Military Personnel: DFAS Has Not Met All Information Technology  
Requirements for Its New Pay System (20-OCT-03, GAO-04-149R).	 
                                                                 
In early January 2003, we initiated a review of the Defense	 
Integrated Military Human Resource System (DIMHRS) to get an	 
understanding of the program, its goals, its present status, and 
the problems it is designed to resolve. During this review, we	 
became aware that in April 2003 the Department of Defense (DOD)  
authorized the Defense Finance and Accounting Service (DFAS) to  
initiate a pilot project to demonstrate its ability to develop an
interim military pay system, called Forward Compatible Military  
Pay, before DIMHRS is fully operational. DFAS maintains that an  
interim system should be developed as soon as possible for two	 
reasons: (1) the planned personnel and pay system that DOD is	 
currently developing as part of the larger DIMHRS will be	 
implemented later than its projected target date of December 2006
and (2) the current military pay system--the Defense Joint	 
Military Pay System--is aging, unresponsive, and fragile and has 
become a major impediment to efficient and high quality customer 
service. It is estimated that the Forward Compatible Military Pay
system could be operational by March 2006 at a design and	 
development cost ranging from about $17 million to $30 million.  
Since the planned interim Forward Compatible Military Pay system 
is considered an information technology acquisition program under
DOD Acquisition Regulations, DFAS must comply with specific legal
and administrative requirements before moving forward with the	 
development of this project. In this regard, DFAS must comply	 
with requirements contained in the Bob Stump National Defense	 
Authorization Act for Fiscal Year 2003, Office of the Under	 
Secretary of Defense (Comptroller) Memorandum, and the		 
Clinger-Cohen Act of 1996.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-149R					        
    ACCNO:   A08742						        
  TITLE:     Military Personnel: DFAS Has Not Met All Information     
Technology Requirements for Its New Pay System			 
     DATE:   10/20/2003 
  SUBJECT:   Federal regulations				 
	     Human resources utilization			 
	     Military pay					 
	     Military systems analysis				 
	     Noncompliance					 
	     Program evaluation 				 
	     Strategic planning 				 
	     Payroll systems					 
	     Systems design					 
	     Schedule slippages 				 
	     DOD Forward Compatible Military Pay		 
	     System						 
                                                                 
	     Defense Integrated Military Human			 
	     Resource System					 
                                                                 

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GAO-04-149R

United States General Accounting Office Washington, DC 20548

October 20, 2003

The Honorable Donald H. Rumsfeld The Secretary of Defense

Subject: Military Personnel: DFAS Has Not Met All Information Technology
Requirements for Its New Pay System

In early January 2003, we initiated a review of the Defense Integrated
Military Human Resource System (DIMHRS) to get an understanding of the
program, its goals, its present status, and the problems it is designed to
resolve. During this review, we became aware that in April 2003 the
Department of Defense (DOD) authorized the Defense Finance and Accounting
Service (DFAS) to initiate a pilot project to demonstrate its ability to
develop an interim military pay system, called Forward Compatible Military
Pay, before DIMHRS is fully operational. DFAS maintains that an interim
system should be developed as soon as possible for two reasons: (1) the
planned personnel and pay system that DOD is currently developing as part
of the larger DIMHRS1 will be implemented later than its projected target
date of December 2006 and (2) the current military pay system-the Defense
Joint Military Pay System-is aging, unresponsive, and fragile and has
become a major impediment to efficient and high quality customer service.
It is estimated that the Forward Compatible Military Pay system could be
operational by March 2006 at a design and development cost ranging from
about $17 million to $30 million.2

1 DOD is currently developing the DIMHRS that is designed to provide DOD
and the services one integrated, standardized personnel and pay system
that will track service members and their dependents.

2 DFAS program officials estimate the cost at $16.8 million, but a Program
Analysis and Evaluation estimate came in at $29.9 million because it
included costs that had been left out of the program officials' estimate.

Since the planned interim Forward Compatible Military Pay system is
considered an information technology acquisition program under DOD
Acquisition Regulations, DFAS must comply with specific legal and
administrative requirements before moving forward with the development of
this project. In this regard, DFAS must comply with requirements contained
in

o  the Bob Stump National Defense Authorization Act for Fiscal Year 2003;3

o  	Office of the Under Secretary of Defense (Comptroller) Memorandum;4
and

o  the Clinger-Cohen Act of 1996.5

We reviewed DFAS's development of the Forward Compatible Military Pay
system pilot project to determine whether DFAS had complied with the above
requirements. We did not evaluate the cost and benefit, return on
investment, or break-even point analyses that were prepared by DFAS. We
conducted our review from June 6, 2003, to September 15, 2003, in
accordance with generally accepted government auditing standards.

Results in Brief 	In moving forward with the development of the Forward
Compatible Military Pay system, DFAS has not complied with specific legal
and administrative requirements applicable to DOD's information technology
investments. It did complete cost and benefit, return on investment, and
break-even point analyses as required by the Comptroller's memorandum.
However, DFAS has not submitted the forward pay proposal to the
responsible domain to determine its compliance with DOD's Business

3 Public Law 107-314 (Dec.2, 2002), section 1004, Development and
Implementation of Financial Management Enterprise Architecture, which
requires that the investment in excess of $1 million to improve a defense
financial system be consistent with DOD's enterprise architecture, among
other things.

4 The memorandum (dated Mar. 7, 2003) provides additional information on
how DOD will determine compliance with section 1004 of the Bob Stump
National Defense Authorization Act.

5 The Federal Acquisition Reform Act of 1996 (FARA) and the Information
Technology Management Reform Act of 1996 (ITMRA) were renamed the
Clinger-Cohen Act of 1996 by the 1997 Omnibus Consolidated Appropriations
Act P.L. 104-208 (Sept. 30, 1996). Both the FARA and the ITMRA were passed
as sections D and E in the National Defense Authorization Act for Fiscal
Year 1996, P.L. 104-106 (Feb. 10, 1996), which requires federal agencies
to maximize the value and assess and manage the risks associated with
investments in information technology.

Background

Enterprise Architecture,6 which guides DOD's investments in financial
systems. Because DFAS has not submitted the proposal to the responsible
domain, the DOD Comptroller has not met its responsibility under the
authorization act to ensure compliance with the Business Enterprise
Architecture. Further, DFAS has not completed the necessary documents to
support compliance with the Clinger-Cohen Act. For example, DFAS has not
completed the Acquisition Strategy or the Acquisition Program Baseline
document, as required by DOD Acquisition Regulations. By failing to
complete all required studies and analyses, DOD lacks assurance that it is
meeting its goal of making quality information technology investments, as
required. We are recommending that DFAS complete all required steps before
proceeding with the Forward Compatible Military Pay project.

By the end of fiscal year 2003, DOD estimates that it will have spent
about $360 million to conceptualize and plan a major new departmentwide
integrated military pay and personnel system, known as DIMHRS. In 2002,
DOD estimated that DIMHRS would be fully deployed by fiscal year 2007 at a
development cost of about $577 million. However, our review of the fiscal
year 2004 information-technology budget request shows the amounts required
for fiscal years 2003 and 2005 are $121.76 million for 2004 and $94.60
million for 2005. (When added to the amount spent through fiscal 2003, the
amounts round to the total of $577 million.) DOD further estimates that it
would cost about $1.5 billion to operate and maintain DIMHRS through
fiscal year 2017. However, DOD expects that the winning contractor will
revise the deployment schedule and cost estimates by early 2004. Although
the development of DIMHRS has not yet begun, the original schedule has
already slipped by about 15 months. Among its various components, DIMHRS
will include a military pay component. As a result of the schedule
slippage, DFAS has decided that an interim military pay system is needed
to meet its short-term needs until the DIMHRS' military pay component is
available, which is projected for calendar year 2006 or 2007.

6 In May 2003, the DOD Comptroller changed the architecture name from the
Financial Management Enterprise Architecture to the Business Enterprise
Architecture to reflect the transformation of departmentwide business
operations and supporting systems. The Business Enterprise Architecture is
a "blueprint" to guide and constrain DOD's investments in financial
management operations and systems.

The development of the interim military pay system-the Forward Compatible
Military Pay system-is considered an information technology acquisition
program, according to DOD acquisition policy. Congress enacted laws to
govern DOD's information technology investments, e.g., Section 1004 of Bob
Stump National Defense Authorization Act for Fiscal Year 2003 and the
Clinger-Cohen Act of 1996. In addition to these laws, DOD's acquisition
policy also mandates sound information technology investment decisions.

    DFAS Has Not Completed All Required Documentation nor Obtained Necessary
              Approval for Forward Compatible Military Pay System

In moving forward with the development of the interim military pay system,
DFAS has not complied with the Bob Stump National Defense Authorization
Act for Fiscal Year 2003, the Comptroller Memorandum, and the
Clinger-Cohen Act requirements. GAO reported in March 20037 that DFAS
failed to complete the required documentation for four other systems
undergoing modernization. In that report we recommended that all remaining
DFAS information technology projects be evaluated to ensure they are being
implemented at acceptable cost and within reasonable time frames.

National Defense The Bob Stump National Defense Authorization Act for
Fiscal Year Authorization Act for 2003 requires that any investment in
excess of $1 million to improve a Fiscal Year 2003 and the defense
financial system be consistent with DOD's Business Enterprise

Architecture,8 which lays out a frame of reference governing information

Comptroller Memorandum 	technology management. The DOD Comptroller's March
2003 memorandum details how compliance with the authorization act will be
determined. Specifically, the memorandum requires several analyses to

7 U.S. General Accounting Office, DOD Business Systems Modernization:
Continued Investment in Key Accounting Systems Needs to be Justified,
GAO-03-465 (Washington, D.C.: Mar. 28, 2003).

8 GAO reported in September 2003 that DOD's initial version of the
Business Enterprise Architecture does not adequately address all the
requirements in the National Defense Authorization Act for Fiscal Year
2003. Further, DOD has not yet defined and implemented an effective
approach to select and control business systems investments for
obligations exceeding $1 million while the architecture is being developed
and after it is completed. See U.S. General Accounting Office, DOD
Business Systems Modernization: Important Progress Made to Develop
Business Enterprise Architecture, but Much Work Remains, GAO-03-1018
(Washington, D.C.: Sept. 19, 2003).

demonstrate the costs and benefits; return on investment; break-even
point; and overall compliance with the enterprise architecture for any
initiative in excess of $1 million. The Comptroller's administrative
requirements do not preclude or eliminate any other required approvals or
processes within DOD.

DFAS has not fully complied with the Comptroller's March 7, 2003,
memorandum. While DFAS briefed a cost and benefit, return on investment,
and break-even point analysis to the DOD Comptroller's Office, the
briefing did not include a determination that the Forward Compatible
Military Pay initiative is in compliance with the enterprise architecture.
Such a determination has not been made because, to date, DFAS has not
submitted the proposal to the domain9 owner for its evaluation of
compliance with the architecture. By determining compliance with the
architecture DOD can be sure that the Forward Compatible Military Pay
initiative will not result in a system that performs the same tasks or
stores the same data as existing systems, cannot communicate with other
DOD systems, and is costly to operate and maintain.

In addition, the Secretary of Defense's Office of Program Analysis and
Evaluation raised concerns over the accuracy of the information in the
presentation. Specific areas of concern included cost, schedule, and the
underlying assumptions made in support of the initiative.

Clinger-Cohen Act and The Clinger-Cohen Act of 1996 requires agencies to
establish a process DOD Acquisition to maximize value and assess and
manage the risks of information Regulations technology investments,
including specific quantitative and qualitative

criteria for comparing and prioritizing alternative information technology

9 As outlined in DOD's Business Management Modernization Program
governance guidance, domains are based on existing functional business
lines. The 7 domains are: (1) Acquisition; (2) Finance, Accounting
Operations and Financial Management; (3) Human Resource Management; (4)
Installations and Environment; (5) Logistics; (6) Strategic Planning and
Budgeting; and (7) Technical Infrastructure. Domain owners have the
authority, responsibility, and accountability for business transformation,
implementation of the Business Enterprise Architecture, and portfolio
management within their domains. Owners' responsibilities include: leading
business transformation; establishing and maintaining a domain governance
process; performing system reviews and approving initiative funding;
assisting in the extension of the architecture; enforcing compliance with
the architecture; guiding implementation activities; and representing the
domain on cross-domain issues.

projects. The primary objective of DOD's acquisition-implementing policy
is to acquire quality products that satisfy user needs and contain
measurable improvements to mission capability and operational support, in
a timely manner and at a fair and reasonable price.

DFAS has not met all of the requirements of the Clinger-Cohen Act
applicable to its forward compatible pay initiative. The act requires a
variety of actions, and DOD, in its acquisition regulations, requires
evidence that the actions have been completed. For example, the act
requires clearly established measures and accountability for program
progress. Documents such as the Acquisition Strategy and Acquisition
Program Baseline documents would contain this information.

                                   Conclusion

DFAS has not complied with each of the Bob Stump National Defense Act,
Clinger-Cohen, and administrative requirements for information technology
investments. As a result, DOD lacks assurance that it is meeting its goal
of making quality information technology investments. Further, the Forward
Compatible Military Pay system proposal has not been reviewed for
compliance with DOD's Business Enterprise Architecture. As a result, the
system may duplicate the functions of existing systems, may not be able to
communicate with other DOD systems, and may add to overall operating and
maintenance costs.

Recommendations for 	To ensure that the proposed investment in the Forward
Compatible Military Pay system is a prudent business decision for DOD, you

                         Executive Action should direct

o  	DFAS to submit its Forward Compatible Military Pay system proposal to
the domain owner for determination that it is in compliance with DOD's
Business Enterprise Architecture;

o  	the DOD Comptroller to meet its responsibility under the Bob Stump
National Defense Authorization Act for Fiscal Year 2003, Public Law
107-314, to determine compliance with the Business Enterprise
Architecture; and

o  	the DOD Comptroller to require DFAS to demonstrate that it has
complied with its responsibilities under the Clinger-Cohen Act of 1996,
Public Law 104-106.

The DOD Comptroller and DFAS should complete these steps before the final
decision is made to invest in the Forward Compatible Military Pay system.

As you know, 31 U.S.C. 720 requires the head of a federal agency to submit
a written statement of the actions taken on our recommendations to the
Senate Committee on Governmental Affairs and the House Committee on
Government Reform not later than 60 days after the date of this report. A
written statement must also be sent to the House and Senate Committees
on Appropriations within 60 days after the date of this report.

DOD provided official comments on a draft of this letter. The Principal
Deputy and Deputy Under Secretary of Defense (Management Reform)
concurred with the letter and recommendations. DOD stated that if the
decision is made to pursue the Forward Compatible Military Pay system,
DFAS will finalize the appropriate documentation to satisfy requirements
of the Clinger-Cohen Act of 1996, the DOD Business Enterprise
Architecture, the DOD acquisition lifecycle management process, and
provisions of current governing legislation. The Forward Compatible
Military Pay system then will be reviewed through the Business
Management Modernization Program process. DOD's comments appear
in their entirety in enclosure I.

We are sending copies of this report to the appropriate congressional
committees. We will place a copy of this letter on GAO's Web site at
http://www.gao.gov. If you have any questions concerning the
information provided, please call me on (202) 512-5559 or Donald C.
Snyder on (202) 512-7204.

Sincerely yours,

Derek B. Stewart
Director, Defense Capabilities and Management

Enclosure

                                Agency Comments

Note: Report number was changed to GAO-04-149R.

Enclosure I: Comments from the Department of Defense

Note: Page numbers in the draft report may differ from those in this
report.

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