DOD Has Not Identified Required Cost Savings and Does Not Have a Reliable Estimate to Support the Cost Savings It Identified

DOD has not identified $10 billion in cost savings through fiscal year 2019  as required and does not have a reliable cost savings estimate to support  the cost savings it has identified. DOD has identified approximately $13.1  billion in efficiency-related cost savings through fiscal year 2021. DOD Does Not Have a Reliable Cost Savings Estimate

We determined the cost savings estimate is not reliable because the  DOD-provided documentation for the two separate inputs was not  sufficiently detailed consistent with the best practices for cost estimates  described in our Cost Estimating and Assessment Guide. Estimated Cost Savings from Efficiencies Identified in DOD’s May 2015 Section 904 Report

DCMO based the first part of its estimated cost savings—approximately  $5.3 billion—on efficiency-related reductions required by section 904 of  the National Defense Authorization Act for Fiscal year 2014 and reported  the cost savings in DOD’s May 2015 Section 904 Report. DCMO-provided documentation for the estimated cost savings was a  summary table listing funding and personnel reductions allocated to  various organizations and included a statement that the reductions listed  were “not auditable” because the baseline for the reductions had not been  established, among other reasons. Estimated Cost Savings Identified in DOD’s March 2016 Update to Congress

DOD based the second part of its estimate—which it estimates will save  approximately $7.8 billion by fiscal year 2021—on five categories of DOD- identified efficiency-related initiatives that the department identified in its  March 2016 update to Congress describing how it would achieve the  required cost savings. For its Service Requirement Review Boards category,  DOD provided documentation showing specific cost savings estimates by  organization, an explanation of how those estimates were calculated, and  implementation actions that organizations plan to take to achieve the cost  savings. Congress  has directed DOD to find headquarters-related efficiencies, including  mandating DOD to implement and report on a plan to achieve not less  than $10 billion in cost savings from headquarters, administrative, and  support activities from fiscal years 2015 through 2019. Recommendation for Executive Action

As the department seeks to report on and achieve required cost savings,  we recommend that the Secretary of Defense direct the Deputy Chief  Management Officer to develop reliable cost savings estimates that  include detailed information and documentation to allow for clear tracking  of cost savings by DOD and Congress. In  written comments on a draft of this report, DOD partially concurred with  our recommendation. DOD also referenced the five categories of efficiency  initiatives in its March 2016 interim update to Congress regarding the  requirement to report on and implement a plan to ensure DOD achieves  not less than $10 billion in cost savings from headquarters,  administrative, and support activities for fiscal years 2015 through 2019. According to information reported to Congress  in DOD’s March 2016 interim update, the five categories of efficiency  initiatives will achieve approximately $7.8 billion in cost savings for fiscal  years 2017 through 2021. 2.
Why GAO Did This Study

Section 346(a) of the National Defense Authorization Act for Fiscal Year 2016 requires that DOD implement a plan to achieve no less than $10 billion in cost savings from headquarters, administrative, and support activities for fiscal years 2015 through 2019. Congress further mandated DOD to report on that plan with its budget submissions for fiscal years 2017 through 2019, and for GAO to examine each report.
DOD has not submitted the report that was required with the department's fiscal year 2017 budget submission but did submit a letter to Congress in March 2016 with an interim update on its plan. GAO examined the extent to which DOD has identified the cost savings required through fiscal year 2019 using reliable cost savings estimates.
GAO reviewed DOD's interim update and related documentation, including DOD budget and guidance documents. GAO also interviewed DOD officials about the status of the plan and related efficiency efforts.
This is a public version of a sensitive report that is being issued concurrently. Information on budget data that DOD deemed sensitive has been redacted from this report.

What GAO Found

DOD has not identified $10 billion in cost savings through fiscal year 2019 as required and does not have a reliable cost savings estimate to support the cost savings it has identified. According to DOD documents, the department estimates that it will save about $13.1 billion from fiscal years 2015 through 2021. It based its cost savings estimate on savings DOD (1) identified in May 2015 and (2) reported to Congress in its March 2016 interim update (see table below).
DOD's projected cost savings estimate is unreliable because DOD-provided documentation, when compared with best practices for cost estimates, was not sufficiently detailed to support the estimate. According to DOD's internal assessment, the $5.3 billion in cost savings identified in the May 2015 report were “not auditable” because the baseline for reductions had not been established, among other reasons. The March 2016 update identified additional cost savings in categories of efficiencies, and the level of detail in DOD's documentation related to these categories varied. For example, for one category, documentation showed cost savings estimates by organization, how estimates were calculated, and actions organizations planned to take to achieve the cost savings. In contrast, for two categories, documentation identified cost savings by fiscal year but did not include information on specific actions planned to achieve them. Without detailed documentation allowing someone unfamiliar with the program to easily recreate or update the cost savings estimate, the estimate is not reliable and, thus, does not allow for clear tracking of cost savings.

What GAO Recommends

GAO recommends that DOD develop reliable cost savings estimates that include detailed information and documentation. DOD partially concurred with this recommendation but did not address how it intended to implement the recommendation. GAO continues to believe the recommendation is warranted.