(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 financial  management and related business operations to improve mission support  and the economy and efficiency of DOD’s 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  outlined in my prior testimony before this Subcommittee 2 years ago. Over the years, the  department has undertaken many initiatives intended to transform its  business operations departmentwide and improve the reliability of  information for decision making and reporting but has not had much  success because it has not addressed the following four underlying causes:    a lack of sustained top-level leadership and management accountability for    deeply embedded cultural resistance to change, including military service  parochialism and stovepiped operations;   a lack of results-oriented goals and performance measures and  inadequate incentives and accountability mechanisms relating to business  transformation efforts. Keys to Successful Reform and Current Status of Reform Efforts

Over the years, we have given DOD credit for beginning numerous  initiatives intended to improve its business operations. These elements are    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 and committed 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 and monitoring  progress tied to key financial and business transformation objectives;   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. Later, I will offer a suggestion  for improving the management and oversight of the billions of dollars DOD  invests annually in system modernization efforts. Since we reported problems with DOD’s purchase card program, DOD and  the military services have taken actions to address all of our 109  recommendations. Suggestions for Legislative Consideration

I would like to offer two suggestions for legislative consideration that I  believe could contribute significantly to the department’s ability to not  only address the impediments to DOD success but also to incorporate  needed key elements to successful reform. All domain owners would be responsible for coordinating their  business system modernization efforts with the chief management official  who would chair the Defense Business Systems Modernization Executive  Committee. Further, the  lack of adequate transparency and appropriate accountability across all  business areas has resulted in certain fraud, waste, and abuse and hinders  DOD’s attempts to develop world-class operations and activities to  support its forces. DOD’s senior leaders have demonstrated a commitment to transforming  the department and improving its business operations and have taken  positive steps to begin this effort. We believe that our two suggested  legislative initiatives will greatly improve the likelihood of meaningful,  broad-based reform at DOD.
Why GAO Did This Study

In March 2002, GAO testified on the Department of Defense's (DOD) financial management problems and key elements necessary for successful reform. Although the underlying conditions remain fundamentally unchanged, within the past 2 years DOD has begun a number of initiatives intended to address previously reported problems and transform its business operations. The Subcommittee on Readiness and Management Support, Senate Committee on Armed Services, 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 of financial and related business weaknesses on DOD operations, (2) the underlying causes of DOD business transformation challenges, and (3) the status of DOD reform efforts. In addition, GAO reiterates the key elements to successful reform: (1) an integrated business transformation strategy, (2) sustained leadership and resource control, (3) clear lines of responsibility and accountability, (4) results-oriented performance, (5) appropriate incentives and consequences, (6) an enterprise architecture to guide reform efforts, and (7) effective monitoring and oversight. GAO also offers two suggestions for legislative consideration which are intended to improve the likelihood of meaningful, broad-based financial management and related business reform at DOD.

What GAO Found

DOD's senior civilian and military leaders are committed to transforming the department and improving its business operations and have taken positive steps to begin this effort. However, overhauling the financial management and related business operations of one of the largest and most complex organizations in the world represents a huge management challenge. Six DOD program areas are on GAO's "high risk" list, and the department shares responsibility for three other governmentwide high-risk areas. DOD's substantial financial and business management weaknesses adversely affect not only its ability to produce auditable financial information, but also to provide timely, reliable information for management 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 in annual wasted resources in a time of increasing fiscal constraint. Four underlying causes impede reform: (1) lack of sustained leadership, (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 keys to successful business transformation and makes two additional suggestions for legislative action. First, GAO suggests that a senior management position be established to spearhead DOD-wide business transformation efforts. Second, GAO proposes that the leaders of DOD's functional areas, referred to as domains, receive and control the funding for system investments, as opposed to the military services. Domain leaders would be responsible for managing business system and process reform efforts within their business areas and would be accountable to the new senior management official for ensuring their efforts comply with DOD's business enterprise architecture.