	DOD Has Made Progress Addressing Key Challenges in Accomplishing Its Mission, but Significant Work Remains

DOD faces five key challenges that significantly affect the department’s  ability to accomplish its mission—specifically the need for DOD to (1)  rebalance forces and rebuild readiness in an evolving global security  environment; (2) mitigate threats in cyberspace and expand cyber  capabilities; (3) control the escalating costs of programs, such as certain  weapon systems acquisitions and military health care, and manage its  finances; (4) strategically manage its human capital; and (5) achieve  greater efficiencies in defense business operations. DOD has  demonstrated progress addressing each of these challenges, but  significant work remains. Rebalance Forces and Rebuild Readiness in an Evolving Global Security Environment

The military services are generally smaller and less combat ready today  than they have been in many years, and each military service has been  forced to cut critical needs in areas such as training, maintenance, and  modernization due to budget constraints, according to DOD. Officials  said that the result of the current state of readiness is that military forces  are not strong enough to protect vital U.S. national security interests from  worldwide threats. For example, despite an increase in resources and a sustained  high deployment level for special operations forces, DOD has not taken  steps to examine whether additional opportunities exist to reduce the high  demand on these forces by sharing some of their responsibilities with  conventional forces. We also identified areas where DOD and the military services have not  determined whether plans to rebalance the capabilities of U.S. military  forces will meet the needs of global commanders. By determining the most appropriate forces and training to meet the  demands of its combatant commanders, ensuring policy makers have  information to make well-informed weapon system modernization  choices, and developing a comprehensive plan to rebuild readiness with  methods for evaluating outcomes, DOD and decision makers would be  better positioned to evaluate whether U.S. military forces have the  capacity and capabilities to prevail across a full range of potential  contingencies. Since 2011, we have directed 39 recommendations to  DOD in this area, of which 35 remain open, including 5 priority  recommendations. A 2016 Federal  Information Security Management Act report noted that more than 30,000  data security incidents compromised federal information systems during  fiscal year 2016—16 of which were categorized as major incidents that  needed to be reported to Congress. Recognizing this strategic challenge, in February 2016  the Director of National Intelligence identified cyber threats as first among  strategic threats to the United States, surpassing terrorism. DOD has become increasingly reliant on the Internet and other networks,  which are central to the department’s operations and enable essential  services including logistics, budgeting, personnel, and policymaking. Our  work has found that DOD must address weaknesses in (1) its planning for  the continuity of operations in a degraded cyber environment, (2) the  protection of classified information and systems from insider threats, and  (3) the visibility and oversight of its capabilities that could be used during  a cyber incident. DOD has made progress in developing cyber capabilities that are needed  to simultaneously defend its networks, systems, and information; protect  the nation from cyber attacks of significant consequence; and work with  other departments and branches of the federal government to address  cyber-related issues. Since 2011, we have directed 33 recommendations to  DOD in unclassified and sensitive but unclassified reports, of which 14  remain open, including 5 priority recommendations. Control Escalating Costs and Manage Finances

DOD’s $580 billion fiscal year 2016 budget accounts for nearly half of the  federal government’s discretionary spending, and DOD’s costs are  growing. For example, DOD plans to invest $574 billion in future funding  to develop and acquire major acquisition programs, and the department’s  annual military health care costs are expected to increase from about $60  billion in fiscal year 2017 to about $70 billion by fiscal year 2028. Given these constrained budgetary resources and DOD’s  recognition that there are opportunities to be more efficient in the  department’s operations, the department has undertaken a series of  reform initiatives to control costs for programs that make up a significant  portion of DOD’s budget and improve DOD’s financial management  operations. DOD  has expressed a commitment to holding itself accountable for the funding  it receives and is taking actions to allow for an annual financial statement  audit, but it continues to remain one of the few federal entities that cannot  demonstrate an ability to accurately account for and reliably report on its  spending or assets. DOD has also taken steps to modernize the military health system and  control health care costs. Among other issues, DOD’s financial management problems  have contributed to (1) inconsistent and sometimes unreliable reports to  Congress on weapon system operating and support costs, limiting the  visibility that Congress needs to effectively oversee weapon system  programs and (2) an impaired ability to make cost-effective choices, such  as deciding whether to outsource specific activities or how to improve  efficiency through technology. Since 2011, we have directed 79 recommendations to DOD in  this area, of which 72 remain open, including 52 priority  recommendations. DOD estimates that it will  spend nearly $180 billion in fiscal year 2017 on pay and benefits for  military personnel and about $70 billion for its civilian employees. Taken  together, funding for military and civilian pay and benefits represented  nearly 50 percent of DOD’s budget in fiscal year 2016 (see fig. DOD estimates that it spent about $115 billion on  its contractor workforce in fiscal year 2015, although we have raised  questions regarding the reliability of the department’s information on this  workforce. Current budget and long-term fiscal pressures on the department only  increase the importance of strategically managing human capital. For example,  DOD has not followed our leading practices for cost estimation and it  likely underestimated certain costs, such as those for training, which  prevents the department from making cost-effective comparisons and  decisions regarding the use of its military, civilian, and contractor  workforces. Since 2011, we have directed 67  recommendations to DOD in this area, of which 64 remain open. Achieve Greater Efficiencies in Defense Business Operations

DOD spends billions of dollars each year acquiring business systems and  contractor-provided services that provide fundamental support to the  warfighter in the areas of health care; logistics; personnel; and financial  management, among other areas. In fiscal year 2014 alone, DOD  obligated $85 billion to its three largest types of contractor-provided  services: knowledge-based, facility-related, and research and  development services. This amount is more than double the amount that  DOD obligated to purchase aircraft, land vehicles, and ships. DOD senior  leaders have prioritized defense institutional reform, and have  emphasized the need to improve business practices and reduce  overhead as a means to achieve greater efficiencies and free up  resources for higher priorities. By effectively monitoring department-wide business transformation  efforts, establishing management controls for its business system  investments, developing guidance to monitor service acquisitions, and  improving the reliability of its headquarters data, DOD will be better  positioned to identify opportunities to gain additional efficiencies in its  business operations. Since  2011, we have directed 49 recommendations to DOD in this area, of  which 38 recommendations remain open, including 8 priority  recommendations. Four Cross-Cutting Factors Have Affected DOD’s Ability to Address Key Mission Challenges

Our body of work at DOD has identified four cross-cutting factors that  have affected DOD’s ability to address its key mission challenges: (1) the  lack of sustained leadership involvement, (2) a misalignment between  programs and budgets and resources, (3) ineffective strategic planning  and performance monitoring, and (4) an ineffective management control  system. Nine years after the creation of the CMO and DCMO positions, all of  DOD’s business functions remain on our High-Risk List. Congress has remained concerned about DOD’s leadership challenges  and, in the National Defense Authorization Act for Fiscal Year 2017,  established a new CMO position and replaced the Under Secretary of  Defense for Acquisition, Technology, and Logistics with the Under  Secretary of Defense for Research and Engineering and the Under  Secretary of Defense for Acquisition and Sustainment. These new  positions provide an opportunity to enhance the department’s leadership  focus on its key mission challenges, but DOD will need to clearly define  key responsibilities and authorities to help ensure that these positions can  effectively drive transformation efforts. Misalignment between programs and resources and budgets: In  January 2017, we reported that the federal government faces an  unsustainable long-term fiscal path and that the Congress and the new  administration will need to consider difficult policy choices in the short  term regarding federal spending. However, since 2005, we have  reported that DOD’s approach to planning and budgeting often results in  a mismatch between the department’s programs and available  resources. Ineffective strategic planning and performance monitoring: For more  than a decade we have reported on strategic planning and performance  monitoring challenges that have affected the efficiency and effectiveness  of DOD’s operations both at the strategic readiness level and across all of  DOD’s major business areas–including contract management, financial  management, and supply chain management. We have also reported that in its performance monitoring efforts DOD has  missed opportunities to hold officials accountable for progress made  toward DOD-identified goals and milestones, to make timely and well- informed actions to address identified challenges, and to encourage  continuous improvements in performance across its major business  functions. However, we have also reported  since 2011 that DOD does not have quality information on costs related to  mission critical programs, the department’s headquarters functions, and  the department’s major business areas. Without quality information  regarding the costs associated with DOD’s mission-critical weapon  systems, for example, DOD will be unable to effectively assess the  affordability of the programs that support them. We have reported that DOD also faces long-standing challenges in  implementing an effective management control system to improve  accountability and effectively and efficiently achieve its mission. We have issued hundreds of reports and made thousands of  recommendations to DOD to help position it to address its challenges. In its comments,  reproduced in appendix III, DOD stated that although this report is a  review of progress made of previous GAO audits and no new  recommendations were issued, the department stands by its responses  and concurrence to taking the requisite actions needed to address all  previous recommendations. We are sending copies of this report to the appropriate congressional  committees, the Secretary of Defense, the Deputy Secretary of Defense,  and the Deputy Chief Management Officer. Appendix I: Actions That the Department of Defense (DOD) Needs to Take to Address Our 78 Priority Open Recommendations

Appendix II: Our Work Related to the Department of Defense’s Key Mission Challenges

Our work identified five key challenges that impact Department of  Defense’s (DOD) ability to accomplish its mission–specifically, the need  for DOD to (1) rebalance forces and rebuild readiness in an evolving  global security environment; (2) mitigate threats to cyberspace and  expand cyber capabilities; (3) control the escalating costs of programs,  such as certain weapon systems acquisitions and military health care,  and manage its finances; (4) strategically manage its human capital; and  (5) achieve greater efficiencies in defense business operations. F-35 Sustainment: Need for Affordable Strategy, Greater Attention to  Risks, and Improved Cost Estimates. DOD Financial Management: Significant Improvements Needed in Efforts  to Address Improper Payment Requirements. Military Compensation: Additional Actions Are Needed to Better Manage  Special and Incentive Pay Programs.
Why GAO Did This Study

The United States faces a complex national security environment, to include strategic challenges presented by traditional state actors and destabilizing nonstate actors, such as the Islamic State of Iraq and Syria. Recognizing these challenges, DOD has emphasized the importance of providing forces that are capable of performing a full range of missions. GAO has issued hundreds of reports that bring greater attention to areas where DOD can strengthen its operations to more efficiently and effectively meet its mission.
This report identifies (1) key challenges affecting DOD's ability to accomplish its mission, progress made on these challenges, and work remaining; and (2) factors that have affected DOD's ability to address these key challenges. This report builds on GAO's past work with an emphasis on reports issued since 2011. GAO also analyzed DOD information on recent actions taken in response to GAO's prior work.

What GAO Found

The Department of Defense (DOD) faces five key challenges that significantly affect the department's ability to accomplish its mission. These include the need to (1) rebalance forces and rebuild readiness; (2) mitigate threats to cyberspace and expand cyber capabilities; (3) control the escalating costs of programs, such as certain weapon systems acquisitions and military health care, and better manage its finances; (4) strategically manage its human capital; and (5) achieve greater efficiencies in defense business operations. DOD has demonstrated progress addressing challenges, but significant work remains. Specifically:
Rebalance forces and rebuild readiness : The military services today are generally smaller and less combat ready than they have been in many years, and each military service has been forced to cut critical needs in areas such as training, maintenance, and modernization due to budgetary constraints, according to DOD. Officials said that the result of the current state of readiness is that military forces are not strong enough to protect vital U.S. national security interests from worldwide threats. DOD has pursued plans to strengthen military capabilities, but must take key actions to rebalance, rebuild, and modernize the capabilities of U.S. military forces. For example, DOD needs to take further steps to meet the demands of geographic commanders and examine whether there are opportunities to reduce the high demand on special operations forces. DOD also needs to provide decision makers with complete and accurate budget and cost information to make well-informed decisions on weapon systems modernization investments and mitigate potential risks to certain modernization initiatives, including regarding the F-35 aircraft—a program on which DOD plans to spend over $1 trillion to operate and sustain over its life cycle. The military services have plans underway to rebuild readiness for portions of their military forces, but these initiatives are at risk without more comprehensive planning and an approach to measure progress in attaining goals (see table). Since 2011, GAO has directed 39 recommendations to DOD in this area, of which 35 remain open, including 5 priority recommendations.
Mitigate threats to cyberspace and expand cyber capabilities : In February 2016, the Director of National Intelligence identified cyber threats as first among strategic threats to the United States, surpassing terrorism. According to the 2016 Federal Information Security Management Act report, more than 30,000 data security incidents compromised federal information systems during fiscal year 2016, 16 of which were categorized as major incidents. DOD has become increasingly reliant on the Internet and other networks, which are central to its military operations and enable essential services. At the same time, the vulnerability of its cyber networks has grown significantly, due in part to the increase in the severity of cyber attacks. DOD has made progress in developing a cyber strategy to defend its networks and protect the nation from cyber attacks, but needs to take additional actions to improve its planning for the continuity of operations in a degraded cyber environment, such as providing defense organizations with guidance and training to practice responses during exercises. DOD also needs to take further action to strengthen its insider threat awareness program to address the increased risk of the unauthorized disclosure of classified information from defense information systems and to improve the visibility and oversight of the cyber capabilities of all National Guard units, such as computer network defense teams that could be used during a cyber incident. Since 2011, GAO has directed 33 recommendations to DOD in unclassified and sensitive but unclassified reports, of which 14 remain open, including 5 priority recommendations.
Control escalating costs and manage finances : DOD's $580 billion fiscal year 2016 budget accounts for nearly half of the federal government's discretionary spending, and DOD's costs are growing. DOD plans to invest $574 billion to develop and acquire 78 major acquisition programs through fielding, such as the F-35 and the Littoral Combat Ship, while annual military health care costs are expected to increase from about $60 billion in fiscal year 2017 to about $70 billion by fiscal year 2028. Further, DOD remains one of the few federal entities that cannot demonstrate an ability to accurately account for and reliably report its spending or assets. DOD has undertaken a series of reform initiatives to control costs and improve its financial management, but needs to more consistently implement leading acquisition practices to manage the costs of its weapon systems. DOD also needs to better address improper payments to control rising costs in the military health system, which has experienced a 217 percent increase in costs since 2001 (see fig.). Further, DOD should take steps to identify underutilized space in its facilities to reduce its reliance on costly leased facilities. Finally, DOD needs to remediate financial management deficiencies, which prevent it from producing auditable financial statements and result in inadequate financial and other information available to DOD to manage its operations. Since 2011, GAO has directed 79 recommendations to DOD in this area, of which 72 remain open, including 52 priority recommendations.
Strategically manage human capital : DOD estimates that it will spend nearly $180 billion in fiscal year 2017 on pay and benefits for its military personnel and about $70 billion for its civilian employees. Taken together, funding for military and civilian pay and benefits represents nearly 50 percent of DOD's budget in fiscal year 2016 (see fig.). DOD also estimates that it spent about $115 billion on certain contractor-provided services in fiscal year 2015, although we have raised questions regarding the reliability of DOD's information on its contractor workforce. Current budget and long-term fiscal pressures on the department increase the importance of strategically managing DOD's human capital. DOD has taken steps to develop better information about the skill sets possessed and needed within the department's military, civilian, and contractor workforces, but needs to take further actions to complete a workforce mix assessment, improve the methodology for estimating workforce costs, and address skill gaps in critical workforces. DOD should also establish a comprehensive compensation strategy for its military personnel to help achieve its recruiting and retention goals, including a cost-effective approach for managing the $3.4 billion the department spent in fiscal year 2015 on special and incentive pays for active-duty service members. Since 2011, GAO has directed 67 recommendations to DOD in this area, of which 64 remain open.
Achieve greater efficiencies in defense business operations : DOD spends billions of dollars each year acquiring business systems and contractor-provided services to support the warfighter. In 2014 alone, DOD obligated $85 billion on three types of contractor-provided services—including an amount obligated for knowledge-based and research and development services that was more than double what the department spent to purchase aircraft, land vehicles, and ships. DOD has emphasized the need to improve its business practices and reduce overhead and free up resources for higher priorities, but needs to take additional actions to drive business transformation efforts, implement management controls for its business systems investments, and develop guidance to manage the acquisition of contracted services. DOD also needs to improve the reliability of its data to enable it to properly size its headquarters organizations, which have experienced significant growth; to accomplish missions; and identify potential cost savings. Since 2011, GAO has directed 49 recommendations to DOD in this area, of which 38 remain open, including 8 priority recommendations.
GAO's prior work identified four cross-cutting factors that have affected DOD's ability to address the department's key challenges. Specifically:
Lack of sustained leadership involvement: More than 9 years after Congress designated the Deputy Secretary of Defense as the Chief Management Officer and created the Deputy Chief Management Officer position to provide leadership over the department's business functions, all of DOD's business areas remain on our High-Risk List—areas that are vulnerable to waste, fraud, or mismanagement (see fig.). In December 2016, Congress established a separate Chief Management Officer position from the Deputy Secretary of Defense and replaced the Under Secretary of Defense for Acquisition, Technology, and Logistics with two new Under Secretary positions to further address DOD's leadership challenges. These new positions provide an opportunity to enhance DOD's leadership focus on DOD's key challenges, but DOD will need to clearly define the key responsibilities and authorities for these positions to help ensure that they can effectively drive transformation efforts.
Misalignment between programs and resources and budgets: The federal government faces an unsustainable long-term fiscal path, and the Congress and the new administration will need to consider difficult policy choices in the short term regarding federal spending. However, since 2005, GAO has reported that DOD's approach to planning and budgeting often results in a mismatch between the department's programs and available resources. As a result, DOD faces significant affordability challenges for some of its major acquisition programs that have unsustainable cost estimates and that will vie for significant funding commitments.
Ineffective strategic planning and performance monitoring: GAO has reported since 2005 on strategic planning and performance monitoring challenges that have affected the efficiency and effectiveness of DOD's operations, both at the strategic readiness level and across all of DOD's major business areas–including contract management, financial management, and supply chain management. DOD has missed opportunities to hold officials accountable for progress made toward meeting goals and milestones, make timely and well-informed actions to address identified challenges, and encourage continuous improvements in performance across its major business functions.
Ineffective management control system: DOD has not addressed long-standing challenges in implementing an effective management control system to improve accountability and effectively and efficiently achieve its mission. DOD does not have quality information on costs related to mission critical programs, such as weapon systems, and the department is unable to effectively assess the affordability of the programs that support them. Since 2005, GAO has reported on internal control deficiencies with DOD's financial management that have contributed to inconsistent and sometimes unreliable reports to Congress on weapon system operating and support costs, among other areas. This inconsistent and unreliable reporting limits the visibility that Congress needs to effectively oversee defense programs, and impairs its ability to make cost-effective choices.

What GAO Recommends

GAO has made approximately 3,100 recommendations to DOD since 2006. Of these, about 1,037 remain open, including 78 priority recommendations that, if implemented, could significantly improve DOD's operations. In commenting on this report, DOD stated that although the report made no new recommendations, the department stands by its responses and concurrence to taking the requisite actions needed to address all previous recommendations.