Major management challenges and programs risks

8/9/2019 Major management challenges and programs risks

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United States General Accounting Office

GAO Performance and AccountabilitySeries

J anuary 1999 Major ManagementChallenges and ProgramRisksDepartment of Defense

GAO/OCG-99-4


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GAO United StatesGeneral Accounting OfficeWashington, D.C. 20548

Comptroller Generalof the United States

January 1999

The President of the SenateThe Speaker of the House of Representatives

This report addresses the major performance andmanagement challenges confronting the Department of Defense ( DOD). Taken together, these challenges, if notaddressed, can adversely affect the Departmentsoperational effectiveness. The report also addressescorrective actions that DOD has taken or initiated on theseissues including DODs blueprint for a strategy-based,

balanced, and affordable defense program as outlined inthe May 1997 Report of the Quadrennial Defense Reviewand the reforms described in its November 1997 DefenseReform Initiative Reportand further actions that areneeded. For many years, we have reported significantmanagement problems at DOD. These problems can becategorized into two areas: (1) systemic managementchallenges dealing with financial management,

information management, weapon systems acquisition,and contract management; and (2) program managementchallenges dealing with infrastructure, inventorymanagement, and personnel. These problems cut acrossDODs program areas.

DOD has implemented a number of Departmentwidereform initiatives that are intended to improve itsfinancial management, information management, andweapon systems acquisition processes along with other key business practices. Despite DODs military successes,


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many of DODs programs and operations are still

vulnerable to fraud, waste, abuse, and mismanagement,and need improvement. Overcoming these challengesrequires DOD to address their underlying causes, such ascultural barriers and service parochialism that limitopportunities for change andin some casesthe lack of

clear, results-oriented goals and performance measures.Successfully addressing these challenges can improve theefficiency of DODs operations and yield fiscal dividendsthat DOD could use to meet important priorities, such asmilitary readiness and modernization needs. Many of themanagement challenges, which we reported in 1995 and1997, place the integrity and accountability of DODs

programs at high risk.

This report is part of a special series entitled thePerformance and Accountability Series: Major Management Challenges and Program Risks. The seriescontains separate reports on 20 agenciesone on each of the cabinet departments and on most major independentagencies as well as the U. S. Postal Service. The series

also includes a governmentwide report that draws fromthe agency-specific reports to identify the performanceand management challenges requiring attention acrossthe federal government. As a companion volume to thisseries, GAO is issuing an update to those governmentoperations and programs that its work has identified ashigh risk because of their greater vulnerabilities towaste, fraud, abuse, and mismanagement. High-risk

government operations are also identified and discussed

GAO/OCG-99-4 DOD ChallengesPage 2


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in detail in the appropriate performance andaccountability series agency reports.

The performance and accountability series was done atthe request of the Majority Leader of the House of Representatives, Dick Armey; the Chairman of the House

Government Reform Committee, Dan Burton; theChairman of the House Budget Committee, John Kasich;the Chairman of the Senate Committee on Governmental

Affairs, Fred Thompson; the Chairman of the SenateBudget Committee, Pete Domenici; and Senator LarryCraig. The series was subsequently cosponsored by theRanking Minority Member of the House GovernmentReform Committee, Henry A. Waxman; the RankingMinority Member, Subcommittee on GovernmentManagement, Information and Technology, HouseGovernment Reform Committee, Dennis J. Kucinich;Senator Joseph I. Lieberman; and Senator Carl Levin.

Copies of this report series are being sent to thePresident, the congressional leadership, all other

Members of the Congress, the Director of the Office of Management and Budget, the Secretary of Defense, andthe heads of other major departments and agencies.

David M. Walker Comptroller General of the United States



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Contents

Overview 6

Major Performance and

ManagementIssues

12

Related GAOProducts

66

Performance and Accountability

Series

72



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Overview

Managing and overseeing over $1 trillion inassets and a budget of over $250 billionannually, or about one-half of thegovernments discretionary funding, is anenormous task. As the United States beginsthe new millennium as the worlds solesuperpower, it continues to lead the worldwith superior military forces. Theeffectiveness of U.S. forces is well evidencedby experiences in the Persian Gulf andBosnia. Also, the Department of Defense(DOD) has implemented a number of

Departmentwide reform initiatives that areintended to improve its financialmanagement, information management, anddefense weapon systems acquisition

processes and other key business practices.However, DOD still faces challenges withmany of its key performance andmanagement processes.

The Challenges Despite DODs successes, many of DODs programs and operations are still vulnerableto fraud, waste, abuse, and mismanagement.The Congress has held oversight hearingsand enacted specific legislative initiatives toimprove the economy and efficiency of DODsoperations and the Department has acted oncongressional direction and suggestions for improvement. However, as noted in our



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Overview

report and reports of DODs Inspector General ( IG), many of DODs key management

processes need improvement. Successfullyaddressing these challenges can yield fiscaldividends that the Department could use tomeet priorities such as readiness andmodernization needs. Summaries of keysystemic management process and programchallenges that need to be addressed follow.

SystemicManagementChallenges

DOD continues to struggle to overcome the

many problems brought about by decades of neglect and to fully institute sound financialmanagement practices. These problemsrange from being unable to properly accountfor billions of dollars in assets to beingunable to produce reliable and timelyinformation needed to make sound resourcedecisions.

Information management and technologyissues are key DOD management challenges.

A primary short-term concern centers on theimplementation of the Year 2000 conversionsof date-sensitive information on DODscomputer systems. Also, informationsecurity for computer systems posesconcerns, since malicious attacks on thesesystems are an increasing threat to our nations security.



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Overview

Effectively managing the weapon systemsacquisition process continues to be a concern for DOD. Although DOD has increasedits procurement budget, it consistently paysmore and takes longer than planned todevelop systems that do not perform asanticipated.

DOD spends over $100 billion a year contracting for goods and services. Over thelast few years, DOD has made severalbroad-based changes to its acquisition andcontracting processes to improve

DOD-contractor relationships and rules. DODhas given attention to acquisition reforminitiatives, but we continue to identify risksin DODs contracting activity, including areassuch as erroneous, fraudulent, and improper

payments to contractors; payment of higher prices for commercial spare parts thannecessary; and the award and administration

of DOD health care contracts.

ProgramManagementChallenges

Although DOD has substantially downsized itsforce structure over the past 7 to 10 years, ithas not reduced operations and supportcosts commensurately because the servicesare reluctant to consolidate activities thatspan service lines and reduce capacity asnecessary.



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Overview

DODs inventory management practicescontinue to be ineffective and inefficient andare not well-suited to meet DODs newmissions and warfighting strategies. As a result, DOD spends more than necessary to

procure inventory, yet items are notavailable when needed.

DODs personnel programs to recruit, train,and retain a high-quality active-duty enlistedworkforce have not received themanagement attention needed to ensuretheir successful operation. The military

services recruit tens of thousands of newenlistees each year who fail to completetheir contracts.

Progress andNext Steps

To address the management and performance problems we have cited, DODhas taken actions in the high risk and other

areas and has made progress in improvingsome of them. DOD has had some success inaddressing its inventory management

problems, is working to reform its weaponsystems acquisition process, and hasrecognized the need for infrastructurereductions. Although DODs past and currentefforts have resulted in progress inimproving its operations, persistent andlong-standing problems still exist.Overcoming these challenges requires DOD to



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Overview

address the underlying causes of these problems, such as cultural barriers andservice parochialism that limit opportunitiesfor change and the lack of clear,results-oriented goals and performancemeasures, in some cases.

To address these problems, DOD must havean effective overall strategic plan for theagency and individual implementation plansfor each level of the organization that,among other things, include goals,

performance measures, and time frames for completing corrective actions. TheGovernment Performance and Results Act of 1993 provides the framework for resolvinghigh risk and other programs and for

providing greater accountability in DODs programs and operations. DOD, however, hasnot fully embraced the underlying principles

in the Results Act.

Our review of DODs strategic plan and itsFebruary 1998 performance plan identifiedweaknesses in (1) establishingresults-oriented performance goals withexplicit strategies and time frames for achieving them and (2) addressing what DODhas done or plans to do to resolve its

persistent management problems. In our opinion, DOD needs to work closely with the



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Overview

Congress now to develop performance goalsand measures. Addressing these areas would

provide congressional decisionmakers andDOD the information necessary to ensure thatDODs plans are well thought out for resolvingongoing problems, achieving its goals andobjectives, and becoming more resultsoriented, as expected by the Results Act.



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Major Performance and ManagementIssues

To provide for national security, DOD has a budget that exceeds $250 billion, which is15 percent of the federal budget and anestimated 3.2 percent of the U.S. grossdomestic product. DOD maintains a force of 1.4 million active duty military personnel,886,000 military reserve personnel, and770,000 civilian personnel. In addition to the

Army, the Navy, the Air Force, the MarineCorps, the Office of the Secretary of Defense, and the Joint Chiefs of Staff, DODhas 24 defense agencies such as the Defense

Logistics Agency and the Defense SpecialWeapons Agency. With 10 active Armydivisions, 3 Marine expeditionary forces,13 active Air Force fighter wings, 202bombers, 11 active aircraft carriers, 10 activenaval air wings, 12 amphibious ready groups,73 attack submarines, 128 surface combatantships, and reserve units and other

equipment, and with 200,000 of its troopsoverseas, DOD maintains worldwideinfluence.

This report summarizes our recent findingsand recommendations to address thechallenges DOD faces. These challenges canbe grouped into two categories: (1) systemic

problems with management processesrelated to plans, finances, information,acquisition, and contracts and (2) specific



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problems related to infrastructure,inventory, and personnel programs. Thisreport also indicates, where applicable, howDOD has responded to recommendations inthe Secretary of Defenses November 1997Defense Reform Initiative ( DRI) Report. TheDefense Reform Initiative, intended toimprove business practices throughout DOD,complements the National Partnership for Reinventing Government. 1

SystemicManagementChallenges

Serious FinancialManagementWeaknesses Persist

Long-standing weaknesses in DODs financialmanagement operations continue to result inwasted resources, to undermine DODs abilityto manage an estimated $250 billion budgetand $1 trillion in assets, and to limit thereliability of the financial information

provided to the Congress. Since 1995, wehave monitored DODs efforts as it hasstruggled to resolve the many problemsbrought about by decades of neglect and

1The National Partnership for Reinventing Government (formerlythe National Performance Review) was created by PresidentClinton in March 1993 to reform the way the federal governmentworks. Its mission is to create a government that works better,costs less, and gets results that Americans care about.



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inability to fully institute sound financialmanagement practices. The most recentaudits of DODs financial statementsfor fiscal year 1997resulted in theidentification of the following seriousdeficiencies across the full spectrum of DODsrecordkeeping and control systems.

DOD has not properly accounted for andreported billions of dollars of property,equipment, inventory, and supplies. Auditorsfound material weaknesses in the systems

and processes DOD relied on to maintainaccountability and to control virtually everycategory of physical assets, includingmilitary equipment; general property, plant,and equipment; government-furnished

property held by contractors; andinventories. For example, recordedinformation on the number and location of

several military equipment itemssuch asF-4 engines and service craftwas notreliable, on-hand quantities of inventoriesdiffered by 23 percent from inventoryrecords at selected major storage locations,and over $9 billion in known militaryoperating materials and supplies were notreported. These weaknesses impair DODsability to (1) know the location andcondition of all its assets, including thoseused for deployment; (2) safeguard assets



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1998 Annual Report to the President and theCongress cited the lack of a widespread,robust cost-accounting system as the singlelargest impediment to controlling andmanaging weapon system life cycle costs.

DOD has not properly accounted for billionsof dollars of basic transactions. For example,DOD was unable to reconcile at least$4 billion in differences between checksissued by DOD and reported to theDepartment of the Treasury. In addition, DODreported an estimated $22 billion in

disbursements that it was unable to matchwith corresponding obligations. Until these problems are corrected, DODs status of fundsreports do not properly reflect alltransactions. As we recently reported, Navyrecords show that as of September 30, 1997,obligations for 9 canceled and 20 expiredappropriations may have exceeded the

available budget authority by a total of $290 million.

DOD has not ensured that all disbursementswere properly recorded and reconciled. Over the years, we and DOD auditors have reportedthat DODs payment processes and systemshave serious internal control weaknessesthat have resulted in numerous erroneousand in some cases fraudulent payments. For example, we recently reported that weakcontrols led to two fraud cases involving



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nearly $1 million in embezzled Air Force vendor payments and that similar controlweaknesses continue to leave Air Forcefunds vulnerable to additional fraudulentand improper vendor payments.

In addition, to achieve the wide-rangingreforms necessary to address itslong-standing financial managementdeficiencies, we have made numerousrecommendations to DOD regarding its needto upgrade the skills of its financial

personnel and successfully overcomeserious design flaws in its financial systems.Until DOD deals with these two key issues,resolution of its financial management

problems is unlikely.

Fixing its financial management problemsrepresents a major challenge because of the

size and complexity of DODs operations andthe discipline needed to comply withexisting and new, more comprehensiveaccounting and reporting requirements.DODs vast financial operations involve about32,000 financial management personnel. Our survey of over 1,400 key DOD financialmanagersindividuals often serving incomptroller, deputy comptroller, or budgetofficer positionsshowed that over half (53 percent) had received no financial or



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accounting-related training during 1995 and1996. These personnel will be challenged tolead DODs efforts to produce reliablefinancial data that build upon existingrequirements to incorporate recent, morecomprehensive accounting standards andfederal financial management systemsrequirements throughout a large andcomplex organization with acknowledgeddifficult financial deficiencies.

Until DOD has developed integrated financial

management systems, its operations willcontinue to be burdened with costly,error-prone systems without financialcontrols to ensure that DODs assets aresafeguarded, its resources appropriatelyaccounted for, or the cost of its activities areaccurately measured. Concerns continueover whether DOD (1) has comprehensively

identified all the systems it relies on to carryout its financial management operations;(2) corrected weaknesses that would allowboth hackers and hundreds of thousands of legitimate users with valid access privilegesto modify, steal, inappropriately disclose,and destroy sensitive DOD data; and(3) effectively documented how it conductsits financial management operations nowand plans to in the future. Effectivelydocumenting the Departments concept of its



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short-term initiatives to address theDepartments financial reportingdeficiencies. Furthermore, the NationalDefense Authorization Act of 1998 requiresDOD to develop a broad-based plan for improving its financial managementoperations and specified a number of financial management areas that DOD was toaddress. In response, in late October 1998,DOD issued its first Biennial FinancialManagement Improvement Plan.

In presenting the Biennial Plan, theSecretary of Defense stated that it includedalmost all aspects of financial managementin the Department and established theDepartments strategy for managing itsfinancial management operations. The plansets out the Departments first-ever attemptto describe the overall concept of its future

financial management operations. The planis intended to encompass both DODsfinancial systems and the program feeder systems that originate and provide anestimated 80 percent of the data processedin the Departments financial systems. WhileDODs plan represents an important step inimproving the Departments financialmanagement operations, the plan needs tobe supplemented with additional elements inorder to put in place the structure needed to



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address all of the needed aspects of long-term financial management

performance improvement.

Key Contact Lisa G. Jacobson, Director Defense Audits

Accounting and Information Management Division(202) 512-9095

[email protected]

InformationManagement andTechnology IssuesPose Major Concerns

DOD relies extensively on computer systemsto carry out its operations related tointelligence, surveillance, and security;sophisticated weaponry; and routinebusiness and financial managementfunctions. This reliance will only grow as theDepartment moves to modernize and

respond to technological advances that arechanging the traditional concepts of warfighting through improved intelligenceand improved command and control.Maintaining and modernizing this support inan efficient and secure manner across a department as large and diverse as DOD is anenormous challenge.

DOD faces a number of very seriousmanagement challenges to ensure that



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technology-driven processes and businesssystems provide an adequate level of serviceand an appropriate rate of return oninvestments. The most immediate challengefacing the Department is ensuring that itskey mission and business functions continueto operate after the year 2000. Other issues,while not tied to immovable deadlines, arealso important to the Departments ability to

provide cost-effective, accurate informationand services. These issues involveinformation security and management of

DODs information technology investment process.

Progress on Year 2000Conversion Is Slow

The Department of Defense relies oncomputer systems for virtually all itsoperations, including strategic and tacticaloperations, sophisticated weaponry,intelligence, surveillance and security

efforts, and more routine business functionssuch as payroll and logistics. The Year 2000

problem results from the inability of computer systems to correctly interpretrecorded dates when only two digits areused to indicate the year, such as 98 for 1998. Federal agencies are makingsignificant efforts to correct the problems,and, in February 1997, we designated theYear 2000 conversion problem as a governmentwide high-risk area. For an



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organization as large as DODwith over 1.5 million computers, 28,000 systems, and10,000 networksaddressing the Year 2000

problem is a formidable task.

DOD has an enormous effort underway toremediate its mission-critical systems andensure that its key operational missions willcontinue to function after the century datechange. That effort is at risk. We have issued10 reports and the DOD IG and audit agencieshave issued 130 reports that continue to

question the Departments management of its Year 2000 program. For example:

The Department lacks reliable, timelyinformation on program status.

Component reports on systems complianceare often inaccurate.

Contingency plans (developed in the event of

system failure) are frequently notexecutable.

Inconsistent guidance has led to false startsand uncoordinated efforts.

In order to address these issues, werecommended in April 1998 that theDepartment establish a strongdepartment-level program office to overseethe Year 2000 program, clearly define criteria for prioritizing systems for repair, and



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establish better reporting mechanisms. 2 Our concerns about the Departments ability tomeet its critical operational missions led to a requirement in the House Conference Reportaccompanying the current fiscal year appropriations (H. Rept. 105-746) thatDODas part of its training exercises

programdevelop a plan for evaluating Year 2000 compliance in a variety of trainingexercises. DOD is to

evaluate, in an operational environment, the extent to whichinformation technology and national security systems involved in

those exercises will successfully operate during the actual year 2000, including the ability of those systems to access and transmitinformation from point of origin to point of termination.

Collectively, the Departments weaknessesin developing a strong management processseriously endangers its chances of successfully meeting the Year 2000 deadline

and meeting the requirements detailed previously. The Department needs toimprove its management oversight tominimize the risk of failure to itsmission-critical systems and the operationsthey support.

To its credit, DODs senior management hasconcurred with all of our recommendations

2Defense Computers: Year 2000 Computer Problems Threaten DODOperations (GAO/AIMD-98-72, Apr. 30, 1998).



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and has taken an increasingly active, highly visible interest in taking corrective action.The Department has been similarlyresponsive to the DOD IG recommendations.The senior management teamled by theDeputy Secretarymeets on a regular basisto assess program direction and take actionbased on that assessment.

Nevertheless, the Department remainsbehind schedule in completing its systemsremediation and is still grappling with the

program management issues describedabove. As a result, the Office of Managementand Budget ( OMB), in its November 15, 1998,report on federal agencies progress on Year 2000 conversion, has placed the Departmenton its Tier 1 listthose agencies wherethere is insufficient evidence of adequate

progress.

Ensuring NeededCapabilities RequiresEffective Management of Information TechnologyProjects

To promote improvements in the selectionand control of information technology

projects, the Clinger-Cohen Act of 1996requires federal agencies to have processesand information in place to help ensure thatsuch projects are (1) being implemented atacceptable costs, within reasonable andexpected time frames and (2) contributing totangible, observable improvements inmission performance. DOD has taken steps to



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implement these requirements. However, itfaces a major challenge in implementing realchange in its current organizational structureand culture, which impedes oversight andcoordination of information resources froma Departmentwide perspective. Accordingly,we are continuing to designate DODsinformation technology project managementefforts as high risk. In previous reports,these efforts were referred to as theCorporate Information ManagementInitiative, a term that we are discontinuing

because it is no longer widely used in DOD. A prime example of DODs poor managementof information technology is its $18-billionsystem migration effort to replace almost2,000 duplicative and inefficient systemsthroughout the Department. One functionalarea of the migration effort, which we

reported on in 1996, spent over $700 million pursuing a substantially flawedeffortwhich was later abandonedwithout rigorousDepartment-level oversight. In October 1997,we reported that such management

problems persisted and that the Departmenthad little assurance that the migrationsystems being developed would help achieveDODs technology goals.



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Effective information technology project planning and oversight are especiallyimportant as DOD moves to coordinate itsthousands of decentralized command,control, communications, intelligence,surveillance, and reconnaissance systems inorder to ensure information superiority over our nations enemies. To this end, we made a number of recommendations that wouldestablish and enforce processes tothoroughly examine alternatives and developbusiness cases before investing in migration

systems. Further, we recommended thatsystem investments be consistent with theDepartments technical standards and thatcontrols and performance measures beestablished to allow management visibilityover system development efforts. TheDepartment generally agreed with theserecommendations and is now finalizing a

plan that will show how it intends to meetwith the requirements of the Clinger-Cohen

Act.

Information Security Is a Major Concern

Securing DODs vast array of networkedcomputers is a major challenge. Defensescomputer systems are particularlysusceptible to attack through connections onthe Internet, which Defense uses to enhancecommunication and information sharing. InMay 1996, we reported that attacks on



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Defense computer systems were a seriousand growing threat. 3 The exact number of attacks could not be readily determinedbecause tests showed that only a small

portion were actually detected and reported.However, the Defense Information Systems

Agency estimated that attacks numbered inthe hundreds of thousands per year andwere successful 65 percent of the time andthat the number of attacks was doublingeach year. At a minimum, these attacks are a multimillion-dollar nuisance to DOD. At

worst, they are a serious threat to nationalsecurity.

According to Defense officials, attackershave obtained and corrupted sensitiveinformation: they have stolen, modified, anddestroyed both data and software. They haveinstalled unwanted files and back doors

that circumvent normal system protectionand allow attackers unauthorized futureaccess. They have shut down and crashedentire systems and networks, denyingservice to users who depend on automatedsystems to help meet critical missions.Numerous DOD functions have beenadversely affected, including weapons andsupercomputer research, logistics, finance,

3Information Security: Computer Attacks at Department of DefensePose Increasing Risks (GAO/AIMD-96-84, May 22, 1996).



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procurement, personnel management,military health, and payroll. In March 1998,DOD announced that it had recently identifieda new series of organized intrusions,indicating that such events continue to be a

problem.

The same weaknesses that allow attacksfrom outsiders could also be exploited byauthorized users to commit fraud or other improper or malicious acts. In fact,knowledgeable insiders with malicious

intentions can be a more serious threat tomany operations, since they are more likelyto know of system weaknesses and of waysto disguise inappropriate actions.

Audit reports have identified a broad arrayof problems. One of the most fundamentalissues, which we reported on in August 1998,

is that DOD has not completed developmentof an architecture, or blueprint, for itscommand, control, and communicationssystems. 4 Without such an architecture, DODwill find it difficult to ensure that thesesystems, which are essential to DODslong-term plans for ensuring informationsuperiority, are adequately protected. Other reports have identified specific control

4Defense Information Superiority: Progress Made, but SignificantChallenges Remain (GAO/NSIAD/AIMD-98-257, Aug. 31, 1998).



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weaknesses in existing systems that increasethe risks of damage from intrusions as wellas from malicious acts and inadvertentmistakes by authorized users. For example,in April 1998, we testified that, based on our fiscal year 1997 financial statement auditwork, DODs computer controls did not

provide adequate protection of significantfinancial applications involving personnel,

payroll, disbursements, and inventoryinformation. 5 In September 1997, wereported that DOD had not adequately

(1) controlled the ability of computer programmers to make changes to systemssupporting the Military Retirement TrustFund, (2) controlled access to sensitiveinformation on pension fund participants, or (3) developed or tested a comprehensivedisaster recovery plan for the sites that

process Fund data. These weaknesses

expose sensitive data maintained by thesesystems to unnecessary risk of disclosure,and should a disaster occur, there is noassurance that the operations supported bythese facilities could be restored in a timely

5Department of Defense: Financial Audits Highlight ContinuingChallenges to Correct Serious Financial Management Problems(GAO/T-AIMD/NSIAD-98-158, Apr. 16, 1998).



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Key Contact Jack L. Brock, Jr., Director Governmentwide and Defense Information Systems

Accounting and Information Management Division(202) [email protected]

Weapon Systems AcquisitionProblems Persist

DOD spends about $85 billion annually toresearch, develop, and acquire weaponsystems. Although DOD has many acquisition

reform initiatives in process, pervasive problems persist regarding (1) questionablerequirements and solutions that are not themost cost-effective available; (2) unrealisticcost, schedule, and performance estimates;(3) questionable program affordability; and(4) the use of high-risk acquisition strategies.We have reported that weapon systems

acquisition is a high-risk area, and it remainson our high-risk list.

Requirements AreQuestionable and NotCost-Effective

DOD acquisition policies require analyses of missions, mission needs, costs, and weaponsystem alternatives to ensure thatcost-effective solutions are matched to validneeds before substantial resources arecommitted to a particular program. Animportant objective is to minimize overlapand duplication among weapon systems that



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perform the same or similar missions. Wehave found that while the services conductconsiderable analyses in justifying major acquisitions, these analyses can be narrowlyfocused, without full consideration of alternative solutions, including the jointacquisition of systems with the other services. In addition, because DOD does notroutinely develop information on jointmission needs and aggregate capabilities, ithas little assurance that decisions to buy,modify, or retire systems are sound. We

continue to uncover and report onquestionable mission needs and on systemsthat are not the most cost-effective solutionto a mission need. For example:

DOD could have met its strategic airliftrequirements and achieved a significant lifecycle cost savings by buying fewer C-17s

than planned; by increasing the total annual buy of

Blackhawk helicopter derivatives for MarineCorps and other requirements, DOD couldsave over $700 million in research anddevelopment and procurement costs;

the Armys procurement quantities for theLongbow Hellfire missile were significantlyoverstated;

DODs plan to lease satellite communicationsfrom commercial providers rather than



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replace the Defense SatelliteCommunications System in 2003 may not becost-effective; and

the Air Force and the Navy used inconsistentdata to calculate the number of joint aircrafttraining systems needed for primary pilottraining.

Unrealistic Cost,Schedule, andPerformance Estimates

In our high-risk reports, we noted that thedesire of program sponsors to keep costestimates as low as possible and to presentattractive milestone schedules had

encouraged the use of unreasonableassumptions about the pace and magnitudeof the technical effort, material costs,

production rates, savings from competition,and other factors. We continue to find andreport on overly optimistic program

projections and execessive risks in light of the current budget and security

environment. For example:

In restructuring the F-22 program, it isdoubtful that the Air Force can offset the$13-billion projected increase in productioncosts because many of the cost-cuttinginitiatives it identified were not well defined;

F/A-18E/F development and productioncosts are likely to be greater than projectedby the Navy;



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the Navy Area Theater Ballistic MissileDefense Program has experienced scheduleslips, and further slips are possible becauseof its highly optimistic schedule for conducting operational tests;

despite many years in development, the V-22had yet to achieve program stability in termsof cost or aircraft design;

B-2 costs may be understated if the Air Force plans to correct deficiencies identifiedduring testing, including the acquisition of shelters for use in forward operating

locations to preserve the features that makethe aircraft difficult to detect, and to providethe originally planned performance; and

the projected cost of the Navys New AttackSubmarine has grown and will increasefurther due to the level of technical andschedule risks in the program.

Questionable Program Affordability Each year for the past several years, we havereported that DODs Future Years DefenseProgram could not be executed withavailable funds. We concluded that DODstendency to overestimate the funding thatwould be available in the future, coupledwith the tendency to underestimate programcosts, had resulted in the advent of more

programs than could be executed as planned. When DOD finally faced fundingreality, it often reduced, delayed, and/or



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stretched out programs, substantiallyincreasing the cost of each system. Inaddition to the higher unit costs caused by

program stretchouts, another affordabilityissue is DODs potential inability to address

valid requirements when available resourcesare consumed on questionable priorities. Wecontinue to find and report on numerous

problems with DODs budgeting and spending practices for weapon system acquisitions.For example:

In analyzing the 1998 Future Years DefenseProgram, we found that funding for infrastructure activities was projected toincrease, while procurement funding was

projected to be lower than anticipated.Nonetheless, DOD is pursuing a number of major system acquisition programs on theassumption that infrastructure savings will

materialize. DODs ambitious aircraft modernization

program is neither realistic nor justifiedgiven current and projected budgetaryconstraints.

Despite the current budgetary constraints,DOD plans to double its spending on guidedweapons over the next 10 years.

Although the Navy has not yet explainedhow they relate to current national defensestrategy, its plans to modernize its surface



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combatant force hinge on optimistic budgetassumptions.

High-Risk AcquisitionStrategies

In our previous high-risk reports, we statedthat high-risk acquisition strategies, such asthe acquisition of weapons based onoptimistic assumptions about the maturityand availability of enabling technologies,were being based on the need to meet thethreat and to reduce acquisition costs. Wehave also reported on the high-risk practiceof beginning production of a weapon system

before development, testing, and evaluationare complete. When a highly concurrentstrategy is used, critical decisions are madewithout adequate information about a weapons demonstrated operationaleffectiveness, reliability, logisticsupportability, and readiness for production.

Also, rushing into production before critical

tests have been successfully completed hasresulted in the purchase of systems that donot perform as intended. These premature

purchases have resulted inlower-than-expected availability of systemsfor operations and have quite often led toexpensive modifications. In todays nationalsecurity environment, proceeding withlow-rate production without demonstratingthat the system will work as intended shouldrarely be necessary. Nevertheless, DOD still



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begins production of many major andnonmajor weapons without first providingthat the systems will meet critical

performance requirements, as indicated inthe following examples:

DODs approval of the Joint SurveillanceTarget Attack Radar Systems full-rate

production was premature and risky becausethe systems operational effectiveness andsuitability for combat were not yetdemonstrated and plans to address

deficiencies and reduce program costs werenot completed; the plan to develop and deploy a National

Missile Defense System in only 6 years isfraught with risks, including possibleschedule slippages and technical problemsstemming from limited testing;

the Armys acquisition plan for the Theater

High Altitude Area Defense Program calls for significant production of deploymenthardware almost 2 years before beginningindependent operational testing to assess thesystems operational effectiveness;

although already in low-rate production,serious deficiencies found in developmentaltesting raise questions about the F/A-18E/Fsoperational performance; and



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testing delays are expected to limit theinformation available to support the Air Forces plans to start F-22 production.

Acquisition Reform andthe Prospects for Change

Acquisition reforms under way by DOD have a sound basis and have the potential for improving the outcomes of weaponssystems. Commercial practices for gainingknowledge and assessing risks can also help

produce better outcomes on DODacquisitions. DODs leadership is genuinelycommitted to making a difference in the

status quo. However, lasting improvementsin the outcomes of acquisition programs willnot be realized unless the incentives thatdrive behaviors in the acquisition processare changed.

The competition for funding when a programis launched encourages aspiring DOD

program managers to include performancefeatures and design characteristics that relyon immature technologies. In thisenvironment, risks in the form of ambitioustechnology advancements and tight cost andschedule estimates are accepted asnecessary for a successful launch. Problemsor indications that the estimates aredecaying do not help sustain programs inlater years, and thus admission of them isimplicitly discouraged. There are few



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rewards for discovering and recognizing potential problems early in programdevelopment.

Acquisition reforms and commercial practices can help produce better outcomeson DOD acquisitions if they help a programsucceed in its environment. For lastingreform, the incentives of the weaponacquisition process must be realigned withdesired program outcomes. Changing theseincentivesthat is, redefining program

successwill take the efforts of theCongress as well as DOD and the services. A major step in this direction is redefining the

point for launching programs as the point atwhich technology development ends and

product development begins. Making thelaunch point later in the acquisition cycle isconsistent with the practices of leading

commercial firms and can relieve some of the pressure for programs to overpromise on

performance and resource estimates. Once a program is under way, the Congress and DODmust make it acceptable for programmanagers to identify unknowns as high risksso that they can be aggressively worked onearlier in development.



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Key Contact Louis J. Rodrigues, Director Defense Acquisition IssuesNational Security and International Affairs Division(202) [email protected]

Improved Processesand Controls Key toReducing ContractRisk

DOD spends in excess of $100 billion a year contracting for goods and services. Since1995, we have reported DOD contractmanagement as a high-risk area, and it

remains on our list of high-risk areas. Over the last few years, several broad-basedchanges have been made to DOD acquisitionand contracting processes to improve theway DOD relates to its contractors and therules governing their relationships. And thechanges are by no means complete.

Acquisition reform, with its emphasis on

widespread reengineering of fundamental processes, continues to receive attention atthe highest levels in DOD.

Our work, and that of the DOD IG, continue toidentify risks in DOD contracting activity. For example, DOD continues to experience

problems with erroneous, fraudulent, andimproper payments to its contractors; payinghigher prices for commercial spare parts



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than necessary; and awarding andadministering its health care contracts.

Fixing DODs High-RiskPayment Systems Is

Imperative

The need for DOD to achieve effective controlover its payment process remains animperative. If it does not, DOD continues torisk erroneously paying contractors millionsof dollars and perpetuating other financialmanagement and accounting control

problems. While DOD is taking steps toimprove its payment process and controls, itwill likely take an extended period of time to

get its payment problems under control.DOD receives about a billion dollars a year inchecks from defense contractors. Whilesome of these are the result of contractchanges that result in reduced prices, othersrepresent errors by DODs payment center.DOD is conducting a demonstration program

to evaluate the feasibility of using privatecontractors to identify overpayments madeto vendors. Through this process, known asrecovery auditing, the contractor hasidentified about $19 million in overpayments.DOD is examining opportunities to expandthe use of recovery auditing, which webelieve offers potential to identifyoverpayments.



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In addition to erroneous payments, weaksystems and internal controls can leave DOD

vulnerable to fraud and improper payments.Our September 1998 report discussed twocases of fraud that resulted from a weakinternal control environment. 8 The lack of segregation of duties and other controlweaknesses, such as weak controls over remittance addresses, created anenvironment in which employees were givenbroad authority and the capability, withoutcompensating controls, to perform functions

that should have been performed by separateindividuals under proper supervision. For example, as of mid-June 1998, over 1,800Defense Finance and Accounting Service(DFAS ) and Air Force employees had a levelof access to the vendor payment system thatallowed them to enter contract and paymentinformation and remittance addresses

needed to create payment vouchers. No oneindividual should control all key aspects of a transaction or event without appropriatecompensating controls. Moreover, we foundthat the automated vendor payment systemwas vulnerable to penetration byunauthorized users due to weaknesses incomputer security, including inadequate

password controls.

8Financial Management: Improvements Needed in Air Force Vendor Payments Systems and Controls (GAO/AIMD-98-274, Sept. 28,1998).



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Further, DFAS lacked procedures to ensurethat it could properly document the date that

Air Force vendor invoices were received for payment and that goods and services werereceived. These are critical dates for ensuring timely vendor payments and theavoidance of interest under the PromptPayment Act.

In addition, we found that DFAS and the Air Force lacked documentation to determinewhat payments had been made on two

Bolling Air Force Base office automationcontracts (let in 1986 and 1992). Further, dueto incomplete and inaccurate propertyrecords, we were unable to determinewhether the Air Force received the goodsand services paid for under these contracts.

Challenges in Adjusting

to Commercial ContractPricing Practices

In recent years, DOD has significantly

changed the way it acquires goods andservices by removing what were consideredbarriers to efficient and effective use of thecommercial marketplace. A major focus of these changes is the adoption of commercialbuying practices. For example, for anincreasing number of contracts for sole-source spare parts, DOD is transitioningfrom a cost-based pricing environment, inwhich contractor costs are the basis tonegotiate prices, to a market-based or



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commercial pricing environment in whichfactors other than cost, such as pricing data,are the principal means used to determinethe reasonableness of prices. While the levelof commercial contracting remains relativelysmall compared to total DOD procurement, itis likely to increase substantially in thecoming years.

We and the DOD IG have found that DOD needsto strengthen the quality of its priceanalyses. For example, the IG found that DOD

had not formulated good procurement andmanagement strategies for commercial partsin the acquisition reform environment. As a result, DOD was paying higher prices for commercial spare parts than necessary. Our work also identified cases in which limitedanalysis of commercially offered pricesresulted in significantly higher prices than

previously paid. DOD is taking steps toimprove its workforce training incommercial buying and pricing. How wellDODs shrinking acquisition workforce willadjust to the increasing commercial pricingenvironment remains to be seen; it continuesto be an area of high contract risk.

Contracts for DODHealth Care ManagementFace Risks

DODs implementation of health caremanagement programs, particularly theTRICARE Program, further illustrates DODs



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difficulty in managing contracts. TRICARE wasestablished during a period of militarydownsizing and budget concerns to containcosts and maintain access to and the qualityof health care for DODs 8.2 millionbeneficiaries. However, TRICAREsimplementation, entailing the award of sevencompetitively bid, 5-year contracts, has beenfraught with problems. All seven contracts,totaling about $15 billion, were protested. Asa result, DOD and the competitors incurredadded costs, and the program was

significantly delayed. Three of the protestswere sustained, resulting in further delays.

Also, we identified problems with the changeorder process, including the protractedsettlement of the orders. As of November 1998, over 350 change orders tothe TRICARE contracts had not been settled.

As a result of this experience, DOD set out todevelop and introduce during next yearsnew round of contracts a more simplified

procurement approach. The approach is tobe less prescriptive than the currentcontracts, relying on bidders, for example, to

propose their most cost-effective, provencare practices. But, because the newsolicitation approach will be less

prescriptive, DODs evaluation of proposalswill be made more subjective and perhaps



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more difficult. Such challenges have prompted DOD instead to seek 2-year extensions of the current contracts while itcontinues to refine its new approach.

Whether DOD can successfully develop andlaunch the new method, and whether what itdesigns will reduce the current volume of contract changes or control health care costsremains to be seen.



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the elimination of military and civilian jobs.DODs ability to reduce infrastructure hasbeen affected by service parochialism, a cultural resistance to change, andcongressional and public concern about theeffects and impartiality of decisions. For fiscal year 1998, DOD estimated that about$147 billion, or 58 percent of its budget,would still be needed for infrastructurerequirements, which included installationsupport, training, medical care, logistics,force management, acquisition

infrastructure, and personnel. InFebruary 1997, we identified defenseinfrastructure as a high-risk area, and itremains on our high-risk list.

The Secretary of Defenses November 1997DRI Report emphasizes the need to reduceexcess Cold War infrastructure to free up

resources for force modernization. Specificinitiatives cited in the report included

privatizing military housing and utilitysystems, emphasizing demolition of excessbuildings, consolidating and regionalizingmany defense support agencies, andrequesting legislative authority to conducttwo additional base realignment and closure(BRAC) rounds. The Secretary noted that DODcontinued to be weighed down by facilitiesthat are too extensive for its needs, more



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expensive than it can afford, and detrimentalto the efficiency and effectiveness of thenations armed forces. Likewise, he notedthat DOD must do a better job of managingfacility assets on its remaining bases. Inresponding to section 2824 of the Fiscal Year 1998 Defense Authorization Act, DODemphasized the problem of continuingexcess infrastructure in its April 1998 reportto the Congress concerning BRAC issues.More recently, in our November 1998 reporton Army industrial facilities, we noted the

continuing existence of significant excesscapacity in the Armys maintenance depotsand manufacturing arsenals.

While the defense reform initiatives are stepsin the right direction and have broughthigh-level attention to the need for infrastructure reductions, collectively they

do not provide a comprehensive long-range plan for facilities infrastructure. We havecited the need for such a plan but have notedthat DODs past plans were not focused onlong-term comprehensive strategies for facilities revitalization, replacement, andmaintenance and were not tied tomeasurable goals to be accomplished over specified time frames or linked to funding.



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The need for improved planning for facilitiesinfrastructure is underscored by therequirements of the GovernmentPerformance and Results Act of 1993.Improved infrastructure planning can helpagency components and programs todevelop outcome-oriented goals and

performance measures that are linked to andsupport agencywide goals.

While we have not completed an in-depthanalysis of all the categories of

infrastructure, we have identified numerousareas in which infrastructure activities canbe eliminated, streamlined, or reengineeredto be made more efficient. Significantefficiencies could be achieved in the areas of acquisition infrastructure, central logistics,installation support, central training, forcemanagement, and medical facilities and

services.

Key Contact David R. Warren, Director Defense Management IssuesNational Security and International Affairs Division(202) [email protected]



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InventoryManagementProblems Persist inDOD

In 1990, we identified DODs management of secondary inventories (spare and repair

parts, clothing, medical supplies, and other items to support the operating forces) as a high-risk area because levels of inventorywere too high and management systems and

procedures were ineffective. While someimprovements have been made, thesegeneral conditions still exist; this area stillremains on our high-risk list.

DOD has had inventory management

problems for decades. In the short term, DODstill needs to emphasize the efficientoperation of its existing inventory systems.In the long term, DOD must establish goals,objectives, and milestones for changing itsculture and adopting new management toolsand practices. Cultural changes, by their nature, are slowly achieved, and DODs key

initiatives to improving inventorymanagement have progressed slowly. UnlessDOD takes more aggressive actions to correctsystemic problems, its inventorymanagement problems will continue into thenext century.

Adequate inventory oversight has yet to beachieved. In 1995, we reported that DODsstrategic plans for logistics called for improving asset visibility in such areas as



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in-transit assets, retail level stocks, andautomated systems. 9 DOD was to completelyimplement asset visibility plans by 1996,later changed that date to 2001, and now willnot completely implement its current planuntil 2004. The lack of adequate visibilityover operating materials and suppliessubstantially increases the risk that millionsof dollars will be spent unnecessarily. For example, the Navys fiscal year 1996financial statements did not includeinformation on $7.8 billion in inventories on

board ships and at Marine Corps activities.DOD has not taken sufficient steps to ensurethe accuracy of inventory requirements to

preclude the acquisition of unneeded items.For example, in April 1998 we reported thatthe Navy did not always have validrequirements to support inventory

purchases. The Navy could have eliminatedabout $13 million of planned programrequirements for 68 of 200 items wereviewed because the requirements werealso included in the reorder-levelrequirement. While we could not preciselyquantify the overall extent of the problem,this double counting could be indicative of a

9 Asset visibility is intended to provide defense personnel withtimely and accurate information on the location, movement, status,and identity of units, personnel, equipment, and supplies across allDOD components.



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larger problem because the Navy has a totalof about $3.3 billion of planned programrequirements that affect purchase decisions.The Navy could also have done a better jobof canceling contracts for excess inventory.

A major reason for not canceling more purchases was that the Navy addsprotection levels representing as much as2 years of usage before consideringcancellation, and it cancels only the amountof the purchases that exceeds the protectionlevels.

The vulnerability of in-transit inventory towaste, fraud, and abuse is another area of concern. In February 1998, we reported thatDOD did not have receipts for about60 percent of its 21 million shipments to endusers in fiscal year 1997. Later work showsthat, over the last 3 years, the Navy alone

reportedly wrote off as lost over $3 billion inin-transit inventory. The vulnerability towaste, fraud, and abuse also extends to DODsdisposal of surplus property. In October 1997, we reported that DOD destroyed andsold as scrap some usable aircraft parts innew or repairable condition that could havebeen sold intact at higher than scrap prices.In contrast, in August 1998, we reported thatDOD inadvertently sold surplus parts withmilitary technology intact. In these cases,



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management controls were insufficient to preclude these conditions.

Applying BestManagement Practices to

Defense InventoryManagement

Recently, the Congress enacted legislationrequiring the Defense Logistics Agency ( DLA )and the services to develop and submitschedules for implementing best commercial

practices in its acquisition and distributionof inventory items. The legislation calls for the implementation of best practiceinitiatives to be completed within the next 3

years in the case of DLA and 5 years for the

services. We are required to examine theseschedules and report on the extent to whichthe services have complied with their legislative mandate and DLA and the servicesare implementing these initiatives.

DOD recognizes potential opportunities inadopting best practices. The Secretary of

Defenses DRI, for example, seeks toreengineer DOD support activities andbusiness practices by incorporating manybusiness practices that private sector companies have used to become leaner,more agile, and highly successful. Theinitiative calls for adopting modern business

practices to achieve world-class standards of performance in DOD operations. TheSecretary of Defense stated that reformingDOD support activities is imperative to free



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up funds to help pay for high priorities suchas weapons modernization.

Since 1991, we have issued 11 reports thatidentify significant opportunities for DOD totest and adopt, where feasible, bestinventory management practices used in the

private sector to improve logisticsoperations and lower costs. These reportshave compared DOD and private sector logistics practices for inventory managed byDLA and each of the military departments.

The business practices we recommended inour past reports have, for the most part,been used in the private sector to enablecustomers to order supplies as they areneeded and receive them within hours. This

practice reduces overall supply system costs,eliminates large inventories, and enablescompanies to reduce or eliminate the

ordering of supplies that may not be neededor become obsolete. To achieve similar inventory reductions, infrastructure savings,and improved customer service, we haverecommended that DOD expand its currentinitiatives to their fullest extent and includetasks such as ordering, storing, anddistributing supplies to the customer.

We have also reported that some commercialairlines have cut costs and improved



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customer service by streamlining their overall logistics operations. The mostsuccessful improvements took a supply-chain management approach, whichincluded using highly accurate informationsystems to track and control inventory;employing various methods to speed theflow of parts through the logistics pipeline;shifting certain inventory tasks to suppliers;and having third parties handle parts repair,storage, and distribution functions. Adopting

practices similar to these could help DODs

repair pipelines become faster and moreresponsive to its customers needs.

Key Contact David R. Warren, Director Defense Management IssuesNational Security and International Affairs Division

(202) [email protected]

Military PersonnelIssues Need

Attention

DODs recruiting and retention of a high-quality work force need topmanagement attention. Our body of work inthis area indicates that DOD faces anespecially significant challenge in retainingthe hundreds of thousands of new recruits itenlists each year. While each new enlistee



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signs a contract ranging from 2 to 6 years,most first-term contracts are for 4 years.Despite this contractual obligation, we foundthat between fiscal year 1982 and 1993,31.7 percent of all enlistees did not completetheir first terms of service: 11 percent of enlistees were separated during their first6 months and 20.7 percent between their 7th and 48th month. First-term attrition iscostly: DOD estimates that the servicesrecruiting and training investment in eachenlistee during the first term is an average of

$35,532. Using DODs lower recruiting andtraining cost estimates for fiscal year 1993(ranging from $19,143 to $24,885), wecalculated that the services spent $1.3 billionon the 72,670 enlistees who entered theservices in fiscal year 1993 and departed

prematurely. Because these enlistees wereseparated early, the services did not get a

full return on their investment.

Reexamining the roles of all personsinvolved in recruiting and retaining enlisteesis in keeping with the intent of the Results

Act, which requires agencies to clearlydefine their missions, to set goals, and to linkactivities and resources to those goals.Recruiting and retaining well-qualifiedmilitary personnel are among the goals



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included in DODs strategic plan requiredunder the Act.

In the first of a series of reports on recruitingand attrition, we analyzed the reasons for enlistees early separation during their first6 months of service, when most areundergoing or have just finished basictraining. During that review, we found thatthousands of enlistees were separatedbecause the services had not adequatelyscreened them prior to enlistment. For

example, about 83 percent of the 25,000 whoentered the services in fiscal year 1994 andwere discharged in their first 6 months hadbeen assigned separation codes indicatingthat they (1) were medically unqualified for military service, (2) had character or behavior disorders, (3) had fraudulently or erroneously entered the military, or

(4) failed to meet minimum performancecriteria. The services screening processesfor past medical history were particularlylax, and the Navy and the Marine Corpswaited until recruits had arrived at basictraining before testing them for drugs.Finally, recruiters did not have adequateincentives to ensure that their recruits werequalified.



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In a follow-on report, we examined theservices recruiting processes in more detail,including their methods of selectingrecruiters, screening recruits and preparingthem for basic training, and measuring andrewarding recruiter performance. Duringthis review, we found that the services didnot have effective procedures for selectingthe best candidates for recruiting duty andthat monthly goals created disincentives for recruiters to ensure that all their recruitswere fully qualified.

Finally, in a third review, we analyzed why21 percent of the enlistees who entered theservices in fiscal year 1993 were separatedearly between their 7th and 48th month of service. We found that over 70 percent of themen in this group were separated for misconduct, medical conditions,

performance problems, or drug use. Over 71 percent of the women in this group wereseparated for pregnancy, medical problems,misconduct, performance problems, or

parenthood. While the services wereconcerned about attrition, they had not

provided guidance on what actions could betaken to deal with identified problems or what accommodations could be made toretain certain categories of enlistees whomight be rehabilitated. Though our analysis



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DOD is now responding to all of our recommendations. It has formed a jointservice working group to addressrecommendations in our report on 6-monthattrition, which were incorporated into theNational Defense Authorization Act for Fiscal Year 1998. DOD has also agreed to

prepare a report by October 1999documenting service initiatives related to therecommendations in our report on 7- to48-month attrition. Reducing attrition rateswill be complex and difficult. However,

considering the high cost of recruiting andtraining the thousands of enlistees who donot complete their first terms of service, the

payoff of reducing attrition will besignificant, since savings could then bechanneled to other defense priorities.

Key Contact Mark E. Gebicke, Director Military Operations and Capabilities IssuesNational Security and International Affairs Division(202) [email protected]

Addressing theChallenges

To address the management and performance problems we have cited, DODhas taken actions in the high risk and other



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areas and has made progress in improvingsome of them. DOD has had some success inaddressing its inventory management

problems, is working to reform its weaponsystem acquisition process, and hasrecognized the need for infrastructurereductions. For example, in May 1997, theSecretary of Defense issued the Report of the Quadrennial Defense Review ( QDR),required by the National Defense

Authorization Act for Fiscal Year 1997,which examines Americas defense needs

from 1997 to 2015, including issuing a blueprint for a strategy-based, balanced, andaffordable defense program. In addition,DODs latest efforts to reform operations and

processes are contained in the SecretarysDRI Report, in which DOD proposed torevolutionize its business and supportoperations by identifying and adopting best

business practices from the private sector.

Although DODs past and current efforts haveresulted in progress in improving itsoperations, persistent and long-standing

problems still exist. Overcoming thesechallenges requires DOD to address theunderlying causes of these problems. Thesecauses include (1) cultural barriers andservice parochialism that limit opportunitiesfor change; (2) the lack of incentives for



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seeking and implementing change; (3) thelack of comprehensive and reliablemanagement data for making decisions andmeasuring program costs and performance;(4) the lack of clear, results-oriented goalsand performance measures, in some cases;and (5) inconsistent managementaccountability and follow-through.

To address these problems, DOD must havean effective overall strategic plan for theagency and individual implementation plans

for each level of the organization that,among other things, include goals, performance measures, and time frames for completing corrective actions; and identifyorganizations and individuals accountablefor accomplishing specific goals. Together with the legislative requirements of the Chief Financial Officers Act, the Paperwork

Reduction Act, and the Clinger-Cohen Act,the Results Act provides the framework for resolving high risk and other problems andfor providing greater accountability in DODs

programs and operations.

DOD, however, has not fully embraced theunderlying principles in the Results Act. TheSecretary of Defense has stated that the May1997 Quadrennial Defense Review will serveas DODs overall strategic planning document



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and is intended to fulfill the requirements of the Results Act. Our review of DODs strategic

plan and its February 1998 performance plandisclosed many areas where improvementscould be made. The principal shortcomingsin DODs plan center on weaknesses in(1) establishing results-oriented

performance goals with explicit strategiesand time frames for achieving them and(2) addressing what DOD has done or plans todo to resolve its persistent management

problems. In our opinion, DOD needs to work

closely with the Congress now to develop performance goals and measures. Addressing these areas would providecongressional decisionmakers and DOD theinformation necessary to ensure that DODs

plans are well thought out for resolvingongoing problems, achieving its goals andobjectives, and becoming more results

oriented, as expected by the Results Act.



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Related GAO Products

Defense Computers: Year 2000 Computer Problems Threaten DOD Operations(GAO/AIMD-98-72, Apr. 30, 1998).

Defense Computers: Air Force Needs toStrengthen Year 2000 Oversight(GAO/AIMD-98-35, Jan. 16, 1998).

Weapon Systems AcquisitionManagement

Future Years Defense Program: SubstantialRisks Remain in DODs 1999-2003 Plan(GAO/NSIAD-98-204, July 31, 1998).

Navy Aviation: F/A-18E/F Development andProduction Issues ( GAO/NSIAD-98-61, Mar. 13,1998).

Best Practices: Successful Application toWeapon Acquisitions Requires Changes inDODs Environment ( GAO/NSIAD-98-56, Feb. 24,

1998).

National Missile Defense: Schedule andTechnical Risks Represent SignificantDevelopment Challenges ( GAO/NSIAD-98-28,Dec. 12, 1997).



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ContractManagement

Financial Management: ImprovementsNeeded in Air Force Vendor PaymentSystems and Control ( GAO/AIMD-98-274,Sept. 28, 1998).

DOD Procurement Fraud: Fraud by an Air Force Contracting Official ( GAO/OSI-98-15,Sept. 23, 1998).

Defense Health Care: OperationalDifficulties and System Uncertainties PoseContinuing Challenges for TRICARE

(GAO/T-HEHS-98-100 , Feb. 26, 1998).Defense Health Care: Despite TRICAREProcurement Improvements, ProblemsRemain ( GAO/HEHS-95-142 , Aug. 3, 1995).

DefenseInfrastructure

Army Industrial Facilities: Workforce

Requirements and Related Issues AffectingDepots and Arsenals ( GAO/NSIAD-99-31, Nov. 30,1998).

Military Bases: Review of DODs 1998 Reporton Base Realignment and Closure(GAO/NSIAD-99-17, Nov. 13, 1998).

Defense Infrastructure: Challenges FacingDOD in Implementing Reform Initiatives(GAO/T-NSIAD-98-115 , Mar. 18, 1998).



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Best Practices: Elements Critical toSuccessfully Reducing Unneeded RDT&EInfrastructure ( GAO/NSIAD/RCED-98-23 , Jan. 8,1998).

Future Years Defense Program: DODs 1998Plan Has Substantial Risk in Execution(GAO/NSIAD-98-26, Oct. 23, 1997).

InventoryManagement

Fraud, Waste, and Abuse: The Cost of Mismanagement ( GAO/AIMD-98-265R, Sept. 14,

1998).Inventory Management: More InformationNeeded to Assess DLA s Best PracticeInitiatives ( GAO/NSIAD-98-218, Sept. 2, 1998).

Defense Inventory: Action Needed to AvoidInappropriate Sales of Surplus Parts

(GAO/NSIAD-98-182, Aug. 3, 1998).

Navy Inventory Management: ImprovementsNeeded to Prevent Excess Purchases(GAO/NSIAD-98-86, Apr. 30, 1998).

High-Risk Series: Defense InventoryManagement ( GAO/HR-97-5, Feb. 1997).



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PersonnelManagement

Military Attrition: Better Data, Coupled WithPolicy Changes, Could Help the ServicesReduce Early Separations ( GAO/NSIAD-98-213,Sept. 15, 1998).

Military Attrition: DOD Needs to Better Analyze Reasons for Separation and ImproveRecruiting Systems ( GAO/T-NSIAD-98-117 ,Mar. 12, 1998).

Military Recruiting: DOD Could Improve ItsRecruiter Selection and Incentive Systems

(GAO/NSIAD-98-58, Jan. 30, 1998).Military Attrition: Better Screening of Enlisted Personnel Could Save Millions of Dollars ( GAO/T-NSIAD-97-120, Mar. 13, 1997).

Military Attrition: DOD Could Save Millions byBetter Screening Enlisted Personnel

(GAO/NSIAD-97-39, Jan. 6, 1997).

Strategic andPerformancePlans

Results Act: DODs Annual Performance Planfor Fiscal Year 1999 ( GAO/NSIAD-98-188R, June 5,1998).

The Results Act: Observations on DODs DraftStrategic Plan ( GAO/NSIAD-97-219R, Aug. 5,1997).



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DODs GPRA Implementation(GAO/NSIAD/GGD-97-65R , Jan. 31, 1997).



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Performance and Accountability Series

Major Management Challenges and ProgramRisks: A Governmentwide Perspective(GAO/OCG-99-1)

Major Management Challenges and ProgramRisks: Department of Agriculture(GAO/OCG-99-2)

Major Management Challenges and ProgramRisks: Department of Commerce(GAO/OCG-99-3)

Major Management Challenges and ProgramRisks: Department of Defense ( GAO/OCG-99-4)

Major Management Challenges and ProgramRisks: Department of Education(GAO/OCG-99-5)

Major Management Challenges and Program

Risks: Department of Energy ( GAO/OCG-99-6)

Major Management Challenges and ProgramRisks: Department of Health and HumanServices ( GAO/OCG-99-7)

Major Management Challenges and ProgramRisks: Department of Housing and UrbanDevelopment ( GAO/OCG-99-8)



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Major Management Challenges and ProgramRisks: Department of the Interior (GAO/OCG-99-9)

Major Management Challenges and ProgramRisks: Department of Justice ( GAO/OCG-99-10)

Major Management Challenges and ProgramRisks: Department of Labor ( GAO/OCG-99-11)

Major Management Challenges and ProgramRisks: Department of State ( GAO/OCG-99-12)

Major Management Challenges and ProgramRisks: Department of Transportation(GAO/OCG-99-13)

Major Management Challenges and ProgramRisks: Department of the Treasury(GAO/OCG-99-14)

Major Management Challenges and ProgramRisks: Department of Veterans Affairs(GAO/OCG-99-15)

Major Management Challenges and ProgramRisks: Agency for International Development(GAO/OCG-99-16)



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Major Management Challenges and ProgramRisks: Environmental Protection Agency(GAO/OCG-99-17)

Major Management Challenges and ProgramRisks: National Aeronautics and Space

Administration ( GAO/OCG-99-18)

Major Management Challenges and ProgramRisks: Nuclear Regulatory Commission(GAO/OCG-99-19)

Major Management Challenges and ProgramRisks: Social Security Administration(GAO/OCG-99-20)

Major Management Challenges and ProgramRisks: U.S. Postal Service ( GAO/OCG-99-21)

High-Risk Series: An Update ( GAO/HR-99-1)

The entire series of 21 performance andaccountability reports and the high-risk series update can be ordered by usingthe order number GAO/OCG-99-22SET .



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