Pursuant to a congressional request, GAO discussed the steps needed to improve financial management at the Department of Defense (DOD), focusing on: (1) the impact of financial management weaknesses on DOD's ability to efficiently and economically carry out its operations; (2) efforts DOD has initiated, and additional actions that are necessary, to improve financial management systems and controls in the short term; and (3) enhancements needed in updating DOD's Biennial Financial Management Improvement Plan--its long-term blueprint for financial management reform.

GAO noted that: (1) DOD primarily relies on various logistical systems to carry out its important stewardship responsibility over an estimated $1 trillion in physical assets; (2) these systems are the primary source of information for: (a) maintaining visibility over assets to meet military objectives and readiness goals; and (b) financial reporting; (3) however, these systems have material weaknesses that, in addition to hampering financial reporting, impair DOD's ability to: (a) maintain central visibility over its assets; (b) safeguard assets from physical deterioration, theft, or loss; and (c) prevent the purchase of assets already on hand; (4) these weaknesses can seriously diminish the efficiency and economy of the military services' support operations; (5) in response to this problem, the department initiated programs or renewed its emphasis on implementing existing measures that would improve asset visibility and tracking; (6) in addition, DOD renewed its Total Asset Visibility initiative to provide department-level access to timely, accurate information on the status, location, and movement of its personnel, equipment and supplies--including weapon systems, secondary inventory, and ammunition; (7) DOD Comptroller has been developing and implementing short-term steps in collaboration with DOD's functional and audit communities, the Office of Management and Budget, and GAO; (8) several of the actions included in DOD's short-term plan, along with additional short-term actions necessary to provide a solid foundation for the department's financial management improvement efforts, include: (a) ensuring feeder system data accuracy; (b) implementing accounting policy procedures; (c) instilling fundamental controls; and (d) training financial management personnel; (9) DOD's Biennial Plan represents a significant landmark because it includes a discussion of the importance of the programmatic functions of personnel, acquisition, property management, and inventory management to the department's ability to support consistent, accurate information flows to all information users; (10) modifications to the plan are needed if DOD is to achieve the full range of reforms needed; and (11) to accomplish this, DOD's planned update should include: (a) a revised concept of operations to reflect the full range of DOD's financial management operations; (b) specific plans on shared servicing and outsourcing strategies; and (c) concepts established in the Clinger-Cohen Act for effectively implementing the technology initiatives contained in the plan.