In addition, DOD shares responsibility for 7  governmentwide high-risk areas. DOD’s pervasive business systems and related financial management  deficiencies adversely affect its ability to assess resource requirements;  control costs; ensure basic accountability; anticipate future costs and  claims on the budget; measure performance; maintain funds control;  prevent and detect fraud, waste, and abuse; and address pressing  management issues. DOD Has Made Progress in Addressing Its Business Transformation Challenges

DOD’s senior leadership has shown commitment to transforming the  department’s business operations, and DOD has taken a number of  positive steps to begin this effort. Critical Actions Are Needed to Provide Comprehensive, Integrated, and Strategic Planning and Focused, Sustained Leadership for DOD’s Overall Business Transformation Efforts

As we have testified and reported for years, a successful, integrated,  departmentwide approach to addressing DOD’s overall business  transformation requires two critical elements: a comprehensive,  integrated, and enterprisewide plan and an individual capable of providing  full-time focus and sustained leadership both within and across  administrations, dedicated solely to the integration and execution of the  overall business transformation effort. The National Defense Authorization Act for Fiscal Year 2008 requires the  Secretary of Defense, acting through the CMO, to develop a strategic  management plan to include detailed descriptions of such things as  performance goals and measures for improving and evaluating the overall  efficiency and effectiveness of the business operations of the department,  key initiatives to achieve these performance goals, procedures to monitor  progress, procedures to review and approve plans and budgets for changes  in business operations, and procedures to oversee the development,  review, and approval of all budget requests for defense business systems. Clearly, Congress has recognized the need for executive-level attention to  business transformation matters and has taken specific action in the  National Defense Authorization Act for Fiscal Year 2008 to codify CMO  responsibilities at a high level in the department—assigning them to the  Deputy Secretary of Defense—as well as other provisions, such as  establishing a full-time Deputy CMO and designating CMO responsibilities  within the military departments. We designated DOD’s business systems modernization program as high  risk in 1995. DOD Has Largely Established Key Investment Management Structures, but Related Policies and Procedures at Both the Corporate and Component Levels Are Missing

The department has established and has begun to implement legislatively  directed corporate investment review structures and processes needed to  effectively manage its business system investments, but it has yet to do so  in a manner that is fully consistent with relevant guidance, both at a  corporate and component level. Accordingly, we made recommendations aimed at improving  the department’s ability to better manage the billions of dollars it invests  annually in its business systems and DOD largely agreed with these  recommendations but added that while it intends to improve departmental  policies and procedures for business system investments, each component  is responsible for developing and executing investment management  policies and procedures needed to manage the business systems under its  tier of responsibility. DOD Has Made Progress in Establishing a Framework for Improving Financial Management Capabilities, but More Work Remains

DOD has taken steps toward developing and implementing a framework  for addressing the department’s long-standing financial management  weaknesses and improving its capability to provide timely, reliable, and  relevant financial information for analysis, decisionmaking, and reporting,  a key defense transformation priority. Specifically, this framework, which  is discussed in both the department’s ETP and the FIAR Plan is intended  to define and put into practice a standard DOD-wide financial  management data structure as well as enterprise-level capabilities to  facilitate reporting and comparison of financial data across the  department. While these efforts should improve the consistency and  comparability of DOD’s financial reports, a great deal of work remains  before the financial management capabilities of DOD and its components  are transformed and the department achieves financial visibility. Given the department’s dependency on the efforts of its components to  address DOD’s financial management weaknesses, it is imperative that  DOD ensure the sufficiency and reliability of (1) corrective actions taken  by DOD components to support management attestations as to the  reliability of reported financial information; (2) activities taken by DOD  components and other initiatives to ensure that corrective actions are  directed at supporting improved financial visibility capabilities, beyond  providing information primarily for financial statement reporting, and are  sustained until a financial statement audit can be performed; and (3)  accomplishments and progress reported by DOD components and  initiatives. DOD Refines Its Audit Strategy

In fiscal year 2007, DOD introduced key refinements to its strategy for  achieving financial statement auditability. The purpose of these planned assessments is to identify  auditability risks that, if not mitigated during the development of the  system, may impede the component’s ability to achieve clean audit  opinions on its financial statements. High-Risk Series: An Update.
Why GAO Did This Study

The Department of Defense (DOD) has stewardship over an unprecedented amount of taxpayer money--with about $546 billion in discretionary budget authority provided thus far in fiscal year 2008, and total reported obligations of about $492 billion to support ongoing operations and activities related to the Global War on Terrorism from September 11, 2001, through September 2007. Meanwhile, DOD is solely responsible for 8 high-risk areas identified by GAO and shares responsibility for another 7 high-risk areas. GAO designated DOD's approach to business transformation as high risk in 2005. DOD's business systems modernization and financial management have appeared on the list since 1995. Deficiencies in these areas adversely affect DOD's ability, among other things, to assess resource requirements; control costs; ensure accountability; measure performance; prevent waste, fraud, and abuse; and address pressing management issues. Based on previously issued GAO reports and testimonies, this testimony focuses on the progress DOD has made and the challenges that remain with respect to overall business transformation, business systems modernization, and financial management capabilities improvements. GAO has made recommendations to improve DOD's business transformation efforts and DOD's institutional and program-specific management controls. DOD has largely agreed with these recommendations.

What GAO Found

DOD's senior leadership has shown a commitment to transforming DOD's business operations and taken steps that have yielded progress in many respects, especially during the past two years. To sustain its efforts, DOD still needs (1) a strategic planning process and a comprehensive, integrated, and enterprisewide plan or set of plans to guide transformation and (2) a full-time, term-based, senior management official to provide focused and sustained leadership. Congress has clearly recognized the need for executive-level attention and, through the National Defense Authorization Act for fiscal year 2008, has designated the Deputy Secretary of Defense as DOD's Chief Management Officer (CMO), created a Deputy CMO position, and designated a CMO for each military department. Among other things, DOD will need to clearly define roles and responsibilities, accountability, and performance expectations. However, DOD still faces the challenge of ensuring that its CMO can give the position full-time focus and continuity of leadership. In that respect, GAO continues to believe the CMO should be codified in statute as a separate position with the appropriate term to span administrations. To comply with legislative requirements aimed at improving business systems modernization, DOD continues to update its business enterprise architecture and has established and begun to implement corporate investment review structures and processes. However, DOD has not achieved the full intent of the legislative requirements. The business enterprise architecture updates are not complete enough to effectively and efficiently guide and constrain business system investments across all levels of DOD. Although DOD issued a strategy for "federating" or extending its architecture to the DOD components, the components' architecture programs are not fully mature to support this. With respect to investment review structures and processes, DOD lacks policies and procedures for aligning investment selection decisions and relevant corporate- and component-level guidance. For example, DOD's business systems investment policies and procedures do not link investment selection decisions with investment funding decisions. Meanwhile, DOD components continue to invest billions of dollars in thousands of new and existing business system programs. DOD has taken steps towards developing and implementing a framework for improving its capability to provide timely, reliable, and relevant financial information for analysis, decisionmaking, and reporting. Specifically, DOD is defining and implementing a standard DOD-wide financial management data structure and enterprise-level capabilities to facilitate reporting and comparison of financial data across DOD. In 2007, DOD refined its strategy for achieving auditable financial statements, emphasizing verification and validation of sustained improvements and assessments of new systems to identify risks that, if not mitigated, may impede the achievement of clean financial statement audit opinions. While these efforts may improve the consistency and comparability of DOD's financial reports, a great deal of work to ensure the reliability of the data itself remains before financial management transformation will be achieved.