DOD’s Estimated Costs to Implement NSPS Do Not Fully Represent Its Total Resource Needs

DOD’s estimate that it will cost $158 million to implement NSPS between  2005 and 2008 does not include the full cost that the department expects to  incur as a result of implementing the new system. Federal financial accounting standards state that reliable information on  the costs of federal programs and activities is crucial for effective  management of government operations and recommend that full costs of  programs be reported so that decision makers have information necessary  to make informed decisions on resources for programs, activities, and  outputs, and to ensure that they get expected and efficient results. According to the standards, the full cost of a program or activity includes  both those costs that are specifically identifiable to carry them out, or  direct costs, and those costs that are common to multiple programs or  activities but cannot be specifically identified with any particular program  or activity, or indirect costs. While the standards emphasize that cost  information is essential for managing federal programs, their activities,  and outputs, the standards also provide that items may be omitted from  cost information if that omission would not change or influence the  judgment of a reasonable person relying on the cost information. However, before calculating its estimate, DOD  had not fully defined what direct and indirect costs should be included for  it to effectively manage NSPS. For example, PEO and  component officials agreed that the estimate does not include the full  salary costs of all civilian and military personnel who directly support  NSPS activities departmentwide and any of the direct costs that the  various organizations and defense agencies expect to incur to implement  the system, such as salaries and benefits for employees who work directly  on NSPS activities and materials and supplies used in NSPS activities. Without a cost estimate  that includes all costs that the department expects to incur as a result of  implementing the new system, decision makers—within DOD and  Congress—will not have the complete cost information they need to make  decisions about whether adequate resources are being provided for  implementing NSPS. While the PEO issued  general instructions to the military services and the Washington  Headquarters Services for estimating the costs associated with the design  and implementation of NSPS, this office did not provide a description of  the specific types of direct and indirect costs to be included in the  estimate or a cost-estimating methodology containing assumptions and  approaches. Total Funds Expended or Obligated to Design and Implement NSPS Cannot Be Determined

The total amount of funds DOD has expended or obligated to design and  implement NSPS during fiscal years 2005 through 2006 cannot be  determined because DOD has not established an effective oversight  mechanism to ensure that all these costs are fully captured. In May 2005,  the NSPS Senior Executive established guidance intended to provide the  PEO with visibility over NSPS expenditures. This guidance does not, however,  define the direct and indirect costs that DOD requires the components to  capture. GAO first designated DOD financial management as  high risk in 1995. Based on discussions with PEO and component officials and our review of  the quarterly reports of NSPS implementation costs submitted for fiscal  years 2005 and 2006, the components’ official appropriation accounting  systems do not capture the total amount of funds reported expended or  obligated to design and implement NSPS. Without  an effective oversight mechanism, DOD and Congress do not have  adequate visibility over the actual cost to design and implement NSPS. Questions for the Record Regarding the Department of Defense’s  National Security Personnel System.
Why GAO Did This Study

Given a large-scale organizational change initiative, such as the Department of Defense's (DOD) National Security Personnel System (NSPS), is a substantial commitment that will take years to complete, it is important that DOD and Congress be kept informed of the full cost of implementing NSPS. Under the Comptroller General's authority to conduct evaluations on his own initiative, GAO analyzed the extent to which DOD has (1) fully estimated total costs associated with the implementation of NSPS and (2) expended or obligated funds to design and implement NSPS through fiscal year 2006. GAO interviewed department officials and analyzed the NSPS Program Executive Office's (PEO), and the military services' and the Washington Headquarters Services' (hereafter referred to as the components) cost estimates and reports of expended and obligated funds.

What GAO Found

DOD's November 2005 estimate that it will cost $158 million to implement NSPS does not include the full cost that the department expects to incur as a result of implementing the new system. Federal financial accounting standards state that reliable information on the costs of federal programs and activities is crucial for effective management of government operations and recommend that full costs of programs and their outputs be provided to assist Congress and executives in making informed decisions on program resources and to ensure that programs get expected and efficient results. The full cost includes both those costs specifically identifiable to carry out the program, or direct costs, and those costs that are common to multiple programs but cannot be specifically identified with any particular program, or indirect costs. While the standards emphasize that full cost information is essential for managing federal programs, their activities, and outputs, the standards also provide that items may be omitted from cost information if that omission would not change or influence the judgment of a reasonable person relying on the cost information. Based on GAO's review of documentation provided by DOD and discussions with department officials, GAO found that DOD's estimate includes some direct costs, such as the start-up and operation of the NSPS PEO and the development and delivery of new NSPS training courses, but it does not include other direct costs such as the full salary costs of all civilian and military personnel who directly support NSPS activities departmentwide. Before developing its estimate, DOD had not fully defined all the direct and indirect costs needed to manage the program. Without a better estimate, decision makers--within DOD and Congress--will not have complete information about whether adequate resources are being provided for implementing NSPS. The total amount of funds DOD has expended or obligated to design and implement NSPS during fiscal years 2005 through 2006 cannot be determined because DOD has not established an oversight mechanism to ensure that these costs are fully captured. In May 2005, the NSPS Senior Executive established guidance for tracking and reporting NSPS implementation costs that requires the components to develop mechanisms to capture these costs and to report quarterly their costs to the NSPS PEO. However, this guidance does not define the direct and indirect costs DOD requires that the components capture. DOD's pervasive financial management deficiencies have been the basis for GAO's designation of this as a high-risk area since 1995. GAO's review of submitted reports from the components found that their official accounting systems do not capture the total funds expended or obligated to design and implement NSPS. Without an effective oversight mechanism to ensure that the official accounting systems capture all appropriate costs, DOD and Congress do not have visibility over the actual cost to design and implement NSPS.