DOD Business Systems Modernization: Billions Continue to Be
Invested with Inadequate Management Oversight and Accountability
(28-MAY-04, GAO-04-615).
Despite its significant investment in business systems, the
Department of Defense (DOD) continues to have long-standing
financial and inventory management problems that prevent it from
producing reliable and timely information for making decisions
and for accurately reporting on its billions of dollars of
inventory. GAO was asked to (1) identify DOD's fiscal year 2004
estimated funding for its business systems, (2) determine if DOD
has effective control and accountability over its business
systems investments, and (3) determine whether selected business
systems will help resolve some of DOD's long-standing problems
and whether they are being effectively managed.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-04-615
ACCNO: A10188
TITLE: DOD Business Systems Modernization: Billions Continue to
Be Invested with Inadequate Management Oversight and
Accountability
DATE: 05/28/2004
SUBJECT: Accountability
ADP procurement
Defense budgets
Defense cost control
Defense procurement
Financial management systems
Information resources management
Information technology
Inventory control systems
Strategic information systems planning
Systems design
Systems evaluation
Budget requests
Timeliness
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GAO-04-615
United States General Accounting Office
GAO Report to Congressional Requesters
May 2004
DOD BUSINESS SYSTEMS MODERNIZATION
Billions Continue to Be Invested with Inadequate Management Oversight and
Accountability
a
GAO-04-615
Highlights of GAO-04-615, a report to congressional requesters
Despite its significant investment in business systems, the Department of
Defense (DOD) continues to have long-standing financial and inventory
management problems that prevent it from producing reliable and timely
information for making decisions and for accurately reporting on its
billions of dollars of inventory. GAO was asked to (1) identify DOD's
fiscal year 2004 estimated funding for its business systems, (2) determine
if DOD has effective control and accountability over its business systems
investments, and (3) determine whether selected business systems will help
resolve some of DOD's long-standing problems and whether they are being
effectively managed.
GAO makes four recommendations to DOD, including the following: (1)
develop a standard business system definition and system repository and
(2) have reasonable assurance that all weaknesses associated with the two
case study systems-BSM and LMP-have been resolved prior to further
deployments. GAO also proposes four matters for congressional
consideration, including the following: establish management control,
accountability, and oversight of business system funding with DOD's
functional areas-referred to as domains.
DOD agreed with GAO's four recommendations to DOD, but disagreed with two
of the matters for congressional consideration.
www.gao.gov/cgi-bin/getrpt?GAO-04-615.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Gregory Kutz, (202) 512-9505
([email protected]) or Keith Rhodes, (202) 512-6412 ([email protected]).
May 2004
DOD BUSINESS SYSTEMS MODERNIZATION
Billions Continue to Be Invested with Inadequate Management Oversight and
Accountability
DOD requested approximately $19 billion for fiscal year 2004 to operate,
maintain, and modernize its reported 2,274 business systems. This
stovepiped and duplicative systems environment evolved over time as DOD
components-each with its own system funding-developed narrowly focused,
parochial solutions to their business problems.
DOD's Fiscal Year 2004 Business System Budget Request
As a result of this uncontrolled spending, DOD reported over 200 inventory
systems and 450 personnel systems. DOD's fundamentally flawed business
systems affect mission effectiveness and can contribute to the fraud,
waste, and abuse that GAO continues to identify. Further, the number of
business systems is likely understated in part because DOD does not have a
central systems repository or a standard business system definition.
DOD does not have an effective management structure for controlling
business systems investments and the business domains' roles and
responsibilities have not been defined. Further, DOD does not have
reasonable assurance that it is in compliance with the National Defense
Authorization Act for Fiscal Year 2003, which requires the DOD Comptroller
to determine that system improvements exceeding $1 million meet the
criteria specified in the act. Based on limited information provided by
DOD, system improvements with at least $479 million of obligations over $1
million were not reviewed by the DOD Comptroller.
GAO's two case studies are examples of DOD spending hundreds of millions
on business systems that will not result in corporate solutions to its
longstanding inventory and related financial management problems. While
these efforts should provide some improvement to the Defense Logistics
Agency's and the Army's business operations, implementation problems have
resulted in schedule slippages, cost increases, and critical capabilities
not being delivered. These issues can be attributed, in part, to the lack
of disciplined processes in the areas of requirements management and
testing. If not corrected, the problems will result in two more costly,
nonintegrated systems that only marginally improve DOD business operations
and further impede DOD's transformation as envisioned by the Secretary of
Defense.
Contents
Letter
Results in Brief
Background
Fiscal Year 2004 Budget for DOD's Stovepiped, Duplicative Business
Systems Is Nearly $19 Billion DOD Continues to Have Ineffective Control
and Accountability over Business System Investments BSM and LMP May Have
Difficulty Achieving Cost, Schedule, and
Operational Goals Conclusions Matters for Congressional Consideration
Recommendations for Executive Action Agency Comments and Our Evaluation
1 3 8
15
23
34 62 62 63 64
Appendixes
Appendix I: Appendix II: Appendix III:
Appendix IV:
Appendix V:
Scope and Methodology 68
Comments from the Department of Defense 71
DOD Business Systems Obligations in Excess of $1 Million
Approved by the DOD Comptroller 76
DOD Business Systems Obligations in Excess of $1 Million
for Modernizations Not Submitted to the DOD
Comptroller 77
GAO Contacts and Staff Acknowledgments 79
GAO Contacts 79
Acknowledgments 79
Tables Table 1: DOD Fiscal Year 2004 IT Budget Request for Business
Systems by DOD Component 16
Table 2: Reported DOD Business Systems by Domain and
Functional Area 18
Table 3: DOD Budget Request for Business Systems Modernization
That May Exceed the $1 Million Threshold 28
Table 4: System Improvements Not Submitted to the DOD
Comptroller for the Mandated Review 30
Figures Figure 1: Distribution of DOD's Nearly $28 Billion IT Budget
Request (Dollars in Billions) 15 Figure 2: BSM Required System Interfaces
39
Contents
Figure 3: Examples of LMP Required System Interfaces 40 Figure 4: BSM
Schedule Slippages and Cost Increases 45 Figure 5: LMP Schedule Slippages
and Cost Increases 47 Figure 6: Relationship between Requirements
Development and
Testing 53
Abbreviations
AMC Army Materiel Command
BDO Battle Dress Overgarment
BEA Business Enterprise Architecture
BMMP Business Management Modernization Program
BMSI Business Management and Systems Integration
BSM Business Systems Modernization
CECOM Communications and Electronics Command
CFO Chief Financial Officer
CIO Chief Information Officer
COTS commercialofftheshelf
DFAS Defense Finance and Accounting Service
DISA Defense Information Systems Agency
DJAS Defense Joint Accounting System
DLA Defense Logistics Agency
DOD Department of Defense
DPPS Defense Procurement Payment System
DSDS Defense Standard Disbursing System
ERP Enterprise Resource Planning
FFMIA Federal Financial Management Improvement Act
FOC Full Operational Capability
GAO General Accounting Office
GCSS - A Global Combat Support System - Army
IDE Integrated Data Environment
IEEE Institute of Electrical and Electronics Engineers
IFS Integrated Facilities System
IG Inspector General
IT information technology
ITMA Information Technology Management Application
JCALS Joint Computer Aided Acquisition and Logistics Support
JFMIP Joint Financial Management Improvement Program
Contents
JSLIST Joint Service Lightweight Integrated Suit Technology
LMP Logistics Modernization Program
MOCAS Mechanization of Contract Administration Services
OMB Office of Management and Budget
PLM+ Product Lifecycle Management Plus
SAMMS Standard Automated Materiel Management System
SGL U.S. Government Standard General Ledger
SPS Standard Procurement System
WORCS Work Ordering and Reporting Communications Systems
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
work may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this material
separately.
A
United States General Accounting Office Washington, D.C. 20548
May 27, 2004
The Honorable Christopher H. Shays
Chairman
Subcommittee on National Security, Emerging Threats,
and International Relations Committee on Government Reform House of
Representatives
The Honorable Adam H. Putnam
Chairman
Subcommittee on Technology, Information Policy,
Intergovernmental Relations and the Census Committee on Government Reform
House of Representatives
The Honorable Todd R. Platts
Chairman
Subcommittee on Government Efficiency
and Financial Management Committee on Government Reform House of
Representatives
The Department of Defense (DOD) spends billions of dollars annually to
operate, maintain, and modernize its business systems.1 As we have
reported for years, DOD does not have the ability to produce accurate,
reliable, and timely information to make sound decisions and to accurately
report on its billions of dollars of inventory and other assets. In
addition, the department's stovepiped, duplicative systems contribute to
its vulnerability to fraud, waste, and abuse. Such problems led us in 1990
to put DOD inventory management on our list of highrisk areas in the
federal
1 Business systems include those that are used to support civilian and
military personnel, finance, logistics, procurement, and transportation.
government2 and in 1995 to add financial management and business systems
modernization at DOD-designations that continue today. 3
This report responds to your request for information on the magnitude of
DOD's enormous investment in business systems, its control and
accountability over these investments, and its management of certain key
business systems modernization projects that are essential to the
department transforming its business systems and operations. As agreed
with your offices, our objectives were to (1) identify the amount of
funding DOD requested in fiscal year 2004 to operate, maintain, and
modernize its business systems; (2) determine whether DOD has effective
control and accountability over its business systems modernization
investments; and (3) determine whether selected business systems
investments will help resolve some of the department's longstanding
financial and inventory management problems and whether these projects are
being effectively managed.
To determine how much DOD plans to spend on the operation, maintenance,
and modernization of its business systems in fiscal year 2004, we analyzed
DOD's information technology (IT) budget request and met with officials in
the office of the DOD Chief Information Officer (CIO) and military service
representatives to obtain an overview of how the IT budget request is
developed. Additionally, we met with DOD officials and reviewed available
documentation to determine the effectiveness of the department's efforts
to control and account for its business systems investments. Further, we
reviewed documentation provided by DOD to determine if all systems
improvements with obligations exceeding $1 million were reviewed by the
DOD Comptroller in accordance with the
2 U.S. General Accounting Office, High-Risk Series: An Overview,
GAO/HR95263 (Washington, D.C.: February 1995).
3 U.S. General Accounting Office, High-Risk Series: An Update, GAO03119
(Washington, D.C.: January 2003).
fiscal year 2003 defense authorization act.4 In addition, we selected two
logistics systems modernization efforts-the Defense Logistics Agency's
(DLA) Business Systems Modernization program (BSM) and the Army's
Logistics Modernization Program (LMP)-as case studies to determine if they
will help resolve some of the department's longstanding financial and
inventory management problems. These two system projects represent 19
percent of the $770 million modernization funding requested in fiscal year
2004 for logistics systems. In reviewing these two systems, we relied on
project documentation provided by DOD and discussions with program
management officials related to two key processes, requirements management
and testing. Our work was performed from August 2003 through March 2004 in
accordance with U.S. generally accepted government auditing standards.
Details on our scope and methodology are included in appendix I. We
requested comments on a draft of this report from the Secretary of Defense
or his designee. Written comments from the Acting Under Secretary of
Defense (Comptroller) are reprinted in appendix
II.
Results in Brief DOD requested approximately $19 billion for fiscal year
2004 to operate, maintain, and modernize its reported 2,274 business
systems. Despite a substantial investment over many years, DOD's business
systems remain fundamentally flawed, unable to provide timely, reliable
information and leaving DOD vulnerable to fraud, waste, and abuse. The
duplicative and stovepiped nature of DOD's systems environment is
illustrated by the numerous systems it has in the same functional areas.
For example, DOD reported that it has over 200 inventory systems. These
systems are not integrated and thus have multiple points of data entry,
which can result in
4 Subsection 1004(d) of the Bob Stump National Defense Authorization Act
for Fiscal Year 2003, Pub. L. No. 107314, 116 Stat. 2629 (Dec. 2, 2002),
provides that any amount in excess of $1 million may be obligated for
financial system improvements before approval of its enterprise
architecture and a supporting transition plan only if the DOD Comptroller
makes a determination that the improvement is necessary for (1) critical
national security capability or critical safety and security requirements
or (2) prevention of significant adverse effect on a project that is
needed to achieve an essential capability. The act further provides that
after the architecture is approved, the DOD Comptroller must determine
before making obligations that exceed $1 million for system improvements,
that such improvements are consistent with the enterprise architecture and
the transition plan.
data integrity problems. Moreover, the number of reported systems is
likely understated, in part, because DOD does not have a central
repository or systematic process for identifying all of the department's
systems- business and national security5-and a standard definition for
what constitutes a business system does not exist. In fact, the DOD
Comptroller recently acknowledged that the actual number of business
systems could be twice as many as previously reported. As a result, DOD
cannot provide reasonable assurance to Congress that it has identified all
of its business systems and that its IT budget request includes funding
for all department business systems.
To identify the reported 2,274 business systems, DOD relied on a manual
"data call" process. However, each of DOD's designated business functional
domains6 is currently refining its respective inventory of systems. For
example, the logistics domain recently identified an additional 3,000
potential systems and validated that over 1,900 are actual systems7-that
is, they are not merely a spreadsheet or a report. However, only 565
logistics systems are presently included in DOD's reported 2,274 business
systems. According to logistics domain officials, they, like the DOD
components, are currently determining the actual number of systems that
should be reported for their domain.
Without an accurate inventory of existing systems and with uncertainty as
to whether all business system funding is reflected in the IT budget, it
is not surprising that DOD has yet to establish an effective management
oversight structure and processes to control its ongoing and planned
business systems investments. Currently, DOD components receive funding
from multiple appropriations and continue to make their own parochial
investment decisions. While the domains have been designated to oversee
business systems investments and to ensure that they are consistent with
5 These systems are intelligence systems, cryptologic activities related
to national security, military command and control systems, and equipment
that is an integral part of a weapon or weapons system or is critical to
the direct fulfillment of military or intelligence missions.
6 The department has established seven domains in support of its business
functions. The domains are acquisition, accounting/finance, human resource
management, logistics, strategic planning and budgeting, installations and
environment, and enterprise information environment.
7 The logistics domain defines a system as one that performs a logistics
business process and has any one of the following characteristics: has
annual operating costs of over $50,000, has over 50 users, or operates on
a network.
the goals and objectives of the business enterprise architecture (BEA),
their specific roles and responsibilities have not yet been clearly
defined. While a recently approved IT portfolio management policy
establishes general departmental policies and assigns responsibility to
the domains, specific procedures, including developing standard criteria
for system reviews, have not been finalized.
Additionally, DOD does not have the processes and controls in place to
provide reasonable assurance that it is in compliance with the fiscal year
2003 defense authorization act, which requires the DOD Comptroller to
review all system improvements with obligations exceeding $1 million. We
also found that the DOD Comptroller does not have an effective process in
place to identify projects with obligations in excess of $1 million for
system modernizations. As a result, DOD was not able to satisfy our
request for information on all obligations in excess of $1 million for
system modernizations since passage of the act. Based upon limited
information reported by the military services for fiscal years 2003 and
2004, the military services did not submit for the DOD Comptroller's
review the majority of the system improvements with total obligations
exceeding $1 million. Based upon the reported information, obligations
totaling $479 million were made by the military services for system
improvements that were not referred to the DOD Comptroller for the
required review. Further, our analysis of budgetary information indicated
that system improvements totaling potentially several billion dollars were
not referred to the DOD Comptroller for review.
Our two case study projects-BSM and LMP-are examples of how DOD's lack of
control and accountability over business systems investments continues to
result in the department spending hundreds of millions of dollars on
systems that will not result in integrated corporate solutions to some of
its longstanding inventory and related financial management problems. For
example, neither BSM nor LMP will provide total asset visibility8 over
DOD's billions of dollars of inventory, such as repair parts and chemical
and biological protective clothing. The lack of total asset visibility is
a key gap in the department's ability to track and locate inventory.
According to DLA and Army officials, enhancing the
8 DOD defines total asset visibility as "the capability to provide users
with timely and accurate information on the location, movement, status,
and identity of units, personnel, equipment, material, and supplies." It
also includes the capability to act upon that information to improve
overall performance of DOD's logistics practices.
department's visibility over its assets depends on the successful
development and implementation of other systems, for which implementation
schedules and cost estimates have not been fully developed. Further, the
first deployment of LMP did not have the capability to accurately value
inventory at the Tobyhanna Army Depot in accordance with departmental
guidance. According to the DOD Comptroller's office, it became aware of
the problem subsequent to LMP becoming operational and has directed that
further deployments be delayed until this capability is provided.
While BSM and LMP are intended to transform the logistics operations for
DLA and the Army, respectively, the initial deployment of each system has
not provided key capabilities. For example, we found that because the Army
did not test LMP's over 70 interfaces end to end with Army and external
systems-such as those operated by the Defense Finance and Accounting
Service (DFAS)-to ensure they operate correctly, operational problems
occurred. For instance, contract data had to be manually reentered into
the Mechanization of Contract Administration Services (MOCAS) system-the
department's contract administration system. Similarly, BSM's interfaces
were not operating properly. Users experienced difficulties in processing
orders, resulting in incorrect information on customer orders, customer
orders never being sent, and vendor invoices not being paid on time. In
large part, these operational problems occurred because DLA and the Army
did not have in place effective requirements management9 and testing
processes.
We have previously recommended10 specific actions that are needed to
effectively control ongoing and planned business systems investments.
However, the department has not fully implemented these
9 According to the Software Engineering Institute, requirements management
is a process that establishes a common understanding between the customer
and the software project manager regarding the customer's business needs
that will be addressed by a project. A critical part of this process is to
ensure that the requirements development portion of the effort documents,
at a sufficient level of detail, the problems that need to be solved and
the objectives that need to be achieved.
10 U.S. General Accounting Office,
Information Technology: Architecture Needed to Guide Modernization of DOD's Financial Operations,
GAO01525 (Washington, D.C.: May 17, 2001);
DOD Business System Modernization: Improvements to Enterprise Architecture Development and Implementation Efforts Needed,
GAO03458 (Washington, D.C.: Feb. 28, 2003); and
DOD Business Systems Modernization: Important Progress Made to Develop Business Enterprise Architecture, but Much Work Remains,
GAO031018 (Washington, D.C.: Sept. 19, 2003).
recommendations, and therefore we are reiterating those recommendations
because they are so critical to the success of the department's
transformation efforts. We are also making four recommendations to the
Secretary of Defense aimed at improving the department's ability to (1)
identify the number of business systems and improve the accuracy and
completeness of its related IT budget request, (2) effectively control its
business system investments, and (3) deliver the intended capability of
LMP and BSM. This report also suggests that Congress may wish to consider
four legislative initiatives to establish specific management oversight,
accountability, and control of business system funding to business
function domains.
In its comments on a draft of this report, DOD agreed with the four
recommendations to the Secretary of Defense and two of the four matters
for congressional consideration. DOD did not agree that the responsibility
for the planning, design, acquisition, deployment, operation, maintenance,
modernization, and oversight of business systems should be assigned to
domain leaders (e.g., the Under Secretary of Defense for Acquisition,
Technology and Logistics and the DOD CIO). The department stated that the
development of the business enterprise architecture and the business IT
investment management structure would provide the necessary management and
oversight responsibility. In our view, this position ignores the fact that
DOD's tradition of having components responsible for these functions has
resulted in the existing duplicative, nonintegrated, stovepiped business
system environment that we have today that cannot provide accurate
information on the results of DOD's operations. Shifting responsibility
for these functions to the domains would be one way of overcoming
lingering cultural resistance in order to obtain corporate solutions to
common problems within reasonable time and cost parameters.
DOD also did not agree that funds for business systems should be
appropriated to the domains. DOD stated that improved control and
accountability over business system investments would be obtained through
the domains guiding IT investments and establishing investment review
boards. These are positive steps and we would agree that the domains may
be able to influence business system investment decisions. Our concern is
about the extent of influence they can exert given that they will not have
the means to effect real change because they will not control the funding.
See the "Agency Comments and Our Evaluation" section of this report for a
more detailed discussion of the agency comments. We have reprinted DOD's
written comments in appendix II.
Background DOD is one of the largest and most complex organizations in
the world. In fiscal year 2003, DOD reported that its operations involved
over $1.1 trillion in assets, over $1.5 trillion in liabilities,
approximately 3.3 million military and civilian personnel-including guard
and reserve components, and disbursements of over $416 billion. Execution
of these operations spans a wide range of defense organizations, including
the military services and their respective major commands and functional
activities, numerous large defense agencies and field activities, and
various combatant and joint operational commands that are responsible for
military operations for specific geographic regions or theaters of
operations.
To execute these military operations, the department performs an
assortment of interrelated and interdependent business functions,
including logistics management, procurement, health care management, and
financial management. To support its business functions, DOD reported in
April 2003 that it relied on about 2,274 business systems, including
accounting, acquisition, logistics, and personnel systems.11 To support
its existing systems environment, DOD requests billions of dollars
annually. The Assistant Secretary of Defense for Networks and Information
Integration-DOD's CIO-is responsible for compiling and submitting the
department's IT budget reports to Congress and the Office of Management
and Budget (OMB). According to a DOD CIO official, the information in the
IT budget request is initially prepared by various DOD components and
processed through their respective CIOs and comptrollers. The information
is then forwarded to the DOD CIO office, where it is consolidated before
being sent to OMB and Congress. The DOD component CIOs and comptrollers
are responsible for, and are required to certify, the reliability of the
information about their respective initiatives that is included in the IT
budget request.
Serious Financial Management Weaknesses Persist
DOD continues to confront pervasive, decadesold financial and business
management problems related to its systems, processes (including internal
controls), and people (human capital). These problems have (1) resulted in
a lack of reliable information needed to make sound decisions and report
11 DOD excludes from its business systems those designated as national
security systems under section 2315 of Title 10, United States Code. These
systems are intelligence systems, cryptologic activities related to
national security, military command and control systems, and equipment
that is an integral part of a weapon or weapons system or is critical to
the direct fulfillment of military or intelligence missions.
the status of DOD's activities through financial and other reports; (2)
hindered its operational efficiency; and (3) left the department
vulnerable to fraud, waste, and abuse. For example:
o Of the 481 mobilized Army National Guard soldiers from six GAO case
study Special Forces and Military Police units,12 450 had at least one pay
problem associated with their mobilization. DOD's inability to provide
timely and accurate payments to these soldiers, many of whom risked their
lives in recent Iraq or Afghanistan missions, distracted them from their
missions, imposed financial hardships on the soldiers and their families,
and has had a negative impact on retention.13
o Some DOD contractors have been abusing the federal tax system with
little or no consequence and DOD is not collecting as much in unpaid taxes
as it could. Under the Debt Collection Improvement Act of 1996, DOD is
responsible-along with the Department of the Treasury-for offsetting
payments made to contractors to collect funds owed, such as unpaid federal
taxes. However, we found that DOD had collected only $687,000 of unpaid
taxes as of September 2003. We estimated that at least $100 million could
be collected annually from DOD contractors through effective
implementation of the levy and debt collection
14
program.
o Our review of fiscal year 2002 data revealed that about $1 of every $4
in contract payment transactions in DOD's MOCAS system was for adjustments
to previously recorded payments-$49 billion of adjustments out of $198
billion in disbursement, collection, and adjustment transactions.
According to DOD, the cost of researching and
12 The six case study units reviewed are the Colorado B Company Special
Forces, Virginia B Company Special Forces, West Virginia C Company Special
Forces, Mississippi 114th Military Police Company, California 49th
Military Police Headquarters and Headquarters Detachment, and the Maryland
200th Military Police Company. In addition, our limited review of pay
experiences of soldiers in the Colorado Army Guard's 220th Military Police
Company, which recently returned from Iraq, indicated that some of the
same types of pay problems that we found in our case studies had also
affected soldiers in this unit.
13 U.S. General Accounting Office,
Military Pay: Army National Guard Personnel Mobilized to Active Duty Experienced Significant Pay Problems,
GAO0489 (Washington, D.C.: Nov. 13, 2003).
14 U.S. General Accounting Office,
Financial Management: Some DOD Contractors Abuse the Federal Tax System with Little Consequence,
GAO0495 (Washington, D.C.: Feb. 12, 2004).
making adjustments to accounting records was about $34 million in fiscal
year 2002, primarily to pay hundreds of DOD and contractor staff.15
o Tens of millions of dollars are not being collected each year by
military treatment facilities from thirdparty insurers because key
information required to effectively bill and collect from thirdparty
insurers is often not properly collected, recorded, or used by the
military treatment facilities.16
The longstanding problems continue despite the significant investments
made in DOD business systems each year. The challenges continue, in part,
because of DOD's inability to effectively modernize its business systems.
For example, our March 2003 report and testimony17 concluded that DOD had
not effectively managed and overseen its planned investment of over $1
billion in four DFAS systems modernization efforts. DOD has terminated two
of the four DFAS systems modernization projects-the Defense Procurement
Payment System (DPPS) and the Defense Standard Disbursing System (DSDS).
The DOD Comptroller terminated DPPS in December 2002 after more than 7
years of effort and an investment of over $126 million, citing poor
program performance and increasing costs. DFAS terminated DSDS in December
2003 after approximately 7 years of effort and an investment of about $53
million, noting that a valid business case for continuing the effort could
not be made. These two projects were planned to provide DOD the capability
to address some of its longstanding contract and vendor payment problems.
15 U.S. General Accounting Office,
DOD Contract Payments: Management Action Needed to Reduce Billions in Adjustments to Contract Payment Records,
GAO03727 (Washington, D.C.: Aug. 8, 2003).
16 U.S. General Accounting Office,
Military Treatment Facilities: Improvements Needed to Increase DOD Third-Party Collections,
GAO04322R (Washington, D.C.: Feb. 20, 2004).
17 U.S. General Accounting Office,
DOD Business Systems Modernization: Continued Investment in Key Accounting Systems Needs to be Justified,
GAO03465 (Washington, D.C.: Mar. 28, 2003) and
DOD Business Systems Modernization: Longstanding Management and Oversight Weaknesses Continue to Put Investments at Risk,
GAO03553T (Washington, D.C.: Mar. 31, 2003).
Longstanding Inventory Management Deficiencies
Since 1990, we have identified DOD's management of secondary inventories
(spare and repair parts, clothing, medical supplies, and other items to
support the operating forces) as a highrisk area. One primary factor
contributing to DOD's inventory management weaknesses is its outdated and
ineffective systems. These system deficiencies have hindered DOD's ability
to (1) support its reported inventory balances; (2) provide inventory
visibility; and (3) provide accurate financial and management information
related to its property, plant, and equipment. For example:
o DOD incurred substantial logistical support problems as a result of
weak distribution and accountability processes and controls over supplies
and equipment shipments in support of Operation Iraqi Freedom activities,
similar to those encountered during the prior Gulf War. These weaknesses
resulted in (1) supply shortages, (2) backlogs of materials delivered in
theater but not delivered to the requesting activity, (3) a discrepancy of
$1.2 billion between the amount of materiel shipped and that acknowledged
by the activity as received, (4) cannibalization of vehicles, and (5)
duplicate supply requisitions.18
o Inadequate asset visibility and accountability resulted in DOD selling
new Joint Service Lightweight Integrated Suit Technology-the current
chemical and biological protective garment used by our military forces-on
the Internet for $3 each (coat and trousers) while at the same time buying
them for over $200 each.19 DOD has acknowledged that these garments should
have been restricted to DOD use only and therefore should not have been
available to the public.
18 U.S. General Accounting Office,
Defense Logistics: Preliminary Observations on the Effectiveness of Logistics Activities during Operation Iraqi Freedom,
GAO04305R (Washington, D.C.: Dec. 18, 2003).
19 U.S. General Accounting Office,
DOD Management: Examples of Inefficient and Ineffective Business Processes,
GAO02873T (Washington, D.C.: June 25, 2002).
o Our analysis of data on more than 50,000 maintenance work orders
opened during the deployments of six battle groups indicated that about
29,000 orders (58 percent) could not be completed because the needed
repair parts were not available on board ship. This condition was a result
of inaccurate ship configuration records and incomplete, outdated, or
erroneous historical parts demand data. Such problems not only have a
detrimental impact on mission readiness, they may also increase
operational costs due to delays in repairing equipment and holding
unneeded spare parts inventory. 20
Efforts to Modernize DOD Business Systems
Transformation of DOD's business systems and operations is critical to the
department having the ability to provide Congress and DOD management with
accurate and timely information for use in the decisionmaking process. One
of the key elements we have reported21 as necessary to successfully
execute the transformation is establishing and implementing an enterprise
architecture. In this regard, the department has undertaken a daunting
challenge to modernize its existing business systems environment through
the development and implementation of a BEA or modernization blueprint.
This effort is an essential part of the Secretary of Defense's broad
initiative to "transform the way the department works and what it works
on." As previously noted, the department has designated seven domain
owners to be responsible for implementing the BEA, which includes (1)
performing system reviews and approving initiative funding as part of
investment management and (2) enforcing compliance with the BEA.
20 U.S. General Accounting Office,
Defense Inventory: Opportunities Exist to Improve Spare Parts Support Aboard Deployed Navy Ships, GAO03887
(Washington, D.C.: Aug. 29, 2003).
21 U.S. General Accounting Office,
Department of Defense: Status of Financial Management Weaknesses and Progress Toward Reform,
GAO03931T (Washington, D.C.: June 25, 2003).
In April 2003, DOD reported that its business systems environment
consisted of 2,274 systems and systems acquisition projects spanning
numerous business operations that were divided into the seven domains and
established a domain leader for each area.22 DOD's efforts to manage the
modernization initiative include a strategy to vest the domains with the
authority, responsibility, and accountability for business transformation,
extension and implementation of the architecture, and investment
management. We have also recommended23 that DOD establish an investment
management structure to gain control over business system investments by
(1) establishing a hierarchy of investment review boards from across the
department, (2) establishing a standard set of investment review and
decisionmaking criteria for its ongoing IT system projects, and (3)
directing the boards to perform a comprehensive review of all ongoing
business system investments.
Two of the business systems modernization efforts DOD has under way to
address some of its inventory problems are DLA's BSM and the Army's LMP.
These two business systems represent approximately 19 percent of the $770
million of the modernization funding requested in fiscal year 2004 for
logistics systems. DLA and the Army are using the same
commercialofftheshelf (COTS) enterprise resource planning24 software
package. DLA and the Army are using the inventory management portion of
the package.
BSM. In November 1999, DLA initiated an effort to replace its materiel
management systems-the Standard Automated Materiel Management System
(SAMMS) and the Defense Integrated Subsistence Management System-with BSM.
DLA has used the two existing systems for over 30
22 The seven domains and the respective domain leaders are (1)
acquisition-Under Secretary of Defense (Acquisition, Technology and
Logistics); (2) accounting and finance- Under Secretary of Defense
(Comptroller)/Chief Financial Officer; (3) human resources
management-Under Secretary of Defense (Personnel and Readiness); (4)
installations and environment-Under Secretary of Defense (Acquisition,
Technology and Logistics); (5) logistics-Under Secretary of Defense
(Acquisition, Technology and Logistics); (6) strategic planning and
budgeting-Under Secretary of Defense (Comptroller)/Chief Financial
Officer; and (7) enterprise information environment-Assistant Secretary of
Defense (Networks and Information Integration)/Chief Information Officer.
23 GAO03458 and GAO031018.
24 These commercial products are referred to as enterprise resource
planning (ERP) solutions. ERP products consist of multiple, integrated
functional modules that do different tasks, such as track payroll, keep a
standard general ledger, manage supply chains, and organize customer data.
years to manage its inventory. BSM is intended to transform how DLA
conducts its operations in five core business processes: order
fulfillment, demand and supply planning, procurement, technical/quality
assurance, and financial management. BSM was deployed in July 2002 and is
operating at the Defense Supply Center Columbus-Columbus, Ohio; the
Defense Supply Center Philadelphia-Philadelphia, Pennsylvania; the Defense
Supply Center Richmond-Richmond, Virginia; the Defense Distribution
Center-New Cumberland, Pennsylvania; the DLA Logistics Information
Service-Battle Creek, Michigan; and DLA headquarters-Fort Belvoir,
Virginia. The initial deployment included lowvolume, lowdollarvalue items.
BSM has about 900 users and is populated with over 170,000 inventory items
valued at about $192 million. Once it becomes fully operational, BSM is
expected to have about 5,000 users and control and account for about 5
million inventory items valued at about $12 billion. DLA currently
estimates that it will invest approximately $850 million to fully deploy
BSM.
LMP. In February 1998, the U.S. Army Materiel Command (AMC) began an
effort to replace its existing materiel management systems-the Commodity
Command Standard System and the Standard Depot System- with LMP. The Army
has used the existing systems for over 30 years to manage its inventory
and depot maintenance operations. LMP is intended to transform AMC's
logistics operations in six core processes: order fulfillment, demand and
supply planning, procurement, asset management, materiel maintenance, and
financial management. LMP is a 12year acquisition requirements contract.25
LMP became operational at the U.S. Army Communications and Electronics
Command (CECOM), Fort Monmouth, New Jersey, and Tobyhanna Army Depot,
Tobyhanna, Pennsylvania, in July 2003. The initial deployment of LMP
consisted of inventory items such as electronics; electronic repair
components; and communications and intelligence equipment such as night
vision goggles, electronic components such as circuit boards, and certain
munitions such as guidance systems included in missiles. Currently, LMP
has 4,500 users at 12 locations and is populated with over 2 million
inventory items valued at about $440 million. When LMP is fully
implemented, its capacity is expected to include more than 15,000 users at
149 locations and will be populated with 6 million Armymanaged inventory
items valued at about
25 A contract in which the buyer agrees to purchase all requirements from
one party when the exact time and/or exact quantities of future deliveries
are not known at the time of the contract award.
$40 billion. The Army currently estimates that it will invest
approximately $1 billion to fully deploy LMP.
Fiscal Year 2004 For fiscal year 2004, DOD requested approximately $28
billion in IT funding
to support a wide range of military operations as well as DOD
businessBudget for DOD's system operations, of which approximately $18.8
billion26 is for the Stovepiped, reported 2,274 business systems-$4.8
billion for business systems Duplicative Business
development/modernization and about $14 billion for operation and
maintenance. As shown in figure 1, the $28 billion is spread across
theSystems Is Nearly military services and defense agencies. The $28
billion represents a $19 Billion $2 billion increase over fiscal year
2003.
26 The remaining $9 billion is for National Security Systems.
Figure 1: Distribution of DOD's Nearly $28 Billion IT Budget Request
(Dollars in Billions) 1.8% DFASa $.5 billion
2.8% DLAb $.8 billion
3.6% TRICAREc $1 billion
10.4% All other DOD componentsd $2.9 billion
aDFAS is the centralized accounting agency for DOD.
bDLA is DOD's logistics manager for all consumable and some repair items;
its primary business function is providing supply support to sustain
military operations and readiness.
cTRICARE is the health care system for DOD's active duty personnel, their
dependents, and retirees.
dOther DOD components include entities such as the Office of the Secretary
of Defense and the Defense Contract Management Agency.
eThe Defense Information Systems Agency provides DOD and other
organizations a wide range of information services, such as data
processing, telecommunications services, and database management.
The department's business systems are used to record the events associated
with DOD's functional areas, such as finance, logistics, personnel, and
transportation. Table 1 shows how business system funding is spread across
the various DOD components.
Table 1: DOD Fiscal Year 2004 IT Budget Request for Business Systems by
DOD Component
Dollars in millions
Development/
Component Current services modernization Total
Army $2,400 $1,252 $3,652
Navy $3,221 $557 $3,778
Air Force $2,747 $990 $3,737
DISA $3,145 $793 $3,938
TRICARE $736 $244 $980
DLA $452 $322 $774
DFAS $399 $103 $502
Other DOD components $895 $545 $1,440
Total $13,995 $4,806 $18,801
Source: GAO analysis based on DOD's fiscal year 2004 IT budget request.
OMB requires that funds requested for IT projects be classified as either
steady state (referred to by DOD as "current services") or as
development/modernization. Current services are funds for operating and
maintaining systems at current levels (i.e., without major enhancements).
The development/modernization budget category represents funds for
developing new IT systems or making major enhancements to existing
systems.
Some systems, such as BSM, have both current services and
development/modernization funding. For BSM, while current services are to
be used for operating the system at various DLA locations,
development/modernization funds are to be used for activities such as
developing additional system functionality. For fiscal year 2004, DLA's IT
budget request, including BSM, was $452 million for current services and
$322 million for development/modernization. Generally, current services
are financed through the Operation and Maintenance appropriations, whereas
development/modernization funding can come from any one or combination of
several funding sources, such as the Research, Development, Test, and
Evaluation appropriations; the Procurement appropriations; or the Defense
Working Capital Fund.
As part of DOD's ongoing business systems modernization efforts, DOD's
Business Management Modernization Program (BMMP) and Business
Management and Systems Integration (BMSI) office27 are creating a
repository of the department's existing business systems. DOD reported
that as of April 2003, this environment consisted of 2,274 systems and
system acquisition projects. To provide for investment management, DOD
assigned the systems to the seven domains. For example, DOD assigned 565
systems to the logistics domain, 210 of which primarily perform inventory
functions and 32 of which perform transportation functions. Similarly, the
accounting and finance domain has 542 systems of which 240 primarily
perform finance and accounting functions. Table 2 presents the composition
of DOD's reported business systems by domain and functional area.
27 BMMP is the department's business transformation initiative
encompassing defense policies, processes, people, and systems that guide,
perform, or support all aspects of business management, including
development and implementation of the BEA. The Under Secretary of Defense
(Comptroller) established a DODwide program management office, BMSI, to
oversee and manage BMMP.
Table 2: Reported DOD Business Systems by Domain and Functional Area
Navy/ Marine
Domain Functional area Air Force Army Corps DFAS Other Total
Acquisition
Acquisition 20 13 42 0 11
Procurement 4 5 10 0 3
Other functions combined 3 13 9 3 7
Subtotal 27 31 61 3 21 143
Accounting and finance Human resources management
Finance and accounting 22 31 60 103 24 240
Budget formulation/execution 3 5 61 2 7
Cost 9 21 29 0 4
Management information 2 12 6 36 3
Vendor payment 1 2 2 9 2
Other functions combined 6 17 37 15 11
Subtotal 43 88 195 165 51 542
Personnel 53 311 37 20 31 452
Health 0 3 0 0 40
Time and attendance 2 3 11 3 0
Travel 3 10 20 1 1 35
Other functions combined 13 60 18 9 16 116
Subtotal 71 387 86 33 88 665
Installations and environment
Real property management 8 35 2 1 2 48
Personnel 1 9 0 0 0 10
Inventory 0 5 3 0 1 9
Logistics 1 4 0 0 3 8
Other functions combined 2 45 4 0 2 53
Subtotal 12 98 9 1 8 128
Logistics
Inventory 50 90 42 4 24 210
Logistics 57 44 28 2 29 160
Transportation 8 11 2 0 11 32
Personal property management 6 5 5 0 2 18
Real property management 3 3 4 0 0 10
National defense property management 2 0 1 0 0 3
(Continued From Previous Page)
Navy/ Marine
Domain Functional area Air Force Army Corps DFAS Other Total
Other functions combined 51 30 21 5 11 118
Acquisition 3 8 1 0 2
Subtotal 180 191 104 11 79 565
Strategic planning and budgeting Enterprise information environment
Budget formulation/execution 15 45 74 12 8 154
Finance and accounting 1 4 7 3 1
Other functions combined 7 14 17 0 2
Subtotal 23 63 98 15 11 210
Other functions combined 1 5 2 3 10
Subtotal 1 5 2 310
Total 357 863 555 231 268 2,274
Source: GAO analysis of BMMP April 2003 data.
Table 2 clearly indicates that there are numerous redundant systems
operating in the department today. For example, DOD has reported that it
has 16 vendor pay systems that are used to pay contractors for services
provided. A further illustration is the department's statement that the
Defense Integrated Military Human Resources System, which is to serve as
DOD's integrated military personnel and pay system, will replace a
reported 79 existing systems.
BMSI officials stated that they are validating the 2,274 different systems
and related functional area categories, as illustrated in table 2, with
the domains. Although the systems are different, functional area
categories may be the same among the domains. For example, the Accounting
and Finance and Strategic Planning and Budgeting domains both report
having systems that perform finance and accounting functions. BMSI
officials have stated that through the BMSI office's validation efforts,
the functional area categories may be renamed or systems may be
reclassified to other functional areas. For example, BMSI officials
explained that the finance and accounting functional area within the
Strategic Planning and Budgeting domain may be changed to Budgetary
Financial Data.
Although the BMSI office has created an initial repository of 2,274
business systems to support DOD's systems modernization efforts, its
systems inventory is currently neither complete nor informative enough for
decision making. For example, according to logistics domain officials,
there are currently about 3,000 systems just within the logistics domain.
Of that amount, about 1,900 systems have been validated by the DOD
components as logistics systems-that is, they are not merely a spreadsheet
or a report. Such a determination has not been made for the other 1,100.
Our analysis showed that of the 1,900 systems, 253 systems are included in
DOD's reported 2,274 business systems. According to logistics domain
officials, they are in the process of determining if the remaining systems
should be classified as a business system or a national security system.
The BMSI office has not reported additional systems since April 2003
because it is continuing to reconcile its inventory with two other
databases-the IT Registry and the Information Technology Management
Application (ITMA). This reconciliation is necessary because the three
databases are not integrated. The IT Registry is a database of
missioncritical28 and missionessential29 IT systems maintained by the DOD
CIO.30 As reported by the DOD Inspector General (IG),31 each DOD component
could determine whether a system should be reported as mission critical or
mission essential in the IT Registry. Since the definitions were subject
to interpretation, the DOD IG concluded that the IT Registry would not
necessarily capture the universe of DOD business systems. The ITMA is an
application used by the DOD CIO to collect system information for the
development of the department's annual IT budget request. Each of these
databases-the IT Registry, the ITMA, and the BMMP systems inventory-
contains varying information, some of which overlaps. For example, the IT
Registry includes warfighting systems as well as some business systems,
while the BMMP inventory includes only systems related to the
28 A missioncritical system is a system that if lost would cause the
stoppage of warfighter operations or direct mission support of warfighter
operations.
29 A missionessential system is a system that the component head
determines is basic and necessary for the accomplishment of the
organizational mission.
30 On December 1, 2003, the DOD CIO issued an IT Registry policy
memorandum that would expand the IT Registry to provide information about
all DOD IT systems and required all component CIOs to add all
nonmissioncritical and nonmissionessential IT systems to the IT Registry
at a rate determined by the responsible CIO each year, to ensure that all
IT systems are registered in the DOD IT Registry no later than September
30, 2006.
31 U.S. Department of Defense, Office of the Inspector General,
Information Technology: Systems Inventory to Support the Business Enterprise Architecture,
D2003117 (Arlington, Va.: July 10, 2003).
department's business operations. The ITMA includes initiatives and
programs, such as the department's BEA effort, that are not IT systems.
Although DOD recognizes that it needs an integrated repository of systems
information in order to control and prioritize its IT investments, the
difficulty of developing a single source is compounded by the fact that
DOD has not developed a universal definition of what should be classified
as a business system. Lacking a standard definition that is used
consistently across the entire department, DOD does not have reasonable
assurance that it has identified all of its business systems. As a result,
DOD does not have complete visibility over its business systems to permit
analysis of gaps and redundancies in DOD's business systems environment
and to assist in preventing the continuing proliferation of redundant,
stovepiped business systems.
Furthermore, DOD cannot provide reasonable assurance to Congress that its
IT budget request includes all funding for the department's business
systems. For example, we reported32 in December 2003, that DOD's IT budget
submission to Congress for fiscal year 2004 contained material
inconsistencies, inaccuracies, or omissions that limited its reliability.
We identified discrepancies totaling about $1.6 billion between two
primary parts of the submission-the IT budget summary report and the
detailed capital investments reports on each IT initiative. These problems
were largely attributable to insufficient management attention and
limitations in departmental policies and procedures, such as guidance in
DOD's Financial Management Regulation, and to shortcomings in systems that
support budgetrelated activities.
32 U.S. General Accounting
Office, Information Technology: Improvements Needed in the Reliability of Defense Budget Submissions,
GAO04115 (Washington, D.C.: Dec. 19, 2003).
DOD Continues to Have Ineffective Control and Accountability over Business
System Investments
DOD continues to lack effective management oversight and control over
business systems modernization investments. While the domains have been
designated to oversee business systems investments, the actual funding, as
shown in table 1, continues to be spread among the military services and
defense agencies, thereby enabling the numerous DOD components to continue
to develop stovepiped, parochial solutions to the department's
longstanding financial management and business operation challenges.
Furthermore, the department does not have reasonable assurance that it is
in compliance with the fiscal year 2003 defense authorization act, which
provides that obligations in excess of $1 million for systems improvements
may not be made unless the DOD Comptroller makes a determination that the
improvements are in accordance with the criteria specified in the act.33
Lacking a departmentwide focus and effective management oversight and
control of business systems investment, DOD continues to invest billions
of dollars in systems that fail to provide integrated corporate solutions
to its business operation problems.
DOD Is Working to Finalize Management Oversight Structure and Guidance
In response to our September 2003 report, DOD said that it was taking
several actions to improve the control and accountability over business
systems investments. However, as of March 2004, many of these actions had
not been finalized. As a result, the department has not put into place the
organizational structure and process controls to adequately align business
system investments with the BEA. Each DOD component continues to make its
own investment decisions, following different approaches and criteria. The
lack of an institutionalized investment strategy has contributed to the
department's current complex, errorprone, nonintegrated systems
environment and precluded the development of corporate system solutions to
longstanding business problems. In particular, DOD has not clearly defined
the roles and responsibilities of the domains, established common
investment criteria, and conducted a
33 As noted earlier, the act provides that any amount in excess of $1
million may be obligated for financial system improvements before approval
of its enterprise architecture and a supporting transition plan only if
the DOD Comptroller makes a determination that the improvement is
necessary for (1) critical national security capability or critical safety
and security requirements or (2) prevention of significant adverse effect
on a project that is needed to achieve an essential capability. The act
further provides that after the architecture is approved, the DOD
Comptroller must determine before making obligations that exceed $1
million for system improvements that such improvements are consistent with
the enterprise architecture and the transition plan.
comprehensive review of its ongoing IT investments to ensure that they are
consistent with the BEA.
As we have previously reported,34 best practices recommend that investment
review boards be established to control an entity's systems investments
and that the boards use a standard set of investment review and
decisionmaking criteria to ensure compliance and consistency with the
architecture. We have also recommended that the department establish
investment review boards to better control investments and that each board
be composed of representatives from across the department.
DOD has decided that in lieu of the investment review boards, the domains
will be responsible for investment management. In March 2004, the Deputy
Secretary of Defense signed an IT portfolio investment management policy
and assigned overall responsibility to the domains. However, the specific
roles and responsibilities of the domains had not been formalized and
standard criteria for performing systems reviews have not been finalized.
According to DOD officials, the related detailed directive and
instructions will outline the specific roles and responsibilities of the
domains and how they are to be involved in the overall business systems
investment management process. The department is drafting a memorandum
that will require the domains to develop a plan for implementing the
investment management policy.
Further, the department has developed draft system review and
certification process guidance that outlines the criteria that are to be
used by the domains and program managers to assess system compliance with
the BEA. The systems covered in the review process consist of new system
initiatives, ongoing system developmental projects, and systems in
sustainment. According to DOD, once a system is placed in sustainment,
modernization funding cannot exceed $1 million. The system review and
certification process guidance has been integrated with the department's
existing acquisition guidance35-commonly referred to as the DOD 5000
series. The acquisition guidance requires that certain documentation be
prepared at different stages-known as milestones-within the system's
lifecycle process. This documentation is intended to provide relevant
information for management oversight and for decision making on whether
34 GAO03458.
35 DOD Instruction 5000.2, Operation of the Defense Acquisition System
(May 12, 2003).
the investment of resources is cost beneficial and technically feasible.
DOD officials noted that the system review process would be further
enhanced because the DOD Comptroller will have to certify that the
proposed investment is consistent and aligned with the BEA at each
milestone decision. According to DOD, the certification process will help
ensure that the obligation of funds of over $1 million for the
modernization of a system are in accordance with the criteria set forth in
the fiscal year 2003 defense authorization act.
While these actions are aimed at improving the control and accountability
over business systems investments, we have previously reported that the
department did not adhere to the milestone decisionmaking and oversight
processes it established to ensure the economical and technical risks
associated with systems modernizations have been mitigated. For example,
our March 2003 report36 noted that DOD had not effectively managed and
overseen its planned investment of over $1 billion in four DFAS system
modernization efforts. One project's estimated cost had increased by as
much as $274 million, while the schedule slipped by almost 4 years. For
each of these projects, DOD oversight entities-DFAS, the DOD Comptroller,
and the DOD CIO-could not provide documentation that indicated they had
questioned the impact of the cost increases and schedule delays, and
allowed the projects to proceed in the absence of the requisite analytical
justification. Such analyses provide the requisite justification for
decision makers to use in determining whether to invest additional
resources in anticipation of receiving commensurate benefits and mission
value. Two of the four projects-DPPS and DSDS-were terminated in December
2002 and December 2003, respectively, after an investment of approximately
$179 million that did not improve the department's business operations.
36 GAO03465.
While DOD is continuing to work toward establishing the structure and
processes to manage its business systems investments, it has not yet
conducted a comprehensive system review of its ongoing IT investments to
ensure that they are consistent with its BEA efforts. The domains have
raised concerns that they did not have sufficient staff to perform the
system reviews. To assist the domains with their system reviews, in
December 2003, the Deputy Secretary of Defense allotted the domains 54
additional staff. Despite concerns over the sufficiency of staff resources
and the lack of organizational structure and processes for controlling
system investments, the department has acted to curtail the funding for
some systems. For example, effective October 2003, the DOD Comptroller
directed that the Defense Joint Accounting System (DJAS)37 be put into
sustainment. That is, funding would be provided to operate and maintain
the system, but not to upgrade or modernize the system. In June 2000, the
DOD Inspector General (IG) reported38 that DFAS was developing DJAS at an
estimated lifecycle cost of about $700 million without demonstrating that
the program was the most costeffective alternative for providing a portion
of DOD's general fund accounting. DJAS is only being operated at two
locations-Fort Benning, Georgia, and the Missile Defense Agency- and there
are no longer any plans to implement the system at other locations.
Another system that DOD has placed into sustainment is the Joint Computer
Aided Acquisition and Logistics Support (JCALS) system. JCALS was
initiated in June 1992 to enable the services to streamline DOD's
logistical and acquisition functions through business process
reengineering and eliminating existing systems. In May 2003, Gartner,
Inc., reviewed the cost, efficiency, and effectiveness of JCALS and
reported that the program is costly to operate and maintain. The study
recommended freezing all software and technology spending. According to
DOD's fiscal year 2004 IT budget, over $1 billion had been invested in
JCALS since the inception of the program.
37 The original name of the system was the Corps of Engineers Financial
Management System (CEFMS). After it was determined that CEFMS could be
modified to satisfy Army customers and had the potential for supporting
the Defense Working Capital Fund, DFAS selected CEFMS to meet the DJAS
requirements.
38 U.S. Department of Defense, Office of the Inspector General,
Acquisition of the Defense Joint Accounting System, Report No. D2000151
(Arlington, Va.: June 16, 2000).
Placing DJAS and JCALS in sustainment is a step in the right direction.
However, execution of a comprehensive review of all modernization efforts
by DOD before substantial money has been invested will reduce the risk of
continuing the department's track record of business systems modernization
efforts that cost more than anticipated, take longer than expected, and
fail to deliver intended capabilities.
Further, in developing the fiscal year 2005 budget request, the DOD
Comptroller denied DFAS's request for approximately $32 million for the
development of an accounting and budget execution system. The DOD
Comptroller appropriately noted that there should not be investments in a
new system before the domains define the requirements and the system is
justified through the appropriate DOD approval process. The DOD
Comptroller also denied DFAS's request for funding of the Disbursing
Transformation Program, which was a proposed $41 million initiative
through fiscal year 2009. According to DFAS, the program was to be funded
from resources that were budgeted for DSDS, which, as previously
mentioned, was terminated in December 2003. The DOD Comptroller noted that
the department should not pay for salaries, software development, and
systems modernization for a disbursing system before disbursing
functionality is defined according to the BEA. It was further stated that
it is premature for DFAS to create a new disbursing system when it cannot
explain any of the program's requirements in broad or detailed terms and
numerous disbursing systems already exist.
It is encouraging to see the DOD Comptroller acting to eliminate budget
requests by DFAS for systems that are not justified. However, DFAS, which
is under the auspices of the DOD Comptroller, represents a very small
percentage-slightly over 2 percent ($103 million of $4.8 billion)-of the
total modernization funding. Given that the department lacks a
comprehensive inventory of its business systems, it is unknown how many
other modernization projects should be questioned. However, since the
roles and responsibilities of the domain owners have not been clarified,
they have not been empowered to make investment decisions similar to those
of the DOD Comptroller. As we have previously recommended,39 the
department needs to assess its current systems and limit current
investments to
39 GAO01525.
o deployment of systems that have already been fully tested and involve
no additional development or acquisition cost;
o stayinbusiness maintenance needed to keep existing systems
operational;
o management controls needed to effectively invest in modernized
systems; and
o new systems or existing system changes that are congressionally
directed or are relatively small, costeffective, and low risk and can be
delivered in a relatively short time frame.
As noted in our September 2003 report,40 DOD had not yet defined and
implemented an effective approach for selecting and controlling business
system investments. Absent the rigors of these stringent criteria, DOD
will continue to invest in systems that perpetuate its existing
incompatible, duplicative, and overly costly systems environment that does
not optimally support mission performance.
DOD Lacks Reasonable Assurance That It Is in Compliance with Statutory
Investment Management Controls
DOD has not yet defined and implemented an effective investment management
process to proactively identify and control system improvements exceeding
$1 million in obligations. DOD officials have acknowledged that the
department does not have a systematic means to identify and determine
which systems improvements should be submitted to the DOD Comptroller for
review and, in essence, depend on system owners coming forward to the
domain owners and requesting approval. DOD was unable to provide us
comprehensive information on all systems improvements with obligations
greater than $1 million since passage of the act. However, based upon
limited information provided by the military services for fiscal years
2003 and 2004, we found that modernizations with obligations totaling at
least $479 million were not submitted to the DOD Comptroller for any
factual determination.
The act states that as a condition of making any obligation in excess of
$1 million for system improvements, the obligation be reviewed by the DOD
Comptroller who must make a determination whether the request is
40 GAO031018.
in accordance with criteria specified in the act. To comply with the
legislative requirement, the DOD Comptroller issued a memorandum on March
7, 2003, to DOD's component organizations stating that the BMSI
office-which is responsible for overseeing the development and
implementation of the BEA-must review all system improvements with
obligations in excess of $1 million. In addition, the memorandum directs
the DOD components, as an integral part of the review and approval
process, to present information to DOD Comptroller officials and relevant
domain owners that demonstrates that each investment (1) complies with the
BEA and (2) is economically justified. To support that the investment is
economically justified, information on the cost and benefit and return on
investment, including the breakeven point, must be provided.
DOD officials acknowledge that the department could utilize the IT budget
to assist in the identification of systems that could be subject to the
act's requirements. While we recognize that this is budgetary data, rather
than the obligational data referred to in the act, this information could
provide a starting point for the domains identifying potential projects
that should be submitted to the DOD Comptroller. For example, we analyzed
the DOD IT budget request for fiscal years 2003 through 2005 and
identified over 200 systems in each year's budget, totaling over $4
billion per year that could involve obligations of funds that exceed the
$1 million threshold. Table 3 presents our summary analysis by DOD
component.
Table 3: DOD Budget Request for Business Systems Modernization That May
Exceed the $1 Million Threshold
Dollars in millions
Fiscal year 2003 Fiscal year 2004 Fiscal year 2005 Component Amount Number
Amount Number Amount Number
Army $1,046 39 $1,196 41 $1,255
Navy 455 34 487 32 420 29
Air Force 808 30 927 31 1,060 33
DFAS 121 26 80 18 48 13
DISA 912 14 793 20 329 17
DLA 315 18 234 16 104 13
Transportation Command 89 16 80 18 105 18
TRICARE 227 6 244 10 300 11
Missile Defense Agency 15 5 17 6 19 6
(Continued From Previous Page)
Dollars in millions
Fiscal year 2003 Fiscal year 2004 Fiscal year 2005 Component Amount Number
Amount Number Amount Number
Defense Threat Reduction
Agency 29 5 24 4 27
Washington Headquarters
Services 55 2 61 3 33
Office of the Secretary of
Defense 113 2 104 3 185
Joint Chiefs of Staff 28 3 22 2 20
Defense Commissary
Agency 12 2 39 2 77
Defense Human Resources
Activity 14 1 14 1 15
Defense Contract
Management Agency 18 1 12 1 11
Defense Security Service 17 1 10 1 11
Defense Contract Audit
Agency 11 1 10 1 7
American Forces
Information Services 7 1 5 1 6
Special Operations
Command 8 1 3 1 1
DOD IG 2 1 2 1 2
Total $4,302 209 $4,364 213 $4,035 204
Source: GAO analysis based on DOD's fiscal years 2003 through 2005 IT
budget requests.
The list in table 3 may not be complete. According to the DOD CIO and
military service officials, the "All Other" category in the IT budget
exhibits includes system projects that do not have to be identified by
name because they fall below the $2 million reporting threshold for
budgetary purposes.
In an attempt to substantiate that the obligations for business systems
modernization were in accordance with the act, we requested that DOD
activities provide us with a list of obligations greater than $1 million
for fiscal year 200341 and fiscal year 2004, as of December 2003. As of
February 2004, we received responses from the Army, the Navy, and the Air
Force, but did not receive responses from any of the defense agencies such
as
41 We requested the obligational data for fiscal year 2003 for the period
December 2, 2002, the date of enactment of the act, through September
2003.
DFAS and DLA. To ascertain if the DOD Comptroller had made the
determination required in the act, we compared a list of system approvals
provided by the BMSI office with the obligational data (by system)
provided by the military services. Based upon a comparison of the limited
information available, we identified $479 million in reported obligations
over $1 million by the military services for system improvements that were
not submitted to the DOD Comptroller for review and determination as
required by the act. Table 4 summarizes our analysis.
Table 4: System Improvements Not Submitted to the DOD Comptroller for the
Mandated Review
Dollars in millions
Military service
Fiscal year 2003 obligations
Fiscal year 2004 obligations Total
Army $172 $30 $202
Navy $166 $47 $213
Air Force $58 $6 $64
Total $396 $83 $479
Source: GAO analysis based upon information provided by DOD.
Examples of DOD system improvements included in table 4 that were not
submitted include the Air Force obligating over $9 million in fiscal year
2003 and about $4 million in fiscal year 2004 for the Integrated
Maintenance Data System, the Navy obligating about $18 million in fiscal
year 2003 and about $6 million in fiscal year 2004 for the Electronic
Military Personnel Records System, and the Army obligating about $22
million in fiscal year 2003 and about $10 million in fiscal year 2004 for
the Transportation Coordinators' Automated Information for Movements
System. Appendix III provides a list of modernization projects with
obligations totaling over $1 million that were reviewed by the DOD
Comptroller as required by the act. Appendix IV provides a detailed list
of the individual systems not submitted to the DOD Comptroller and the
related amount of the total obligations for fiscal years 2003 and 2004.
The act places limitations on the legal authority of individual program
and government contracting officials to obligate funds in support of the
systems for which they are responsible, but DOD has yet to proactively
manage investments to avoid violations of the limitations and to review
investments in any meaningful way to enforce these statutory limitations.
Until DOD strengthens its process for selecting and controlling business
system investments and adopts an effective governance concept, it remains
exposed to the risk of spending billions of dollars on duplicative,
stovepiped, nonintegrated systems that do not optimize mission performance
and accountability and, therefore, do not support the department's
transformation goals.
We also identified inconsistencies in how the military services
categorized systems. For example, the Air Force did not categorize its
Global Combat Support System as a business system, while the Army and the
Navy consider their respective Global Combat Support Systems business
systems. Additionally, the Navy categorized the Defense Message System as
a business system, but the Army and the Air Force did not. This
inconsistency further reiterates the need for a standard database and
uniform definition of a business system that properly categorizes DOD's
numerous systems.
For those systems that were submitted for review, we found that most had
the supporting documentation called for in the DOD Comptroller's March 7,
2003, memorandum. For example, the return on investment was identified.
However, the one common element lacking was the assertion that the system
projects were compliant with the BEA or otherwise met the criteria set out
in the act. As noted earlier, BMMP has developed a draft BEA system
compliance assessment certification for program managers to use; however,
the process has not been finalized. The inability to assert compliance
with the BEA is consistent with our September 2003 report,42 which noted
that the BEA lacked the details needed to provide DOD with a common vision
and constrain or control investments. We also identified instances in
which the justification for the approval was questionable. These
investments were made without DOD knowing whether these systems are
aligned or consistent with part of DOD's longterm system modernization
strategies. For example:
42 GAO031018.
o In October 2003, the DOD Comptroller approved obligations of $8
million for the Standard Procurement System (SPS) even though the
supporting documentation noted that there was insufficient documentation
to validate all requirements and some were found to be noncompliant with
the BEA. We43 and the DOD IG44 have previously reported concerns with the
overall management and implementation of SPS and the ability to deliver
its intended capability. Initiated almost 10 years ago in November 1994,
the system was to provide DOD with a single automated system to perform
all functions related to contract management within DOD's procurement
process for all DOD organizations and activities. The system was also
intended to replace the contract administration functions currently
performed by MOCAS, a system implemented in 1968 and still operating
today. Further, as will be discussed later in this report, difficulty with
the implementation of SPS is one of the factors that contributed to the
slippage in DLA's BSM implementation schedule.
o In May 2003, the DOD Comptroller approved funding of about $4 million
for the Army's Integrated Facilities System (IFS). Initially, the Director
of the BMSI office denied the funding request in part because it was noted
that the system would be replaced by an enterprise solution. In response,
the installations and environment domain noted that a final system
solution had not been determined and stated that if IFS was found to be
compliant with the "yet to be determined revised business process," it
could be designated the enterprisewide solution. The response also noted
that IFS "might prove to have the best functionality and technical
capabilities for a DOD real property inventory solution." However, until
the department's BEA becomes more robust, it remains unclear if this
system will be part of the ultimate system solution. Until that decision
is made, it is unknown what benefit will be derived from further
investment in this system.
43 U.S. General Accounting Office,
DOD Systems Modernization: Continued Investment in the Standard Procurement System Has Not Been Justified,
GAO01682 (Washington, D.C.: July 31, 2001), and
DOD's Standard Procurement System: Continued Investment Has Yet to Be Justified, GAO02392T
(Washington, D.C.: Feb. 7, 2002).
44 U.S. Department of Defense Office of the Inspector General,
Information Technology: Allegations Regarding the DoD Education Activity's Use of the Standard Procurement System,
D200326 (Arlington, Va.: Nov. 25, 2002).
We also identified some instances in which the DOD Comptroller's approval
depended on specific actions being taken by a given date. However, prior
to December 2003, the BMSI office did not have a process in place to track
and follow up on required actions and did not have reasonable assurance
that the required actions were taken. For example:
o In April 2003, the DOD Comptroller approved the expenditure of about
$53 million for the convergence of four separate Navy enterprise resources
planning solutions into one initiative. This approval was subsequent to an
approval in February 2003 of about $21 million for the continuance of two
of the four Navy efforts. The approval memorandum outlined three specific
actions that needed to be taken and established time frames for the
completion of each action. As of February 2004, BMSI officials were not
able to attest to whether these actions had been completed. However, the
Navy continues to move forward with this effort.
o The DOD Comptroller approved a pilot project for the National Security
Agency on March 7, 2003, for $13.4 million. The approval depended on the
completion of an overall planning document that outlined the various areas
that were to be addressed. This document was to be completed by March 16,
2003. As of February 2004, BMSI officials stated that only minimal
supporting documentation had been provided.
Thus, even for the systems modernization efforts approved by the DOD
Comptroller, serious questions remain as to whether these investments are
justified.
BSM and LMP May Have Difficulty Achieving Cost, Schedule, and Operational
Goals
BSM and LMP were initiated in November 1999 and February 1998,
respectively, prior to DOD undertaking the BEA and establishing the
domains. As such, they are not directed toward a corporate solution to
resolving the department's longstanding weaknesses in the inventory and
logistics management areas, such as total asset visibility or an
integrated systems environment. Both projects are more focused on DLA's
and the Army's respective inventory and logistics management operations.
If effectively implemented, BSM and LMP are expected to provide benefits
associated with private industry's logistics reengineering efforts, such
as inventory reduction, improved cycle time, improved customer
satisfaction, and increased response time. Additionally, BSM and LMP are
intended to improve supply and demand forecast planning, maintenance
workload planning, provide a single source of data, and improve data
quality.
However, the initial deployment of BSM and LMP did not operate as intended
and, therefore, did not meet DLA's and Army's componentlevel needs. In
large part, these operational problems were due to DLA and the Army not
effectively implementing the disciplined process that are necessary to
manage the development and implementation of BSM and LMP in the areas of
requirements management and testing. DLA and Army program officials have
acknowledged that requirements and testing defects were factors
contributing to these operational problems as well as schedule slippages
and cost increases. Further, BSM and LMP have accumulated numerous lessons
learned and have assembled teams to analyze these lessons and to develop
an implementation strategy for corrective action. Additionally, to their
credit, DLA and the Army have decided that future deployments of BSM and
LMP will not go forward until they have reasonable assurance that the
deployed systems will operate as expected for a given deployment.
BSM and LMP Are Not Corporate Solutions to Longstanding Operational
Problems
Effectively managing and overseeing the department's $19 billion
investment in its business systems is key to the successful transformation
of DOD's business operations. The transformation also depends on the
ability of the department to develop and implement business systems that
provide users and department management with accurate and timely
information on the results of operations and that help resolve the
numerous longstanding weaknesses. As DOD moves forward with continued
development and implementation of its BEA, it needs to ensure that the
department's business systems modernization projects are part of a
corporate solution to preclude the continued proliferation of duplicative,
stovepiped systems.
Three of the longstanding problems in logistics and inventory management
have been related to total asset visibility, integrated systems, and
valuation of inventory. We found that BSM and LMP will not resolve
problems associated with total asset visibility and integrated systems and
the first deployment of LMP did not provide for the valuation of inventory
at the depot in accordance with federal accounting standards and
departmental guidance. Details on each of these areas follow.
Total Asset Visibility Although BSM and LMP are enterprise resource
planning systems based on commercial software that incorporates best
business practices for logistics supply chain management,45 their planned
capabilities do not provide a corporate solution for total asset
visibility-a key gap in DOD's capabilities to track and locate items
across the department. A corporate solution for total asset visibility
depends on the successful development and implementation of other systems.
The time frame and costs associated with these other system projects have
not been fully defined.
To illustrate the lack of asset visibility, in October 2002, a DLA
official testified that BSM would provide improved control and
accountability over the Joint Service Lightweight Integrated Suit
Technology (JSLIST)-a chemical/biological suit. The official stated that
the JSLIST suits would be included in BSM at the earliest practicable
date, which was estimated to be December 2003. BSM, however, is not
designed to provide the corporate total asset visibility necessary to
locate and track the suits throughout DOD's supply chain. While the suits
are expected to be included in a future deployment of BSM, program
officials have not yet specified a date when they will be included. Even
when the suits are included, BSM is designed to provide visibility over
the suits only within the DLA environment- something DLA has stated
already exists within its current legacy system environment.
As we have previously reported,46 the lack of integrated systems hinders
DOD's ability to know how many JSLIST it has on hand and where they are
located once they leave the DLA warehouse. For example, we found that
military units that receive JSLIST from DLA warehouses maintained
inventory data in nonstandard, stovepiped systems that did not share data
with DLA or other DOD systems. The methods used to control and maintain
visibility over JSLIST at the units we visited ranged from standalone
automated systems, to spreadsheet applications, to pen and paper. One
military unit we visited did not have any inventory system for tracking
JSLIST. BSM does not address asset visibility outside of DLA's supply
chain for the JSLIST, and thus cannot provide total asset visibility for
this critical inventory item.
45 An area of business operations that is concerned with the management of
material planning, material acquisition/procurement, material logistics,
and order fulfillment.
46 GAO02873T.
Having the ability to readily locate sensitive items, such as JSLIST, is
critical, particularly if a defect is found and the items must be
recalled. A case in point is the JSLIST predecessor, the Battle Dress
Overgarment (BDO). Over 700,000 of these suits were found to be defective
and were recalled. Since DOD's systems did not provide the capability to
identify the exact location of each suit, a series of data calls were
conducted, which proved to be ineffective. We reported in September 200147
that DOD was unable to locate approximately 250,000 of the defective suits
and therefore was uncertain if the suits were still in the possession of
the military forces, or whether they had been destroyed or sold.
Subsequently, we found that DOD had sold many of these defective suits to
the public as excess, including 379 that we purchased in an undercover
operation.48 In addition, DOD may have issued over 4,700 of the defective
BDO suits to local law enforcement agencies. This is particularly
significant because local law enforcement agencies are most likely to be
the first responders to a terrorist attack, yet DOD failed to inform these
agencies that using these suits could result in death or serious injury.
BSM will not provide DOD with the capability to readily locate JSLIST for
any reason, including the need to recall defective suits.
Similar to BSM, LMP will not provide the Army with total asset visibility
until a suite of other systems has been developed and implemented.
Specifically, Army officials have stated that LMP will require integration
with other Army systems that are under development in order to achieve
total asset visibility within the Army. These additional systems are the
Product Lifecycle Management Plus (PLM+) and Global Combat Support
System-Army (GCSS-A). According to the Army, PLM+ is to integrate LMP and
GCSS-A to create a seamless endtoend solution for Army logistics.
According to information provided by the Army, PLM+ was initiated in
December 2003. No estimates have been developed as to the cost of this
project, nor has a time frame for development and implementation been
established.
47 U.S. General Accounting Office,
Chemical and Biological Defense: Improved Risk Assessment and Inventory Management Are Needed, GAO01667
(Washington, D.C.: Sept. 28, 2001).
48 U.S. General Accounting Office,
DOD Excess Property: Risk Assessment Needed on Public Sales of Equipment That Could Be Used to Make Biological Agents, GAO0481TNI
(Washington, D.C.: Oct. 7, 2003).
The Army has stated that GCSS-A will provide visibility of supplies and
equipment in storage and in transit. The Army began development of GCSS-A
in fiscal year 1997 and since then has invested approximately $316 million
in this effort. In May 2003, the Army decided to pursue a COTS solution
for GCSS-A rather than continue to develop the system in house. The Army
recently stated that the total cost of GCSS-A cannot be accurately
estimated until all of the "to be" business processes are identified,
which is expected to occur in October 2004. However, the fiscal year 2004
capital investment report shows that the Army estimates that it will
invest over $1 billion in GCSS-A through fiscal year 2009.
To help provide for departmentwide total asset visibility, DLA is
undertaking the implementation of the Integrated Data Environment (IDE)
program. According to DLA, this initiative is intended to provide the
capability for routing data from multiple systems within DLA and DOD into
one system. According to DLA, the contract was signed in September 2003,
and IDE is expected to reach full operational capability in August 2007.
The current estimated cost of the effort is approximately $30 million.
However, the completion date of August 2007 depends on other departmental
efforts being completed on time, for example, PLM+, for which a completion
date has not been established.
Integrated Systems One of the longstanding problems within DOD has been
the lack of integrated systems. This is evident in the many duplicative,
stovepiped systems among the 2,274 that DOD reported as its systems
environment. Lacking integrated systems, DOD will have a difficult time
obtaining accurate and reliable information on the results of its business
operations and will continue to rely on either manual reentry of data into
multiple systems, convoluted system interfaces, or both. These system
interfaces provide data that are critical to daytoday operations, such as
obligations, disbursements, purchase orders, requisitions, and other
procurement activities. For BSM and LMP, we found that the system
interfaces were not fully tested in an endtoend manner, and therefore DLA
and Army did not have reasonable assurance that BSM and LMP would be
capable of providing the intended functionality.
We previously reported49 that Sears and WalMart, recognized as leadingedge
inventory management companies, had automated systems that electronically
received and exchanged standard data throughout the entire
49 GAO02873T.
inventory management process, thereby reducing the need for manual data
entry. As a result, information moves through the data systems with
automated ordering of inventory from suppliers; receiving and shipping at
distribution centers; and receiving, selling, and reordering at retail
stores. Unlike DOD, which has a proliferation of nonintegrated systems
using nonstandard data, Sears and WalMart require all components and
subsidiaries to operate within a standard systems framework that results
in an integrated system and do not allow individual systems development.
For the first deployment, DLA has had to develop interfaces that permit
BSM to communicate with more than 23 systems, including 3 DFAS, 6 DODwide,
and 14 DLA systems. The Army has had to develop 215 interfaces that permit
LMP to communicate with more than 70 systems, including 13 DFAS, 6 DLA, 2
Navy, 5 Air Force, and over 24 Army systems. Figures 2 and 3 illustrate
BSM's and LMP's numerous required system interfaces.
Figure 2: BSM Required System Interfaces
Source:~GAO~analysis~based~on~data~provided~by~DLA.~
Figure 3: Examples of LMP Required System Interfaces
Source: GAO analysis based on data provided by the Army.
When BSM and LMP became operational, it became evident that the system
interfaces were not working as intended. Such problems have led BSM, LMP,
and organizations with which they interface-such as DFAS-to perform costly
manual reentry of transactions, which can cause additional data integrity
problems. For example:
o BSM's functional capabilities were adversely affected because a
significant number of interfaces were still in development or were being
executed manually once the system became operational. Since the design of
system interfaces had not been fully developed and tested, BSM experienced
problems with receipts being rejected, customer orders being canceled, and
vendors not being paid in a timely manner. At one point, DFAS suspended
all vendor payments for about 2 months, thereby increasing the risk of
untimely payments to contractors and violating the Prompt Payment Act.50
o In January 2004, the Army reported that due to an interface failure,
LMP had been unable to communicate with the Work Ordering and Reporting
Communications System (WORCS) since September 2003. WORCS is the means by
which LMP communicates with customers on the status of items that have
been sent to the depot for repair and initiates procurement actions for
inventory items. The Army has acknowledged that the failure of WORCS has
resulted in duplicative shipments and billings and inventory items being
delivered to the wrong locations. Additionally, the LMP program office has
stated that it has not yet identified the specific cause of the interface
failure. The Army is currently entering the information manually, which as
noted above, can cause additional data integrity errors.
While these numerous interfaces are necessary because of the existing
stovepiped, nonintegrated systems environment, they should have been fully
developed and tested prior to BSM and LMP being deployed. In moving
forward with the future deployments of BSM and LMP, it is critical that
program officials ensure that the numerous system interfaces are operating
as intended. Additionally, until the business enterprise architecture is
further developed and DOD has decided which systems will be part of the
future business systems environment, there is uncertainty as to the number
of these systems with which BSM and LMP will continue to interface.
Valuation of DOD Inventory Federal accounting standards require
inventories to be valued based on historical costs or a method that
approximates historical costs. DOD's
50 The Prompt Payment Act, 31 U.S.C. chapter 39, as implemented in 5
C.F.R. Part 1315 (2003), provides for agencies, among other things, to pay
interest and penalties under various circumstances for late payments,
generally when payments are not made within 30 days of the payment due
date. 5 C.F.R. S:S: 1315.4 and 1315.10.14 (2003).
inability to account for and control its huge investment in inventories
effectively has been an area of major concern for many years. DOD's
antiquated, duplicative systems do not capture the information needed to
comply with federal accounting standards. BSM and LMP are to provide DOD
the capability to comply with federal accounting standards in the
valuation of its billions of dollars of inventory. DLA has stated that BSM
has the capability to compute the value of inventory in accordance with
federal accounting standards. Based upon information provided by DLA and
our analysis, we found that the value of the inventory recorded in BSM
changed each time new items were procured to reflect a moving average
(historical) cost valuation of the inventory-which is an acceptable method
permitted by federal accounting standards and is in accordance with DOD's
stated policy.
However, the first deployment of LMP did not have the capability to value
all inventory in accordance with federal accounting standards. In its
evaluation of LMP, the Army Audit Agency found that it had the capability
to compute the value of inventory in accordance with federal accounting
standards at the command level-CECOM-but not at the depot level. The Army
decided to proceed with deployment of LMP, recognizing that the issue
would have to be resolved prior to further deployments to the other
depots. The Office of the DOD Comptroller has also directed that there is
to be no further deployment of LMP until the inventory valuation problem
has been fixed.
Significant Problems Appeared BSM and LMP experienced significant problems
once they became
Once BSM and LMP Became Operational
operational at the first deployment sites. Although BSM and LMP were not
designed to provide a corporate enterprise solution for inventory and
logistics management, the first deployment did not address DLA's and
Army's componentlevel operational needs as intended. These problems have
resulted in schedule slippages and cost increases. Detecting such problems
after the system is placed into operation leads to costly rework due to
factors such as (1) fixing the defect, (2) entering transactions manually,
and (3) adjusting reports manually. Furthermore, the manual processes
required to enter the transactions and adjust related reports may
introduce data integrity errors. Our analysis indicated that many of the
operational problems experienced by DLA and the Army can be attributed to
their inability to effectively implement the disciplined requirements
management and testing processes, as discussed in this report. In fact,
DLA and Army program officials acknowledged that requirements and testing
defects were factors contributing to the operational problems and stated
that they are working to develop more effective processes. DLA and
the Army recognized that serious operational problems exist and have
decided that future deployments will not go forward until they have
assurance that the deployed system operates as expected for a given
deployment. Operational problems include the following:
o Army and DFAS officials reported that LMP's operational difficulties at
CECOM and Tobyhanna Army Depot have resulted in inaccurate financial
management information. More specifically, the depot is not (1) producing
accurate workload planning information; (2) generating accurate customer
bills; and (3) capturing all repair costs, which is impeding the Army's
ability to calculate accurate future repair prices. These problems can
also hinder the Army's ability to accurately report the results of its
depot operations and limits customers' ability to develop accurate budget
estimates.
o LMP users experienced difficulty in providing contract information to
MOCAS.51 Due to the operational problems, DFAS was unable to
electronically process contract modifications and contract payment terms
and make disbursements to contractors, thereby increasing the risk of not
making timely payments to contractors and violating the Prompt Payment
Act.
o BSM experienced significant data conversion problems associated with
purchase requisitions and purchase orders that were created in SAMMS.
Moving the data from SAMMS to BSM proved difficult because BSM required
more detailed information, which was not identified during the
requirements phase. This additional information needed to be manually
entered into BSM, resulting in numerous errors that caused vendors not to
be recognized and shipments from the depot to be rejected. As a result of
these problems, additional tables, such as vendor master files, were
created within BSM to process orders for the converted purchase
requisitions and purchase orders.
o BSM users experienced a number of problems, such as incorrect
information on customer orders, customer orders never being sent, and
vendor invoices not being paid in a timely manner.
51 MOCAS maintains contractual information and processes contractor
invoices and payments and provides its users with information relative to
shipments, material receipts, and funds availability.
These operational problems have been at least partially responsible for
schedule slippages and cost increases for both systems. In the case of
BSM, it was originally scheduled to achieve full operational capability
(FOC)52 in September 2005. However, BSM is now expected to reach FOC
during the second quarter of fiscal year 2006. Further, BSM's estimated
cost has increased by approximately $86 million since the program was
initiated in November 1999. Figure 4 shows the schedule slippages and cost
increases.
52 The FOC date represents the date that a system will be operating at all
intended locations.
Figure 4: BSM Schedule Slippages and Cost Increases
Dollars in millions FOC schedule
900 $850
800
700
600
500
400
300
200
100
0
November July July
1999 2000 2003
approval
Cost estimate FOC schedule Source: GAO analysis based on data provided by
DLA.
Part of the schedule slippage and cost increase can be attributed to
problems encountered with DLA's effort to implement SPS, which was to
provide BSM with the required procurement functionality. Since a large
part of DLA's overall business is the procurement of inventory items,
difficulties in establishing a viable system solution for this critical
aspect of its business seriously impaired DLA's ability to meet BSM's
schedule and cost goals. We have previously reported that DOD's
ineffective management approach for SPS put the project at risk.53
During the initial implementation of BSM, program officials found that SPS
did not have the capability to handle DLA's large volume of procurement
requisitions. According to BSM program officials, DLA will spend about $9
million to resolve the shortcoming in SPS. Since SPS will not meet its
needs when BSM is fully operational at all sites, DLA has negotiated with
the BSM software developer to purchase new procurement software as the
longterm solution. DLA estimated that this software would cost
approximately $30 million, which contributed to the increased BSM program
costs.
Similar to BSM, LMP has also experienced schedule slippages and cost
increases since the project was approved in February 1998. Figure 5 shows
the schedule slippages and cost increases.
53 GAO01682 and GAO02392T.
Figure 5: LMP Schedule Slippages and Cost Increases
Dollars in millions
FOC schedule
1,200
FY 05 $1,051 or later
1,000
800
600
400
200
0 February Adjusted March 1999 estimate 2004 approval
Cost estimate
FOC schedule
Source: GAO analysis based on data provided by the Army.
As shown in figure 5, as of March 2004, the current estimated cost of LMP
is over $1 billion, with more than $400 million spent to fund the project
during the past 5 years. In October 1999, we reported54 that the Army's
estimated cost of LMP over the 10year period of the contract was
approximately $421 million. However, as discussed in that report, the $421
million estimate did not include an additional $30.5 million per contract
year that would be needed for data processing. The amount
54 U.S. General Accounting Office, DOD Competitive Sourcing: Plan
Needed to Mitigate Risks in Army Logistics Modernization Program,
GAO/NSIAD0019 (Washington, D.C.: Oct. 4, 1999).
allowed for data processing in the original estimate was based directly on
the percentage of data processing performed by the contractor, with the
Defense Information Systems Agency performing the residual processing.
Further, the original estimate was based on a 10year contract and the
current estimate is based on a 12year contract, and each additional
contract year can be as much as $65 million. Considering these two
factors, a more accurate cost estimate in 1999 would have been
approximately $856 million.
In our discussions with LMP program officials, additional factors were
identified that have caused the cost of LMP to increase to over $1
billion. For example, since the initiation of LMP, the Army has directed
that the program be (1) integrated with the Army Single Stock Fund effort
and (2) extended to the Army depot maintenance operations. These
additional capabilities were not part of the standard LMP software package
and were not envisioned to be part of LMP when the original cost estimate
was developed. Therefore, additional development and implementation costs
were incurred and increased the overall cost of the program by over $91
million. Further, the LMP program manager acknowledged that the 1999
estimate did not include adequate DOD program management costs. The
additional program management costs are estimated to be about $104 million
and include such items as personnel and travel.
Additionally, as shown in figure 5, the original FOC date was scheduled
for fiscal year 2004. However, because of the operational problems that
were identified with the first deployment, the Army is in the process of
developing a new deployment schedule, and as of March 2004, no future
deployment dates had been established.
Project Management of BSM and LMP Did Not Follow Disciplined Processes
The problems we identified in the areas of schedule, cost, and performance
of the two systems can be linked, at least in part, to DLA's and the
Army's failure to follow disciplined processes in the key areas of
requirements management and testing. While there may have been
contributing factors in other areas of the system acquisition efforts, we
selected these two areas because our assessments, as well as others, have
shown that agencies do not invest adequately for success in these areas,
which form the foundation for success or failure. Lacking such disciplined
processes exposes these projects to the unnecessary risk that costly
rework will be required, which in turn, will continue to adversely affect
these projects' cost, schedule, and performance goals. Our analysis of
selected BSM and LMP key requirements55 and testing processes found that
(1) the functionality to be delivered was not adequately described or
stated to allow for quantitative evaluation; (2) the traceability among
the various process documents (e.g., operational requirements documents,
functional or process scenarios, and test cases) was not maintained; and
(3) system testing was ineffective. Because of the weaknesses in these key
processes, program officials do not have reasonable assurance that (1) the
level of functionality that will be provided by a given deployment is
understood by the project team and users and (2) the resulting system will
provide the expected functionality. We have previously reported56 concerns
with BSM's lack of a documented requirements development and management
plan. Such a plan provides a road map for completing important
requirements development and management activities. Without it, projects
risk either not performing important tasks or not performing them
effectively. Historically, projects that experience the types of
requirements and testing process weaknesses found in BSM and LMP have a
high probability of not meeting schedule, cost, and performance
objectives.
55 BSM and LMP have identified and documented 202 and 293 system
requirements, respectively. For BSM, we reviewed 13 requirements related
to finance, order fulfillment, planning, and procurement. For LMP, we
reviewed 12 requirements related to planning and budget development, asset
management, inventory management, and perform maintenance analysis and
planning.
56 U.S. General Accounting
Office, Information Technology: Inconsistent Software
Acquisition Processes at the Defense Logistics Agency, GAO029 (Washington,
D.C.: Jan. 10, 2002).
Disciplined Processes Are Key to Successful System Development and
Implementation
Disciplined processes have been shown to reduce the risks associated with
software development and acquisition efforts to acceptable levels and are
fundamental to successful systems acquisition. Said another way, a
disciplined software development and acquisition process can maximize the
likelihood of achieving the intended results (performance) within
established resources (costs) on schedule. Although a "standard cookbook"
of practices that will guarantee success does not exist, several
organizations, such as the Software Engineering Institute57 and the
Institute of Electrical and Electronics Engineers (IEEE),58 and individual
experts have identified and developed the types of policies, procedures,
and practices that have been demonstrated to reduce development time and
enhance effectiveness. Key to having a disciplined system development
effort is to have disciplined processes in multiple areas, including
project planning and management, requirements management, configuration
management, risk management, quality assurance, and testing. Effective
processes should be implemented in each of these areas throughout the
project's life cycle since constant changes occur. In reviewing BSM and
LMP, we focused on requirements management and testing.
Requirements represent the blueprint that system developers and program
managers use to design, develop, and acquire a system. Requirements should
be consistent with one another, verifiable, and directly traceable59 to
higherlevel business or functional requirements. It is critical that
requirements be carefully defined and that they flow directly from the
organization's concept of operations (how the organization's daytoday
57 SEI is a federally funded research and development center operated by
Carnegie Mellon University and sponsored by DOD. The SEI objective is to
provide leadership in software engineering and in the transition of new
software engineering technology into practice.
58 IEEE develops standards for a broad range of global industries,
including the IT and information assurance industries.
59 Traceability allows the user to follow the life of the requirement both
forward and backward through these documents and from origin through
implementation. Traceability is also critical to understanding the
parentage, interconnections, and dependencies among the individual
requirements. This information in turn is critical to understanding the
impact when a requirement is changed or deleted.
operations are or will be carried out to meet mission needs).60 Improperly
defined or incomplete requirements have been commonly identified as a
cause of system failure and systems that do not meet their costs,
schedules, or performance goals. Without adequately defined requirements
that have been properly reviewed and tested, significant risk exists that
the system will need extensive and costly changes before it will achieve
its intended capability.
According to IEEE-a leader in defining the best practices for such
efforts-good requirements have several characteristics, including the
following:61
o The requirements fully describe the software functionality to be
delivered. Functionality is a defined objective or characteristic action
of a system or component. For example, for inventory, key functionality as
previously discussed includes total asset visibility and valuation in
accordance with federal accounting standards.
o The requirements are stated in clear terms that allow for quantitative
evaluation. Specifically, all readers of a requirement should arrive at a
single, consistent interpretation of it.
o Traceability among various requirement documents is maintained.
Requirements for projects can be expressed at various levels depending on
user needs. They range from agencywide business requirements to
increasingly detailed functional requirements that eventually permit the
software project managers and other technicians to design and build the
required functionality in the new system. Adequate traceability ensures
that a requirement in one document is consistent with and linked to
applicable requirements in another document.
Industry best practices, as well as DLA's and Army's own system planning
documents, indicate that detailed system requirements should be
60 According to IEEE Standard 13621998, a concept of operations document
is normally one of the first documents produced during a disciplined
development effort since it describes system characteristics for a
proposed system from the user's viewpoint. This is important since a good
concept of operations document can be used to communicate overall
quantitative and qualitative system characteristics to the user,
developer, and other organizational elements. This allows the reader to
understand the user organizations, missions, and organizational objectives
from an integrated systems point of view.
61 IEEE 8301998.
documented to serve as the basis for effective system testing. Both
projects documented their highlevel or operational requirements and had
designed hierarchical processes for documenting the various requirements
and related documents needed to build and design tests at the transaction
level as well as tests of chains of transactions that flow together to
support multiple business functions and processes.
Because requirements provide the foundation for system testing,
specificity and traceability defects in system requirements preclude an
entity from implementing a disciplined testing process. That is,
requirements must be complete, clear, and well documented to design and
implement an effective testing program. Absent this, an organization is
taking a significant risk that its testing efforts will not detect
significant defects until after the system is placed into production.
Industry experience indicates that the sooner a defect is recognized and
corrected, the cheaper it is to fix. As shown in figure 6, there is a
direct relationship between requirements and testing.
Figure 6: Relationship between Requirements Development and Testing
Source: GAO.
Although the actual testing activities occur late in the development
cycle, test planning can help disciplined activities reduce
requirementsrelated defects. For example, developing conceptual test cases
based on the requirements derived from the concept of operations and
functional requirements stages can identify errors, omissions, and
ambiguities long
before any code is written or a system is configured. Disciplined
organizations also recognize that planning testing activities in
coordination with the requirements development process has major benefits.
BSM and LMP Functionality to Our analysis and evaluation of DLA's and the
Army's requirements
Be Delivered Was Not management and testing processes found that BSM and
LMP program
Adequately Described officials did not effectively implement the
disciplined processes associated with requirements management and testing
in developing and implementing their systems. We identified numerous
instances in which each documented requirement used to design and test the
system did not build upon the next in moving through the hierarchy.
Specifically, the requirements (1) lacked the specific information
necessary to understand the required functionality that was to be provided
and (2) did not describe how to determine quantitatively, through testing
or other analysis, whether the systems would meet DLA's and Army's
respective needs. One reason that users have not been provided with the
intended systems capabilities is because of the breakdown in the
requirements management process. As a consequence, DLA and the Army have
been forced to implement errorprone, timeconsuming manual workarounds as a
means to minimize disruption to critical operations. DLA and Army
officials acknowledged that improvements in their requirements management
processes are needed and have stated that they are working to develop more
specific requirements that better describe required system functionality
and support more effective system testing.
DLA's basic hierarchical approach to developing BSM requirements was to
(1) define highlevel requirements, commonly referred to as operational
requirements; (2) define more specific blueprint requirements; (3) develop
functional scenarios; (4) define functional designs; (5) define technical
designs; (6) create test cases; and (7) define test conditions. Similarly,
the Army's basic approach to developing LMP system requirements was to (1)
develop a blueprint of its business processes following the Integration
Definition for Function modeling standards established by the National
Institute of Standards and Technology62 and IEEE, (2) define highlevel
requirements, (3) develop process scenarios, (4) develop test cases, and
(5) use subject matter experts63 to determine whether the application met
the business processes envisioned by the users and as developed by a
contractor to provide the functionality currently provided by the Army's
existing systems. If effectively implemented, either methodology can be
used to develop and implement a system. The key is that each step of the
process builds upon the previous one. Accordingly, unidentified defects in
one step migrate to the subsequent steps where they are more costly to fix
and increase the risk that the project will experience adverse impacts on
its schedule, cost, and performance objectives. The following are examples
of the BSM and LMP requirements that we reviewed that lacked the
specificity necessary to describe the functionality to be delivered.
o One BSM requirement stated that the system should be able to reconcile
inventory between the depots (where inventory items are located) and the
inventory control point64 and that the reconciliation should be performed
daily. It also stated that the inventory control point must request that
the depot perform a physical count once inventory differences have met
certain criteria, such as dollar value or large quantities. However, the
various requirement documents did not (1) define what is meant by "large"
or (2) specify how the notification of
62 Federal Information Processing Standard Publication 183.
63 Using subject matter experts depends on them being available throughout
the process and on whether the experts remember the undocumented
requirements completely and consistently. Specifically, an individual
assigned to develop a test case is relied on to understand the detailed
requirements associated with all facets of that test case and then to
ensure that the test will provide the information needed to understand
whether the functionality was actually provided.
64 An inventory control point is an organizational unit or activity within
a DOD supply system assigned a primary responsibility for materiel
management of a group of items either for a particular service or for DOD
as a whole.
the requirement to conduct the inventory was to be accomplished, for
example, by email. Without such specificity, it is unclear how this
requirement could be tested since an evaluator would not be able to design
a test of the trigger for a physical count because the quantity difference
had not been defined.
o For LMP, the operational activity "Manage Assets" did not adequately
describe how to maintain visibility over all assets. Specifically, the
requirement states that the system "maintains wholesale and retail asset
balances and provides visibility of OnHand Asset Balances by identifying
assets being repaired, modified, or tested at depots, contractor and
intermediate level repair facilities as well as those onhand at storage
sites, retail activities and other services." However, there is no further
information that specifies how asset visibility is maintained or the
sources that are to be used in accumulating these data. Therefore, the
risk is increased that the Army will not be able to maintain asset
visibility over all Armymanaged assets. In fact, in January 2004, the Army
reported that it was having difficulty obtaining accurate data related to
material movement (intransit), assets received, and assets issued or
shipped.
Requirements Traceability Was In reviewing the process documents that DLA
and Army used to define
Not Maintained
their requirements, that is, operational requirement, functional scenario,
functional design, technical design, and test case, we found that the
forward and backward traceability defined by IEEE, and as described by
BSM's and LMP's hierarchical approaches and management plan, was not
always maintained. Traceability allows the user to follow the life of the
requirement both forward and backward through these documents and from
origin through implementation. Traceability is also critical to
understanding the parentage, interconnections, and dependencies among the
individual requirements. This information, in turn, is critical to
understanding the impact when a requirement is changed or deleted. Without
an effective traceability approach, it is very difficult to perform
actions such as (1) accurately determining the impact of changes and
making valuebased decisions when considering requirement changes, (2)
maintaining the system once it goes into production, (3) tracking the
project's progress, and (4) understanding the impact of a defect
discovered during testing. For almost all of the requirements we analyzed,
we found that traceability was not maintained. For example:
o An operational requirement stated that BSM maintain the effective date
for pricing information. The subsequent requirements document stated
that all amendments/modifications to the award instrument-purchase orders
and requisitions-should be documented on the prescribed General Services
Administration form. In our analysis, we were only able to trace portions
of the requirements through BSM's hierarchical process. Since traceability
was not maintained through the key documents, it was unclear why the
testing documents included requirements that were not included in the
functional scenarios, technical design, or test conditions, since these
documents should have provided the detailed information necessary to test
the requirements. Further, since traceability is lacking, it is uncertain
how DLA will ensure that BSM will meet this requirement.
o One capability of LMP is to support workload planning for the Army's
depot maintenance facilities. Data related to scheduled and historical
depot maintenance activities that should be considered in developing
budget requirements, such as assets due in for repair or maintenance,
price data, assets in stock, and maintenance schedules, were included in
the requirement. However, we found that only the prior month's sales data
were used in designing the test case-not the information specified in the
requirement. As a result, the risk is increased that LMP is determining
workloadplanning requirements for the Army's depot maintenance facilities
using incorrect data. This resulted in the Army reporting in January 2004
that Tobyhanna Army Depot was unable to develop its working capital fund
budget submissions for its operations and that it will have to perform
complex manual calculations to satisfy its budgetary planning
requirements.
System Testing Was Not BSM and LMP did not implement disciplined testing
activities. Not
Effective carrying out this recognized best practice materially increases
the risk that defects would not be detected until the systems were placed
into production and that costly rework will be needed to satisfy enduser
requirements, including materiel readiness in support of military
operations. Testing is the process of executing a program with the intent
of finding errors.65 Furthermore, if a requirement has not been adequately
defined, it is unlikely that a test will discover a defect. System testing
is a critical process utilized by disciplined organizations and improves
an entity's confidence that the system will satisfy the requirements of
the end
65 U.S. General Accounting Office, Indian Trust Fund: Challenges
Facing Interior's
Implementation of New Trust Asset and Accounting Management System,
GAO/TAIMD99238 (Washington, D.C.: July 14, 1999).
user and will operate as intended. Since requirements provide the
foundation for system testing, requirement defects discussed earlier, such
as the lack of specificity, significantly impaired and will continue to
impair the ability of DLA and the Army to detect defects during system
testing. As a result of requirement defects and ineffective testing, DLA
and the Army testing activities did not achieve the important goal of
reducing the risk that BSM and LMP would not operate as intended. For
example:
o One BSM requirement involved preparing customer payments. The system,
according to the test case, was required to (1) prepare a summary bill and
(2) present the sales summary report in federal supply class sequence. The
actual result for one test stated that the system passed this test even
though only one item was used to generate the summary bill. It was unclear
from this test case whether the system (1) could summarize multiple items
and (2) had any limitations on the number of items that could be
summarized. Furthermore, the test that evaluated the sorting of items by
federal supply class divided the cost of the sales summary report by two.
If this result matched the expected result, BSM passed the test. However,
documentation was not available to explain why the item cost needed to be
divided by two. Based on our review of the test cases linked to this
requirement, we could not validate that the requirement had been
adequately tested. Therefore, DLA does not have reasonable assurance that
BSM can perform this required functionality.
o Based on our analysis of LMP's December 2003 and January 2004 project
status reports, we found that the Army continued to experience problems
with the accuracy of data related to budgeting; workload planning and
forecasting and depot maintenance operations; and accounting records such
as customer orders, purchase orders and requisitions, obligations, and
disbursements. DFAS and Army officials acknowledged that these problems
were attributable to relying on subject matter experts to develop tests
for their respective functional areas, such as budgeting, accounting, and
workload planning, and not performing testing end to end across the
various functional areas. Rather, the testing was stovepiped in that
subject matter experts performed tests for their own respective areas.
Accuracy of Financial Reporting May Not Be Improved by BSM and LMP
As a result of the specific problems discussed in this report related to
BSM and LMP, such as the lack of total asset visibility, DLA and the Army
cannot be assured that BSM and LMP will routinely generate timely,
accurate, and useful financial information. The inaccuracy and
unreliability of financial information has been a longstanding DOD
weakness. As mentioned previously, BSM and LMP rely on information
received from and sent through the various systems. However, the
interfaces with these multiple systems were not fully developed, nor were
they tested when BSM and LMP become operational. As a result, DLA and the
Army do not have reasonable assurance that their respective systems are
capable of providing the intended capability. In fact, the reported
operational problems clearly indicate that BSM and LMP are not providing
accurate data. For example, the manual workarounds that were required to
compensate for the data conversion problems associated with SAMMS caused
additional errors, which affected the accuracy of data produced. In the
case of LMP, the Army has acknowledged that accurate information on its
depot operations is not readily available. This problem severely impairs
the Army's ability to develop accurate prices for its depot operations.
Inaccurate prices could result in customers being charged too much or too
little for the services provided. Furthermore, the overall concerns we
raised with regard to DLA and the Army not following disciplined processes
in the key areas of requirements management and testing further expose BSM
and LMP to unnecessary risks. Specifically, the resulting systems will not
provide the accurate and complete information that is crucial to making
informed decisions and controlling assets so that DOD's mission and goals
are efficiently and effectively accomplished.
Further, although DLA and the Army have asserted that BSM and LMP,
respectively, are compliant with the requirements of the Federal Financial
Management Improvement Act of 199666 (FFMIA), we have concerns with the
methodology followed in reaching that conclusion. FFMIA builds on the
foundation laid by the Chief Financial Officers Act (CFO) of 199067 by
emphasizing the need for agencies to have systems that can generate
reliable, useful, and timely information with which to make fully informed
decisions and to ensure accountability on an ongoing basis. FFMIA
66 Federal Financial Management Improvement Act of 1996, Pub. L. No.
104208, div. A., S:101(f) title VIII, 110 Stat. 3009, 3009389 (Sept. 30,
1996).
67 Pub. L. No. 101576, 104 Stat. 2838 (Nov. 15, 1990),
(codified, as amended, in scattered
sections of title 31, United States Code).
requires the 23 major departments and agencies covered by the CFO Act to
implement and maintain financial management systems that comply
substantially with (1) federal financial management systems requirements,
(2) applicable federal accounting standards,68 and (3) the U.S. Government
Standard General Ledger (SGL)69 at the transaction level.
DLA's and the Army's assertions are based upon selfassessments of the
financial management requirements that were reviewed by independent
parties. For both systems, testing of transactions was not performed to
validate that they would be able to process the data as intended. For
example, in the case of BSM, for one requirement the contractor stated
that "a sample of transactions were reviewed, [and] it appears that BSM
properly records transactions consistent with the SGL posting rules."
However, we found no indication that this requirement was tested, and
therefore, we cannot conclude whether BSM has the capability to meet this
requirement.
In the case of LMP, we found that the Army relied upon Joint Financial
Management Improvement Program (JFMIP)70 testing for 147 requirements
because JFMIP had validated these requirements when it tested the vendor's
commercial software used for LMP during fiscal year 1999. JFMIP testing
should not be considered a substitute for individual system testing of the
actual data that will be used by the entity. Further, JFMIP's tests of the
software do not address entityspecific integrated tests of endtoend
transactions or system interfaces. Because the Army had to make
modifications to the basic commercial software package to accommodate some
of its business operations, the Army cannot be assured, without retesting,
that these 147 requirements will produce the intended results.
68 The American Institute of Certified Public Accountants recognizes the
federal accounting standards promulgated by the Federal Accounting
Standards Advisory Board as generally accepted accounting principles.
69 The SGL provides a standard chart of accounts and standardized
transactions that agencies are to use in all their financial systems.
70 JFMIP is a joint and cooperative undertaking of the Department of the
Treasury, the General Accounting Office, the Office of Management and
Budget, and the Office of Personnel Management working in cooperation with
each other and other agencies to improve financial management practices in
government. The Program Management Office, managed by the Executive
Director of JFMIP, tests vendor COTS packages and certifies that they meet
certain federal financial management systems requirements for core
financial systems.
Without adequate documentation to support testing of the FFMIA
requirements and based on our findings, it is questionable whether BSM and
LMP are substantially compliant with FFMIA. As a result, DLA and the Army
cannot provide reasonable assurance that BSM and LMP will routinely
generate timely, accurate, and useful information with which to make
informed decisions and to ensure accountability on an ongoing basis.
Conclusions DOD has made limited progress in achieving effective
management oversight, control, and accountability over its $19 billion in
business system investments. As a result, DOD cannot provide Congress
reasonable assurance that the billions of dollars being spent annually on
system modernizations are not being wasted on projects that will
perpetuate the current costly, nonintegrated, duplicative systems
environment. Our two cases studies-BSM and LMP-are prime examples of DOD
business system modernization projects costing billions of dollars that
are not directed toward a corporate solution for resolving some of DOD's
longstanding financial and inventory management problems. Rather, these
efforts are more narrowly focused on DLA's and the Army's business
operations, but even within that more restricted scope, weaknesses in
project management have resulted in problems in delivering the intended
capabilities. As the department moves forward with the continued
development and implementation of the business enterprise architecture, it
is critical that actions be taken to gain more effective control over
business system funding. Maintaining the status quo of permitting each of
the military services and DOD agencies to manage and oversee its business
systems investments only serves to perpetuate the existing nonintegrated
and duplicative systems environment and continues to impede the
department's overall transformation as envisioned by the Secretary of
Defense.
Matters for The manner in which business system funding is currently
controlled
hampers the development and implementation of broadbased,
integratedCongressional corporate system solutions to address DODwide
problems. Each militaryConsideration service and defense agency receives
its own funding and is largely
autonomous in deciding how to spend these funds, thereby enabling multiple
system approaches to common problems. This funding structure has
contributed to the duplicative, nonintegrated, errorprone systems
environment that exists today. To improve management oversight,
accountability, and control of the department's business systems funding,
Congress may wish to consider the following four legislative initiatives:
o Assign responsibility for the planning, design, acquisition,
deployment, operation, maintenance, modernization, and oversight of
business systems to domain leaders (e.g., the Under Secretary of Defense
for Acquisition, Technology and Logistics and the DOD CIO).
o Direct the Secretary of Defense, in coordination with the domain
leaders, to develop a defense business system budget that (1) identifies
each business system for which funding is being requested, (2) identifies
all funds by appropriation type and whether they are for current services
or modernization, and (3) provides justification for expending funds on
system(s) that are not in compliance with the department's business
enterprise architecture.
o Appropriate funds to operate, maintain, and modernize DOD's business
systems to domain leaders rather than the military services and defense
agencies.
o Direct that each domain establish a business system investment review
board that is to be composed of representatives from the military services
and defense agencies who will be responsible for review and approval of
all business system investments.
Recommendations for Executive Action
To help improve the department's (1) control and accountability over its
business systems investments and (2) future deployments of BSM and LMP, we
are making the following four recommendations. We recommend that the
Secretary of Defense direct:
o The Under Secretary of Defense (Comptroller) and the Assistant
Secretary of Defense for Networks and Information Integration to develop a
standard definition for DOD components to use to identify business
systems.
o The Assistant Secretary of Defense for Networks and Information
Integration to expand the existing IT Registry to include all business
systems.
o The Under Secretary of Defense (Comptroller) to establish a mechanism
that provides for tracking all business systems modernization
conditional approvals to provide reasonable assurance that all specific
actions are completed on time.
o The Director, Defense Logistics Agency, and the Commanding General,
Army Materiel Command, to take the following actions:
o Develop requirements that contain the necessary specificity to reduce
requirementsrelated defects to acceptable levels. The requirements
management process used to develop and document the requirements should be
adequate to ensure that each requirement (1) fully describes the
functionality to be delivered; (2) includes the source of the requirement;
(3) is stated in unambiguous terms that allow for quantitative evaluation;
and (4) is consistent, verifiable, and traceable.
o Conduct thorough testing before (1) making further deployment decisions
and (2) adding functionality to existing deployment locations.
Agency Comments and Our Evaluation
We received written comments on a draft of this report from the Acting
Under Secretary of Defense (Comptroller) (see app. II). DOD agreed with
our four recommendations to the Secretary of Defense and two of the four
matters for congressional consideration. With regard to the
recommendations to the Secretary of Defense, the department identified
actions it has under way and planned to address the concerns discussed in
the report. For example, the department stated that a system has been
developed that will track all business systems modernization conditional
approvals until all required actions are completed. In addition, the
department acknowledged that the initial implementations of BSM and LMP
experienced problems that could be attributed to the lack of adequate
requirements determination and system testing. To address these
inadequacies, the department noted that requirements analysis had been
expanded to include greater specificity and to require the successful
completion of comprehensive testing prior to further implementation of
either system. The department also stated that industry best practices
would be followed.
With regard to our matters for congressional consideration, the department
disagreed that (1) responsibility for the planning, design, acquisition,
deployment, operation, maintenance, modernization, and oversight of
business systems be assigned to domain leaders (e.g., the Under Secretary
of Defense for Acquisition, Technology and Logistics and the DOD CIO) and
(2) funds to operate, maintain, and modernize DOD's business systems be
appropriated to domain leaders rather than the military services and
defense agencies. On the first matter, the department stated that it is
developing its business enterprise architecture and its business IT
investment management structure and that these structures will provide the
necessary management and oversight responsibility. DOD also noted that
business system portfolio management would be an integral part of its
oversight efforts. Further, DOD noted that the domain leaders will work
closely with component acquisition executives and the DOD CIO, who have
statutory responsibilities for IT related investment activities.
We continue to believe that Congress may wish to consider assigning to the
domains the responsibility for the planning, design, acquisition,
deployment, operation, maintenance, modernization, and oversight of
business systems. DOD components being responsible for these functions has
resulted in the existing business system environment of at least 2,274
systems that are not capable of providing DOD management and Congress
accurate, reliable, and timely information on the results of the
department's vast operations. DOD has recently stated that the actual
number of systems could be twice the amount currently reported.71 Further,
because the various DOD components are largely autonomous, despite DOD's
assertion that component acquisition executives will work more closely
with domain leaders under current statutory structure, there is no
incentive for them to seek corporate solutions to problems. Our two case
studies- BSM and LMP-clearly demonstrate that these two system
modernization efforts are not directed toward a corporate solution to
resolving the department's longstanding weaknesses in areas such as
inventory and logistics management. Within the current departmental
organization structure, DOD components are able to develop multiple system
approaches to common problems.
With regard to the funding being provided to the domains, the department
stated that the portfolio management process being established-to include
investment review boards-would provide the appropriate control and
accountability over business system investments. DOD also noted that
beginning with the fiscal year 2006 budget review process, the domains
will
71 U.S. General Accounting Office,
Department of Defense: Further Actions Needed to
Establish and Implement a Framework for Successful Business Transformation,
GAO04626T (Washington, D.C.: Mar. 31, 2004).
be actively involved in business system investment decisions. While the
establishment of the investment review boards is consistent with our
previous recommendations, we continue to believe that appropriating funds
for DOD business systems to the domains will significantly improve
accountability over business system investments. DOD's comments indicate
that the domains will be more accountable for making business system
investment decisions, but unless they control the funding, they will not
have the means to effect real change. Continuing to provide business
system funding to the military services and defense agencies is an example
of the department's embedded culture and parochial operations. As a result
of DOD's intent to maintain the status quo, there can be little confidence
that it will not continue to spend billions of dollars on duplicative,
nonintegrated, stovepiped, and overly costly systems that do not optimize
mission performance and accountability and, therefore, do not support the
department's transformation goals.
As agreed with your offices, unless you announce the contents of this
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Members, Senate Committee on Armed Services; Subcommittee on Defense,
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Reform. We are also sending copies to the Director, Office of Management
and Budget; the Under Secretary of Defense (Comptroller); the Under
Secretary of Defense (Acquisition, Technology and Logistics); the
Assistant Secretary of Defense (Network and Information Integration); the
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If you or your staff have any questions on matters discussed in this
report, please contact Gregory D. Kutz at (202) 5129505 or [email protected]
or
Keith A. Rhodes at (202) 5126412 or [email protected]. GAO contacts and
key contributors to this report are listed in appendix V.
Gregory D. Kutz Director Financial Management and Assurance
Keith A. Rhodes Chief Technologist Applied Research and Methodology Center
for Engineering and Technology
Appendix I
Scope and Methodology
We reviewed the Department of Defense's (DOD) $28 billion fiscal year 2004
information technology (IT) budget request to determine what portion of
the budget relates to DOD business systems. We reviewed the budget to
determine, of the approximately $19 billion related to the department's
business systems, the amount allocated for operation, maintenance, and
development. Additionally, we reviewed DOD's business systems inventory,
as reported by the department in April 2003, to ascertain if the systems
were identified in the budget request. To obtain an overview of how an IT
budget request is developed, we also met with officials in the offices of
the DOD Comptroller and DOD Chief Information Officer (CIO), as well as
CIO and financial management officials from the military services.
To determine the effectiveness of DOD's control and accountability over
its business systems investments, we met with DOD officials to obtain an
update on the status of our prior recommendations. We also met with
appropriate officials in the DOD Comptroller and DOD CIO offices to
discuss the status of various draft policies and guidance that are aimed
at improving the department's control and accountability over business
system investments. We also reviewed and analyzed the DOD budget requests
for fiscal years 2003 through 2005 to identify the business systems
investments that could be subject to the requirements of the Bob Stump
National Defense Authorization Act for Fiscal Year 2003,1 which requires
the DOD Comptroller to review all system improvements with obligations
exceeding $1 million and make a determination whether the improvement is
in accordance with criteria specified in the act. To assess DOD's
compliance with the act, we also obtained and reviewed departmental
guidance, memorandums, DOD Comptroller review decisions, and other
documentation provided by the Business Management Systems Integration
(BMSI) office. Additionally, we requested that DOD provide us obligational
data in excess of $1 million for business systems for fiscal years 2003
and 2004, as of December 2003. We received obligational data from the
military services, but did not receive any information from the defense
agencies. We then compared the obligation data provided by the military
services with the information from the BMSI office to determine if the
modernizations were reviewed as stipulated by the act. To augment our
document reviews and analyses, we interviewed officials from various DOD
organizations, including the Office of the Under Secretary of Defense
(Comptroller);
1 Bob Stump National Defense Authorization Act for Fiscal Year 2003, Pub.
L. No. 107314, S: 1004, 116 Stat. 2630 (Dec. 2, 2002).
Appendix I Scope and Methodology
Office of the Under Secretary of Defense (Network and Information
Integration)/Chief Information Officer; Office of the Under Secretary of
Defense (Acquisition, Technology and Logistics); and CIO and financial
management officials from the military services.
To determine if selected DOD business system projects are being
effectively managed and will help resolve some of DOD's longstanding
business operation problems, we selected the logistics domain from which
we chose individual case studies for detailed review. We selected the
logistics domain because it represents $770 million, or 16 percent, of
modernization funding requested in fiscal year 2004 for the department's
business systems. The logistics domain was also selected because of its
significance to DOD operations and its longstanding and inherent inventory
and related financial management weaknesses, such as the inability to
support its inventory balances and provide total asset visibility. We
selected the Defense Logistics Agency's (DLA) Business Systems
Modernization (BSM) and the Army's Logistics Modernization Program (LMP)
for detailed review. For these two business systems, we focused on two key
processes, requirements management and testing.
To assess whether DLA and the Army had established and implemented
disciplined processes related to requirements management and testing, we
o reviewed DLA's and the Army's procedures for defining requirements
management frameworks and compared these procedures to their current
practices;
o reviewed guidance published by the Institute of Electrical and
Electronics Engineers and the Software Engineering Institute and
publications by experts to determine the attributes that should be used
for developing good requirements;
o reviewed BSM's system requirement documents related to finance, order
fulfillment, planning, and procurement and LMP's system requirement
documents related to planning and budget development, asset management,
inventory management, and maintenance analysis and planning; and
o selected 13 of BSM's 202 system requirements and 12 of LMP's 293 system
requirements and performed an indepth review and analysis to determine
whether they had the attributes normally associated with
Appendix I Scope and Methodology
good requirements and whether these requirements traced between the
various process documents.
To augment these document reviews and analyses, we interviewed DLA and
Army program officials and Defense Finance and Accounting Service (DFAS)
officials. To identify the costs associated with BSM and LMP, we reviewed
data provided by DLA and Army program officials. We also reviewed prior
GAO, DOD Inspector General, and service auditors' reports, as well as
DOD's agencywide financial statements to obtain further information on
inventory costs.
We conducted our work at the Office of the Under Secretary of Defense
(Comptroller); the Office of the Under Secretary of Defense (Acquisition,
Technology and Logistics); the Office of the Assistant Secretary of
Defense (Network and Information Integration)/Chief Information Officer;
DLA; the Army Materiel Command; and the CIO and financial management
offices for the military services. We also visited two locations-the
Defense Supply Center in Richmond, Virginia, and the Army's contractor
site (Computer Sciences Corporation) in Moorestown, New Jersey-to gain an
understanding of user involvement in the development and operation of BSM
and LMP, as well as the business processes associated with each system.
We conducted our work from August 2003 through March 2004 in accordance
with U.S. generally accepted government auditing standards. We did not
verify the accuracy and completeness of the cost information provided by
DOD for the two projects we reviewed.
We requested comments on a draft of this report from the Secretary of
Defense or his designee. We received written comments on a draft of this
report from the Acting Under Secretary of Defense (Comptroller), which are
reprinted in appendix II.
Appendix II
Comments from the Department of Defense
Appendix II
Comments from the Department of Defense
Appendix II
Comments from the Department of Defense
Appendix II
Comments from the Department of Defense
Appendix II
Comments from the Department of Defense
Appendix III
DOD Business Systems Obligations in Excess of $1 Million Approved by the
DOD Comptroller
Name of system Approval date
Air Force Financial Information Resource System January 2003
Navy Enterprise Resource Planning Pilots February 2003
National Security Agency Pilot Initiative March 2003
Reserve Component Automation System March 2003
Navy Enterprise Resource Planning Program April 2003
Defense Integrated Military Human Resources System April 2003
DFAS Mechanization of Contract Administration Services Rehost May 2003
DFAS PowerTrack (SCR)a May 2003
Army Integrated Facilities System (SCR)a May 2003
Navy Enterprise Maintenance Automated Information System July 2003
Global Combat Support System-Army August 2003
DFAS e-Biz Capital Investment Reprogramming August 2003
Defense Travel System October 2003
Standard Procurement System October 2003
DFAS Operational Data Store (SCR)a October 2003
Composite Health Care System II November 2003
DFAS General Accounting and Finance System Rehost November 2003 Air Force
Reserve Travel System December 2003 DFAS Automated Time, Attendance and
Production System (SCR)a December 2003 DFAS Defense Joint Military Pay
System-Active Component (SCR)a December 2003 DFAS Defense Joint Military
Pay System-Reserve Component (SCR)a December 2003 DFAS Defense MilPay
Office (SCR)a December 2003 DFAS Defense Retired and Annuitant Pay System
(SCR)a December 2003 DFAS Marine Corps Total Force System (SCR)a December
2003
Source: GAO analysis of DOD data.
aA system change request (SCR) is a system life cycle documentation
standard that documents a formal request for a change to an automated
information system. The change may be for either a "fix" to a problem or
an enhancement.
Appendix IV
DOD Business Systems Obligations in Excess of $1 Million for
Modernizations Not Submitted to the DOD Comptroller
Dollars in millions
Amount Component Name of system 2003 2004 Total Army
Logistics Modernization Program $52.4 $7.4 $59.8
Transportation Coordinators' Automated
Information for Movements System II $21.7 $10.4 $32.1
Total Distribution Program $21.9 a $21.9
Army Recruiting Information Support $24.3 $1.6 $25.9
System
Electronic Military Personnel System $10.2 $3.4 $13.6
Personnel Transformation $11.0 a $11.0
Defense Civilian Personnel Data System-
Sustainment $3.4 $6.1 $9.5
MEPCOM Management Information
a
Reporting System $6.0 $6.0
Installation Support Modules $1.7 a $1.7
Joint Computer-Aided Acquisition and
Logistics Support $19.7 $1.6 $21.3
Subtotal Army $172.3 $30.5 $202.8
Navy
Navy Tactical Command Support System $21.8 $20.3 $42.1
a
Marine Corps Common Hardware Suite $27.1 $27.1
Defense Message System $21.3 $7.2 $28.5
Electronic Military Personnel Records
System $17.8 $5.8 $23.6
Electronic Commerce/Electronic Data
Interchange $8.9 $2.6 $11.5
a
Shipboard Management Information System $8.4 $8.4
a
One Touch Supply $2.1 $2.1
a
Navy Standard Integrated Personnel System $2.2 $2.2
Conventional Ammunition Integrated
Management System $4.3 $2.0 $6.3
Shipyard Management Information Systems
a
Financials $3.1 $3.1 SPAWAR Financial Management - ERP $3.7 $1.1 $4.8 MSC
Afloat Personnel Management Center $5.3 $2.2 $7.5
a
NAVSEA Depot Maintenance System-L03 $1.2 $1.2 Transportation Coordinators'
Automated
a
Information for Movements System II $4.4 $4.4
Appendix IV DOD Business Systems Obligations in Excess of $1 Million
for Modernizations Not Submitted to the DOD Comptroller
(Continued From Previous Page)
Dollars in millions
Amount
Component Name of system 2003 2004 Total
Business Process Reengineering $2.8 a $2.8
Depot Maintenance System $2.4 a $2.4
Joint Simulations System $4.3 a $4.3
Military Sealift Command Financial
a
Management System $1.4 $1.4
New Order Writing System $4.0 a $4.0
Asset Tracking Logistics and Supply $2.3 a $2.3
System
USMC Operational Support Systems $17.5 $5.4 $22.9
Subtotal Navy $166.3 $46.6 $212.9
Air Force
Integrated Maintenance Data System $9.2 $3.7 $12.9
a
Stock Control System $8.0 $8.0
Integrated Logistics System - Supply $7.1 $2.3 $9.4
Depot Maintenance Accounting and
a
Production System $28.6 $28.6
Supply Working Capital Fund Decision
a
Support System (Keystone) $1.1 $1.1
Reliability and Maintainability Information
a
System $3.5 $3.5
Subtotal Air Force $57.5 $6.0 $63.5 Total $396.1 $83.1 $479.2
Source: GAO analysis of DOD data.
aFor fiscal year 2004, DOD did not report obligational data.
Appendix V
GAO Contacts and Staff Acknowledgments
GAO Contacts Darby Smith, (202) 5127803 Jenniffer Wilson, (202) 5129192 J.
Christopher Martin, (202) 5129481
Acknowledgments Staff members who made key contributions to this report
were Beatrice Alff, Johnny Bowen, Francine DelVecchio, Stephen Donahue,
Francis Dymond, Jeffrey Jacobson, Jason Kelly, Mai Nguyen, Michael
Peacock, David Plocher, and Katherine Schirano.
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