Moreover, the lack  of adequate transparency and appropriate accountability across DOD’s  major business areas results in billions of dollars of wasted resources  annually at a time of growing fiscal constraints. These problems  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, of which I have a few examples. (GAO-04-344, Feb. 9, 2004)
These examples clearly demonstrate not only the severity of DOD’s current  problems, but also the importance of reforming the department’s business  operations to more effectively support DOD’s core mission, to improve the  economy and efficiency of its operations, and to provide for transparency  and accountability to Congress and American taxpayers. Underlying Causes of Financial and Related Business Process Transformation Challenges

The underlying causes of DOD’s financial management and related  business process and system weaknesses are generally the same ones I  have outlined in my prior testimonies before this Subcommittee over the  last 3 years. Furthermore, I would like to reiterate two suggestions for legislative  consideration that I believe are essential in order for DOD to be successful  in its overall business transformation effort. These elements, which  we believe are key to any   successful approach to transforming the department’s business   addressing the department’s financial management and related business  operational challenges as part of a comprehensive, integrated, DOD- wide strategic plan for business reform;  providing for sustained, committed, and focused leadership by top  management, including but not limited to the Secretary of Defense;  establishing resource control over business systems investments;  establishing clear lines of responsibility, authority, and accountability;  incorporating results-oriented performance measures that link key  institutional, unit, and individual personnel transformation objectives  and expectations, and monitoring progress;  addressing human capital issues, such as the adequacy of staff levels,  skills, and experience available to achieve the institutional, unit, and  individual personnel performance goals and expectations;  providing appropriate incentives or consequences for action or inaction;   establishing an enterprise architecture to guide and direct business  systems modernization investments; and   ensuring effective oversight and monitoring. A modern, effective, credible, and integrated performance management  system can help improve DOD's business operations. Business Management Modernization Program

While BMMP is vital to the department’s efforts to transform its business  operations, DOD has not effectively addressed many of the impediments to  successful reform that I mentioned earlier, including (1) a lack of sustained,  effective, and focused leadership, (2) a lack of results-oriented goals and  performance measures, and (3) long-standing cultural resistance and  parochialism. As a result, the program has yielded very little, if any, tangible  improvements in DOD’s business operations. Accordingly, we plan to  continue working constructively with the department to strengthen the  program and will report to this Subcommittee on DOD’s progress and  challenges in the spring of 2005. Interim Initiatives

In contrast to its broad-based initiatives, DOD has incorporated many of  the key elements for successful reform in its interim initiatives. Given that DOD spends  billions on business systems and related infrastructure each year, we  believe it is critical that funds for DOD business systems be appropriated to  those responsible and accountable for business system improvements. However, DOD’s transformation efforts and legislation to date  have not adequately addressed key underlying causes of past reform  failures. Absent this leadership, authority, and control of funding, the current  transformation efforts are likely to fail.
Why GAO Did This Study

In March 2004, GAO testified before the Subcommittee on Readiness and Management Support, Senate Committee on Armed Services 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. 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 transparency and appropriate accountability across all major business areas. Over the years, DOD leaders have initiated a number of efforts 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. The Subcommittee asked GAO to provide a current status report on DOD's progress to date and suggestions for improvement. Specifically, GAO was asked to provide (1) an overview of the impact and causes of weaknesses in DOD's business operations, (2) the status of DOD reform efforts, (3) the impact of recent legislation pertaining to DOD's transformation and financial improvement initiatives, and (4) suggestions for improving DOD's efforts to improve the reliability of its financial information.

What GAO Found

Although senior DOD leaders have shown commitment to transformation as evidenced by key initiatives such as human capital reform, the Business Management Modernization Program, and the Financial Improvement Initiative, little tangible evidence of improvement has been seen in DOD's business operations. Overhauling the business operations of one of the largest and most complex organizations in the world represents a huge management challenge, especially given the increased demands on our military forces. However, this challenge can be met if DOD employs key elements, such as a comprehensive and integrated business transformation plan. Six DOD program areas are on GAO's high-risk list, and the department shares responsibility for three other governmentwide high-risk areas. Substantial weaknesses in DOD business operations adversely affect its ability to provide timely, reliable management information for DOD and Congress to use in making informed decisions. Further, the lack of adequate transparency and appropriate accountability across all of DOD's major business areas results in billions of dollars annually in wasted resources in a time of increasing fiscal challenges. Four underlying causes impede reform: (1) lack of clear and sustained leadership for overall business transformation efforts, (2) cultural resistance to change, (3) lack of meaningful metrics and ongoing monitoring, and (4) inadequate incentives and accountability mechanisms. To address these issues, GAO reiterates the key elements to successful reform that are embodied in our prior recommendations and two suggestions for legislative action. First, GAO suggests that a senior management position be established to provide strong and sustained leadership over all major transformation efforts. Second, GAO proposes that business systems modernization money be appropriated to designated approval authorities responsible and accountable for system investments within DOD business areas. Absent this unified responsibility, authority, accountability, and control of funding, the current transformation efforts are likely to fail.