	Background

DOD is one of the largest and most complex organizations in the world. 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 decisions and report on the financial status and cost of  DOD activities to Congress and DOD decision makers, (2) adversely  affected its operational efficiency in business areas, such as major  weapon systems acquisition and support and logistics, and (3) left the  department vulnerable to fraud, waste, and abuse. Ten Critical DOD ERP Systems

The department has stated that the following ERPs are critical to  transforming the department’s business operations and addressing some  of its long-standing weaknesses.   The General Fund Enterprise Business System (GFEBS) was  initiated in October 2004 and is intended to support the Army’s  standardized financial management and accounting practices for the  Army’s general fund, with the exception of that related to the Army  Corps of Engineers, which will continue to use its existing financial  system, the Corps of Engineers Financial Management System. Additionally, ECSS is  intended to provide the financial management and accounting  functions for the Air Force’s working capital fund operations. Effective implementation of the ERPs is also critical to  DOD’s auditability efforts and goals. However, to date, DOD’s ERP  implementations have been negatively impacted by schedule delays, cost  increases, failures in delivering the necessary functionality, and a lack of  compliance with required standards. The  following are examples of weaknesses in DOD’s implementation efforts. In October 2010, we reported that based upon the data provided by  DOD, 6 of the 10 ERPs DOD had identified as critical to transforming  its business operations had experienced schedule delays ranging  from 2 to 12 years, and five had incurred cost increases totaling an  estimated $6.9 billion. More specifically, none of the programs had developed a  fully integrated master schedule that reflected all activities, including  both government and contractor activities. DOD has stated that its ERPs will  replace over 500 legacy systems that cost hundreds of millions of dollars  to operate annually. Our preliminary results from an ongoing ERP review identified problems  related to GFEBS and DEAMS providing Defense Finance and  Accounting Service (DFAS) users with the expected capabilities in  accounting, management information, and decision support. To  compensate for the deficiencies, DFAS users have devised manual  workarounds and applications to obtain the information they need to  perform their day-to-day tasks.   DFAS officials told us that DEAMS does not provide the capability— which existed in the legacy systems—to produce ad hoc query reports  that can be used to perform the data analysis needed for daily  operations. In a November 2010 report, the DOD IG stated that after more than 10  years in development and a cost of $1.1 billion, the Army’s LMP system  was not compliant with the U.S. Government Standard General Ledger,  which supports the consistent recording of financial information and the  preparation of standard reports required by the OMB and the Department  of the Treasury. The DOD IG also reported that the system  also did not resolve any of the Army Working Capital Fund internal control  weaknesses. GAO will continue to monitor the department’s progress of and provide  feedback on the status of the department’s financial management  improvement efforts. Closing Comments

DOD has invested billions of dollars and will invest billions more to  implement the modern business systems it will rely on for timely,  accurate, and reliable information in managing its financial and other  business operations, preparing auditable financial statements, and  maintaining accountability for its stewardship of public funds. While the implementation of the ERPs is  a complex, demanding endeavor, the success of these systems is critical  if DOD is to reach its auditability goals.
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 its long-standing financial and related business operations and system problems. DOD is in the process of implementing modern multifunction enterprise resource planning (ERP) systems to replace many of its outdated legacy systems. The ERPs are intended to perform business-related tasks such as general ledger accounting and supply chain management. Modernizing DOD's business systems is a critical part of transforming the department's business operations, addressing high-risk areas, and providing more-accurate and reliable financial information to Congress on DOD's operations. The Panel requested that GAO provide its perspective on DOD's ERP implementation efforts and the impact implementation problems could have on DOD's efforts to improve financial management and be audit ready by fiscal year 2017. This statement is based on GAO's prior work, reports issued by the Department of Defense Inspector General (DOD IG), and GAO's ongoing oversight of selected DOD ERP efforts. Over the years, GAO has made numerous recommendations to improve the department's financial management operations.

What GAO Found

DOD has invested billions of dollars and will invest billions more to develop and implement 10 ERPs that it has estimated will replace over 500 legacy systems that reportedly cost hundreds of millions of dollars to operate annually. DOD considers implementation of the ERPs as critical not only for addressing weaknesses in financial management, but also for resolving weaknesses in other high-risk areas such as business systems modernization and supply chain management. The ERPs are also important for DOD's goal of departmentwide audit readiness by fiscal year 2017. Furthermore, in light of the Secretary of Defense's recent decision that the Statement of Budgetary Resources is to be audit ready by fiscal year 2014, it is critical that the department have such systems in place to support its auditability goals. To date, however, DOD's ERP implementation has been impaired by delays, cost increases, failures in delivering the necessary functionality, and a lack of compliance with required standards. Delays in implementation have extended the use of existing duplicative, stovepiped systems, and the need to fund them. More specifically, (1) GAO has reported that, based upon the data provided by DOD, 6 of the 10 ERPs DOD had identified as critical to transforming its business operations experienced schedule delays ranging from 2 to 12 years, and five had incurred cost increases totaling an estimated $6.9 billion. (2) GAO's review of 6 ERPs found that none of the programs had developed a fully integrated master schedule, a best practice and tool in the management of business-system development that is crucial to estimating the overall schedule and cost of a program. (3) DOD IG has reported that the Army's Logistics Modernization Program, which is intended to provide financial management capabilities for the Army Working Capital Fund, was not compliant with the U.S. Government Standard General Ledger, which supports the consistent recording of financial information and the preparation of standard reports required by the Office of Management and Budget and the Department of the Treasury. Further, GAO's preliminary results from an ongoing audit of two ERPs--the Army's General Fund Enterprise Business System and the Air Force's Defense Enterprise Accounting and Management System--found that the systems did not provide Defense Finance and Accounting Service users with the expected capabilities in accounting, management information, and decision support. System problems identified include interface issues between legacy systems and the new ERPs, lack of ad hoc query reporting capabilities, and reduced visibility for tracing transactions to resolve accounting differences. To compensate for these operational deficiencies, users were relying on manual workarounds to perform day-to-day operations. Such performance deficiencies, delays, and other problems in ERP implementation can negatively impact DOD's auditability goals.