Detailed  examples of these effects are presented in appendix I.
DOD is required by various statutes to improve its financial management  processes, controls, and systems to ensure that complete, reliable,  consistent, and timely information is prepared and responsive to the  financial information needs of agency management and oversight bodies,  and to produce audited financial statements. To further draw the department’s attention to the need to improve its  strategy for addressing financial management weaknesses and achieve  audit readiness the NDAA for Fiscal Year 2010 made the FIAR Plan a  statutory mandate, requiring the FIAR Plan to include, among other things  specific actions to be taken and costs associated with (a) correcting  the financial management deficiencies that impair DOD’s ability to  prepare timely, reliable, and complete financial management  information; and (b) ensuring that DOD’s financial statements are  validated as ready for audit by no later than September 30, 2017, and  actions taken to correct and link financial management deficiencies  with process and control improvements and business system  modernization efforts described in the business enterprise architecture  and enterprise transition plan required by 10 U.S.C. DOD’s Strategy for Improving Its Financial Management Operations and Achieving Audit Readiness Continues to Evolve

Over the years, the department has initiated several broad-based reform  efforts, including the 1998 Biennial Strategic Plan for the Improvement of  Financial Management within the Department of Defense and the 2003  Financial Improvement Initiative, intended to fundamentally transform its  financial management operations and achieve clean financial statement  audit opinions. In August 2009, DOD’s Comptroller directed that the department focus on  improving processes and controls supporting information that is most  often used to manage the department, while continuing to work toward  achieving financial improvements aimed at achieving unqualified audit  opinions on the department’s financial statements. As a result, in 2010  DOD revised its FIAR strategy, governance framework, and methodology  to support these objectives and focus financial management improvement  efforts primarily on achieving two interim departmentwide priorities— first, strengthening processes, controls, and systems that produce  budgetary information and support the department’s Statements of  Budgetary Resources; and second, improving the accuracy and reliability  of management information pertaining to the department’s mission-critical  assets, including military equipment, real property, and general equipment,  and validating improvement through existence and completeness testing. The Success of DOD’s Current Strategy Is Dependent Upon Effective Implementation

Based on what we’ve seen of the revised FIAR Plan strategy and  methodology to date, we believe the current strategy reflects a reasonable  approach. We are hopeful that a consistent focus provided through the  shared priorities of the FIAR strategy will increase the department’s ability  to show incremental progress toward achieving auditability in the near  term, if the strategy is implemented properly. We will continue  to monitor DOD’s progress in addressing its financial management  weaknesses and transforming its business operations. Developing sound plans and a methodology and getting leaders and  organizations in place is only a start. Consistent with our previous reports  regarding the department’s CMO positions, including the CMO, Deputy  CMO and military department CMOs, and our May 2009  recommendations to improve DOD’s FIAR Plan as a strategic and  management tool for addressing financial management weaknesses and  achieving and sustaining audit readiness, DOD needs to define specific  roles and responsibilities—including when and how the CMO and military  department CMOs and other leaders are expected to become involved in  problem resolution or efforts to ensure cross-functional area commitment  and support to financial management improvement efforts; effectively  execute its plans; gauge actual progress against goals; strengthen  accountability; and make adjustments as needed. DOD has identified 10 ERPs, 1 of which has been fully implemented, as  essential to its efforts to transform its business operations. According to DOD, as of December  2009, it had invested approximately $5.8 billion to develop and implement  these ERPs and will invest additional billions before the remaining 9 ERPs  are fully implemented. Whether promising signs, such as shared priorities and approaches,  develop into sustained progress will ultimately depend on DOD leadership  and oversight to help achieve successful implementation. GAO will continue to monitor progress of the department’s financial  management improvement efforts and provide feedback on the status of  DOD’s financial management improvement efforts.
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 pervasive and long-standing financial management and related business operations and systems problems. DOD is required by various statutes to (1) improve its financial management processes, controls, and systems to ensure that complete, reliable, consistent, and timely information is prepared and responsive to the financial information needs of agency management and oversight bodies, and (2) produce audited financial statements. DOD has initiated numerous efforts over the years to improve the department's financial management operations and ultimately achieve unqualified (clean) opinions on the reliability of reported financial information. The Subcommittee has asked GAO to provide its perspective on DOD's current efforts to address its financial management weaknesses and achieve auditability, including the status of its Enterprise Resource Planning (ERP) system implementations. GAO's testimony is based on its prior work related to DOD's financial improvement and audit readiness strategy and related activities, including its ERP implementation efforts.

What GAO Found

DOD has initiated numerous efforts over the years to address its financial management weaknesses and achieve audit readiness. In 2005, DOD issued its Financial Improvement and Audit Readiness (FIAR) Plan to define the department's strategy and methodology for improving financial management operations and controls, and reporting its progress. In 2009, DOD Comptroller directed that the department's FIAR efforts be focused on improving processes and controls supporting information most often used to manage operations, while continuing to work toward achieving financial statement auditability. To support these objectives, DOD established two priority focus areas: budget information and information pertaining to mission-critical assets. In 2010, DOD revised its FIAR strategy, governance framework, and methodology to support the DOD Comptroller's direction and priorities and to comply with fiscal year 2010 defense authorizing legislation, which incorporated GAO recommendations intended to improve the FIAR Plan as a strategic plan. Based on what GAO has seen to date, DOD's revised FIAR Plan strategy and methodology reflects a reasonable approach. Moreover, GAO supports prioritizing focus areas for improvement and is hopeful that a consistent focus provided through shared FIAR priorities will increase incremental progress toward improved financial management operations. However, developing sound plans and methodology, and getting leaders and organizations in place is only a start. DOD needs to define specific roles and responsibilities for the Chief Management Officers (CMO)--including when and how the CMOs are expected to become involved in problem resolution and in ensuring cross-functional area commitment to financial improvement activities. A key element of the FIAR strategy is successful implementation of the ERPs. According to DOD, as of December 2009, it had invested approximately $5.8 billion to develop and implement these ERPs and will invest additional billions before these efforts are complete. However, as GAO has previously reported inadequate requirements management, systems testing, ineffective oversight over business system investments, and other challenges have hindered the department's efforts to implement these systems on schedule and within cost. Whether DOD's FIAR strategy will ultimately lead to improved financial management capabilities and audit readiness depends on DOD leadership and oversight to help achieve successful implementation. Sustained effort and commitment at the department and component levels will be needed to address weaknesses and produce financial management information that is timely, reliable, and useful for managers throughout DOD. GAO will continue to monitor DOD's progress and provide feedback on the status of DOD's financial management improvement efforts.