

congressionally approved defense base realignment and closure actions. 

While further opportunities exist for savings through these 

initiatives, both are not without controversy because of their 

potential impact on affected workforces and communities.



DOD has been the most aggressive of all federal agencies in pursuing 

A-76 cost studies in recent years, completing studies on nearly 

117,000 positions between fiscal year 1997 and 2001. Our work has shown 

that DOD has achieved significant savings through this program, even 

though it has been difficult to determine precisely the magnitude of 

those savings. Savings may be limited in the short term because up-

front investment costs associated with conducting and implementing the 

results of the studies must be absorbed before long-term savings begin 

to accrue. Several of our reports in recent years have highlighted 

these issues. The number of A-76 studies to be completed in the future 

is somewhat uncertain as DOD examines other alternatives, such as 

reengineering, divestiture, public/private partnering, and 

privatization, for achieving greater operating efficiencies. Although 

largely outside DODís control, the work and recent report of the 

congressionally mandated Commercial Activities Panel, chaired by the 

Comptroller General, have recommended actions to improve the sourcing 

decisions of DOD and other federal agencies and to stimulate the 

creation of high-performing organizations.[Footnote 26]



Currently, the Office of Management and Budget is considering the 

panelís recommendations as it revises A-76 policy.[Footnote 27] 

Successful implementation of the recommendations offers the potential 

for improved decision tools to facilitate improved operating 

efficiencies within DOD as well as other federal agencies. DOD 

completed four rounds of base realignment and closures between 1988 and 

1995 and has congressional authorization for another round of base 

realignments and closures scheduled for 2005. DOD officials have 

testified the 2005 round could achieve a 20 to 25 percent reduction in 

military infrastructure, with annual savings of about $6 billion. Our 

reviews have found that estimated savings from the first four rounds, 

while imprecise, are nonetheless substantial in the long term. In 

addition, DOD reports that the savings accrued from removing this 

excess infrastructure can be better applied to maintaining and 

revitalizing the facilities it plans to keep as well as to improving 

military readiness.



With or without future base closures, DOD faces the challenge of 

adequately maintaining and revitalizing the facilities it plans to 

retain. Available information indicates that DODís facilities continue 

to deteriorate because of insufficient funding for their sustainment, 

restoration, and modernization. According to DOD, its facilities have 

been neglected and modernization efforts have been postponed for far 

too long. Our recent review of the physical condition of recruit 

barracks confirmed DODís assertion that its facilities have been long 

neglected and underfunded. We found that, to varying degrees, most 

barracks were in need of significant repair. The most prevalent 

problems across the services included the lack of, or inadequate, 

heating and air conditioning; inadequate ventilation, particularly in 

bathing areas; and plumbing-related deficiencies, such as leaks and 

clogged drains. Inspection of a parking ramp in January 2002 revealed 

water damage that affects where a C-130 aircraft can park (see fig. 6). 

With limited funds to repair the ramp at an estimated $40,000, base 

officials concentrate on higher-priority items, leaving the ramp 

problem unresolved, as shown at the time of our visit in August 2002. 

DOD officials stated they hope to repair the ramp in February 2003 with 

fiscal year 2002 end-of-year funds.



Figure 6: Parking Runway Ramp at Dobbins Air Reserve Base, Georgia 

(August 2002):



[See PDF for image] - graphic text:



[End of figure] - graphic text:



Similar deteriorated conditions exist across the range of DODís 

infrastructure categories. In DODís recent Installationsí Readiness 

Report, the military services cited numerous examples of such 

conditions affecting their facilities by selected categories:



* Operations and training (includes airfields, piers and wharves, 

training ranges and classrooms, recruit facilities, armories, aircraft 

operationsí parking and hangars, refueling hydrants, and flight 

simulators): According to the Navy, the age, high usage, and 

overloading of runways, taxiways, and aprons are causing rapid 

deterioration at all air stations, resulting in significant foreign 

object damage, unacceptable risks to safety of personnel and damage to 

aircraft, and restricted air operations.



* Mobility (includes facilities directly related to mobilization of 

forces, including staging areas and transportation systems): According 

to the Air Force, several of its facilities used for mobility purposes 

do not have adequate ventilation systems, lighting, communications 

support, restrooms, or passenger or cargo processing areas. This 

results in inefficient, time-consuming operations and degrades 

readiness capability.



* Maintenance and production (includes vehicle and avionics maintenance 

shops, tactical equipment shops, aircraft maintenance hangars, 

foundries, and ammunition demilitarization facilities): According to 

the Navy, several maintenance hangars and aircraft intermediate-

maintenance facilities have extensive structural, roof, and mechanical 

and electrical system deterioration due mainly to age, environment, and 

normal wear. In some cases, hangar-bay coatings, separating from 

ceilings and walls, are falling onto exposed equipment, personnel, 

and aircraft.



* Research, development, testing, and evaluation (includes test 

chambers, laboratories, and research buildings): According to the Army, 

many of its research, development, testing, and evaluation facilities 

are deteriorating at an increasingly accelerated rate. As maintenance 

funding for these facilities is scarce, little or no routine or 

preventive maintenance is performed on these facilities.



* Supply (includes warehouses, hazardous material storage, and 

ammunition storage): According to the Navy, many of its deteriorated 

weapons magazines do not meet explosive safety requirements. Some 

magazines and explosive production buildings are operating under 

waivers and exemptions.



* Medical (includes hospitals and medical and dental clinics): 

According to the Army, several of its medical facilities do not meet 

standards. For example, the main health-care delivery facility at 

Walter Reed Army Medical Center, Washington, D.C., has aging mechanical 

systems that must be repaired or replaced. At other Army installations, 

medical facilities also do not meet quality standards due to the poor 

condition of bathrooms, utilities, and heating and 

air-conditioning systems.



* Administrative (includes office space and computer facilities): 

According to the Navy, the majority of the Atlantic Fleetís 

administrative facility inventory consists of inefficient temporary and 

semipermanent structures. Typical deficiencies include inadequate 

plumbing, air-conditioning, fire protection, and electrical systems and 

general deterioration of finishes due to age and wear.



* Utilities and ground improvements (includes power production, 

distribution and conservation systems, water and sewage systems, roads 

and bridges, water pollution abatement, wastewater treatment 

facilities, and fuel storage tanks and containment areas): According to 

the Navy, the utilities at its Pacific Missile Range Facility, Hawaii, 

only minimally support multiple missile launch operations. To improve 

operations, it needs to upgrade an existing generator; replace the 

control, power, grounding, and lightning protection systems; install 

voltage regulators to correct stability problems; replace the 

communication, video, and surveillance systems; and add an intrusion 

detection system.



Key Actions Needed:



Much work remains for DOD to rationalize and transform its support 

infrastructure to improve operations, achieve efficiencies, and allow 

it to concentrate its resources on the most critical needs. DOD 

organizations throughout the department need to continue reengineering 

their business processes and striving for greater administrative 

efficiency. As we have previously recommended, DOD needs to develop a 

plan to better integrate, guide, and sustain the implementation of its 

diverse business transformation initiatives in an integrated 

fashion.[Footnote 28] Although DOD issued a strategic plan for 

facilities in August 2001, the plan provides only a framework for 

improving facilities and does not address all facility-related issues 

that DOD faces.



Infrastructure problems are not that much different in civilian 

agencies than they are in the military. The infrastructure problems in 

civilian agencies also suggest the possible relevance of a civilian 

facility closure and realignment process. Issues related to civilian 

facilities will be covered under a new high-risk, governmentwide 

designation called ďFederal Property.Ē:



Confront and Transform Pervasive, Decades-Old Financial Management 

Problems to Improve Financial Accountability:



In the summer of 2001, the President emphasized the need for improved 

financial accountability throughout the entire federal government. 

Additionally, the Secretary of Defense has recently included improving 

DODís financial management as one of his top 10 priorities.[Footnote 

29] As we have previously reported, accurate financial information is 

crucial to making sound decisions and controlling assets so that DODís 

mission and goals are efficiently and effectively accomplished. 

However, DOD continues to face financial management problems that are 

pervasive, complex, long-standing, and deeply rooted in virtually all 

its business operations. DODís financial management deficiencies 

adversely affect DODís ability to control costs, ensure basic 

accountability, anticipate future costs and claims on the budget (such 

as for health care, weapons systems, and environmental liabilities), 

measure performance, maintain control of funds, help prevent fraud, and 

address pressing management issues. For example, we recently reported 

on fundamental flaws in DODís systems, processes, and overall internal 

control environment related to:



* government travel card delinquency rates for the Army and the Navy 

that nearly doubled those of federal civilian agencies;



* pervasive purchase and travel card breakdowns that resulted in 

numerous instances of potentially fraudulent, improper, and abusive 

transactions and increased DODís vulnerability to theft and misuse of 

government property;



* adjustments to DODís closed appropriations that resulted in about 

$615 million in adjustments that should not have been made, including 

$146 million that was illegal;



* tracking and reporting on the status of earmarked funds that resulted 

in DOD being unable to ensure the Congress that the $1.1 billion in 

funds it received for spare parts was used for, and only for, 

that purpose;



* managing and reporting on the funding associated with the Air Forceís 

contracted depot maintenance that resulted in understating the dollar 

value of year-end carryover work by tens of millions of dollars; and:



* accountability over critical items, such as chemical and biological 

protective garments, that resulted in DODís excessing and selling 

unused garment sets for about $3 each, while simultaneously procuring 

hundreds of thousands of similar garment sets for over $200 per set.



Taken together, DODís financial management deficiencies represent the 

single largest obstacle to achieving an unqualified opinion on the 

U.S. governmentís consolidated financial statements. To date, none of 

the military services or major DOD components have passed the test of 

an independent financial audit.



Overhauling DODís financial management operations represents a 

major management challenge that goes far beyond financial accounting 

to the very fiber of the departmentís range of business operations and 

management culture. Administrations over the past 12 years have 

attempted to address these problems in various ways but have largely 

been unsuccessful despite good intentions and significant effort. Since 

1995, DODís financial management has been on our list of high-risk 

areas vulnerable to waste, fraud, abuse, and mismanagement. With the 

events of September 11, 2001, and the federal governmentís short-and 

long-term budget challenges, it is more important than ever that DOD 

effectively transform its deficient business operations to ensure that 

it gets the most from every dollar spent.



Underlying Causes of Financial Management Reform Create Challenges:



As we testified in March 2002 and highlighted in our more recent 

reports, four underlying causes of problems have impeded past reform 

efforts at DOD.



* The lack of accountability and sustained top-level leadership hinders 

DODís ability to meet its performance goals. Major improvement 

initiatives must have the direct, active support and involvement of the 

Secretary and Deputy Secretary of Defense to ensure that daily 

activities throughout the department remain focused on achieving 

shared, agencywide outcomes and success. Furthermore, sustaining top 

leadershipís commitment to performance goals is a particular challenge 

for DOD because the average tenure of DODís top political appointees is 

only 1.7 years. Based upon our survey of best practices of world-class 

financial management organizations, it is clear that strong executive 

leadership is essential to (1) making financial management an 

entitywide priority, (2) redefining the role of finance, (3) providing 

meaningful information to decision makers, and (4) building a team of 

people that delivers results.



* Cultural resistance to change and stovepiped operations have impeded 

DODís ability to implement broad-based management reforms. We found the 

effectiveness of the Defense Management Council, established in 1997, 

was impaired because members were not able to put aside their 

particular military servicesí or DOD agenciesí interests to focus on 

departmentwide approaches. The results of DODís past stovepiped 

approaches to financial management reforms are perhaps most evident in 

its current business systems environment. DODís recent estimate 

includes 1,700 systems and system development projects--many of which 

were developed in piecemeal fashion and evolved to accommodate 

different organizations, each with its own policies and procedures.



* Lack of clear, linked goals and performance measures impedes DODís 

ability to attain strategic goals with the risk that units are 

operating autonomously, rather than collectively. In our assessment of 

DODís fiscal year 2000 Financial Management Improvement Plan--its most 

recent plan--we found that the plan presented the military servicesí 

and DOD componentsí individual improvement initiatives but did not 

clearly articulate how their individual efforts would result in a 

collective, integrated DOD-wide approach to financial management 

improvement. In addition, the plan did not include performance measures 

to assess DODís progress in resolving financial management problems. 

Furthermore, while DOD plans to invest billions of dollars in 

modernizing its financial management systems, it is in the initial 

stages of developing an overall blueprint, or enterprise architecture, 

to guide and direct these investments.



* Lack of incentives to change existing ďbusiness-as-usualĒ processes, 

systems, and structures contributes to DODís inability to carry out 

needed fundamental reform. Traditionally, DOD has focused more on 

justifying its need for more funding and moving programs and operations 

through the process than on achieving better program outcomes. It does 

not (1) reward behaviors that contribute to DOD-wide and congressional 

goals, (2) develop motivational incentives for decision makers to guide 

them toward better program outcomes, or (3) provide congressional focus 

on more results-oriented and resource-allocation decisions.



Key Actions Needed:



On September 10, 2001, the Secretary of Defense recognized the 

far-reaching nature of DODís financial management problems and 

announced a broad initiative intended to ďtransform the way the 

department works and what it works on.Ē This new broad-based business 

transformation initiative, led by the Senior Executive Council and the 

Business Initiative Council, incorporates a number of defense reform 

initiatives begun under previous administrations but also encompasses 

additional fundamental business reform proposals. The goals of DODís 

current transformation initiatives are more far-reaching, 

comprehensive, and have more long-term application than any such 

efforts in the past. In announcing his initiative, the Secretary 

recognized that transformation would be difficult and expected the 

needed changes would take 8 or more years to complete. The Secretaryís 

initiative is consistent with the findings of an independent study he 

commissioned that concluded DOD would have to undergo ďa radical 

financial management transformationĒ and that it would take more than a 

decade to achieve.



Our experience has shown that several key elements, collectively, 

would enable DOD to effectively address the underlying causes of its 

long-standing financial management problems. These elements include:



* addressing the financial management challenges as part of a 

comprehensive, integrated, DOD-wide business process reform;



* providing for sustained leadership by the Secretary of Defense and 

resource control to implement needed financial management reforms;



* establishing clear lines of responsibility, authority, and 

accountability for such reform tied to the Secretary;



* incorporating results-oriented performance measures and monitoring 

tied to financial management reforms;



* establishing an enterprise system architecture to guide and direct 

financial management modernization investments;



* ensuring effective oversight and monitoring; and:



* providing appropriate incentives or consequences for action 

or inaction.



Beginning with the Secretaryís recognition of a need for a fundamental 

transformation of DODís business processes, and building on some of the 

work begun under past administrations, DOD has taken a number of 

positive actions in many of these key areas. One ongoing action is the 

current effort to develop a DOD enterprise architecture that is 

intended to prescribe a blueprint for operational and technological 

changes in its financial and related business system operations. At the 

same time, the challenges remaining in each of these key areas 

are daunting.



Effectively Manage Information Technology Investments to Transform 

Business Functions:



To help transform its business functions, DOD has invested heavily in 

modernizing its information technology environment, and its plans call 

for continued heavy investments. However, its success to date has been 

limited, and its future is fraught with risk because of long-standing 

and pervasive information technology modernization management 

weaknesses. As we have reported, these weaknesses include a lack of 

(1) integrated enterprise architectures to effectively promote 

interoperability and avoid duplication among systems; 

(2) institutional information technology investment management 

practices to effectively minimize the inherent risk in very large, 

multiyear projects and to provide DOD executives with the information 

needed to make informed investment choices; and (3) institutionalized 

systems acquisition processes to allow consistent delivery of promised 

capabilities, on time and within budget. Compounding these 

modernization management weaknesses are information security 

weaknesses that limit DODís ability to ensure that current and future 

systems are not compromised. We have made a series of recommendations 

to strengthen DODís ability to successfully modernize and secure its 

information technology assets.



DOD acknowledges that it needs to improve its management of information 

technology and has agreed to implement most of the recommendations we 

have made over the last 2 years. However, progress has been 

inconsistent, and it is unlikely that sufficient management reform of 

information technology will occur in time to ensure that DODís planned 

information technology investment of $26 billion in fiscal year 2003 

will be spent effectively and efficiently. For these reasons, we are 

again designating DODís systems modernization efforts as high risk. 

Further, the state of DODís information security continues to be a 

major reason for us to again designate information security as a 

governmentwide high-risk area.



Effective Management of Systems Modernization Is a 

Continuing Challenge:



Since the 1990s, DOD has spent billions of dollars each year attempting 

to leverage the vast power of modern technology to replace outdated 

ways of doing business. While we recognize that modernization of 

information technology is a crucial enabler of such organizational 

transformation, successful modernization requires a level of 

information technology management capability that the department has 

yet to achieve. This capability is embodied in the best information 

technology management practices of successful public-and private-

sector organizations, as well as information technology management 

guidance issued by GAO, the Chief Information Officers Council, and the 

Office of Management and Budget.



DOD has made some progress in implementing the recommendations that we 

have made aimed at improving information technology management 

practices. Nevertheless, DOD remains far from where it needs to be in 

order to effectively and efficiently manage something of the size and 

significance of its systems modernization. Since January 2001, when we 

last reported on DOD management challenges, both we and the DOD 

Inspector General have continued to report on a variety of 

long-standing management problems in modernizing information 

technology. Because of these problems, three of which we briefly 

describe here, we first designated DODís management of information 

technology modernization as high risk in 1995. It remains so today.



First, DODís lack of an integrated enterprise architecture for its 

financial and related business functions continues to be a major 

obstacle. As we reported in 2001, without such a blueprint to guide and 

constrain DODís investments in revamped business operations and 

modernized systems, the military services and defense agencies find 

themselves with duplicative processes and systems that are 

unnecessarily costly to maintain and do not optimize mission 

performance. Further, DOD lacks a corporate focus for controlling its 

information technology budget and making informed decisions about 

servicesí and agenciesí ongoing and planned modernization projects. We 

also reported that certain DOD components, such as the Defense 

Logistics Agency and the Defense Information Systems Agency, were 

investing billions of dollars in information technology modernization 

projects with no agency-specific architectures aligned with a 

departmental architecture to guide and constrain the componentsí 

respective investments.



Moreover, we reported that DOD did not have programs in place for 

creating this needed set of integrated architectures. Accordingly, we 

made a series of recommendations to (1) assist DOD and its components 

in developing and maintaining enterprise architectures in support of 

their modernization efforts and (2) control spending on information 

technology projects throughout the department. In particular, we 

recommended that DOD centralize the responsibility and authority for 

its project investments and, until a financial management architecture 

is developed, limit its componentsí investments to:



* deployment of systems that involve no additional development or 

acquisition cost,



* stay-in-business maintenance needed to keep existing 

systems operational,



* management controls needed to effectively invest in modernized 

systems, and:



* new systems or existing system changes that are congressionally 

directed or are relatively small, cost-effective, and low risk.



In its written comments, DOD stated that it would consider our 

recommendations as part of its efforts to improve financial 

management.[Footnote 30]



A second major hurdle in DODís quest to modernize its information 

technology systems is its lack of effective investment management 

practices, both institutional and project-specific. For example, we 

reported that while the Defense Logistics Agency had made progress in 

adopting a portfolio-based approach to making informed decisions among 

competing agency investment options, critical investment management 

activities that are practiced by leading public and private 

organizations, and are embodied in federal guidance, were missing. 

Similarly, we reported that the Defense Information Systems Agency had 

not yet established most of these investment management best practices. 

At the same time, our reviews of specific billion-dollar DOD system 

acquisition projects, including the Defense Logistic Agencyís Business 

Systems Modernization, DODís Standard Procurement System, and 

DODís Composite Health Care System II, showed additional investment 

management shortcomings. Such shortcomings included not economically 

justifying information technology projects on the basis of reliable 

analyses of benefits, costs, and risks and not reducing project risk by 

investing in the projects incrementally, both of which are practiced by 

successful public-and private-sector organizations and advocated by 

federal guidance. Similarly, the DOD Inspector General reported on 

investment management problems with DODís Joint Personnel Adjudication 

System. Again, we made a series of recommendations to address 

DODís investment management weaknesses. DOD generally agreed 

with our recommendations.[Footnote 31]



A third significant weakness is immature software and systems 

acquisition processes, which are key determinants of the quality of 

software-intensive information technology systems. Our work continues 

to show that DODís implementation of mature acquisition management 

processes is uneven, as are its proactive efforts to improve these 

processes. For example, our review of the Defense Logistics Agencyís 

system acquisition processes showed that one major system was following 

mature processes, while another was not. Similarly, our review of 

departmentwide software and system process improvement activities 

showed that some DOD components, such as the Army and the Navy, had 

active programs while others, such as the Defense Logistics Agency, did 

not. We made recommendations to correct each of these weaknesses. DOD 

generally agreed with our recommendations.[Footnote 32]



DOD recognizes the need to improve management of its systems 

modernization efforts. To this end, it has taken some steps to 

implement our recommendations addressing the weaknesses we identified. 

For example, DOD has begun to develop a departmentwide enterprise 

architecture for its financial and related operations, including 

ensuring alignment of this architecture with others in DOD. It also has 

revised its acquisition guidance to require that investment decisions 

for major projects be made incrementally to better ensure each segment 

delivers measurable benefits. Nevertheless, much remains to be 

accomplished before DOD will have effectively mitigated the risks it 

faces in modernizing its systems.



Information Security Remains a Major Concern:



The national defense, like many of the U.S. governmentís missions, 

depends on the security of computer operations at a time when 

dramatic increases in computer connectivity are revolutionizing both 

communications and operations. This interconnectivity poses 

significant risks to both DOD computer systems and the operations 

and infrastructures they support. We designated information security as 

a governmentwide high-risk area in 1997, and it remains so today. The 

DOD Inspector General noted in 2001 that improvements were needed 

to better manage security. DOD also acknowledged in its fiscal 

year 2000 performance report[Footnote 33] that its systems and networks 

are more vulnerable than officials would like, and as we have reported, 

its information assurance[Footnote 34] program has had problems in 

meeting its goals, such as poor coordination of technology 

and operations.



Security assessments continue to identify weaknesses that could 

seriously jeopardize DODís operations and compromise the 

confidentiality, integrity, or availability of sensitive information. 

For example, in June 2002, we reported that the U.S. Army Corps of 

Engineers had made substantial progress in resolving systems security 

weaknesses identified in prior years in its financial management system 

but that new weaknesses had been found. Specifically, the Corps had 

not adequately limited user access, developed adequate systems software 

controls, documented software changes, segregated duties, or addressed 

continuity needs.



The DOD Inspector General also reported on information security 

weaknesses in several programs during fiscal year 2001. Specifically, 

the Inspector General found security lapses relating to access to data, 

risk assessments, sensitive data identification, access controls, 

password management, audit logs, application development and change 

controls, segregation of duties, service continuity, and system 

software controls, among others. In addition, both the Army Audit 

Agency and Air Force Audit Agency reported similar problems.



Weaknesses in departmentwide information security were also a 

problem. In March 2001 we reported DOD had made limited progress 

in implementing its information assurance program. Specifically, DOD 

had not tested its draft readiness assessment metrics; implemented 

its proposed actions to enhance its human resources; defined the 

organizations, policies, and procedures for monitoring and managing 

security; or consistently planned and coordinated security management 

technologies and operations throughout DOD. Further, management 

weaknesses such as the lack of a unified mission and performance goals 

and measures, unreliable financial and performance data, and no plan to 

leverage technology also limited progress in program implementation. We 

also noted weaknesses in attempts to catalog security activities and 

address standards, acquisition support, and research. Accordingly, we 

recommended a number of actions to improve departmentwide information 

security management.



DOD has established computer incident response teams throughout DOD, 

but improvements are needed. Specifically, DOD has not coordinated 

resource availability, integrated data from a variety of systems and 

sensors, periodically reviewed systems and networks for weaknesses, 

improved unit reporting on compliance with vulnerability alert tasks, 

ensured that componentsí responses to heightened security conditions 

are consistent and appropriate, or developed departmentwide performance 

measures to assess response capabilities. Accordingly, we made 

recommendations to improve the effectiveness of its computer incident 

response capabilities. The DOD Inspector General also noted the need 

for improvement in intrusion detection and response.



In response to our recommendations on departmentwide information 

security management and computer incident response capabilities, DOD 

is correcting security weaknesses by drafting and obtaining approval of 

an information security strategic plan, developing policies that 

establish standards, assigning responsibilities, and expanding 

coordination of security activities by executives and department staff. 

In addition, the DOD Inspector General reports that DOD has implemented 

a number of corrective actions and made progress in meeting the 

information security challenge.



However, DODís fiscal year 2000 performance report, issued in 

March 2001, did not provide any data showing measurable progress for 

improving information security. Further, DOD has made limited progress 

on our recommendation to establish a performance-based management 

approach capable of assessing progress in meeting DODís goals. The DOD 

Inspector General also agreed that, despite DODís progress, 

improvements are still needed.



Key Actions Needed:



To its credit, DOD has acknowledged that it needs to improve both its 

information technology modernization management capability and its 

information security. As we have reported, and as DODís past success in 

overcoming the year 2000 computing challenge shows, the key to 

effecting meaningful change is executive management leadership and 

commitment and use of a proven management framework. Accordingly, DOD 

needs to (1) treat these areas as management priorities and 

(2) implement frameworks for modernizing and securing systems that are 

grounded in legislative requirements, federal guidance, and the 

practices and successes of leading public-and private-sector 

institutions. We plan to continue working with the Congress and DOD to 

improve these crucial information technology areas.



Improve DODís Ability to Acquire Weapon Systems in a Cost-Effective and 

Timely Way:



Acquiring high performance weapons is central to DODís ability to 

fight and win wars. In fiscal year 2002, DOD spent about $110 billion 

to research, develop, and acquire a wide array of weapon systems. 

These investments are expected to grow substantially, to an estimated 

$157 billion by fiscal year 2007, as DOD pushes to transform itself to 

meet a new and challenging range of threats. While DODís acquisition 

process has produced weapons that provide superior capability, it also 

routinely yields undesirable outcomes that constrain DODís ability to 

modernize--higher costs, later fielding than planned, and less 

performance than expected. As we reported in January 2001, these 

undesirable outcomes often occur because of (1) unrealistic program 

cost and schedule estimates, (2) the use of immature technologies in 

launching product development, (3) design and manufacturing problems 

that are discovered late in test and evaluation, and (4) the failure to 

consider joint solutions and broader mission requirements when 

proposing systems.



We have reported that weapon systems acquisition has been a high-risk 

area since 1990, and it continues to remain on our high-risk list. DOD 

has undertaken a number of policy-level reforms to address long-

standing problems with its acquisition process. However, while there 

have been individual successes, reforms have not produced consistent 

improvements in program outcomes. Those problems have proven resistant 

to reform in part because underlying incentives in the competition for 

funds have not changed. Over the past 2 years, DOD has made significant 

policy changes that have shaped a more knowledge-based acquisition 

process that reflects best practices. These are constructive changes 

for which the long-term effect on individual programs remains to 

be seen.



Cost and Schedule Increases Continue to Erode Buying Power:



Our reviews have consistently found that DODís weapons system 

acquisitions take a much longer time and cost much more than originally 

anticipated, causing disruptions to the departmentís overall investment 

strategy and significantly reducing its buying power. When an 

acquisition program needs more money than planned, it comes at the 

expense of delaying or canceling other programs. This loss of buying 

power means that less overall modernization or transformation gets 

accomplished. The ability to execute a program more predictably within 

cost and schedule estimates would lessen the need to offset cost 

increases by disrupting other programs.



To illustrate this problem, we compared the development costs, in the 

aggregate, of eight major weapon programs.[Footnote 35] As shown in 

figure 7, DOD estimated that in fiscal year 1998 it would cost 

$47 billion to complete the development of these eight programs; 

however, by fiscal year 2003 the estimated cost of completing them had 

grown to about $72 billion. This means an additional $25 billion (more 

than 50 percent above the fiscal year 1998 estimates) would be required 

to develop the same programs.



Figure 7: Cumulative Effect of Cost Growth on Development of Eight 

Weapon System Programs:



[See PDF for image] - graphic text:





[End of figure] - graphic text:



Individual examples of cost and schedule increases that we have 

continued to report include the following:



* Since the Air Force started the Airborne Laser Program in 1996, the 

estimated development costs have risen by about 50 percent, from 

$2.5 billion to $3.7 billion (as of August 2001), and the projected 

fielding of the system has been extended by 4 years, from 2006 to 2010.



* Since the Armyís Comanche Helicopter Programís first cost estimate 

in 1985, the research and development price tag has almost quadrupled 

to $41 billion and the time to obtain an initial operational capability 

has increased from 9 to 21 years. The program is undergoing another 

major restructuring, which may result in further cost increases.



* Since the Navyís Extended Range Guided Munition Program began in 

1996, estimated program acquisition costs have increased more than 

50 percent, from $386 to $600 million, while estimated development time 

has more than doubled, from about 4 to 10 years.



One of the main reasons why program costs and schedules are routinely 

underestimated is because the acquisition process tends to assert 

pressures on program managers to promise more than they can deliver and 

to push programs forward without sufficient knowledge about a weaponís 

technology, design, and production. The intense competition to get 

programs approved and funded encourages setting requirements that will 

make the proposed weapon system stand out from others. In addition, 

organizations that establish requirements often aim for the most 

capability possible, since it may be many years before they get another 

opportunity to acquire a new weapon system of the same type. These 

factors make it difficult to know what resources will be needed to meet 

requirements before launching a program. Furthermore, within this 

process, the systems engineering that is necessary to identify 

potential gaps between program requirements and the resources needed to 

meet them is not usually done until after programs are launched and 

cost and schedule targets have been set.



Product Development Is Often Started with Immature Technologies:



Given the complexity of modern weapons, some problems associated 

with technology development can be expected, but many problems can 

be predicted and avoided. One such problem is for a new program to 

rely on fledgling technologies for high performance, only to report 

late in development that not enough time or money has been estimated to 

mature the technologies and incorporate them into an overall design. 

Many weapon programs move forward with immature technologies because 

the developers do not understand the level of effort needed to develop 

the technologies or, if they do, they defer the effort until later 

because of institutional pressures to gain program funding. In many of 

our reviews, we have found major weapon systems at risk of not being 

able to meet program objectives because critical technologies were 

immature and software development was not effectively managed. Some 

recent examples of our findings are as follows:



* DODís most expensive aircraft program, the Joint Strike Fighter 

Program, which is expected to cost about $200 billion to develop and 

procure, is at risk of not meeting its cost and requirements goals 

because critical technologies, like the integrated flight propulsion 

control system and the radar, were not matured to acceptable levels 

when the program entered product development. Consequently, program 

managers will need to continue developing those technologies at the 

same time they are concentrating on production and integration issues.



* A primary reason why the Air Force was unable to meet the Airborne 

Laser Programís original cost and schedule goals was because it did 

not fully understand the level of effort required to develop the 

critical technologies that the system design depends on. These 

technologies were immature when the program was launched and several of 

them, including the optics and the laser, remain so today. This makes 

it difficult to estimate how long it will take and how much it will 

cost to develop and produce the system.



* The Space-Based Infrared System-Low satellite system, which is 

intended to detect and track ballistic missiles, has also experienced 

significant risk of cost increases and scheduling changes because of 

problems in developing critical technologies and software. The program 

office has determined that five of six critical technologies are at 

risk of not being available when they are needed. In addition, the 

development of key software needed to support the program would not 

have been completed until several years after the first satellites were 

to be launched, thus increasing the risk that the software will not be 

available when needed or perform as required. In recognition of these 

problems, DOD restructured the program to focus on research and 

development of the critical technologies.



Many Design and Manufacturing Problems Are Discovered Late in Test 

and Evaluation:



The ultimate goal of testing and evaluation is to make sure a weapon 

system works as intended before it is fielded to users. When it is done 

early enough in development, testing and evaluation can provide a 

program manager with an opportunity to validate the technologyís 

design and to identify and effectively correct problems. Ideally, the 

testing process goes through several phases: early laboratory testing, 

testing of components and subsystems, testing of the complete system, 

and finally trial use under realistic operational conditions. To be of 

value, test results at each phase must be credible and used to improve 

the product.



Our work over the past several years continues to show that weapon 

system programs suffer from late or incomplete test and evaluation. 

Design and quality problems with weapon systems are discovered late in 

the development cycle when they are difficult and costly to resolve. 

Often, tests of a full system, such as a missile launch, become the 

vehicle for discovering problems that could have been found earlier and 

corrected less expensively. When problems are revealed late in 

development, the response can take several forms: extending schedules 

to increase the investment in more prototypes and testing, terminating 

the program, or redesigning and modifying weapons that have already 

made it to the field. The most frequent corrective action is to 

restructure the development program by adding time and money so that 

the weapons can be redesigned and retested before production or so that 

weapons already in production can be redesigned and retrofitted.



In DOD, strong pressures and incentives can work against revealing 

problems during the testing and evaluation process. We have seen 

numerous instances where test results have turned into scorecards to 

show decision makers that the program was ready to proceed to the next 

acquisition phase or to receive the next funding increment. As a 

result, testing operated in a penalty environment. If the program did 

not pass the tests, it might look less attractive and be more 

vulnerable to funding cuts. Thus, managers had incentives to postpone 

difficult tests or modify tests by reducing the requirements and 

demonstrating enough progress to continue the program. Some key 

examples of our recent findings are as follows:



* In our review of the Marine Corps V-22 Aircraft Program, which is 

already in low-rate initial production, we learned that DOD planned to 

proceed with a full-rate production decision without knowing whether 

(1) the new technology could meet the Marine Corpsís requirements; 

(2) the design would work as required; or (3) the design could be 

produced within the programís cost, schedule, and quality targets. This 

knowledge is lacking because developmental testing was deleted, 

deferred, or inappropriately simulated in order to meet cost and 

schedule goals. In addition, testing was based on reduced 

system requirements.



* We found that many of the Navyís Space and Naval Warfare Systems 

Command information technology systems were being procured and fielded 

in large quantities during initial low-rate production and before 

completing operational testing. Program managers were doing this 

because of a desire to meet user demands for information system 

improvements. However, several of the systems that were purchased 

prior to operational testing experienced performance, 

interoperability, and suitability problems that adversely affected 

the fleet.



* In reviews of the Air Forceís F-22 program, we found continuing 

problems with the assembly and delivery of development-test aircraft 

and the flight-test program. The Air Force extended the development 

test program, delayed the beginning of operational testing, and 

reduced the content of the test program. As a result, some additional 

development flight-testing is planned to take place concurrently with 

operational testing.



DOD Does Not Fully Consider Joint Solutions and Broader 

Mission Requirements:



DODís acquisition policies require that analyses of mission needs, 

costs, and weapon system alternatives match the valid needs of users 

before substantial resources are committed to a particular program. 

However, we have found that, while the services conduct considerable 

analyses in justifying major acquisitions, these analyses are often 

narrowly focused and do not fully consider alternative solutions, such 

as a joint acquisition of a system with other services. In addition, 

DOD often has not considered how individual systems are tied together 

to meet broader mission needs, including joint operations. Further, 

lacking complete and accurate overall life-cycle cost information for 

weapon systems impairs DOD and congressional decision makersí ability 

to make fully informed judgments on funding comparable weapon systems. 

As a result, there is no assurance that DOD and the services are 

avoiding costly duplication of systems, investing in the most cost-

effective and affordable solutions, and optimizing mission performance. 

Furthermore, since the services plan, acquire, and operate systems to 

meet their own operational concepts, there is no guarantee that fielded 

systems will operate effectively together. Examples of our findings are 

as follows:



* While DOD has considerable capability to identify and strike most 

fixed targets, it has limited ability to rapidly identify and strike 

time-critical targets, such as mobile surface-to-air missile sites. 

This limited ability is largely because the command, control, 

communications, intelligence, surveillance, and reconnaissance systems 

involved in the sensor-to-shooter process have limited 

interoperability. The systems are often based on different 

architectures and technical standards and use different frequencies and 

data formats. Thus, the systems cannot share information directly and 

must be patched together, making the response time too slow to 

successfully defeat mobile targets.



* In response to a fiscal year 2000 congressional directive, DOD 

developed an antiarmor munitions master plan to support the military 

servicesí efforts to acquire new antiarmor weapons. Instead of 

determining how shortfalls in capabilities would be addressed from a 

joint perspective, the plan presented individual military service-level 

assessments. The military services did not consider each otherís weapon 

capabilities or the impact of new systems in a joint warfighting 

environment. As a result, there is no assurance that the mix and 

quantities of new weapons being acquired, at an estimated cost of 

$14 billion, provide the most cost-effective solutions for 

increasing capabilities.



* DOD and the military services have been working for many years to 

develop combat identification systems to prevent friendly fire in joint 

and coalition operations. These systems, which are being developed by 

many different entities within DOD and the military services, will be 

installed on a broad array of equipment and used in a wide range of 

military operations. DODís efforts in developing improved capabilities 

have been hampered, however, because it has not developed a 

well-defined enterprise architecture and management framework 

to ensure that new combat identification systems are compatible, 

not duplicative, and supportive of overall department goals.



DOD Could Benefit from a Knowledge-based Acquisition Process Used by 

Leading Commercial Firms:



DOD would like to get the most out of its investments, and it has 

long-standing goals to develop weapons in half the traditional time and 

within budget. However, problems that work against delivering new 

weapons within estimates have proven resistant to reform. Promising 

solutions for DOD can be drawn from the best commercial product 

development efforts. We have conducted an extensive body of work in 

recent years that has consistently shown that leading commercial firms 

are getting the kinds of outcomes from their development of new 

products that DOD seeks. Specifically, these firms are developing 

increasingly sophisticated products in significantly less time and at a 

lower cost than their predecessors.



They do so by ensuring that a high level of knowledge exists about the 

product at key junctures during development. Such a knowledge-based 

process enables decision makers to be reasonably certain about critical 

facets of the product under development when they need it. The process 

can also help offset pressures on program managers to overpromise on 

cost and schedule estimates. The process is essential to getting better 

cost, schedule, and performance outcomes.



The process followed by leading firms can be broken down into 

three cumulative knowledge points:



* at program launch, when a match must be made between the customerís 

needs and the available resources--technology, time, and funding;



* midway through development, when the productís design must 

demonstrate its ability to meet performance requirements; and:



* at production start, when it must be shown that the product can be 

manufactured within cost, schedule, and quality targets.



As illustrated in figure 8, the attainment of each successive knowledge 

point builds on the preceding one. While the knowledge itself builds 

continuously without clear lines of demarcation, the attainment of 

knowledge points is sequential. In other words, production maturity 

cannot be attained if the design is not mature and design maturity 

cannot be attained if the key technologies are not mature. Allowing 

technology development to spill over into product development puts an 

extra burden on program managers and provides a weak foundation for 

making product development estimates. It is perhaps the most 

significant problem in weapon system programs.



Figure 8: Knowledge Achieved at Key Points in Product Development 

Reduces the Risk of Unknowns:



[See PDF for image] - graphic text:



Note: GAOís analysis of best product development practices.



[End of figure] - graphic text:



For the most part, all three knowledge points are eventually attained 

on a completed product, including weapon systems. The key difference 

with a best practices approach is how knowledge is built and how early 

in the development cycle each knowledge point is attained. When 

knowledge is built more slowly than those points suggest, programs 

invite greater cost, schedule, and performance risk because problems 

are more likely to be discovered late in the process and be more 

difficult and costly to correct.



We have found that when DOD programs employed similar practices, they 

experienced outcomes similar to leading firms. Programs like the Joint 

Air-to-Surface Standoff Missile, which mature technology before going 

into product development and stabilize the design by releasing the vast 

majority of engineering drawings midway through development, have 

experienced minimal cost increases and scheduling delays. Conversely, 

problems occur in programs when best practices are not followed. We 

know of several cases where programs are launched well before key 

technologies are mature, manufacturing of prototypes is done before the 

design is stable, and production is begun before reliable manufacturing 

processes are in place. The outcomes from these problems include 

increases in cost and schedule and degradations in performance 

and quality.



DOD wants the kinds of outcomes commercial companies have achieved and 

thus has revised its 5000 series of acquisition regulations to reform 

its acquisition process to attain them. Revisions have focused 

primarily on (1) making sure technologies are demonstrated to a high 

level of maturity before beginning a weapon system program and 

(2) taking an evolutionary, or phased, approach to developing a system. 

Separating technology development from a weapon system development 

program would help curb incentives to overpromise the capabilities of a 

new weapon system and to rely on immature technologies. Also, an 

evolutionary approach to developing requirements and making 

improvements to a systemís capabilities is different from the 

historical approach of trying to deliver all desired capabilities in 

one ďbig bang.Ē In addition, it has been reported that DOD plans to 

begin using program cost estimates from the Office of the Secretary of 

Defenseís Cost Analysis Improvement Group, rather than those prepared 

by the military services, which may lead to more realistic cost 

estimates when pricing programs.



While DODís policy changes are a positive step, implementation on 

individual programs will be a challenge. As discussed earlier, we 

continue to find major weapon programs (e.g., Joint Strike Fighter, 

Airborne Laser, Comanche, and Space-Based Infrared System-Low) at 

considerable risk of meeting cost, schedule, and performance objectives 

because critical technologies were less mature at program start than 

best practices recommend. There have been some successes with 

evolutionary acquisitions, such as the Tactical Unmanned Aerial Vehicle 

program, but so far they are exceptional cases in that they required 

significant intervention from top leadership in the services and DOD. 

It would be premature to interpret this progress as evidence that 

systemic change has occurred across DOD acquisitions. Nonetheless, DOD 

has continued to make policy reforms, and it has recently issued a new 

version of the 5000 series of acquisition guidance. According to DOD 

officials, the objective of the new guidance is to foster greater 

efficiency, flexibility, and innovation in developing and acquiring 

weapon systems.



Key Actions Needed:



As we have recommended, DOD leadership could improve the acquisition of 

weapon systems by requiring that individual program decision makers:



* Separate technology development from product development and 

ensure that key technologies are mature before programs proceed into 

product development. DODís use of evolutionary acquisition should 

help decision makers to make the right trade-offs necessary to make 

this separation.



* Plan product development such that design and manufacturing knowledge 

points are attained in accordance with best practices.



* Conduct test and evaluation in such a way that the burden of 

component and subsystem testing does not get deferred until system 

level testing late in the development cycle.



* Establish weapon requirements that routinely consider the full range 

of alternative solutions, including joint mission needs and aggregate 

capabilities, to ensure that cost-effective systems are developed.



DOD has generally concurred with our recommendations and incorporated 

best practices into its acquisition policies.[Footnote 36] As we have 

recommended, policy changes must be supported by a better environment 

for starting and managing weapon system development programs. Such an 

environment should more closely approximate a knowledge-based product 

development process, which provides incentives and funding to capture 

knowledge early for decision making and uses realistic assumptions in 

establishing system cost and schedule estimates.



Improve Processes and Controls to Reduce Contract Risk:



DOD spent nearly $163 billion in fiscal year 2001 for goods and 

services to equip, maintain, and support its military forces and has 

long been the largest purchaser in the federal government. The 

acquisition environment in which DOD operates, however, has changed 

significantly over the past decade. For example, DOD now purchases more 

services than supplies and equipment; DODís acquisition workforce is 

half the size it was a decade ago; DOD increasingly buys goods and 

services using contracts awarded and managed by other federal agencies; 

and changes to laws and regulations have simplified the acquisition 

process. As we reported in 2001, these environmental changes contribute 

to the significant contract management-related challenges DOD faces, 

particularly in regard to (1) improving its acquisition of services, 

(2) ensuring the appropriate use of contracting techniques and 

approaches, (3) overcoming long-standing contract payment issues, and 

(4) managing its health-care contracts. Underlying these challenges is 

DODís need to address serious imbalances in the skills and experiences 

of its remaining workforce and the potential loss of highly specialized 

knowledge as its acquisition specialists retire. DODís acquisition 

workforce issue is part of a broader human capital crisis that is 

confronting the federal government as a whole.



Individually, the problems in these areas undermine DODís ability to 

ensure that it is acquiring the goods and services needed to meet the 

warfightersí needs as efficiently as possible. Collectively, these 

problems point to the complexity inherent in DODís current contract 

management processes and the challenges in embracing new or alternative 

approaches within a changing acquisition environment. DOD and other 

federal agencies are taking actions to address these issues. Most of 

these actions, however, are at the early stages of implementation. It 

is uncertain whether the corrective actions can be fully and 

successfully implemented in the near term. Consequently, we continue to 

identify DODís contract management as a high-risk area, as we have 

since 1992.



Management of DODís Acquisition of Services Is Not Effective:



DOD spent more than $77 billion in fiscal year 2001 for a wide range 

of services, including professional and administrative support, 

information technology, utilities, medical services, and operation of 

government-owned facilities. However, our work, and the work of 

DODís Inspector General, has found that spending on services is not 

being managed effectively. Too often, requirements are not clearly 

defined, alternatives are not fully considered, vigorous price analyses 

are not performed, and contractors are not adequately overseen. 

Additionally, there is only limited visibility or control at the DOD or 

military department level, and information systems that provide 

reliable data and are capable of being used as a management tool are 

lacking; and it has few enterprisewide contracting-related performance 

metrics. Furthermore, DOD lacks a strategic plan that integrates or 

coordinates ongoing initiatives or that provides a road map for 

identifying or prioritizing future service contracting-

related efforts.



The experiences of leading private-sector companies to reengineer their 

approach to acquiring services offer DOD both valuable insights and a 

general framework that could serve to guide DODís efforts. In January 

2002, we reported that our work at six leading companies found that 

each had reengineered its approach to acquiring services to stay 

competitive, reduce costs, and improve service levels. These changes 

generally began with a corporate decision to pursue a more strategic 

approach to acquiring services. Taking a strategic approach involves 

a range of activities from developing a better picture of what the 

company was spending on services to taking an enterprisewide approach 

to procuring services and developing new ways of doing business 

(see fig. 9). Pursuing such an approach clearly paid off, as the 

companies found that they could save millions of dollars and improve 

the quality of services received.



Figure 9: Key Elements of Strategic Approach Taken by 

Leading Companies:



[See PDF for image] - graphic text:



Note: GAOís analysis of strategic approaches taken by leading 

companies.



[End of figure] - graphic text:



Once top leaders were committed to taking this approach, companies 

took a hard look at how much they were spending on services and from 

whom. With this knowledge, they could identify opportunities to 

leverage their buying power, reduce costs, and better manage their 

suppliers. The companies also instituted a series of structural, 

process, and role changes aimed at moving away from a fragmented 

acquisition process to a more efficient and effective enterprisewide 

process. For example, the companies we studied often established or 

expanded the role of corporate procurement organizations to help 

business managers acquire key services and made extensive use of cross-

functional teams to help the companies better identify service needs, 

select providers, and manage contractor performance.



DOD already has in place certain elements critical to taking a 

strategic approach, such as the commitment by senior DOD leadership to 

improve practices for acquiring services and to adopt best commercial 

practices. For example, DOD issued new policy in May 2002 that was 

intended to elevate the importance and awareness of major purchases of 

services to the same level as purchases of major defense systems. 

However, DOD still faces a long journey, as it needs to take on the 

more difficult tasks of developing a reliable and accurate picture of 

service spending across DOD; determine what structures, mechanisms, and 

metrics can be employed to foster a strategic approach; and tailor 

those structures to meet DODís unique requirements. We are continuing 

our work to identify how specific best practices can be applied to the 

DOD environment and are monitoring DODís efforts to implement a more 

strategic approach to buying services.



DOD Missed Opportunities in Contracting to Enhance Acquisition Savings 

and Outcomes and Reduce Burdens:



The past decade heralded numerous changes in the way DOD bought goods 

and services, as the Congress and the executive branch looked for ways 

to streamline the acquisition process, reduce procurement lead times, 

decrease costs, and attract firms that traditionally chose not to work 

for the government. Several trends emerged in DODís contracting 

business, including (1) a greater reliance on contracts awarded and 

managed by other agencies, (2) dramatic increases in the use of 

government purchase and travel cards, (3) an increased reliance on 

noncost-based pricing approaches, (4) expanded use of 

performance-based contracting approaches, and (5) the growth of ďother 

transactionsĒ for research and prototype projects. Unfortunately, our 

work often found federal implementing regulations to be unclear, DODís 

guidance and internal controls were inadequate, and acquisition 

personnel improperly trained or unaware of new processes and 

procedures. Consequently, DOD missed out on opportunities to generate 

savings, reduce administrative burdens, and enhance outcomes for its 

acquisitions. Some of these examples are as follows:



* Since early 2000, both the Inspector General and we have found 

continuing problems with DODís use of the General Services 

Administrationís Federal Supply Schedule program and, more generally, 

multiple-award task order contracts. In March 2000, we reported that 

DOD contracting officers often did not receive competing proposals and 

used broadly defined work descriptions for orders to acquire 

information technology goods and services. Subsequently, in 

November 2000, we reported that DOD contracting officers did not 

consistently follow procedures intended to promote competition, ensure 

fair and reasonable prices, or conduct a meaningful price analysis when 

using the program. Many DOD contracting officers were unaware of the 

General Services Administrationís procedures for buying services when 

using the program, and federal regulations did not even mention such 

procedures. More recently, in September 2001,[Footnote 37] the DOD 

Inspector General concluded that 304 of the 423--or 72 percent--task 

orders it had reviewed were awarded on a sole-source or directed-source 

basis and 264 were improperly supported.



* Over the past 2 years, we have found that DODís purchase and travel 

card programs were plagued by a weak overall control environment and 

breakdowns in key internal control activities, leaving DOD vulnerable 

to potentially fraudulent, wasteful, or abusive purchases. For example, 

in July 2002, we issued reports on the Armyís purchase and travel card 

programs, which the Army uses extensively. In fiscal year 2001, about 

109,000 Army purchase cardholders made about 4.4 million transactions 

valued at over $2.4 billion, while the Armyís 430,000 individual travel 

card accounts had incurred about $619 million in related travel 

card charges. However, the Armyís purchase card guidance did not 

adequately identify and direct the implementation of needed actions and 

control activities, while DOD and Army memoranda were inadequate to 

manage the purchase card program. The Armyís travel card program was 

also hampered by a weak overall control environment, flawed policies 

and procedures, and a lack of adherence to valid policies and 

procedures, thereby contributing to significant delinquencies and 

charge-offs and fraud and abuse relating to Army employee 

account balances.



* Several reports issued since 1999 have indicated that inadequate 

guidance and poor training played a role in when DOD personnel did not 

use sound techniques to obtain the best prices for DOD. These 

situations are largely in areas where DOD cannot, or chooses not to, 

rely on cost-based pricing techniques for contracts awarded without 

competition.[Footnote 38] For example, in June 1999 we reported that 

contracting officers often performed price analyses that were too 

limited to ensure that the prices were fair and reasonable in our 

review of 65 sole-source purchases of commercial items. In several 

cases, contracting officers did not use historical pricing information 

contained in contract files or require the sellers to provide certain 

information, such as sales data, to support their offered prices. 

In April 2002, we reported that DOD was waiving the requirement for 

contractors to submit certified cost or pricing data, a key requirement 

meant to ensure that the government has the data it needs to 

effectively negotiate with the contractor in contracts awarded without 

competition. We found that for 20 waivers, with a total value of 

$4.4 billion, issued by DOD in fiscal year 2000, there was a wide 

variation in the quality of the data and analyses being used by DOD 

contracting officers to determine if the price was fair and reasonable. 

DOD did not have adequate guidance that would help contracting officers 

decide whether a waiver should be granted, help determine what type of 

data and analyses are acceptable, and determine what kind of expert 

assistance should be obtained. The DOD Inspector General identified 

similar problems in a May 2001 report,[Footnote 39] concluding that the 

lack of planning, shortages in staffing, and the absence of senior 

leadership oversight contributed to poor pricing analysis and the 

inappropriate use of waivers in a significant number of 

contracts reviewed.



* As part of our recent review of the governmentís use of performance-

based contracts[Footnote 40]--a key administration initiative--we 

found that DOD, like other agencies we reviewed, had achieved mixed 

success in incorporating four basic performance-based attributes into 

its contracts.[Footnote 41] For example, only three of the five DOD 

contracts in our review that were for commercial-type services clearly 

exhibited all four performance-based attributes. We found that DOD 

strived to build in the attributes for the five contracts that were for 

more complex, government-unique services; however, DOD found it needed 

to maintain a strong role in specifying how the work should be done as 

well as overseeing the work. We recommended that the Administrator of 

the Office of Federal Procurement Policy clarify existing guidance to 

ensure that performance-based contracting is appropriately used, 

particularly when acquiring more unique and complex services that 

require strong government oversight.



* In April 2000, we reported that DOD needed better guidance to assist 

DOD personnel in using its ďother transactionĒ authority for prototype 

projects--a new tool that embodied alternative approaches to standard 

contracts. We found that DOD had provided only limited guidance to 

defense components, in part, because it did not want to unduly restrict 

the authorityís usage. As a result, DOD did not provide specific 

objectives or criteria for using the authority, define what constituted 

a prototype project, or establish metrics to assess whether the 

expected benefits were actually achieved. Furthermore, we found that 

the services relied on a model agreement that may have led to 

agreements that did not address all relevant issues or include 

appropriate terms and conditions. DOD issued new guidance in December 

2000 that laid out the conditions for using prototype agreements and 

provided a framework to tailor the terms and conditions appropriate for 

each agreement. In October 2002, we reported that this updated guidance 

complied with our earlier recommendation and should assist 

DOD personnel.[Footnote 42]



DOD Has Difficulty in Overcoming Long-Standing Contract Payment Issues:



Ensuring prompt, proper, and accurate payments--whether for the 

delivery of goods and services, for financing the construction of 

facilities or the production of major weapon systems, or for 

accomplishment of particular events or milestones on production 

contracts--is a key element of a sound contract management process. Yet 

for DOD, completing such basic tasks has long been a challenge. DODís 

financial management procedures and practices do not fully meet federal 

accounting standards and financial system requirements or its own 

accounting policy. As a result, DOD managers do not have important 

information needed for effective financial management, leading DOD to 

overpay contractors by billions of dollars over the past 8 years.



We first reported on contractor overpayments in 1994. The report, 

and those issued subsequently, noted that (1) contractors were 

refunding hundreds of millions of dollars to DOD each year, for a total 

of about $6.7 billion between fiscal year 1994 and 2001; (2) DOD made 

overpayments due to duplicate invoices and paid invoices without 

properly and accurately recovering progress payments; (3) contract 

administration actions had resulted in significant contractor debt or 

overpayments; (4) DOD and contractors were not aggressively pursuing 

the timely resolution of overpayments or underpayments when they were 

identified; and (5) DOD did not have statistical information on the 

results of contract reconciliation.



In May 2002, we reported that DOD has various short-term corrective 

actions underway that appear to be having positive results. These 

actions include redoubling efforts to reconcile contracts, a recovery 

audit program intended to identify overpayments and ensure that 

contractors have adequate internal controls to promptly identify and 

report overpayments, and improved procedures to better identify 

potential duplicate payments before the invoices are paid. However, 

cost increases, performance issues, or schedule delays have beset two 

of DODís key long-term initiatives: the Defense Procurement Payment 

System, which is intended to be DODís standard contract payment system, 

and the Standard Procurement System, which is intended to be DODís 

single, standard system to support contracting functions and interface 

with financial management functions, such as payment processing.



Both the DOD Inspector General and we have reported on performance 

problems and schedule delays in the Defense Procurement Payment System. 

For example, the Inspector General concluded in September 2001 that the 

system would not fully eliminate DODís disbursement and contract 

accounting problems because DOD will still need to make manual payments 

for which there is a greater risk of errors being made. In May 2002, we 

reported that the systemís implementation would be delayed by more than 

2 years, from August 2001 to October 2003.



We have raised concerns about DODís approach to acquiring the 

Standard Procurement System on a number of occasions. In July 2001, 

we questioned whether further investment in the system was justified 

given that DOD did not have a credible cost and benefits analysis, it 

had not effectively addressed the inherent risks associated with 

developing the system, and it had not met key program commitments used 

to justify the system. For example, DOD had committed itself to 

implementing a commercially available contract management system; 

however, because it had modified so much of the foundational commercial 

product, the system had evolved into a customized DOD system. 

Furthermore, the system had slipped by 3Ĺ years in its target date for 

full implementation and its projected life-cycle costs had increased 

from about $3 billion to $3.7 billion. We reiterated our concerns in 

February 2002, noting that although DOD had taken some positive steps, 

(1) it still did not have definitive plans for how and when to justify 

future system releases or major enhancements to existing releases, (2) 

it was considering making changes to the software that could compound 

existing problems and further increase costs, and (3) not all defense 

components had agreed to adopt the system.[Footnote 43]



Managing DODís Contracts for Health Care:



DODís challenges in contract management are further illustrated in 

the difficulties it has experienced in implementing contracts under its 

health-care program, TRICARE. This program, implemented in 1994, 

currently offers over 8 million eligible beneficiaries a choice of 

three options through which they can receive health care from either 

military treatment facilities or civilian providers. Care from civilian 

providers is arranged and paid for by TRICARE contractors. In fiscal 

year 2002, approximately $5 billion was budgeted for TRICARE contracts.



Beginning in 1994, DOD sequentially awarded 7 contracts covering 

11 geographic TRICARE regions. Each contract was originally awarded for 

a base period and 5 option years. Each contract has been or is expected 

to be extended beyond the base period because of DODís difficulties in 

designing a new approach for the next round of contracts. In May 2001, 

we reported that DODís contracting approach for TRICARE was overly 

complicated and prescriptive and limited innovation and competition. We 

also reported that numerous adjustments to the contracts had created an 

unstable program.[Footnote 44]



In August 2002, DOD released a solicitation for its next generation 

of TRICARE contracts, called T-Nex. DOD plans to implement these 

contracts sequentially over the next 2 years. This new approach 

attempts to address some of our concerns with the current contracts, 

including complexity, numerous contract adjustments, and 

prescriptiveness. Additionally, T-Nex represents a major overhaul of 

the current structure. DOD has reduced the number of geographic regions 

from 11 to 3 and has segregated functions that were previously 

incorporated in the current contracts. For example, DOD has segregated 

health-care delivery, marketing and education, and retail pharmacy into 

separate solicitations.



The successful implementation of this approach depends largely on DODís 

ability to attract sufficient competition and ensure a smooth and 

seamless transition for its beneficiaries. However, the reduction in 

the numbers of regions and contracts may hinder a smooth transition. 

For example, under the new regional structure contractors will be 

required to develop provider networks over a greater geographic area. 

DOD will also face challenges in integrating the new contracts into a 

cohesive and seamless program for beneficiaries while maintaining the 

existing contracts. Nonetheless, DOD has heeded our earlier 

recommendation to allow for a longer transition period of 10 months. 

Whether DOD can successfully launch the new approach and whether the 

new approach will control costs, ensure quality, and minimize 

disruption to beneficiaries remain to be seen.



DOD also faces continuing challenges in coordinating with the Veterans 

Administration (VA) to jointly contract for health-care supplies. Since 

the early 1980s, the Congress has urged DOD and VA to achieve greater 

efficiencies through improved acquisition processes and increased 

sharing of medical resources. Last year we reported that DOD and VA had 

saved over $170 million annually by jointly procuring pharmaceuticals. 

They achieved these savings by agreeing on, or ďstandardizing,Ē 

particular drugs that their facilities would purchase and then 

contracting with the manufacturers of these drugs for discounts based 

on their combined larger volume. However, DOD and VA have not achieved 

many savings by jointly contracting for medical and surgical supplies. 

This lack of progress has, in part, been the result of their different 

approaches to standardizing medical and surgical supplies. DOD reports 

that it is discussing with VA ways to overcome these differences to 

develop joint ventures for medical and surgical supplies. Nevertheless, 

DOD has opted to follow a regional approach to standardization and VA 

has opted for a national approach; opportunities for national joint 

procurement will be more difficult to achieve. In addition, neither 

department has accurate, reliable, or comprehensive procurement 

information, a basic requirement for identifying potential medical and 

surgical items to standardize.[Footnote 45]



Problems Hamper DODís Efforts to Improve the Acquisition Workforce:



Properly managing the $163 billion worth of goods and services it 

purchased in fiscal year 2001 requires that DOD have the right skills 

and capabilities in its workforce. In the past decade, DOD has 

downsized its acquisition workforce[Footnote 46] by half to respond to 

acquisition reforms, base realignment and closures, and congressional 

direction. At the same time, DOD, like other agencies, is facing 

growing public demands for better and more economical delivery of 

products and services. Moreover, the ongoing technological revolution 

and acquisition reforms require a workforce with new knowledge, skills, 

and abilities and a transition from a role of technician to that of 

business manager. Consequently, DOD now faces,



in its opinion, serious imbalances in the skills and experience of its 

remaining workforce and the potential loss of highly specialized 

knowledge if many of its acquisition specialists retire.[Footnote 47] 

DOD has initiated a substantial strategic planning effort that seeks to 

identify the competencies needed for the future and address what 

reshaping of the workforce will be needed to achieve the desired mix, 

but it has encountered a number of problems that have hampered 

this effort.



Reshaping a workforce is a challenge for any agency. As we have 

previously reported, because mission requirements, client demands, 

technologies, and other environmental influences change rapidly, a 

performance-based agency must continually monitor its staffing needs. 

It must identify the best strategies for filling its talent needs 

through recruiting and hiring and follow up with the appropriate 

investments in training and development. In addition, the agency must 

match the right people to the right jobs and, in the face of finite 

resources, be prepared to employ matrix management principles, 

maintaining the flexibility to redeploy its human capital and 

realigning its structures and work processes to maximize economy, 

efficiency, and effectiveness.



We recently reported that DOD has made progress in laying a foundation 

for reshaping its acquisition workforce. As shown in figure 10, DOD 

recognizes that it will take a considerable amount of time just to lay 

a good foundation for strategic planning, with specific outcomes taking 

years to achieve.



Figure 10: DODís Framework for Developing a Mature Human Capital 

Strategic Planning System:



[See PDF for image] - graphic text:



Note: HR is human resources.



[End of figure] - graphic text:



Part of this long-term effort will involve making a cultural shift as 

well as developing better data to manage risk by spotlighting areas for 

attention before crises develop and to identify opportunities for 

improving results. DOD has worked to identify and address problems that 

have been hampering this effort. These problems include a lack of 

(1) accurate, accessible, and current workforce data; (2) mature models 

to forecast future workforce requirements; (3) a link between DODís 

planning and budgeting processes; and (4) specific planning guidance.



One of DODís ongoing initiatives to address various workforce size and 

structure issues is the Acquisition Workforce Personnel Demonstration 

Project. The demonstration project started in February 1999, and it is 

to experiment with various concepts in workforce management, such as 

those pertaining to recruiting, hiring, and retention. For example, the 

demonstration project is testing broadbanding[Footnote 48] concepts 

that are intended to allow managers to set pay and facilitate pay 

progression. Broadbanding would allow managers to recruit candidates at 

differing pay rates and to assign employees within broad job 

descriptions consistent with the needs of the organization and the 

skills and abilities of the employee. However, participation in the 

project has been fairly limited. As of September 2001, only 

5,300 acquisition personnel--out of a maximum of 95,000 allowed by 

statute--were participating in the project. A DOD official indicated 

that DOD intends to significantly increase project participation over 

the next several years.



Key Actions Needed:



With the events of September 11, and the federal governmentís short-and 

long-term budget challenges, it is more important than ever that DOD 

effectively transform its business processes to ensure that it gets the 

most from every dollar spent. At the same time, it should be recognized 

that DODís contract management-related challenges are both difficult 

and deep-rooted and will not be resolved overnight. Two common elements 

that pervade discussions of ways to address DODís key contract 

management-related challenges--service contracting, contract payment, 

and human capital--are the need for (1) sustained executive leadership 

and (2) a strategic, integrated, and enterprisewide approach. In 

addition, ensuring that these efforts achieve their intended results 

will require the Congressís continued involvement and support. For 

example, the Congress passed legislation in 2001 requiring that DOD 

establish a management structure to enhance the acquisition of services 

and to collect data on the purchase of services, which could provide 

DOD with additional means to take a more strategic approach to 

acquiring services. Lastly, there remains a continuing need to provide 

the framework and tools for acquisition personnel to make sound 

business decisions in obtaining high-quality goods and services at good 

prices and in a timely manner.



Provide Logistics Support That Responds to the Needs of the Warfighter 

at an Affordable Cost:



DOD spent an estimated $88.2 billion in fiscal year 2001 for logistics 

support activities;[Footnote 49] and despite decreasing force 

structure, logistics support costs have continued to increase. 

Logistics is a complex, multidisciplined function that relates to all 

aspects of operating and supporting military systems. Weapon systems 

and the personnel who operate them cannot perform military missions 

without support systems that keep the weapon systems operating and 

armed and the personnel supplied with essential supplies. We have 

reported long-standing problems in DODís logistics processes, systems, 

and operations. As we reported in January 2001, these problems have 

resulted in decreasing the quality and timeliness of logistics support 

to operational forces and/or increasing support costs. To its credit, 

at any one time, various DOD activities have about 400 logistics 

improvement initiatives ongoing. However, the reported logistics 

problems seem to transcend time and continue to challenge logistics 

providersí efforts to achieve their goal of providing timely support to 

the warfighter in a cost-effective manner. Furthermore, long-standing 

problems continue with regard to the acquisition, management, and 

distribution of spare and repair parts, an area that we have designated 

as high risk since 1990.



DODís Efforts to Address Long-Standing Problems of Quality, Timeliness, 

and Cost of Logistics Support Have Shortcomings:



In 2000, we reported that DOD was attempting to reengineer and 

modernize its logistics program to increase efficiency, improve 

performance, and reduce system operation costs. We have reported that 

inadequate integration and coordination of logistics processes, 

systems, and operations had occurred within DOD--decreasing the 

effectiveness of jointly operated forces in a theater of operations and 

increasing the cost. We have recommended the development of an adequate 

overarching logistics strategy to effectively guide the military 

components development of an efficient and effective logistics system. 

However, DODís efforts in this direction are not comprehensive and do 

not continue previous efforts.



DOD took a positive step in dealing with its logistics planning 

shortfall when it developed a logistics strategic plan and directed the 

services and the defense commands to develop implementing plans that 

reflected the vision, objectives, and metrics of the departmentwide 

plan. While we identified shortcomings in the departmentwide plan and 

those developed by the components to implement it, we also recognized 

that this planning effort was a step toward improving the economy and 

efficiency of the logistics support systems and developing a more 

coordinated and cohesive logistics operation.



In December 2002, we reported that DOD had restructured its logistics 

improvement initiatives and, as a part of this effort, had discontinued 

its strategic planning initiative.[Footnote 50] In implementing its 

2001 Future Logistics Enterprise, DOD is focusing its efforts over the 

next few years in six key areas:



* Pursue depot maintenance public-private partnerships to achieve 

greater facility utilization, realize greater investment in organic 

depots, and reduce cost by empowering DOD depots to develop 

partnerships with the commercial sector.



* Use condition-based maintenance to increase the operational 

availability and readiness of weapon systems by improving the servicesí 

ability to predict failures and maintenance requirements using more 

accurate condition data, thereby reducing unnecessary maintenance.



* Adopt a total life-cycle approach to weapon system management by 

reengineering the life-cycle management of DOD systems to achieve 

effective performance and optimum readiness while reducing operations 

and support costs.



* Pursue end-to-end distribution to streamline supply support to the 

warfighter by providing materiel, including items to be shipped, from 

the source of supply or point of origin to the point of use or 

disposal, as defined by the combatant commander.



* Establish an executive agents determination process to assign 

responsibility to a service or defense agency for providing common 

services and improve planning to ensure that the needed resources 

are available to support the responsible agent.



* Enhance enterprise integration by building on service and Defense 

Logistics Agency software integration efforts and reduce information 

system support costs by streamlining and changing current DOD business 

processes and practices so that they are supported by commercially 

available software.



Many details for implementing the Future Logistics Enterprise 

initiatives have yet to be worked out. During our review[Footnote 51] 

of the current status of this effort, we found that the new initiatives 

should result in improvements to the quality of logistics support in 

the areas addressed. However, the new initiatives are not comprehensive 

(for example, they do not address critical shortages in strategic 

mobility assets), and they do not continue prior efforts in developing 

and implementing a coordinated and comprehensive logistics 

strategic plan.



We continue to believe that the development and implementation of a 

comprehensive and coordinated logistics support planning process, as 

we and the Congress have encouraged in the past, is essential to DODís 

ability to improve the quality and the cost-effectiveness of all 

logistics support processes, systems, and operations, especially those 

pertaining to supply support.



Inventory Management Continues to Be High Risk:



Since 1990, we have consistently identified DODís management of 

secondary inventories (spare and repair parts, clothing, medical 

supplies, and other items to support the operating forces) as a high-

risk area because levels of inventory were too high and management 

systems and procedures were ineffective and wasteful. Many of these 

same weaknesses regarding excess inventories and the lack of economy, 

efficiency, and effectiveness in the departmentís inventory management 

practices still exist today.



As discussed in the previous section, the long-term solution to these 

problems necessitates that DOD reengineer its entire logistics 

operations, to include the development of a long-range strategic vision 

and a departmentwide, coordinated approach for logistics management. In 

the short term, however, we have made a number of recommendations in 

recent years directed at correcting specific long-standing weaknesses 

in the supply system. Specifically, we recommended that DOD (1) reduce 

excess inventories, (2) eliminate material purchases for which no valid 

requirement exists, (3) establish better controls and visibility over 

material shipped to and from military activities, (4) address key spare 

parts shortages, (5) better track how it spends its funds for spare 

parts, (6) correct information systems weaknesses, and (7) adopt 

specific industry-proven best practices for improving inventory 

management. DOD concurred with our recommendation to develop an 

overarching strategy, and it is planning to reengineer and transform 

its logistics system.



While figure 11 shows that DODís inventory value for the last 10 years 

has generally declined, we reported that almost half of its 

$63.3 billion inventory as of September 2001 exceeded war reserve or 

current operating requirements. DOD had this excess partly because 

demands decreased, fluctuated, or did not materialize; items became 

obsolete or were phased out of service; and some of the initial 

requirements and demand forecasts were not accurate. We reported in May 

2001, however, that DOD does not have a sound basis for determining 

which of these excess items should be retained or disposed of. Several 

military services had developed models for making this determination 

but were not using them. Consequently, the services cannot guarantee 

that they are retaining the right items or the right amount. We also 

reported that DODís quantities of excess ammunition continue to 

increase. Specifically, we reported in April 2001 that excess 

ammunition had increased from 354,000 tons in 1993 to 493,000 tons 

in 2000.



Figure 11: Value of DODís Secondary Inventory, Fiscal Years 1992-2001:



[See PDF for image] - graphic text:



Note: Based on DODís latest acquisition cost method of value; data 

taken from DODís Supply System Inventory Report, September 30, 2001.



[End of figure] - graphic text:



As of September 30, 2001, DOD records showed that the department had 

inventory on order valued at about $1.6 billion that would not have 

been ordered based on current requirements. We have issued several 

reports in the past few years highlighting weaknesses in DODís 

requirements determination processes for materials and its procedures 

for canceling orders for items that are no longer needed. For example, 

we reported in May 2001 that the Army was unable to accurately identify 

its requirements for war reserve spare parts because (1) it was not 

using the best available data concerning the rate at which spares would 

be consumed during wartime and (2) a potential mismatch existed between 

how the Army determines spare parts requirements for war reserves and 

how the Army plans to repair equipment on the battlefield. We also 

reported in April 2001 that because DOD had not resolved a number of 

key issues in its requirements determination process for ammunition, 

the servicesí munitions requirements were uncertain, which could affect 

munitions planning, programming, budgeting, and industrial production 

base decisions.



We reported similarly in May 2001 and July 2002 that the Army still did 

not use current data from industry for assessing wartime spare parts 

requirements and based its requirements determination on historical 

parts procurement data. DOD partially concurred with our findings and 

recommendations. We also reported in June 2000 that DOD was unable 

to efficiently and effectively cancel orders for material it no longer 

needed because the military services do not (1) use the same criteria 

for determining the amount of excess inventory on order that should be 

canceled, (2) consistently use their computer models for determining 

whether it is more economical to cancel orders or not, and (3) review 

orders of excess inventory for cancellation frequently enough to avoid 

contractor cancellation costs. We recommended that DOD review and 

improve its processes for identifying and canceling excess inventory 

on order.



One of DODís more serious and long-standing inventory management 

weaknesses that we have been reporting on for over a decade is DODís 

inability to maintain adequate accountability over material being 

shipped between contractor facilities and DOD activities or between DOD 

activities. We reported in July 2002, for example, that the Air Force 

had not properly controlled or maintained effective accountability over 

material reportedly valued at about $567 million that had been shipped 

to contractors for repair or use in the repair process.[Footnote 52] 

Specifically, contractors receiving shipped material had not properly 

recorded the receipts or routinely reported shipment discrepancies.



Furthermore, Air Force procedures for following up on shipments 

that contractors had not confirmed as received were ineffective, 

leaving the status of the shipments uncertain. We recommended that 

the Air Force strengthen its procedures for controlling shipments of 

material and following up on shipment discrepancies. We have reported 

similar weaknesses regarding the shipment of chemical and biological 

defense equipment that could affect the readiness of overseas Air Force 

medical units to operate in a chemically contaminated environment. In 

addition, we found weaknesses in the Armyís and the Navyís procedures 

for maintaining visibility over shipped material and following up on 

shipment discrepancies.



The Navy is to be commended for reconciling many of its shipment 

discrepancies in response to our March 1999 report and, as a result, 

bringing about $2.5 billion worth of material back under its visibility 

and control.



In January 2002, we reported that, because of control weaknesses over 

excess DOD material, the Military Affiliate Radio System, the Civil Air 

Patrol, and the 12th Congressional Regional Equipment Center had 

obtained a reported $34 million worth of items between 1995 and 2000 

that they were not eligible to receive. Many of these included items 

whose use, storage, and disposal were restricted because of military 

technology/applications or items that were hazardous to public health 

and safety. We made several recommendations aimed at enhancing internal 

controls over DODís disposal of its excess property and the subsequent 

accountability for the property. DOD generally concurred with our 

recommendations.



Although much of DODís inventory is excess to current requirements, DOD 

has experienced equipment readiness problems because of shortages of 

key spare parts. We reported in three separate reports in 2001 that the 

Army, the Navy, and the Air Force were all experiencing operations 

and maintenance problems because of a lack of key spare parts, 

specifically aviation spares. While these shortages were caused by a 

number of factors, the primary ones that the services cited included 

underestimated demands for items, delays in the repair process, 

unreliability of parts, inability to obtain parts for aging weapon 

systems, and contracting problems.



As shown in table 1, the shortages of key spare parts have directly 

contributed to readiness problems. Specifically, table 1 highlights the 

nonmission capable rates due to supply problems for selected weapon 

systems. Each of the services has a number of initiatives planned or 

underway to address these shortages, and we are continuing to monitor 

their efforts.



Table 1: Percentage Rates at Which Selected Aircraft Were Reported as 

Not Mission Capable due to Supply Problems:



Fiscal year: 1996; Reported not mission capable rates due to supply 

problems: Air Force C-5 aircraft: 15.6%; Reported not mission capable 

rates due to supply problems: Navy F-14D aircraft: 10.0%; Reported not 

mission capable rates due to supply problems: All Navy aircraft: 12.5%.



Fiscal year: 1997; Reported not mission capable rates due to supply 

problems: Air Force C-5 aircraft: 15.2; Reported not mission capable 

rates due to supply problems: Navy F-14D aircraft: 11.7; Reported not 

mission capable rates due to supply problems: All Navy aircraft: 12.4.



Fiscal year: 1998; Reported not mission capable rates due to supply 

problems: Air Force C-5 aircraft: 16.8; Reported not mission capable 

rates due to supply problems: Navy F-14D aircraft: 12.4; Reported not 

mission capable rates due to supply problems: All Navy aircraft: 12.9.



Fiscal year: 1999; Reported not mission capable rates due to supply 

problems: Air Force C-5 aircraft: 17.3; Reported not mission capable 

rates due to supply problems: Navy F-14D aircraft: 11.1; Reported not 

mission capable rates due to supply problems: All Navy aircraft: 12.1.



Fiscal year: 2000; Reported not mission capable rates due to supply 

problems: Air Force C-5 aircraft: 18.1; Reported not mission capable 

rates due to supply problems: Navy F-14D aircraft: 7.6; Reported not 

mission capable rates due to supply problems: All Navy aircraft: 12.9.



Source: Navy and Air Force.



Note: GAOís analysis of Navy and Air Force data based on work completed 

in July 2001.



[End of table]



Another contributing factor to shortages of key spare parts is 

defective parts received from contractors. We reported in August 2001 

that the Navy was not adequately monitoring or reporting defective 

spare parts and that, as a result, contractors were not fully 

reimbursing it for these defective items. We attributed these 

weaknesses, to a large extent, to a lack of management attention, 

limited training and incentives to report deficiencies, and competing 

priorities for staff resources.



We reported in May 2001 that, because of the shortages of key spares 

and the related impact on readiness, each of the services had resorted 

to extensively cannibalizing parts from other equipment to obtain 

needed spares. We pointed out that cannibalizations increased 

maintenance costs by increasing mechanicsí workload, adversely 

affecting morale and personnel retention, and sometimes taking 

expensive aircraft out of service for long periods of time. We made a 

number of recommendations aimed at establishing standardized, 

comprehensive, and reliable cannibalization data collection procedures 

and at developing strategies to reduce the amount of time spent on 

cannibalizations. DOD concurred with our recommendations and stated 

that consistent, complete, and accurate reporting by the services of 

all types of maintenance actions, not just cannibalizations, is 

essential to effective management oversight of logistics 

support processes.



In an attempt to alleviate these spares shortages, the Congress 

provided DOD with a $1.1 billion supplemental appropriation in fiscal 

year 1999 specifically earmarked for spare parts purchases. However, 

DODís financial reports do not provide the Congress with reasonable 

assurance about the amount of funds being spent on spare parts. 

Specifically, we reported in June 2001 that the $1.1 billion earmarked 

for spare parts in fiscal year 1999 had been placed in the military 

servicesí operation and maintenance accounts and that DOD did not 

separately track the use of these funds. Consequently, the funds could 

have been used for other purposes. We recommended that DOD annually 

develop detailed financial management information on the uses of spare 

parts funding. In an October 2002 follow-up report, we reported that 

the financial reports that DOD had submitted in response to our earlier 

recommendation did not provide an accurate and complete picture of 

spare parts funding because the reports generally presented estimated, 

not actual, expenditures by the military services. DOD presented these 

estimates, which were derived from various service computations, 

modeling, and historical data, because the services do not have 

reliable expenditure data or a central tracking system to compile the 

needed information on their actual spending by commodity.



We recommended that DOD (1) improve its guidance for preparing these 

reports to ensure that the services provide actual and complete data on 

spare parts spending and (2) require the services to fully comply with 

its reporting guidance. In written comments, DOD stated that to have a 

comprehensive picture of spare parts spending, information on spare 

parts purchased with working capital funds and other investment 

accounts needs to be reported. DOD offered to work with the Congress to 

facilitate this kind of analysis. In addition, DOD agreed that the 

services need to explain deviations between programmed and actual 

spending but believed that reporting spare parts quantities purchased, 

as required by the financial management regulation, would not add 

significant value to the information being provided to the Congress 

because of the wide range in the unit costs for parts.[Footnote 53]



One primary factor contributing to DODís inventory management 

weaknesses is its outdated and ineffective management information 

systems. While DOD has a number of initiatives planned or underway to 

modernize its supply support management information systems, it lacks 

an overall information technology enterprise architecture to guide and 

constrain its investments. We reported in January 2002, for example, 

that the Defense Logistics Agency lacks (1) a mature software 

acquisition process across the agency and (2) a software process 

improvement program to effectively strengthen its corporate software 

acquisition processes. We also reported in March 2002 that because 

information technology investment has only recently become an area of 

management focus and commitment at the agency, the agencyís ability to 

effectively manage investments is limited. Consequently, we continue to 

question the agencyís ability to make informed and prudent investment 

decisions regarding information technology. We recommended that the 

agency develop a well-defined process improvement plan and controls to 

ensure the establishment of a mature investment management capability. 

DOD generally concurred with our recommendation.



We have issued a number of reports in recent years recommending 

that DOD apply commercial best practices to its logistics operations. 

We reported in February 2002, for example, that it estimates a 

$59-billion-a-year expenditure for logistics support to operate and 

sustain weapon systems, but it believes that better logistics support 

practices could reduce these costs by as much as 20 percent. In 

March 2002, we issued a Best Practices Executive Guide, which described 

fundamental practices and procedures used in the private sector to 

achieve consistent and accurate physical counts of inventory and 

related property. DOD responded that it is attempting to improve its 

logistics support through its new Future Logistics 

Enterprise Initiative.



Key Actions Needed:



Our recent reports have consistently highlighted the need for DOD to 

reengineer its logistics programs and apply best commercial practices 

to its logistics operations as a long-term solution to its inventory 

management weaknesses. In these reports, we recommended that DOD 

develop an overarching plan that integrates the individual service and 

defense agency logistics reengineering plans to include an investment 

strategy for funding reengineering initiatives and details for how DOD 

plans to achieve its final logistics system end state. DOD recognizes 

its inventory management weaknesses and has begun corrective actions. 

In the September 2001 Quadrennial Defense Review, the Secretary of 

Defense also highlighted the need to transform the U.S. military and 

the DOD establishment. The Secretaryís report stated that, without 

change, the current DOD program will only become more expensive to 

maintain over time. In testimony delivered in June 2002 before the 

House Subcommittee on National Security, Veterans Affairs, and 

International Relations, Committee on Government Reform, we presented 

two case studies that clearly demonstrated the need for DOD to reform 

its business operations. In this testimony, we provided our views of 

the underlying or root cause of DODís long-standing inability to 

successfully reform its business operations, including a lack of 

sustained top-level leadership, cultural resistance to change, and 

military service parochialism. In addition, we identified the need for 

DOD to approach its broad array of management challenges using an 

integrated, enterprisewide approach.



In the short term, we recommend that DOD address the long-standing 

weaknesses that are limiting the economy and efficiency of its 

logistics operations. Specifically, we recommend that DOD establish 

better controls and visibility over material shipments, take actions to 

address shortages of key spare parts, better track how it is spending 

its funds for spare parts, and develop a departmentwide strategy for 

information technology investment.



Sustained Visible Leadership and Commitment to Reform Is Necessary:



In spite of numerous initiatives and plans to transform DODís business 

processes, much remains to be done as evidenced by the six management 

areas that are included on our high-risk list. Over the years, various 

administrations have tried to overcome these challenges, with varying 

degrees of success. At the same time, our work over the years, most 

prominently in the Performance and Accountability and High-Risk Series, 

has amply documented that many federal agencies, including DOD, 

suffer from a range of long-standing management problems and a lack of 

attention to basic stewardship responsibilities. Successfully 

addressing these challenges will require concerted action and sustained 

top-level attention over a period of years that span from one 

administration to the next. The common thread that is needed to tie 

DODís efforts together is sound strategic planning that recognizes the 

integrated nature of DODís management processes and related solutions; 

the importance of continuity in leadership to achieve process 

improvements; and an agreement between the executive and legislative 

branches of government on planned actions and desired results. As we 

discussed earlier, one option for DOD to address the challenges it 

faces would be to establish a full-time chief management officer 

position with long-term ďgood governmentĒ responsibilities that are 

professional and nonpartisan in nature. These responsibilities, 

described in a special GAO Roundtable report,[Footnote 54] 

could include:



* strategic planning,



* organizational alignment,



* core values stewardship,



* human capital strategy,



* performance management,



* communications and information technology management,



* financial management,



* acquisition management,



* knowledge management,



* matrix management, and:



* change management.



DOD, with its long-standing management problems in key operational 

areas, could be a good first candidate, using its risk-based approach, 

to try such a concept.



[End of section]



GAO Contacts:



Subjects covered in this report: Strengthen strategic planning and 

budgeting to achieve desired mission outcomes; Contact persons: Sharon 

L. Pickup, Director, Defense Capabilities and Management; (202) 512-

9619; pickups@gao.gov.



Subjects covered in this report: Hire, support, and retain military and 

civilian personnel with the skills to meet mission needs; Contact 

persons: Derek B. Stewart, Director, Defense Capabilities and 

Management; (202) 512-5559; stewartd@gao.gov.



Subjects covered in this report: Overcome support infrastructure 

inefficiencies to reduce costs and improve operations; Contact persons: 

Barry W. Holman, Director, Defense Capabilities and Management; (202) 

512-5581; holmanb@gao.gov.



Subjects covered in this report: Confront pervasive, decades-old 

financial management problems to improve financial accountability; 

Contact persons: Gregory D. Kutz, Director, Financial Management and 

Assurance; Defense, State, and NASA Financial Management; (202) 512-

9505; kutzg@gao.gov.



Subjects covered in this report: Effectively manage information 

technology investments; Contact persons: Joel C. Willemssen, Managing 

Director; Information Technology; (202) 512-6408; willemssenj@gao.gov.



Subjects covered in this report: Improve DODís ability to acquire 

weapon systems in a cost-effective and timely way; ; Improve processes 

and controls to reduce contract risk; Contact persons: Jack L. Brock, 

Jr., Managing Director; Acquisition and Sourcing Management; (202) 512-

4841; brockj@gao.gov.



Subjects covered in this report: Provide logistics support that 

responds to the needs of the warfighter at an affordable cost; Contact 

persons: William M. Solis, Director, Defense Capabilities and 

Management; (202) 512-8365; solisw@gao.gov.



[End of table]



[End of section]



Related GAO Products:



Strategic Planning:



Quadrennial Defense Review: Future Review Can Benefit from 

Better Analysis and Changes in Timing and Scope. GAO-03-13. 

Washington, D.C.: November 4, 2002.



Department of Defense: Status of Achieving Outcomes and 

Addressing Major Management Challenges. GAO-01-783. Washington, D.C.: 

June 25, 2001.



Major Management Challenges and Program Risks: Department of Defense. 

GAO-01-244. Washington, D.C.: January 2001.



Future Years Defense Program: Risks in Operation and Maintenance and 

Procurement Programs. GAO-01-33. Washington, D.C.: October 5, 2000.



Force Structure: Air Force Expeditionary Concept Offers Benefits but 

Effects Should Be Assessed. GAO/NSIAD-00-201. Washington, D.C.: 

August 15, 2000.



Force Structure: Army Is Integrating Active and Reserve Combat Forces, 

but Challenges Remain. GAO/NSIAD-00-162. Washington, D.C.: 

July 18, 2000.



Contingency Operations: Providing Critical Capabilities Poses 

Challenges. GAO/NSIAD-00-164. Washington, D.C.: July 6, 2000.



Observations on the Department of Defenseís Fiscal Year 1999 

Performance Report and Fiscal Year 2001 Performance Plan. GAO/NSIAD-00-

188R. Washington, D.C.: June 30, 2000.



Future Years Defense Program: Funding Increase and Planned Savings 

in Fiscal Year 2000 Program Are at Risk. GAO/NSIAD-00-11. 

Washington, D.C.: November 22, 1999.



Military Operations: Impact of Operations Other Than War on the 

Services Varies. GAO/NSIAD-99-69. Washington, D.C.: May 24, 1999.



Human Capital:



Military Personnel: Active Duty Benefits Reflect Changing Demographics, 

but Opportunities Exist to Improve. GAO-02-935. Washington, D.C.: 

September 18, 2002.



Reserve Forces: DOD Actions Needed to Better Manage Relations 

between Reservists and Their Employers. GAO-02-608. Washington, D.C.: 

June 13, 2002.



Military Personnel: Active Duty Benefits Reflect Changing Demographics, 

but Continued Focus Needed. GAO-02-557T. Washington, D.C.: April 11, 

2002.



Defense Infrastructure:



Defense Infrastructure: Most Recruit Training Barracks Have Significant 

Deficiencies. GAO-02-786. Washington, D.C.: June 13, 2002.



Military Base Closures: Progress in Completing Actions from Prior 

Realignments and Closures. GAO-02-433. Washington, D.C.: April 5, 2002.



Military Base Closures: DODís Updated Net Savings Estimate Remains 

Substantial. GAO-01-971. Washington D.C.: July 31, 2001.



Financial Management:



Travel Cards: Control Weaknesses Leave Army Vulnerable to Potential 

Fraud and Abuse. GAO-02-863T. Washington, D.C.: July 17, 2002.



Purchase Cards: Control Weaknesses Leave Army Vulnerable to Fraud, 

Waste, and Abuse. GAO-02-732. Washington, D.C.: June 27, 2002.



DOD Management: Examples of Inefficient and Ineffective Business 

Processes. GAO-02-873T. Washington, D.C.: June 4, 2002.



DOD Financial Management: Important Steps Underway but Reform Will 

Require a Long-Term Commitment. GAO-02-784T. Washington, D.C.: June 4, 

2002.



DOD Financial Management: Integrated Approach, Accountability, 

Transparency, and Incentives Are Keys to Effective Reform. GAO-02-537T. 

Washington, D.C.: March 20, 2002.



Purchase Cards: Continued Control Weaknesses Leave Two Navy Units 

Vulnerable to Fraud and Abuse. GAO-02-506T. Washington, D.C.: 

March 13, 2002.



DOD Financial Management: Integrated Approach, Accountability, 

Transparency, and Incentives Are Keys to Effective Reform. GAO-02-497T. 

Washington, D.C.: March 6, 2002.



Canceled DOD Appropriations: $615 Million of Illegal or Otherwise 

Improper Adjustments. GAO-01-697. Washington, D.C.: July 26, 2001.



Information Management and Technology:



Information Technology: Greater Use of Best Practices Can Reduce Risk 

in Acquiring Defense Health Care System. GAO-02-345. Washington, D.C.: 

September 26, 2002.



DOD Systems Modernization: Continued Investment in the Standard 

Procurement System Has Not Been Justified. GAO-01-682. 

Washington, D.C.: July 31, 2002.



Information Security: Corps of Engineers Making Improvements, but 

Weaknesses Continue. GAO-02-589. Washington, D.C.: June 10, 2002.



Information Technology: Defense Information Systems Agency Can Improve 

Investment Planning and Management Controls. GAO-02-50. Washington, 

D.C.: March 15, 2002.



Information Technology: DLA Needs to Strengthen Its Investment 

Management Capability. GAO-02-314. Washington, D.C.: March 15, 2002.



Information Technology: Inconsistent Software Acquisition Processes 

at the Defense Logistics Agency Increase Project Risks. GAO-02-9. 

Washington, D.C.: January 10, 2002.



Information Technology: DLA Should Strengthen Business Systems 

Modernization Architecture and Investment Activities. GAO-01-631. 

Washington, D.C.: June 29, 2001.



Information Technology: Architecture Needed to Guide Modernization of 

DODís Financial Operations. GAO-01-525. Washington, D.C.: May 17, 2001.



DOD Information Technology: Software and Systems Process Improvement 

Programs Vary in Use of Best Practices. GAO-01-116. Washington, D.C.: 

March 30, 2001.



Information Security: Challenges to Improving DODís Incident Response 

Capabilities. GAO-01-341. Washington, D.C.: March 29, 2001.



Acquisition Reform:



Missile Defense: Knowledge-Based Decision Making Needed to Reduce Risks 

in Developing Airborne Laser. GAO-02-631. Washington, D.C.: July 12, 

2002.



Tactical Aircraft: F-22 Delays Indicate Initial Production Rates Should 

Be Lower to Reduce Risks. GAO-02-298. Washington, D.C.: March 5, 2002.



Defense Acquisitions: Steps to Improve the Crusader Programís 

Investment Decisions. GAO-02-201. Washington, D.C.: February 25, 2002.



Joint Warfighting: Attacking Time-Critical Targets. GAO-02-204R. 

Washington, D.C.: November 30, 2001.



Joint Strike Fighter Acquisition: Mature Critical Technologies Needed 

to Reduce Risks. GAO-02-39. Washington, D.C.: October 19, 2001.



Defense Manufacturing Technology Program: More Joint Projects 

and Tracking of Results Could Benefit Program. GAO-01-943. 

Washington, D.C.: September 28, 2001.



Defense Acquisitions: Actions to Improve Navy SPAWAR Low-Rate Initial 

Production Decisions. GAO-01-735. Washington, D.C.: August 7, 2001.



Combat Identification Systems: Strengthened Management Efforts 

Needed to Ensure Required Capabilities. GAO-01-632. Washington, D.C.: 

June 25, 2001.



Defense Acquisitions: Higher Level DOD Review of Antiarmor Mission and 

Munitions Is Needed. GAO-01-607. Washington, D.C.: June 8, 2001.



Defense Acquisitions: Comanche Program Objectives Need to Be Revised to 

More Achievable Levels. GAO-01-450. Washington, D.C.: June 7, 2001.



Defense Acquisitions: Space-Based Infrared System-low at Risk 

of Missing Initial Deployment Date. GAO-01-6. Washington, D.C.: 

February 28, 2001.



Defense Acquisitions: Readiness of the Marine Corpsí V-22 Aircraft for 

Full-Rate Production. GAO-01-369R. Washington, D.C.: February 20, 2001.



Best Practices:



Best Practices: Capturing Design and Manufacturing Knowledge Early 

Improves Acquisition Outcomes. GAO-02-701. Washington, D.C.: 

July 15, 2002.



Defense Acquisitions: DOD Faces Challenges in Implementing Best 

Practices. GAO-02-469T. Washington, D.C.: February 27, 2002.



Best Practices: Better Matching of Needs and Resources Will Lead to 

Better Weapon System Outcomes. GAO-01-288. Washington, D.C.: 

March 8, 2001.



Best Practices: A More Constructive Test Approach Is Key to Better 

Weapon System Outcomes. GAO/NSIAD-00-199. Washington, D.C.: 

July 31, 2000.



Contracting:



Defense Acquisitions: DOD Has Implemented Section 845 Recommendations 

but Reporting Can Be Enhanced. GAO-03-150. Washington, D.C.: October 9, 

2002.



Contract Management: Guidance Needed for Using Performance-Based 

Service Contracting. GAO-02-1049. Washington, D.C.: September 23, 2002.



Travel Cards: Control Weaknesses Leave Army Vulnerable to Potential 

Fraud and Abuse. GAO-02-863T. Washington, D.C.: July 17, 2002.



Purchase Cards: Control Weaknesses Leave Army Vulnerable to Fraud, 

Waste, and Abuse. GAO-02-844T. Washington, D.C.: July 17, 2002.



VA and Defense Health Care: Potential Exists for Savings through 

Joint Purchasing of Medical and Surgical Supplies. GAO-02-872T. 

Washington, D.C.: June 26, 2002.



DOD Contract Management: Overpayments Continue and Management and 

Accounting Issues Remain. GAO-02-635. Washington, D.C.: May 30, 2002.



Acquisition Workforce: Department of Defenseís Plans to Address 

Workforce Size and Structure Challenges. GAO-02-630. Washington, D.C.: 

April 30, 2002.



Contract Management: DOD Needs Better Guidance on Granting Waivers for 

Certified Cost or Pricing Data. GAO-02-502. Washington, D.C.: April 

22, 2002.



Best Practices: Taking A Strategic Approach Could Improve DODís 

Acquisition of Services. GAO-02-230. Washington, D.C.: January 18, 

2002.



DOD Systems Modernization: Continued Investment in the Standard 

Procurement System Has Not Been Justified. GAO-01-682. 

Washington, D.C.: July 31, 2001.



DOD and VA Pharmacy: Progress and Remaining Challenges in Jointly 

Buying and Mailing Out Drugs. GAO-01-588. Washington, D.C.: 

May 25, 2001.



Defense Health Care: Lessons Learned from TRICARE Contracts and 

Implications for the Future. GAO-01-742T. Washington, D.C.: May 17, 

2001.



Contract Management: Not Following Procedures Undermines Best Pricing 

Under GSAís Schedule. GAO-01-125. Washington, D.C.: November 28, 2000.



Human Capital: A Self-Assessment Checklist for Agency Leaders. GAO/OCG-

00-14G. Washington, D.C.: September 2000.



Acquisition Reform: DODís Guidance on Using Section 845 Agreements 

Could Be Improved. GAO/NSIAD-00-33. Washington, D.C.: April 7, 2000.



Contract Management: Few Competing Proposals for Large DOD Information 

Technology Orders. GAO/NSIAD-00-56. Washington, D.C.: March 20, 2000.



Defense Health Care: Claims Processing Improvements Are Under Way but 

Further Enhancements Are Needed. GAO/HEHS-99-128. Washington, D.C.: 

August 23, 1999.



Contract Management: DOD Pricing of Commercial Items Needs Continued 

Emphasis. GAO/NSIAD-99-90. Washington, D.C.: June 24, 1999.



Logistics Reengineering:



Defense Management: New DOD Management Reform Program Still Evolving. 

GAO-03-58. Washington, D.C.: December 15, 2002.



Defense Inventory: Better Reporting on Spare Parts Spending Will 

Enhance Congressional Oversight. GAO-03-18. Washington, D.C.: 

October 24, 2002.



Defense Logistics: Improving Customer Feedback Program Could Enhance 

DLAís Delivery of Services. GAO-02-776. Washington, D.C.: September 9, 

2002.



Defense Inventory: Improved Industrial Base Assessments for Army 

War Reserve Spares Could Save Money. GAO-02-650. Washington, D.C.: July 

12, 2002.



Defense Inventory: Air Force Needs to Improve Control Over Shipments to 

Repair Contractors. GAO-02-617. Washington, D.C.: July 1, 2002.



DOD Management: Examples of Inefficient and Ineffective Business 

Processes. GAO-02-873T. Washington, D.C.: June 25, 2002.



Defense Inventory: Trends in Servicesí Spare Parts Purchased from the 

Defense Logistics Agency. GAO-02-452. Washington, D.C.: April 30, 2002.



Information Technology: DLA Needs to Strengthen Its Investment 

Management Capability. GAO-02-314. Washington, D.C.: March 15, 2002.



Defense Logistics: Opportunities to Improve the Armyís and Navyís 

Decision-Making Process for Weapons Systems Support. GAO-02-306. 

Washington, D.C.: February 28, 2002.



Defense Inventory: Control Weaknesses Leave Restricted and Hazardous 

Excess Property Vulnerable to Improper Use, Loss, and Theft. GAO-02-75. 

Washington, D.C.: January 25, 2002.



Military Aircraft: Services Need Strategies to Reduce Cannibalizations. 

GAO-02-86. Washington, D.C.: November 21, 2001.



Defense Logistics: Actions Needed to Overcome Capability Gaps in the 

Public Depot System. GAO-02-105. Washington, D.C.: October 12, 2001.



Defense Logistics: Strategic Planning Weaknesses Leave Economy, 

Efficiency, and Effectiveness of Future Support Systems at Risk. 

GAO-02-106. Washington, D.C.: October 11, 2001.



Defense Logistics: Air Force Lacks Data to Assess Contractor Logistics 

Support Approaches. GAO-01-618. Washington, D.C.: September 7, 2001.



Defense Inventory: Navy Spare Parts Quality Deficiency Reporting 

Programs Needs Improvement. GAO-01-923. Washington, D.C.: 

August 16, 2001.



Army Inventory: Parts Shortages Are Impacting Operations and 

Maintenance Effectiveness. GAO-01-772. Washington, D.C.: July 31, 2001.



Navy Inventory: Parts Shortages Are Impacting Operations and 

Maintenance Effectiveness. GAO-01-771. Washington, D.C.: July 31, 2001.



Air Force Inventory: Parts Shortages Are Impacting Operations and 

Maintenance Effectiveness. GAO-01-587. Washington, D.C.: June 27, 2001.



Defense Inventory: Information on the Use of Spare Parts Funding Is 

Lacking. GAO-01-472. Washington, D.C.: June 11, 2001.



Defense Inventory: Approach for Deciding Whether to Retain or 

Dispose of Items Needs Improvement. GAO-01-475. Washington, D.C.: 

May 25, 2001.



Military Aircraft: Cannibalizations Adversely Affect Personnel and 

Maintenance. GAO-01-93T. Washington, D.C.: May 22, 2001.



Defense Inventory: Army War Reserve Spare Parts Requirements Are 

Uncertain. GAO-01-425. Washington, D.C.: May 10, 2001.



Defense Inventory: Process for Canceling Inventory Orders Needs 

Improvement. GAO/NSIAD-00-160. Washington, D.C.: June 30, 2000.



Defense Logistics: Actions Needed to Enhance Success of Reengineering 

Initiatives. GAO/NSIAD-00-89. Washington, D.C.: June 23, 2000.



Defense Inventory: Opportunities Exist to Expand the Use of Defense 

Logistics Agency Best Practices. GAO/NSIAD-00-30. Washington, D.C.: 

January 26, 2000.



[End of section]



Performance and Accountability and High-Risk Series:



Major Management Challenges and Program Risks: A Governmentwide 

Perspective. GAO-03-95.



Major Management Challenges and Program Risks: Department of 

Agriculture. GAO-03-96.



Major Management Challenges and Program Risks: Department of Commerce. 

GAO-03-97.



Major Management Challenges and Program Risks: Department of Defense. 

GAO-03-98.



Major Management Challenges and Program Risks: Department of Education. 

GAO-03-99.



Major Management Challenges and Program Risks: Department of Energy. 

GAO-03-100.



Major Management Challenges and Program Risks: Department of Health and 

Human Services. GAO-03-101.



Major Management Challenges and Program Risks: Department of Homeland 

Security. GAO-03-102.



Major Management Challenges and Program Risks: Department of Housing 

and Urban Development. GAO-03-103.



Major Management Challenges and Program Risks: Department of the 

Interior. GAO-03-104.



Major Management Challenges and Program Risks: Department of Justice. 

GAO-03-105.



Major Management Challenges and Program Risks: Department of Labor. 

GAO-03-106.



Major Management Challenges and Program Risks: Department of State. 

GAO-03-107.



Major Management Challenges and Program Risks: Department of 

Transportation. GAO-03-108.



Major Management Challenges and Program Risks: Department of the 

Treasury. GAO-03-109.



Major Management Challenges and Program Risks: Department of Veterans 

Affairs. GAO-03-110.



Major Management Challenges and Program Risks: U.S. Agency for 

International Development. GAO-03-111.



Major Management Challenges and Program Risks: Environmental Protection 

Agency. GAO-03-112.



Major Management Challenges and Program Risks: Federal Emergency 

Management Agency. GAO-03-113.



Major Management Challenges and Program Risks: National Aeronautics and 

Space Administration. GAO-03-114.



Major Management Challenges and Program Risks: Office of Personnel 

Management. GAO-03-115.



Major Management Challenges and Program Risks: Small Business 

Administration. GAO-03-116.



Major Management Challenges and Program Risks: Social Security 

Administration. GAO-03-117.



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

GAO-03-118.



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



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



High-Risk Series: Protecting Information Systems Supporting the Federal 

Government and the Nationís Critical Infrastructures. GAO-03-121.



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



FOOTNOTES



[1] The first Quadrennial Defense Review was submitted to the Congress 

in May 1997.



[2] The Congress first mandated the 1997 Quadrennial Defense Review in 

the National Defense Authorization Act for Fiscal Year 1997, and the 

National Defense Authorization Act for Fiscal Year 2000 created a 

permanent requirement for DOD to conduct such a review every 4 years. 

The legislation requires DOD to report on various topics, including the 

type of force structure best suited to implement the defense strategy, 

the effect of new technologies on force structure, and the key 

assumptions used in the review.



[3] U.S. General Accounting Office, Quadrennial Defense Review: Future 

Reviews Can Benefit from Better Analysis and Changes in Timing and 

Scope, GAO-03-13 (Washington, D.C.: Nov. 4, 2002).



[4] We reported that DOD discussed the importance of human resources in 

achieving DODís performance objectives; summarized how DODís 

performance metrics responded to each of the eight management 

challenges; and more effectively presented information data 

verification, presentation, and content in the fiscal year 2000 

performance report.



[5] At the time of our report, the selected outcomes were as follows: 

(1) technological superiority is maintained in key warfighting 

capabilities; (2) U.S. military forces are adequate in number, well 

qualified, and highly motivated; (3) combat readiness is maintained at 

desired levels; (4) infrastructure and operating procedures are more 

efficient and cost-effective; (5) availability and/or use of illegal 

drugs are reduced; and (6) fewer erroneous payments are made to 

contractors.



[6] Results for fiscal year 2001 were to use standards established by a 

February 2000 performance plan submitted to the Congress with the 

Clinton administrationís last budget.



[7] U.S. General Accounting Office, Defense Budget: Need to Strengthen 

Guidance and Oversight of Contingency Operation Costs, GAO-02-450 

(Washington, D.C.: May 21, 2002).



[8] Department of Defense, Transforming Department of Defense Financial 

Management: A Strategy for Change (Washington, D.C.: Apr. 13, 2001). 

Recognizing the need for improved financial data to effectively manage 

DODís vast operations, the Secretary of Defense commissioned an 

independent study to recommend a strategy for financial 

management improvements.



[9] Public Law 107-314, December 2, 2002.



[10] Benefits represent the indirect compensation above and beyond a 

servicememberís basic pay. The U.S. Bureau of Labor Statistics defines 

a benefit as ďnon-wage compensation provided to employees.Ē We use the 

term to include such benefits as retirement, health care, and 

educational assistance, as well as certain programs and services that 

support servicemembers and their families, including child care, 

spousal employment assistance, and relocation assistance.



[11] Our estimate may understate the total amount appropriated for 

military compensation because funds for certain benefits are aggregated 

into higher-level budget categories and therefore are not visible in 

the budget.



[12] This figure includes enlisteeís pay and allowances as well as the 

cost of the servicesí recruiting and training infrastructure.



[13] Pub. L. 106-65, sec. 641, Oct. 5, 1999; Pub. L. 106-398, sec. 752, 

Oct. 30, 2000.



[14] ďReserve forcesĒ or ďreservistsĒ refers to the collective forces 

of the Army National Guard, the Air National Guard, the Army Reserve, 

the Naval Reserve, the Marine Corps Reserve, the Air Force Reserve, and 

the Coast Guard.



[15] We use the term ďoperational tempoĒ to mean the total days 

reservists spend participating in normal drills, training, and 

exercises, as well as domestic and overseas operational missions.



[16] 5 U.S.C. ß552a.



[17] Pub. L. 103-353, Oct. 13, 1994, 38 U.S.C. ßß4301-4333 grants 

servicemembers reemployment rights following military duty and 

addresses the rights and responsibilities of both reservists and 

their employers.



[18] U.S. General Accounting Office, Financial Management: DOD 

Improvement Plan Needs Strategic Focus, GAO-01-764 (Washington, D.C.: 

Aug. 17, 2001).



[19] U.S. General Accounting Office, Reserve Forces: DOD Actions Needed 

to Better Manage Relations between Reservists and Their Employers, GAO-

02-608 (Washington, D.C.: June 13, 2002).



[20] DOD defines infrastructure as those activities that provide 

support services to mission programs, such as combat units.



[21] U.S. Department of Defense, Annual Report to the President and the 

Congress for Fiscal Year 2002 (Washington, D.C.: Aug. 15, 2002).



[22] The Future Years Defense Plan, or FYDP, is the official document 

that summarizes the force levels and funding associated with specific 

programs that the Secretary of Defense would like the Congress to 

approve. It presents estimated appropriation needs for the budget year 

for which funds are being requested from the Congress and at least the 

4 years following it.



[23] Forty-four percent is significantly less than the proportion of 

planned infrastructure funding reported by DOD in our high-risk series 

issued in January 2001. Since then, DOD has adjusted its cost data for 

definitional or accounting changes. The principal adjustments were 

required by the Army and Air Force reclassifications that moved 

significant resources from infrastructure to mission categories. These 

readjustments would have the effect of decreasing the percentage of 

funding for infrastructure.



[24] Membership on the Senior Executive Council includes the Secretary 

of Defense (chair); the Deputy Secretary of Defense; the Under 

Secretary of Defense for Acquisition, Technology, and Logistics; and 

the Secretaries of the Army, Navy, and Air Force. Membership on the 

Business Initiative Council is similar to the Senior Executive Council 

and includes the Under Secretary of Defense for Acquisition, 

Technology, and Logistics; the Secretaries of the Army, Navy, and Air 

Force; and the Vice Chairman of the Joint Chiefs of Staff. The 

Comptroller and the Under Secretary for Personnel and Readiness were 

recently added. The Executive Steering Committee is composed of 

designated service three-star flag and general officers, selected 

executives from the Office of the Secretary of Defense, and a Joint 

Chiefs warfighter liaison.



[25] Under the A-76 process, agencies conduct competitions to determine 

whether the public or private sector will perform selected commercial 

activities and functions.



[26] Commercial Activities Panel, Improving the Sourcing Decisions of 

the Government, CAP-02-01 (Washington, D.C.: Apr. 30, 2002).



[27] On November 19, 2002, the Office of Management and Budget issued a 

proposed revision of Circular A-76.



[28] U.S. General Accounting Office, Major Management Challenges and 

Program Risks: Department of Defense, GAO-01-244 (Washington, D.C.: 

Jan. 2001).



[29] Financial management systems are to enable agencies to prepare, 

execute, and report on their budgets in accordance with the 

requirements of Office of Management and Budget Circular No. A-11 

(Preparation and Submission of Budget Estimates), Office of Management 

and Budget Circular No. A-34 (Instructions on Budget Execution), and 

other applicable Office of Management and Budget circulars 

and bulletins.



[30] U.S. General Accounting Office, Information Technology: 

Architecture Needed to Guide Modernization of DODís Financial 

Operations, GAO-01-525 (Washington, D.C.: May 17, 2001); Information 

Technology: DLA Should Strengthen Business Systems Modernization 

Architecture and Investment Activities, GAO-01-631 (Washington, D.C.: 

June 29, 2001); Information Technology: Defense Information Systems 

Agency Can Improve Investment Planning and Management Controls, GAO-02-

50 (Washington, D.C.: June 29, 2001).



[31] GAO-01-631; U.S. General Accounting Office, Information 

Technology: Greater Use of Best Practices Can Reduce Risk in Acquiring 

Defense Health Care System, GAO-02-345 (Washington, D.C.: 

Sept. 6, 2002).



[32] U.S. General Accounting Office, Information Technology: 

Inconsistent Software Acquisition Processes at the Defense Logistics 

Agency Increase Project Risks, GAO-02-9 (Washington, D.C.: 

Jan. 10, 2002); DOD Information Technology: Software and Systems 

Process Improvement Programs Vary in Use of Best Practices, GAO-01-116 

(Washington, D.C.: Mar. 30, 2001).



[33] Department of Defense, Government Performance and Results Act, FY 

2000 Performance Report (March 2001).



[34] The DOD term ďinformation assuranceĒ encompasses the range of 

security activities and functions used to protect DOD information 

and systems.



[35] The eight weapon systems are the Joint Strike Fighter, Comanche, 

Space Based Infrared System-High, F-22, V-22, AAAV, DDG-51, and 

SSN-774.



[36] Related reports on acquisition reform and best practices are 

listed in the ďRelated GAO ProductsĒ section of this report.



[37] Office of the Inspector General, Department of Defense, Multiple 

Award Contracts For Services, Report No. D-2001-189 (Arlington, Va: 

September 2001).



[38] The federal government generally seeks to award its contracts 

through competition. However, in instances in which it cannot rely on 

competition to get the best prices and values, such as when there is 

only a single source for products and services, contractors normally 

provide cost or pricing data supporting their proposed prices and 

certify that the data submitted are accurate, complete, and current. 

This requirement, established by the Truth in Negotiations Act, allows 

the government to pursue remedies, such as a reduction in contract 

price, should it later discover that the contractor submitted data that 

were not accurate, complete, or current. Contractors offering 

commercial items are generally exempt from this requirement, although 

the government can ask for other types of data to evaluate the 

reasonableness of the prices offered.



[39] Office of the Inspector General, Department of Defense, 

Contracting Officer Determinations of Price Reasonableness When Cost or 

Pricing Data Were Not Obtained, Report No. D-2001-129 (Arlington, Va: 

May 30, 2001).



[40] U.S. General Accounting Office, Contract Management: Guidance 

Needed for Using Performance-Based Service Contracting, GAO-02-1049 

(Washington, D.C.: Sept. 23, 2002).



[41] These attributes describe desired outcomes rather than how the 

services should be performed, set measurable performance standards, 

describe how the contractorís performance will be evaluated, and 

identify positive and negative incentives, as appropriate.



[42] U.S. General Accounting Office, Defense Acquisitions: DOD Has 

Implemented Section 845 Recommendations but Reporting Can Be Enhanced, 

GAO-03-150 (Washington, D.C.: Oct. 9, 2002).



[43] U.S. General Accounting Office, DODís Standard Procurement System: 

Continued Investment Has Yet to Be Justified, GAO-02-392T 

(Washington, D.C.: Feb. 7, 2002).



[44] U.S. General Accounting Office, Defense Health Care: Lessons 

Learned from TRICARE Contracts and Implications for the Future, GAO-01-

742T (Washington, D.C.: May 17, 2001).



[45] U.S. General Accounting Office, VA and Defense Health Care: 

Potential Exists for Savings through Joint Purchasing of Medical and 

Surgical Supplies, GAO-02-872T (Washington, D.C.: June 26, 2002).



[46] DOD refers to its acquisition workforce as its acquisition, 

technology, and logistics workforce.



[47] DODís estimate of personnel eligible to retire includes early 

retirement programs and individuals eligible for retirement with 

reduced annuities based on March 2001 data from the Defense Manpower 

Data Center.



[48] Broadbanding is the replacement of the current General Schedule or 

General Manager system with a system consisting of broad ďbandsĒ of 

career paths.



[49] Logistics activities include weapon system maintenance, supply 

management, engineering, storage, distribution, and transportation of 

military goods.



[50] U.S. General Accounting Office, Defense Management: New Management 

Reform Program Still Evolving, GAO-03-58 (Washington, D.C.: Dec. 12, 

2002).



[51] GAO-03-58.



[52] U.S. General Accounting Office, Defense Inventory: Air Force Needs 

to Improve Control of Shipments to Repair Contractors GAO-02-617 

(Washington, D.C.: July 1, 2002).



[53] U.S. General Accounting Office, Defense Inventory: Better 

Reporting on Spare Parts Spending Will Enhance Congressional Oversight, 

GAO-03-18 (Washington, D.C.: Oct. 24, 2002).



[54] U.S. General Accounting Office, Highlights of a GAO Roundtable: 

The Chief Operating Officer Concept: A Potential Strategy To Address 

Federal Governance Challenges, GAO-03-192SP (Washington, D.C.: Oct. 4, 

2002).



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