	Significant Opportunities Exist to Improve Support Infrastructure and Business Practices

There is a need to improve the economy and efficiency of DOD’s business practices and further reduce its support infrastructure. Expenditures on wasteful or inefficient activities divert defense funds from other defense needs such as the modernization of weapon systems. Despite spending reductions that have occurred already, our review of DOD’s future years funding plans through fiscal year 2001 indicates that overall support infrastructure funding as a percentage of the budget is projected to remain relatively constant. DOD’s inability to effectively address the underlying causes of the high-risk areas has resulted in billions of dollars being wasted and places billions of dollars in future spending at similar risk. We concluded that effectively addressing the high-risk areas will require congressional support and a commitment by senior-level DOD mangers to a strategy that is based on the framework provided by the Government Performance and Results Act and other recent legislation. The six high-risk areas are financial management, information technology, weapon systems acquisition, contract management, infrastructure, and inventory management. Observations on the Defense Reform Act of 1997

As requested, our observations are focused on the titles of the bill relating to defense personnel reforms, defense business practice reforms, and miscellaneous additional defense reforms. Therefore, as DOD develops its personnel reduction plan required by this section, it is important that it considers restructuring of headquarters’ organizations and support activities. In February 1996, we reported that the U.S. Transportation Command retained an outdated and inefficient modally oriented organizational structure. Our work shows that opportunities exist to improve the business practices addressed in this title. We have questions about the section removing the Defense Automation and Printing Service’s surcharge and suggest the Committee may want to reconsider the section. Section 407: Coordination of the Department of Defense criminal investigations and audits. Section 407 may be inconsistent with this concept authorizing the Under Secretary of Defense (Comptroller/Chief Financial Officer) to participate in jurisdictional decisions among the service auditors and to resolve jurisdictional disputes. This role raises questions regarding the independence of service audit organizations. 10, 1997). 8, 1997).
Why GAO Did This Study

GAO discussed the titles within the Defense Reform Act of 1997 (H.R. 1778) dealing with defense personnel, business practices, and miscellaneous reforms.

What GAO Found

GAO noted that: (1) GAO strongly supports the need to improve the Department of Defense's (DOD) business practices and further reduce its support infrastructure; (2) despite spending reductions that have occurred, GAO's review of DOD's future years funding plans through fiscal year (FY) 2001 indicates that overall support infrastructure funding as a percentage of the budget is projected to remain relatively constant in the range of 57-58 percent; (3) DOD needs to achieve significant savings in its support infrastructure to help increase funding for weapon system modernization and meet its aim of increasing procurement funding from $44.1 billion to $68.3 billion between FY 1997 and 2002; (4) opportunities to improve defense business practices are illustrated by GAO's February 1997 high-risk series of reports that include six areas (financial management, information technology, weapon systems acquisition, contract management, infrastructure, and inventory management) within DOD; (5) DOD's inability to effectively address weaknesses in high-risk areas has resulted in billions of dollars being wasted and places billions of dollars in future spending at similar risk; (6) in order to effectively address the underlying causes of the high-risk areas, GAO believes that senior-level defense managers need to develop a strategic plan; (7) legislative initiatives such as H.R. 1778, and the Government Performance and Results Act, are important to stimulating long-term changes needed in DOD; (8) there are opportunities to achieve savings by reducing personnel overhead in various DOD headquarters and support areas identified in the bill; (9) GAO's work shows that there are inefficiencies in various defense activities addressed in the bill such as the U.S. Transportation Command, and that there are significant opportunities to change business practices in defense agencies as suggested by this title; (10) the requirement to remove the Defense Automation and Printing Service's surcharge billed to its military customers would be inconsistent with working capital fund cost accounting principles; (11) GAO questions part of the provision creating a board to coordinate audits because it would authorize the Under Secretary of Defense (Comptroller/Chief Financial Officer) to participate in jurisdictional decisions among the service auditors and to resolve jurisdictional disputes; and (12) this role raises questions regarding the independence of service audit organizations.