This initiative could help improve program execution. To build on those planned actions, we recommend that the Secretary of Defense require that the new DBOF policy statement on capital budget investment projects include requirements to (1) link capital investment projects to the DBOF activities long-range plans and missions and (2) rely on net present value as the primary investment decision criterion for rank ordering competing capital investment projects; develop plans and schedules for training the key people responsible for implementing the new guidance; develop mechanisms to track implementation of the new guidance and hold managers accountable for achieving the intent of the guidance; include capital asset justification program deficiencies as a material weakness in the Federal Managers’ Financial Integrity Act report; and identify, in its annual DBOF capital budget update, (1) projects canceled or postponed since submission of the last budget and (2) projects selected as replacements for those canceled or postponed. Listing the program as a material weakness in the Federal Managers’ Financial Integrity Act report provides an added level of management attention. We will make copies available to others on request. Comments From the Department of Defense

The following are GAO’s comments on the Department of Defense’s (DOD) letter dated September 16, 1994. Here and several other times throughout the comments, DOD states that the problems with the capital asset budgeting process have been resolved. 3. 4. 5. 6. 7. 8. As we show in this report, the DBOF activities we visited canceled or postponed 86 percent and 65 percent of their budgeted projects during fiscal years 1993 and 1994, respectively. To assess the effectiveness of the budget preparation and review process and determine if capital projects are adequately justified and economically supported, we (1) reviewed the DOD policies, procedures, and guidance used to prepare and review capital budget projects and (2) identified internal controls in place to ensure that capital projects are selected in accordance with the procedures and guidance.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the Department of Defense's (DOD) capital budget, focusing on: (1) whether DOD carries out the projects identified in its capital budget; and (2) the effectiveness of the DOD capital budget preparation and review process.

What GAO Found

GAO found that: (1) DOD continues to have problems managing its capital asset program and carrying out its capital budget; (2) defense activities cancelled or postponed 86 percent and 65 percent of their fiscal year (FY) 1993 and FY 1994 capital budget projects, respectively, due to weaknesses in the budget justification, preparation, and review processes; (3) uncertainties due to base closings and realignments, budget reductions, and DOD management initiatives also contributed to other project cancellations; (4) activity managers usually replace cancelled projects with other projects, so the projects actually carried out bear little resemblance to those in the capital budget submitted to Congress; (5) new DOD guidance for justifying capital projects, if implemented, will strengthen the Defense Business Operations Fund's (DBOF) capital budgeting process; (6) the new guidance could be improved by directly linking capital projects to long-range investment needs and using investment criteria that maximize benefits and a cultural change; (7) proper implementation of the new guidance requires high-level management attention, training, and appropriate oversight mechanisms; and (8) listing capital asset program deficiencies in DOD Federal Managers' Financial Integrity Act reports would provide an added level of management attention.