	Background

Because DOD is one of the largest and most complex organizations in the  world, overhauling its business operations represents a huge management  challenge. Transformation of DOD’s business systems and operations is critical to the  department providing Congress and DOD management with accurate and  timely information for use in the decision-making process. Pervasive Financial and Business Management Problems Affect DOD’s Efficiency and Effectiveness

For several years, we have reported that DOD faces a range of financial  management and related business process challenges that are complex,  long-standing, pervasive, and deeply rooted in virtually all business  operations throughout the department. Pervasive Weaknesses Impact DOD Operations

Long-standing weaknesses in DOD’s financial management and related  business processes and systems have (1) resulted in a lack of reliable  information needed to make sound decisions and report on the status of  DOD activities, including accountability of assets, through financial and  other reports to Congress and DOD decision makers; (2) hindered its  operational efficiency; (3) adversely affected mission performance; and  (4) left the department vulnerable to fraud, waste, and abuse, as the  following examples illustrate. Currently, DOD does not have the ability to provide timely or  accurate information on the location, movement, status, or identity of its  supplies. Ineffective Management Oversight and Control over Business System Investments

Until DOD has complete, reliable information on the costs and number of  business systems operating within the department, its ability to effectively  control the money it spends on these systems will be limited. Since February 2003, the domains have been given the responsibility to  oversee the department’s business systems investments, yet the billions of  dollars spent each year continue to be spread among the military services  and defense agencies, enabling the numerous DOD components to  continue to develop stovepiped, parochial solutions to the department’s  long-standing financial management and business operation challenges. The table shows the stovepiped, duplicative nature of DOD’s business  systems. The  department has acknowledged that DCD/DCW will not result in tangible  savings to DOD. Congress Acts to Improve DOD’s Control and Accountability over Business Systems Investments

The statutory requirements enacted as part of the Ronald W. Reagan  National Defense Authorization Act for Fiscal Year 2005 are aimed at  improving the department’s business systems management practices. DOD has taken several steps to address provisions of the fiscal year 2005  defense authorization act. The boards are responsible for reviewing and approving  investments to develop, operate, maintain, and modernize business  systems for their business-area portfolio, including ensuring that  investments are consistent with DOD’s BEA. The  position would divide and institutionalize the current functions of the  Deputy Secretary of Defense into a Deputy Secretary who, as the alter ego  of the Secretary, would focus on policy-related issues such as military  transformation, and a Deputy Secretary of Defense for Management, the  CMO, who would be responsible and accountable for the overall business  transformation effort and would serve full-time as the strategic integrator  of DOD’s business transformation efforts by, for example, developing and  implementing a strategic and integrated plan for business transformation  efforts. However, DOD’s transformation efforts to date have  not adequately addressed key underlying causes of past reform failures. Lessons  learned from these previous reform attempts include the need for sustained  and focused leadership at the highest level. Absent this leadership,  authority, and control of funding, the current transformation efforts are  likely to fail.
Why GAO Did This Study

In July 2004, GAO testified before Congress on the impact and causes of financial and related business weaknesses on the Department of Defense's (DOD) operations and the status of DOD reform efforts. The report released today highlights that DOD still does not have management controls to ensure that its business systems investments are directed towards integrated corporate system solutions. GAO's reports continue to show that fundamental problems with DOD's financial management and related business operations result in substantial waste and inefficiency, adversely impact mission performance, and result in a lack of adequate accountability across all major business areas. Over the years, DOD leaders attempted to address these weaknesses and transform the department. For years, GAO has reported that DOD is challenged in its efforts to effect fundamental financial and business management reform and GAO's ongoing work continues to raise serious questions about DOD's chances of success. Congress asked GAO to provide information on the (1) pervasive long-standing financial and business management weaknesses that affect DOD's efficiency, (2) cost of and control over the department's business systems investments, and (3) legislative actions needed to enhance the success of DOD's business transformation efforts.

What GAO Found

Overhauling the financial management and business operations of one of the largest and most complex organizations in the world represents a daunting challenge. Eight DOD program areas, representing key business functions, are on GAO's high-risk list, and the department shares responsibility for six other governmentwide high-risk areas, meaning that DOD is fully or partially responsible for 14 of the 25 high-risk areas in the federal government. DOD's substantial financial and business management weaknesses adversely affect not only its ability to produce auditable financial information, but also to provide accurate, complete, and timely information for management and Congress to use in making informed decisions. Further, the lack of adequate accountability across all of DOD's major business areas results in billions of dollars in annual wasted resources in a time of increasing fiscal constraint and has a negative impact on mission performance. The department has recently taken several steps to address provisions of the fiscal year 2005 defense authorization act which are aimed at improving DOD's business systems management practices. For example, DOD has established the Defense Business Systems Management Committee to oversee its business systems modernization efforts. However, DOD's overall transformation efforts have not adequately addressed the key causes of past reform failures. Lessons learned from these previous reform attempts include the need for sustained leadership at the highest level and a strategic and integrated plan. The seriousness of DOD's weaknesses underscores the importance of no longer condoning the "status quo." To improve the likelihood that DOD's transformation efforts will succeed, GAO proposes that business systems funding be appropriated to the approval authorities responsible for business systems investments. Additionally, GAO suggests that a senior management position be established to provide sustained leadership for DOD's overall business transformation. Absent this unified responsibility, authority, accountability, and control of funding, DOD's transformation efforts are likely to fail.