Until DOD can successfully transform its operations, it will continue to  confront the pervasive, decades-old management problems that cut across  all of DOD’s major business areas. Comprehensive, Integrated, and Enterprisewide Business Transformation Plan Not Fully Developed

DOD has not fully developed a comprehensive, integrated, and  enterprisewide strategy or action plan for managing its overall business  transformation effort. This plan should cover all of DOD’s key business  functions; contain results-oriented goals, measures, and expectations that  link institutional, unit, and individual performance goals and expectations  to promote accountability; identify people with needed skills, knowledge,  experience, responsibility, and authority to implement the plan; and  establish an effective process and related tools for implementation and  oversight. While DOD has developed plans that address aspects of business  transformation at different organizational levels, these plans have not been  clearly aligned into a comprehensive, integrated, and enterprisewide  approach to business transformation. Due to the  complexity and long-term nature of DOD’s business transformation  efforts, we continue to believe DOD needs a chief management officer  (CMO) to provide sustained leadership and maintain momentum. Without  formally designating responsibility and accountability for results, choosing  among competing demands for scarce resources and resolving differences  in priorities among various DOD organizations will be difficult and could  impede DOD’s ability to transform in an efficient, effective, and reasonably  timely manner. DOD Has Made Progress in Complying with Business Systems Modernization and Financial Management Accountability Legislation, but Much Work Remains

The department has made important progress in complying with  legislation pertaining to its financial management improvement and  business systems modernization efforts. More recently, DOD issued Version 4.0 of its business enterprise  architecture and ETP. While we believe that the concepts have merit and are  applicable to DOD, much remains to be decided and accomplished before  they can be implemented in a way to produce architectures and transition  plans for each DOD component that are aligned with the department’s  corporate view and that can guide and constrain component-specific  investments. At the same time, DOD components continue to invest billions of dollars in  new and existing business systems each year. DOD Continues to Evolve Its Business Enterprise Architecture, but Much Remains to Be Accomplished

In May 2006, we reported on DOD’s efforts to address a number of  provisions in the Fiscal Year 2005 National Defense Authorization Act. Further, the transition plan now includes the initial results of ongoing  analyses of gaps between its current and target environments for most of  the business enterprise priorities, in which capability and performance  shortfalls and their root causes are described and the architecture solution  component (such as business rules and transformation initiatives and  systems) that are to address these shortfalls are identified. A major reason the department has thousands  of business systems is that it has historically failed to consistently employ  the range of effective institutional investment management controls, such  as an architecture-centric approach to investment decision making, that  our work and research show are keys to successful system modernization  programs. These system acquisition management weaknesses introduce  considerable risk to DOD’s ability to deliver promised DTS capabilities  and benefits on time and within budget. DOD intends the FIAR Plan to provide DOD components with a  framework for resolving problems affecting the accuracy, reliability, and  timeliness of financial information, and obtaining clean financial statement  audit opinions. Specifically, section 321 of the act limits DOD’s ability  to obligate or expend any funds for the purpose of any financial  management improvement activity relating to the preparation, processing,  or auditing of financial statements until it has submitted to the  congressional defense committees a written determination that each  activity proposed to be funded is (1) consistent with the DOD financial  management improvement plan required by section 376 of the National  Defense Authorization Act for Fiscal Year 2006 and (2) is likely to improve  internal controls or otherwise result in sustained improvements in the  ability of the department to produce timely, reliable, and complete  financial management information. In general, a MAIS  is a major DOD IT program that is not embedded in a weapon system (e.g.,  a business system investment). However, this is not happening within DOD.
Why GAO Did This Study

Of the 26 areas on GAO's high-risk list of federal programs or activities that are at risk for waste, fraud, abuse, or mismanagement, 8 are Department of Defense (DOD) programs or operations and another 6 are governmentwide high-risk areas that also apply to DOD. These high-risk areas relate to most of DOD's major business operations. DOD's failure to effectively resolve these high-risk areas has resulted in billions of dollars of waste each year, ineffective performance, and inadequate accountability. At a time when DOD is competing for resources in an increasingly fiscally constrained environment, it is critically important that DOD get the most from every defense dollar. DOD has taken several positive steps and devoted substantial resources toward establishing key management structures and processes to successfully transform its business operations and address its high-risk areas, but overall progress by area varies widely and huge challenges remain. This testimony addresses DOD's efforts to (1) develop a comprehensive, integrated, enterprisewide business transformation plan and its related leadership approach and (2) comply with legislation that addresses business systems modernization and improving financial management accountability. The testimony also addresses two sections included in recent legislation and other DOD high-risk areas.

What GAO Found

In the past year, DOD has made progress in transforming its business operations, but continues to lack a comprehensive, enterprisewide approach to its overall business transformation effort. Within DOD, business transformation is broad, encompassing people, planning, management, structures, technology, and processes in many key business areas. While DOD's planning and management continues to evolve, it has yet to develop a comprehensive, integrated, and enterprisewide plan that covers all key business functions, and contains results-oriented goals, measures and expectations that link organizational, unit, and individual performance goals, while also being clearly linked to DOD's overall investment plans. Because of the complexity and long-term nature of business transformation, DOD also continues to need a chief management official (CMO) with significant authority, experience, and tenure to provide sustained leadership and integrate DOD's overall business transformation effort. Without formally designating responsibility and accountability for results, reconciling competing priorities in investments will be difficult and could impede DOD's progress in its transformation efforts. DOD is taking steps to comply with legislative requirements aimed at improving its business systems modernization and financial management; however, much remains to be accomplished. In particular, DOD recently issued updates to both the business enterprise architecture and the transition plan, which are still not sufficiently complete to effectively and efficiently guide and constrain business system investments across the department. Most notably, the architecture is not adequately linked to DOD component architectures, and the plan does not include business system information for all major DOD components. To address these shortfalls, DOD issued a strategy for "federating" or extending its architecture to the defense components. But much remains to be accomplished before a well-defined federated architecture is in place, given that GAO recently reported that select components' architecture programs are not mature. However, DOD components continue to invest billions of dollars in thousands of new and existing business system programs. The risks associated with investing in systems ahead of having a well-defined architecture and transition plan are profound and must be managed carefully, as must the wide assortment of other risks that GAO's work has shown to exist on specific DOD business system investments. While not a guarantee, GAO's work and research has shown that establishing effective system modernization management controls, such as an architecture-centric approach to investment decision making, can increase the chances of delivering cost-effective business capabilities on time and within budget. Further, with regard to legislation pertaining to financial management improvement, DOD issued and updated its Financial Improvement and Audit Readiness Plan in fiscal year 2006 to provide components with a construct for resolving problems affecting the accuracy and timeliness of financial information and an improved audit strategy for obtaining financial statement audit opinions.