Human Capital:

DOD Needs Better Internal Controls and Visibility over Costs for Implementing Its National Security Personnel System

GAO-07-851: Published: Jul 16, 2007. Publicly Released: Jul 16, 2007.

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Given a large-scale organizational change initiative, such as the Department of Defense's (DOD) National Security Personnel System (NSPS), is a substantial commitment that will take years to complete, it is important that DOD and Congress be kept informed of the full cost of implementing NSPS. Under the Comptroller General's authority to conduct evaluations on his own initiative, GAO analyzed the extent to which DOD has (1) fully estimated total costs associated with the implementation of NSPS and (2) expended or obligated funds to design and implement NSPS through fiscal year 2006. GAO interviewed department officials and analyzed the NSPS Program Executive Office's (PEO), and the military services' and the Washington Headquarters Services' (hereafter referred to as the components) cost estimates and reports of expended and obligated funds.

DOD's November 2005 estimate that it will cost $158 million to implement NSPS does not include the full cost that the department expects to incur as a result of implementing the new system. Federal financial accounting standards state that reliable information on the costs of federal programs and activities is crucial for effective management of government operations and recommend that full costs of programs and their outputs be provided to assist Congress and executives in making informed decisions on program resources and to ensure that programs get expected and efficient results. The full cost includes both those costs specifically identifiable to carry out the program, or direct costs, and those costs that are common to multiple programs but cannot be specifically identified with any particular program, or indirect costs. While the standards emphasize that full cost information is essential for managing federal programs, their activities, and outputs, the standards also provide that items may be omitted from cost information if that omission would not change or influence the judgment of a reasonable person relying on the cost information. Based on GAO's review of documentation provided by DOD and discussions with department officials, GAO found that DOD's estimate includes some direct costs, such as the start-up and operation of the NSPS PEO and the development and delivery of new NSPS training courses, but it does not include other direct costs such as the full salary costs of all civilian and military personnel who directly support NSPS activities departmentwide. Before developing its estimate, DOD had not fully defined all the direct and indirect costs needed to manage the program. Without a better estimate, decision makers--within DOD and Congress--will not have complete information about whether adequate resources are being provided for implementing NSPS. The total amount of funds DOD has expended or obligated to design and implement NSPS during fiscal years 2005 through 2006 cannot be determined because DOD has not established an oversight mechanism to ensure that these costs are fully captured. In May 2005, the NSPS Senior Executive established guidance for tracking and reporting NSPS implementation costs that requires the components to develop mechanisms to capture these costs and to report quarterly their costs to the NSPS PEO. However, this guidance does not define the direct and indirect costs DOD requires that the components capture. DOD's pervasive financial management deficiencies have been the basis for GAO's designation of this as a high-risk area since 1995. GAO's review of submitted reports from the components found that their official accounting systems do not capture the total funds expended or obligated to design and implement NSPS. Without an effective oversight mechanism to ensure that the official accounting systems capture all appropriate costs, DOD and Congress do not have visibility over the actual cost to design and implement NSPS.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To provide decision makers in DOD and Congress with improved visibility and internal controls over the costs of NSPS, the Secretary of Defense should direct the National Security Personnel System Senior Executive to direct the NSPS Program Executive Office to define all direct and indirect costs necessary to effectively manage NSPS, in accordance with internal control standards, federal financial accounting standards, and DOD's financial management regulation principle related to comparability.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: DOD partially concurred with our recommendation (stating that significant effort had already been expended identifying and collecting costs that could assist management officials with making good business decisions); however, the department has since addressed our recommendation by reexamining the system's costs. Specifically, in July 2007, DOD reconvened its department-wide NSPS Finance Integrated Product Team to advise the NSPS Program Executive Office on our report's findings and recommend revisions to the department's guidance on NSPS financial reporting. According to DOD, the NSPS Finance Integrated Product Team made recommendations that included expanding the cost category definitions and clarifying the treatment of direct and indirect costs-a key concern we also raised in our report. These recommendations were accepted by the NSPS Program Executive Office and the components were advised of the new definitions and the resulting requirements in September 2007.

    Recommendation: To provide decision makers in DOD and Congress with improved visibility and internal controls over the costs of NSPS, the Secretary of Defense should direct the National Security Personnel System Senior Executive to direct the NSPS Program Executive Office to prepare a revised estimate of the full costs of implementing NSPS in accordance with the established definitions, internal control standards, federal financial accounting standards, and DOD's financial management regulation principle related to comparability.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: DOD concurred with our recommendation, stating that it would develop a revised estimate of the costs for implementing NSPS, and has since done so. Specifically, DOD revised its requirements for reporting NSPS implementation costs after reviewing the Statement of Federal Financial Accounting Standards and reported its revised estimate, along with draft revised NSPS regulations, in the Federal Register on May 22, 2008. DOD estimated the overall costs associated with continuing to implement NSPS would be approximately $143 million from fiscal years 2009 through 2011.

    Recommendation: To provide decision makers in DOD and Congress with improved visibility and internal controls over the costs of NSPS, the Secretary of Defense should direct the National Security Personnel System Senior Executive to develop a comprehensive oversight framework to ensure that all funds expended or obligated to design and implement NSPS are fully captured and reported. Such a framework should establish quality controls, including independent reviews of the data being reported by the components in the quarterly reports, to ensure the accuracy and completeness of the reported information.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: DOD concurred with our recommendation, noting that the department should leverage existing policies and procedures to ensure oversight of these costs, and addressed the intent of our recommendation by taking a number of actions. Specifically, the Army established new account processing codes for NSPS that comply with the system's reporting categories and identified a central NSPS budget point of contact. Further, the Assistant Secretary of the Army (Financial Management and Comptroller) provided an independent review to determine whether Army major commands were meeting established internal procedures for tracking, capturing, and reporting NSPS implementation costs in specific categories. The Navy and the Marine Corps adopted a framework for capturing NSPS implementation costs that was approved by the NSPS Program Executive Office. This framework includes requiring all Navy major commands to provide screen shots and/or proof that implementation costs are recorded in the appropriate accounting system and adopting DOD-wide approved definitions of direct and in-direct costs. The Fourth Estate, which includes all organizational entities in DOD that are not in the military departments or the combatant commands, developed a framework that includes unique identifiers--for example, separate line items for NSPS expenditures--for transactions in its organizations' financial management and accounting systems. To ensure the accuracy and completeness of the data, Fourth Estate organizations must verify and reconcile their data against Defense Finance and Accounting Service reports and monthly billing reports. Additionally, the data and reports are reviewed by each of the Fourth Estate's human resource and resource management/comptroller directorates. The Air Force completed deploying NSPS by the time of our September 2008 report, and as of June 2008, had no further implementation costs to report. As a result, taking steps to implement an additional framework was not necessary as ongoing Air Force NSPS sustainment costs are accounted for within its existing financial oversight framework.

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