In fact, all of the DOD  programs on GAO’s High-Risk List relate to business operations,  including systems and processes related to management of contracts,  finances, the supply chain, and support infrastructure, as well as weapon  systems acquisition. Long-standing and pervasive 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 financial status and cost of DOD activities to  Congress and DOD decision makers; (2) adversely impacted its  operational efficiency and mission performance in areas of major  weapons system support and logistics; and (3) left the department  vulnerable to fraud, waste, and abuse. Pervasive deficiencies in financial management processes,  systems, and controls, and the resulting lack of data reliability, continue to  impair management’s ability to assess the resources needed for DOD  operations; track and control costs; ensure basic accountability; anticipate  future costs; measure performance; maintain funds control; and reduce  the risk of loss from fraud, waste, and abuse. Other business operations, including the high-risk areas of contract  management, supply chain management, support infrastructure  management, and weapon systems acquisition are directly impacted by  the problems in financial management.   DOD also requests billions of dollars each year to maintain its weapon  systems, but it has limited ability to identify, aggregate, and use  financial management information for managing and controlling  operating and support costs. DOD’s Past Strategies for Improving Financial Management Were Ineffective but Recent Initiatives are Encouraging

Over the years, DOD has initiated several broad-based reform efforts to  address its long-standing financial management weaknesses. In May 2009, we identified several concerns with the adequacy  of the FIAR Plan as a strategic and management tool to resolve DOD’s  financial management difficulties and thereby position the department to  be able to produce auditable financial statements. The DOD  Comptroller directed the DOD components participating in the FIAR  Plan—the departments of the Army, the Navy, and the Air Force and the  Defense Logistics Agency—to use a standard process and aggressively  modify their activities to support and emphasize achievement of the  priorities. In May 2010, DOD introduced a new phased approach that divides  progress toward achieving financial statement auditability into five waves  (or phases) of concerted improvement activities (see appendix I). Numerous Challenges Must Be Addressed In Order For DOD to Successfully Reform Financial Management

Improving the department’s financial management operations and thereby  providing DOD management and the Congress more accurate and  reliable information on the results of its business operations will not be an  easy task. It is critical that the current initiatives being led by the DOD  DCMO and the DOD Comptroller be continued and provided with  sufficient resources and ongoing monitoring in the future. Absent  continued momentum and necessary future investments, the current  initiatives may falter, similar to previous efforts. Below are some of the  key challenges that the department must address in order for the financial  management operations of the department to improve. Committed and sustained leadership. Effective plan to correct internal control weaknesses. Competent financial management workforce. In developi the plan, the department identified financial management as one of  its  enterprisewide mission-critical occupations. Accountability and effective oversight. Well-defined enterprise architecture. Successful implementation of the ERPs. Appendix I: FIAR Plan Waves

The first three waves focus on achieving the DOD Comptroller’s interim  budgetary and asset accountability priorities, while the remaining two  waves are intended to complete actions needed to achieve full financial  statement auditability.
Why GAO Did This Study

As one of the largest and most complex organizations in the world, the Department of Defense (DOD) faces many challenges in resolving serious problems in its financial management and related business operations and systems. DOD is required by various statutes to (1) improve its financial management processes, controls, and systems to ensure that complete, reliable, consistent, and timely information is prepared and responsive to the financial information needs of agency management and oversight bodies, and (2) to produce audited financial statements. Over the years, DOD has initiated numerous efforts to improve the department's financial management operations and to try to achieve an unqualified (clean) opinion on the reliability of its reported financial information. These efforts have fallen short of sustained improvement in financial management or financial statement auditability. The Subcommittee has asked GAO to provide its perspective on the status of DOD's financial management weaknesses and its efforts to resolve them.

What GAO Found

DOD financial management has been on GAO's high-risk list since 1995 and, despite several reform initiatives, remains on the list today. Pervasive deficiencies in financial management processes, systems, and controls, and the resulting lack of data reliability, continue to impair management's ability to assess the resources needed for DOD operations; track and control costs; ensure basic accountability; anticipate future costs; measure performance; maintain funds control; and reduce the risk of loss from fraud, waste, and abuse. DOD spends billions of dollars each year to maintain key business operations intended to support the warfighter, including systems and processes related to the management of contracts, finances, the supply chain, support infrastructure, and weapon systems acquisition. These operations are directly impacted by the problems in financial management. In addition, the long-standing financial management weaknesses have precluded DOD from being able to undergo the scrutiny of a financial statement audit. DOD's past strategies for improving its financial management were ineffective, but recent initiatives are encouraging. In 2005, DOD issued its Financial Improvement and Audit Readiness (FIAR) Plan for improving financial management and reporting. In 2009, the DOD Comptroller directed that FIAR efforts focus on financial information in two priority areas: budget and mission-critical assets. The FIAR Plan also has a new phased approach that comprises five waves of concerted improvement activities. The first three waves focus on the two priority areas, and the last two on working toward full auditability. The plan is being implemented largely through the Army, Navy, and Air Force military departments and the Defense Logistics Agency, lending increased importance to the commitment of component leadership. Improving the department's financial management operations and thereby providing DOD management and Congress more accurate and reliable information on the results of its business operations will not be an easy task. It is critical that current initiatives related to improving the efficiency and effectiveness of financial management have the support of DOD leaders and that of DOD's Deputy Chief Management Officer and Comptroller continue with sustained leadership and monitoring. Absent continued momentum and necessary future investments, current initiatives may falter. Below are some of the key challenges that DOD must address for its financial management to improve to the point where DOD is able to produce auditable financial statements: (1) committed and sustained leadership, (2) effective plan to correct internal control weaknesses, (3) competent financial management workforce, (4) accountability and effective oversight, (5) well-defined enterprise architecture, and (6) successful implementation of the enterprise resource planning systems.