Underlying Causes of Financial and Related Business Process Transformation Challenges

Since May 1997, we have highlighted in various testimonies and reports  what we believe are the underlying causes of the department’s inability to  resolve its long-standing financial management and related business  management weaknesses and fundamentally reform its business  operations. Over the years, the department has  undertaken many initiatives intended to transform its business operations  departmentwide and improve the reliability of information for decision  making and reporting but has not had much success because it has not  addressed the following four underlying causes:    a lack of sustained top-level leadership and management accountability for    deeply embedded cultural resistance to change, including military service  parochialism and stovepiped operations;    a lack of results-oriented goals and performance measures and  monitoring; and  inadequate incentives and accountability mechanisms relating to business  transformation efforts. Given the importance of DOD’s business  transformation effort, it is imperative that it receive the sustained  leadership needed to improve the economy, efficiency, and effectiveness  of DOD’s business operations. In addition, in September 2003, we reported that DOD continued to use a  stovepiped approach to develop and fund its business system investments. These elements are    addressing the department’s financial management and related business  operational challenges as part of a comprehensive, integrated, DOD-wide  strategic plan for business reform;    providing for sustained and committed leadership by top management,  including but not limited to the Secretary of Defense;    establishing resource control over business systems investments;    establishing clear lines of responsibility, authority, and accountability;  incorporating results-oriented performance measures and monitoring  progress tied to key financial and business transformation objectives;    providing appropriate incentives or consequences for action or inaction;    establishing an enterprise architecture to guide and direct business  systems modernization investments; and    ensuring effective oversight and monitoring. Later, we will offer a suggestion  for improving the management and oversight of the billions of dollars DOD  invests annually in business systems. Specifically, we found that DOD and the military services had done  the following. Suggestions for Legislative Consideration

We would like to offer two suggestions for legislative consideration that  we believe could contribute significantly to the department’s ability to not  only address the impediments to DOD success but also to incorporate  needed key elements to successful reform. Further, the  lack of adequate transparency and appropriate accountability across all  business areas has resulted in certain fraud, waste, and abuse and hinders  DOD’s attempts to develop world-class operations and activities to  support its forces. DOD’s senior leaders have demonstrated a commitment to transforming  the department and improving its business operations and have taken  positive steps to begin this effort. We believe that implementation of our  open recommendations and our suggested legislative initiatives would  greatly improve the likelihood of meaningful, broad-based reform at DOD.
Why GAO Did This Study

GAO has issued several reports pertaining to the Department of Defense's (DOD) architecture and systems modernization efforts which revealed that many of the underlying conditions that contributed to the failure of prior DOD efforts to improve its business systems remain fundamentally unchanged. The Subcommittee on Terrorism, Unconventional Threats and Capabilities, House Committee on Armed Services, asked GAO to provide its perspectives on (1) the impact long-standing financial and related business weaknesses continue to have on DOD, (2) the underlying causes of DOD business transformation challenges, and (3) DOD business transformation efforts. In addition, GAO reiterates the key elements to successful reform: (1) an integrated business transformation strategy, (2) sustained leadership and resource control, (3) clear lines of responsibility and accountability, (4) results-oriented performance, (5) appropriate incentives and consequences, (6) an enterprise architecture to guide reform efforts, and (7) effective monitoring and oversight. GAO also offers two suggestions for legislative consideration that are intended to improve the likelihood of meaningful, broad-based financial management and related business reform at DOD.

What GAO Found

DOD's senior civilian and military leaders are committed to transforming the department and improving its business operations and have taken positive steps to begin this effort. However, overhauling the financial management and related business operations of one of the largest and most complex organizations in the world represents a huge management challenge. Six DOD program areas are on GAO's "high risk" list, and the department shares responsibility for three other governmentwide high-risk areas. DOD's substantial financial and business management weaknesses adversely affect not only its ability to produce auditable financial information, but also to provide timely, reliable information for management and Congress to use in making informed decisions. Further, the lack of adequate transparency and appropriate accountability across all of DOD's major business areas results in billions of dollars in annual wasted resources in a time of increasing fiscal constraint. Four underlying causes impede reform: (1) lack of sustained leadership, (2) cultural resistance to change, (3) lack of meaningful metrics and ongoing monitoring, and (4) inadequate incentives and accountability mechanisms. To address these issues, GAO reiterates the keys to successful business transformation and offers two suggestions for legislative action. First GAO suggests that a senior management position be established to spearhead DOD-wide business transformation efforts. Second, GAO proposes that the leaders of DOD's functional areas, referred to as departmentwide domains, receive and control the funding for system investments, as opposed to the military services. Domain leaders would be responsible for managing business system and process reform efforts within their business areas and would be accountable to the new senior management official for ensuring their efforts comply with DOD's business enterprise architecture.