Military Personnel: DOD Needs More Effective Controls to Better  
Assess the Progress of the Selective Reenlistment Bonus Program  
(13-NOV-03, GAO-04-86). 					 
                                                                 
The Department of Defense (DOD) uses the Selective Reenlistment  
Bonus (SRB) program to reenlist military personnel in critical	 
specialties. In fiscal years 1997-2003, the program budget rose  
138 percent, from $308 million to $734 million. In fiscal year	 
2003, the House Appropriations Committee directed the Secretary  
of Defense to reassess program efficiency and report on five	 
concerns: (1) how effective the program is in correcting	 
retention shortfalls in critical occupations, (2) how replacement
guidance will ensure targeting critical specialties that impact  
readiness, (3) how DOD will match program execution with	 
appropriated funding, (4) how well the services' processes for	 
administering the program work, and (5) advantages and		 
disadvantages of paying bonuses in lump sum payments. The	 
committee also directed GAO to review and assess DOD's report.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-86						        
    ACCNO:   A08851						        
  TITLE:     Military Personnel: DOD Needs More Effective Controls to 
Better Assess the Progress of the Selective Reenlistment Bonus	 
Program 							 
     DATE:   11/13/2003 
  SUBJECT:   Military cost control				 
	     Military personnel 				 
	     Military reenlistment bonuses			 
	     Noncompliance					 
	     Payments						 
	     Performance measures				 
	     Program evaluation 				 
	     Program management 				 
	     Employee retention 				 
	     Military occupational specialties			 
	     DOD Selective Reenlistment Bonus Program		 

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GAO-04-86

United States General Accounting Office

GAO

Report to the Subcommittee on

         Defense, Committee on Appropriations, House of Representatives

November 2003

MILITARY PERSONNEL

DOD Needs More Effective Controls to Better Assess the Progress of the Selective
                           Reenlistment Bonus Program

GAO-04-86

Highlights of GAO-04-86, a report to the Subcommittee on Defense,
Committee on Appropriations, House of Representatives

The Department of Defense (DOD) uses the Selective Reenlistment Bonus
(SRB) program to reenlist military personnel in critical specialties. In
fiscal years 1997-2003, the program budget rose 138 percent, from $308
million to $734 million (see fig.). In fiscal year 2003, the House
Appropriations Committee directed the Secretary of Defense to reassess
program efficiency and report on five concerns: (1) how effective the
program is in correcting retention shortfalls in critical occupations, (2)
how replacement guidance will ensure targeting critical specialties that
impact readiness, (3) how DOD will match program execution with
appropriated funding, (4) how well the services' processes for
administering the program work, and (5) advantages and disadvantages of
paying bonuses in lump sum payments. The committee also directed GAO to
review and assess DOD's report.

GAO recommends that the Secretary of Defense direct the Undersecretary of
Defense for Personnel and Readiness to (1) retain the requirement for an
annual review of the SRB program and (2) develop a consistent set of
methodologically sound procedures and metrics for reviewing the
effectiveness and efficiency of all aspects of each service's SRB program
administration. DOD agreed with the recommendations.

www.gao.gov/cgi-bin/getrpt?GAO-04-86.

To view the full product, including the scope and methodology, click on
the link above. For more information, contact Derek Stewart at (202)
512-5559 or [email protected].

November 2003

MILITARY PERSONNEL

DOD Needs More Effective Controls to Better Assess the Progress of the Selective
Reenlistment Bonus Program

Despite congressional concerns about the SRB program, DOD's May 2003
report stated that the program is managed carefully, bonuses are offered
sparingly, and the services need flexibility in administering the program.
However, DOD's responses did not thoroughly address four of the five SRB
program concerns contained in the mandate. As a result, Congress does not
have sufficient information to determine if the program is being managed
effectively or efficiently. For example,

o  	DOD has not issued replacement program guidance and did not allow us
to review the guidance that has been drafted. DOD's report focused
primarily on criteria for designating occupations as critical, but the
report did not address an important change-the potential elimination of
the requirement for conducting annual program reviews. In response to our
2002 report, DOD stated that this requirement would be eliminated from
future program guidance. DOD recently told us that the new guidance will
require periodic reviews, but neither the frequency nor the details of how
these reviews would be conducted was explained.

o  	DOD conducted a limited evaluation to address the congressional
concern about how well the services are administering their programs. The
response consisted largely of program descriptions provided by the
services. Among other things, DOD did not use a consistent set of
procedures and metrics to evaluate each of the services' programs.
Consequently, it is difficult to identify best practices, or to gain other
insights into ways in which the effectiveness and efficiency of the
services' programs could be improved.

DOD thoroughly addressed the congressional concern pertaining to the
advantages and disadvantages of paying SRBs as lump sums.

SRB Program Budget Growth, Fiscal Years 1997-2005

aIn-year (or current) estimate. bFiscal year 2004 budget request. cFiscal
year 2005 budget estimate.

Contents

      Letter                                                                1 
                                    Results in Brief                        3 
                                       Background                           4 
                 DOD's Report Did Not Thoroughly Address Congressional   
                                        Concerns                            7 
                                       Conclusions                         15 
                           Recommendation for Executive Action             16 
                                     Agency Comments                       16 
    Appendix I                    Scope and Methodology                  
    Appendix II  Comments from the Department of Defense                 

  Figure

Figure 1: SRB Program Budget Growth, Fiscal Years 1997-2005

Abbreviations

DOD Department of Defense
OMB Office of Management and Budget
OSD Office of the Under Secretary of Defense
SRB Selective Reenlistment Bonus

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separately.

United States General Accounting Office Washington, DC 20548

November 13, 2003

The Honorable Jerry Lewis
Chairman
The Honorable John Murtha
Ranking Minority Member
Subcommittee on Defense
Committee on Appropriations
House of Representatives

To meet its total active-duty force requirements, the Department of
Defense (DOD) must reenlist about 150,000 personnel each year. The
Selective Reenlistment Bonus (SRB) program is intended to help the
services increase reenlistments in occupational specialties, such as
linguists and information technology specialists, that the Secretary of
Defense deems to be critical. Concerned about missing their overall
retention goals in the late 1990s, all the services expanded their use of
SRBs to help retain more enlisted personnel. As a result, the cost of the
program more than doubled-from $308 million1 in fiscal 1997 to
$791 million in fiscal 2002. During the last few years, Congress also
approved DOD requests for basic pay increases above the rate of inflation
to address the services' retention concerns. Despite military pay
increases
and improved overall retention, funding for the services' SRB budget is
expected to rise to over $800 million in fiscal year 2005. Moreover, about
one-third of all current reenlistments receive SRBs.

To facilitate closer monitoring of the SRB program, congressional defense
committees requested our 1995 and 2002 reviews of the program. The
House Appropriations Committee also mandated2 our current review of
DOD's recently issued report on the program. In our 2002 report,3 we
identified several management and oversight concerns. For example, some

1 All budget information in this report has been converted to constant
fiscal year 2004 dollars, except where noted otherwise.

2 House Report (H.R. Rep. 107-532), June 25, 2002, accompanying H.R. 5010,
Department of Defense Appropriations Bill, 2003.

3 U.S. General Accounting Office, Military Personnel: Management and
Oversight of Selective Reenlistment Bonus Program Needs Improvement,
GAO-03-149 (Washington, D.C.: Nov. 25, 2002).

services were not using all the criteria they had established for
selecting occupational specialties to receive bonuses; the numbers of both
reenlistments and SRB-eligible specialties had grown substantially since
1998; and critical program guidance canceled in 1996 had not been
reissued. Among other things, we recommended that DOD conduct annual
reviews of the services' SRB programs as required by its directive. In
concurring with our recommendation, DOD noted that a future DOD directive
would not require formal annual reviews of the program. Rather, these
reviews would be accomplished through other means that we concluded were
very limited in scope. In our 1996 report,4 we also raised concerns about
SRB program management and oversight. Our recommendations included that
DOD (1) provide more explicit guidance and criteria for determining SRB
skills and (2) monitor the services' adherence to this guidance. DOD did
not concur with either of these recommendations.

In a House Report accompanying the Department of Defense fiscal year 2003
appropriation bill, you expressed concern that DOD guidance and oversight
of the SRB program was limited and that "a reassessment of the program was
warranted to ensure it is being managed efficiently." The Committee
directed the Secretary of Defense to report back to the committee on five
concerns and directed us to review and assess the DOD report.5 Those five
concerns were (1) effectiveness of the SRB program in correcting retention
shortfalls in critical occupations, (2) replacement program guidance and
how that guidance will ensure that the program targets only critical
specialties that impact readiness, (3) steps DOD will take to match
program execution with appropriated funding, (4) evaluation of the process
the services use to administer the program, and (5) advantages and
disadvantages of paying bonuses as a single lump sum payment. DOD issued
its report in May 2003.6 In introductory remarks, DOD's report stated that
the services manage their SRB programs carefully, offer bonuses sparingly,
have management standards and practices to conduct a review of each skill
receiving a bonus, and do

4 U.S. General Accounting Office, Retention Bonuses: More Direction and
Oversight Needed, GAO/NSIAD-96-42 (Washington, D.C.: Nov. 24, 1995).

5 The Senate Appropriations Committee also directed the Under Secretary of
Defense for Personnel Readiness to report on other aspects of DOD's SRB
program.

6 Department of Defense, Report on Selective Reenlistment Bonus Program:
Report to the Committees on Appropriations of the United States Senate and
House of Representatives, Office of the Under Secretary of Defense
Personnel and Readiness, (Washington, D.C.: May 2003).

an excellent job tailoring their SRB programs to changing demands for
specific skills. Also, the need for flexibility in administering the
program was a theme present throughout DOD's report.

In August 2003, we briefed your staff on our preliminary observations of
DOD's report. We provide our final assessment in this review. Our
objective was to determine the extent to which DOD's report thoroughly
addressed the five SRB program management concerns raised in the
congressional mandate.

To conduct our work, we examined DOD's mandated report on its SRB program,
along with supporting documentation from the services and the Office of
the Secretary of Defense (OSD). We also referred to our 2002 report and
DOD's comments on that report. We conducted our review and assessment from
June through September 2003 in accordance with generally accepted
government auditing standards. Additional information on our scope and
methodology is presented in appendix I.

                                Results in Brief

DOD's May 2003 report on the Selective Reenlistment Bonus (SRB) program
did not thoroughly address four of the five program concerns raised in the
congressional mandate. As a result, Congress does not have sufficient
information to determine if the program is being managed effectively and
efficiently. In responding to the first concern, DOD's report did not
directly address the SRB program's effectiveness or efficiency in
correcting shortfalls in critical occupations. Instead, the report
discussed the general benefits of using bonuses to increase the retention
of military personnel rather than how well the services are selectively
applying bonuses to critical occupations. With regard to the second
concern, DOD has not issued replacement program guidance and did not allow
us to review the guidance that has been drafted. DOD's report focused
primarily on changes that would provide greater flexibility to the
services in designating occupations as critical. The report did not
address an important change-the potential elimination of the requirement
for conducting annual program reviews. In response to our 2002 report, DOD
stated that this requirement would be eliminated from future program
guidance. DOD recently told us that the new guidance will require periodic
reviews, but neither the frequency nor the details of how these reviews
would be conducted was explained. Although the third concern mandated that
DOD describe steps that it will take to match program execution with
appropriated funding, DOD did not describe such steps. Instead, DOD stated
that the services need execution flexibility and have operated consistent
with the law and within the overall Military Personnel

appropriation. Our analyses showed that in fiscal years 1999-2002 the
services spent a combined total of $259 million more than Congress
appropriated for the SRB program. In responding to the fourth concern,
regarding an evaluation of how the each service administers its SRB
program, DOD's limited assessment consisted primarily of program
descriptions provided by the services. Because different procedures and
metrics were used to evaluate the services' programs, it is difficult to
identify best practices and other insights into ways in which the
effectiveness and efficiency of the services' programs could be improved.
As mandated in the fifth concern, DOD identified the most salient
advantages and disadvantages that could result from implementing a lump
sum payment option for paying retention bonuses. We generally concur with
DOD's observations about the positive and negative aspects of using lump
sum bonuses.

We are making recommendations to DOD to improve management and oversight
of the SRB program with more methodologically rigorous evaluations. We are
recommending that DOD (1) retain the requirement for an annual review of
the SRB program and (2) develop a consistent set of methodologically sound
procedures and metrics for reviewing the effectiveness and efficiency of
all aspects of each service's SRB program administration. DOD agreed with
the recommendations.

Background 	Over the past 7 years, DOD has increasingly used the SRB
program to address retention shortfalls. The program's budget has grown
from $308 million in fiscal year 1997 to an estimated $734 million in
fiscal year 2003-a 138 percent increase after the effect of inflation was
held constant (see fig. 1). The budget is estimated to grow to $803
million in fiscal year 2005, with most of the projected growth resulting
from increases in the Air Force SRB program budget. Our 2002 report noted
that in fiscal year 2001 the Air Force extended reenlistment bonuses to 80
percent of its specialties.

Figure 1: SRB Program Budget Growth, Fiscal Years 1997-2005

aIn-year (or current) estimate.

bFiscal year 2004 budget request.

cFiscal year 2005 budget estimate.

In recent years, Congress has appropriated less money than the services
have requested for the SRB program. Based on our work, in fiscal 2003
Congress appropriated $32 million less than DOD requested. Congressional
committees proposed further SRB budget reductions during their reviews of
DOD's fiscal year 2004 budget request. The House Appropriations Committee
proposed a $44.6-million reduction; the Senate Appropriations Committee, a
$22-million reduction; and the Senate Armed Services Committee, a
$46-million reduction. The Senate Armed Services Committee additionally
noted concerns about proposed SRB program budget increases at a time when
overall retention rates are robust and the benefits of military service
are increasing overall. DOD appealed these proposed reductions, noting
that "the effects of an improving economy

and the waning emotional patriotic high of the decisive victory in
Operation Iraqi Freedom will combine to increase pressures on both the
recruiting and retention programs." For fiscal year 2004, Congress
appropriated $697 million for the SRB program, which was a reduction of
$38.6 million from the amount DOD requested.

Despite increased use of the SRB program, DOD has cited continued
retention problems in specialized occupations such as air traffic
controller, linguist, and information technology specialist. A more
favorable picture is present with regard to overall retention. All of the
services reported that they met overall retention goals for fiscal year
2002 and, with the exception of the Air Force missing its retention goal
for second term airmen, expect to meet overall retention goals in fiscal
year 2003. Further bolstering these retention expectations are recent
survey results showing improvements in servicemembers' attitudes toward
remaining in the military. For example, the 2002 DOD-wide status of forces
survey found that the career intent of military personnel had improved
between 1999 and 2002, rising from 50 to 58 percent. The survey results
showed that retention attitudes were particularly better for junior
enlisted (up 11 percent) and junior officers (up 13 percent). In addition,
the 2002 Air Force-wide quality of life survey found that 66 percent of
enlisted personnel reported they would make the Air Force a career, which
is an increase from 58 percent, reported in 1997. According to DOD
officials, the effects of more recent events such as extended deployments
and other higher operations tempo issues could change servicemembers'
attitudes toward remaining in the military.

Congressionally approved reforms in basic pay implemented during the last
3 years were intended in part to address retention problems, particularly
with mid-grade enlisted personnel. In the 2002 Quadrennial Review of
Military Compensation,7 DOD attributed the increased use of SRBs in the
late 1990s to a growing pay discrepancy between civilians and the
mid-career enlisted force. For that period, the review noted an increased
use of bonuses for personnel with 10 to 14 years of service. DOD noted
that while bonuses are a very important compensation tool, their use is
intended for specific purposes and for relatively short periods of time.
According to that review, bonuses are appropriate for use within
particular skill categories, not as a tool for resolving military and

7 Department of Defense, Report of The Ninth Quadrennial Review of
Military Compensation, Vol. 1, (Washington, D.C., 2002).

civilian pay differentials across an entire segment of the force. The
report noted that widespread pay differentials should be remedied through
pay table restructuring. Pay table restructuring began in fiscal year
2001, and additional military pay adjustments have been approved in
subsequent budgets.

  DOD's Report Did Not Thoroughly Address Congressional Concerns

DOD's May 2003 report did not thoroughly address four of the five
congressional concerns about effective and efficient management of the SRB
program. First, the report indirectly addressed SRB program effectiveness
and efficiency by discussing bonuses as a general military retention tool
instead of the effectiveness and efficiency of the program in targeting
bonuses to improve retention in selected critical occupations. Second, DOD
did not permit us to review the draft guidance, but-based on DOD's
comments on our 2002 SRB report, excerpts of draft criteria contained in
DOD's mandated report, and our discussions with DOD officials-the
replacement guidance could expand the SRB program by giving the services
more flexibility in designating occupations as critical and either
eliminate or weaken the requirement for annual SRB program reviews. Third,
OSD did not outline steps to match program execution to appropriated
funding as the mandate required; instead, OSD reiterated the need for
program-execution flexibility. Fourth, OSD's evaluation of the services'
administration of their SRBs program was limited, relied largely on
service-provided descriptions, and did not use consistent procedures and
metrics. Finally, as required by the fifth concern in the mandate, DOD
identified the most salient advantages and disadvantages resulting from
paying SRBs as lump sums.

    DOD Report Indirectly Addressed Program Effectiveness and Efficiency in
    Correcting Retention Shortfalls

DOD's report did not directly discuss how effectively and efficiently each
service is currently using the SRB program to address retention problems
in critical occupations. Although the mandate noted, "a reassessment of
the program is warranted to ensure it is being managed efficiently," DOD's
response to concern one did not provide sufficient detail to document the
effective and efficient use of the program in awarding SRBs. In response
to one of the other four congressional concerns, DOD stated that the
"intent of retention bonuses is to influence personnel inventories in
specific situations in which less costly methods have proven inadequate or
impractical." The report did not, however, document what methods had been
used previously or the cost-effectiveness of those methods in achieving
desired retention levels.

Also absent from the report was a discussion of how key factors influence
the current use of SRBs. Examples of key factors include the effects of
changes in the basic pay, overall retention rates, and civilian
unemployment. For example:

o  	Despite increasing basic pay to address the discrepancy between
military and civilian pay noted in the 2002 Quadrennial Review of Military
Compensation, the budgets for the SRB program are projected to grow to
$803 million in fiscal year 2005. In comments received on our preliminary
observations briefing, DOD officials noted that our use of constant 2004
dollars in our budget trend analysis did not fully account for the effects
of the basic pay changes that exceeded the inflation level and thus
increased the size of individual bonuses. At the same time, future SRB
program budgets do not show decreases that might be expected as these pay
table changes address overall military-civilian pay discrepancies and
problems identified within various pay grades.

o  	The report did not address the extent to which recent higher levels of
overall retention offer opportunities for reducing the number of
occupations eligible for SRBs or the bonus amounts8 awarded for
reenlistment. DOD officials have noted that all of the services met or
exceeded their aggregate retention goals in fiscal year 2002 and that
strong overall retention is expected to continue. However, they cited
retention shortfalls in some occupational specialties as areas of concern.
Although a generally positive aggregate retention climate might present
DOD with opportunities to curtail use of its SRB program, the report did
not discuss under what conditions reductions in the program might or might
not be appropriate at this time.

o  	Despite noting a relationship between civilian unemployment rates and
military retention, DOD's report did not indicate whether civilian
unemployment-which is at a 9-year high-might result in the need for fewer
SRBs being offered and possibly at lower bonus levels. One study cited in
DOD's report noted that there is a relationship between higher
unemployment rates and improved overall military retention. In part of its
answer to concern three, DOD noted that changes in the economy and labor
market drive changes in actual reenlistment rates. Just as periods of
relatively lower civilian unemployment might suggest the need for greater

8 Total bonus amounts are determined by multiplying (1) the
servicemember's current monthly basic pay by (2) the number of additional
years of obligated service and by (3) a bonus multiple that can range from
0.5 to 15. The bonus multiples are determined by each service for all
specialties they deem critical. Under current SRB program authority, the
services are allowed to pay reenlistment bonuses of up to $60,000, though
some services have set lower maximums.

use of the SRB program, periods of relatively higher unemployment might
conversely suggest less need for SRBs. Despite civilian unemployment being
at its highest rate in several years, the SRB program budget is projected
to increase in fiscal year 2005.

Instead of directly addressing program effectiveness and efficiency, the
2003 report discussed the general benefits of using bonuses to retain
military personnel. DOD's report cited numerous studies that demonstrated
or postulated this effect. However, findings from some studies may not be
readily generalized to the way that the SRB program is currently managed
or to the economic conditions that currently exist. More specifically,
some studies used outdated retention data obtained in the mid-1970s or
were performed in a very different retention environment (e.g., the
increase in force size during the 1980s and the large draw-down of
military forces in the 1990s). Even given our concerns about some of the
findings, we believe DOD presented sufficient support for its conclusion
that bonuses can be effective in promoting retention. A largely
unaddressed, but more pertinent issue is how effectively and efficiently
DOD applied this tool to improve retention in critical occupations under
recent and current economic conditions.

eliminate or weaken the requirement for formal annual reviews of the SRB
program.

DOD's planned changes to the replacement guidance could provide the
services with greater flexibility for designating a specialty as critical
but could weaken the controls for targeting the specialties receiving SRBs
by lowering the threshold required for making such a designation. The
Replacement Program DOD did not permit us to review the draft guidance9
that will replace the Guidance Not Issued but current DOD directive and
the DOD instruction canceled in 1996. Our Proposed Changes Could findings
for this concern are based on DOD's comments on our 2002 SRB Weaken
Controls for report, excerpts of draft criteria contained in DOD's
mandated report, and

our discussions with DOD officials. Changes to the guidance could
lowerTargeting SRBs the threshold required for designating occupations as
critical and may

9 Issuance of DOD Directive 1304.21; Policy on Enlistment, Accession of
Officers in Critical Skills, Selective Reenlistment, and Critical Skills
Retention Bonuses for Active Members; and DOD Instruction 1304.22,
Administration of Enlistment, Accession of Officers in Critical Skills,
Selective Reenlistment, and Critical Skills Retention Bonuses for Active
Members; are expected in fall 2003 instead of August 2003 as had been
specified in DOD's report.

canceled 1996 instruction required the services to consider five
criteria10 before designating a specialty critical and making it eligible
for SRBs, but DOD's 2003 report stated that the revised program
instruction would require occupations to meet a lower threshold-meeting
"at least" one of five criteria. For the period since 1996 when the
instruction was canceled, our 2002 report found that, in some cases, the
services had already been using only one of the five criteria to designate
occupations for inclusion in the program. This allowed the services to
define broadly what constituted a critical occupation and included more
occupations than would have likely qualified if all five criteria had been
considered.

DOD's planned changes could also eliminate or weaken the requirement for
formal annual reviews of the SRB program and thereby weaken the ability of
Congress and DOD to monitor the program and ensure that it targets only
critical specialties. To implement the SRB program, DOD Directive 1304.21
assigns specific responsibilities for administering the program to the OSD
and to the service Secretaries. According to this directive, the Assistant
Secretary of Defense for Force Management Policy, under the Under
Secretary of Defense for Personnel and Readiness, is responsible for
annually reviewing and evaluating the services' enlisted personnel bonus
programs in conjunction with the annual budget cycle. These reviews are to
include an assessment of the criteria used for designating critical
military specialties. As a result of these reviews, the OSD is to make the
revisions needed to attain specific policy objectives. Our 2002 report
found that DOD had not conducted any of the required annual program
reviews since 1991. In its response to our 2002 SRB report, DOD stated
that it plans to eliminate those requirements from the replacement
guidance. More recently, a DOD official stated that the new guidance will
require periodic reviews, but neither the frequency nor the details of how
these reviews would be conducted was explained. In its report to Congress,
DOD maintained that much of the SRB program oversight takes place during
ongoing internal service program budget reviews. In contrast, we concluded
in our 2002 report that those program budget reviews were limited in scope
and did not provide the detailed evaluation needed to ensure the program
was being implemented as

10 The canceled instruction required the services to identify critical
specialties by providing a balanced evaluation of five factors: (1)
serious understaffing in adjacent years, (2) persistent shortages in total
career staffing, (3) high replacement costs, (4) the arduousness or
unattractiveness of the work, and (5) whether the specialty is essential
to the accomplishment of defense missions.

intended. A more in-depth discussion of the current limited oversight is
provided when we discuss DOD's response to the fourth concern.

In contrast to the previously mentioned changes, DOD's report noted some
steps that we believe could strengthen controls on the SRB program.
According to the report, the new SRB program instruction will (1) require
the services to establish parameters to define "critical shortages" and
(2) base those requirements on factors such as the potential impact of a
shortage on mission accomplishment. In addition, DOD has recently
established a working group that has been tasked with developing a "common
understanding and definition of critical skills." Previously, we found
that DOD had not clearly defined the criteria the services were to use in
designating critical occupations since the SRB program instruction was
canceled in 1996.

    DOD Report Outlined No New Steps to Match Program Execution with
    Appropriations

Contrary to the mandate, DOD's 2003 report did not outline steps that it
will take to match program execution with appropriated funding. Instead,
DOD stated that the services need execution flexibility and have operated
consistent with the law and within the overall Military Personnel
appropriation. Our trend analysis in current year dollars showed that the
services spent a combined total of $259 million more than Congress
appropriated for the SRB program in fiscal years 1999-2002. DOD's use of
this flexibility has resulted in the services overspending their SRB
budgets by as much as $111 million in a single year-fiscal year 2001. More
recently, two of the services stayed within their appropriated budgets. In
fiscal year 2002, the Air Force and Marine Corps spent, respectively, $26
million and $4 million less than their fiscal year 2002 SRB appropriation.
However, the Army and Navy exceeded their appropriated SRB budgets by $38
million and $21 million, respectively.

DOD noted that the services can reallocate funds within the Military
Personnel appropriation without seeking congressional authority. In the
report, DOD did not agree with the congressional concern that program
expenditures needed to match funding levels appropriated specifically for
the SRB program. Rather, DOD maintained that monies were available from
other parts of the Military Personnel appropriation if a service needed
additional SRB funding in a fiscal year. DOD's response noted that budget
submission timelines require reenlistment forecasts up to 2 years prior to
execution and that intervening changes in the economy and labor market can
add uncertainty and drive changes in actual reenlistment rates. Using the
services in-year, or current estimates-created during the year of program
execution-we found that the services had exceeded their

fiscal year 1999-2002 estimates for the number of expected SRB
reenlistments by a combined total of 32,466 personnel. Furthermore, our
current trend analysis on their budget justifications showed that for the
Army and Navy, reallocation or reprogramming of funds had become a
reoccurring pattern of activity. In our 2002 report, we concluded that
better OSD program oversight and management would have required the
services to justify their need to exceed appropriations during fiscal
years 1997-2001.

    Evaluation of Services' Processes for Administering the Program Was Limited

DOD's limited evaluation of the services' SRB programs relied primarily on
program descriptions provided by the services. The report presented
different issues for each service and used inconsistent procedures and
metrics to reach conclusions about each service's program administration
effectiveness and efficiency. Absent was a discussion of key performance
indicators, the means used to verify and validate the measured values, and
other characteristics such as those GAO identified in its report assessing
agency annual performance plans.11 The absence of a consistent, explicit
methodology made it difficult to determine (1) best practices that might
be applied from one service to another and (2) other insights that could
result in each service more effectively and efficiently administering its
SRB program.

Although OSD assembled a multi-service panel to discuss the evaluation,
DOD's response consisted largely of program descriptions that the services
supplied. Each service made statements about the effectiveness of its
program but provided insufficient documentation to support those
statements. OSD conducted its last comprehensive review of the SRB program
in 1991. As noted earlier in our assessment of DOD's response to the
second concern, DOD stated that it intends to eliminate the requirement to
perform detailed annual program reviews when its replacement program
directive is issued.

In introductory comments to the 2003 report, DOD stated that the SRB
program is evaluated annually within the context of three Planning,
Programming, and Budgeting System activities. In our 2002 report, we found
that those reviews, conducted by the DOD Comptroller and the

11 U.S. General Accounting Office, The Results Act: An Evaluator's Guide
to Assessing Agency Annual Performance Plans, GAO/GGD-10.1.20 (Washington,
D.C.: Apr. 1998).

Office of Management and Budget (OMB), and the testimony provided to
Congress were limited.

o  	When the services prepare budget submissions for the SRB program, they
discuss the small sample of occupations included in their justification
books. As we noted in our 2002 report, the DOD Comptroller stated that the
budget submissions are not detailed programmatic evaluations.

o  	DOD's 2003 report also cited OMB reviews as part of an evaluation of
the programs. During the preparation of our 2002 report, OMB officials
told us that their reviews were limited and did not constitute a detailed
assessment of the services' programs.

o  	DOD's 2003 report stated that the services' out-year budgets were
carefully reviewed during congressional testimony. It is our view that
congressional testimony does not represent a detailed programmatic review
of a program this complex. For example, in March 11, 2003, DOD's testimony
before the Military Personnel Subcommittee of the Senate Armed Services
Committee12 included very limited statements about the SRB program.

DOD's report listed some positive steps that the services have proposed to
administer the SRB program more effectively and efficiently. For example,
the Navy and Army are validating and improving the models used to manage
their SRB programs, and the Air Force has created a new bonus review board
to keep its leaders apprised of how the SRB program is functioning. At the
time of our review, the services were just starting to implement these
steps to improve their programs, and there was no data to determine how
effective and efficient these efforts are.

12 Department of Defense, Prepared Statement of the Honorable David S. C.
Chu, Under Secretary of Defense (Personnel and Readiness), Before the
Military Personnel Subcommittee, Senate Armed Services Committee
(Washington, D.C.: Mar. 11, 2003).

    DOD Report Identified Advantages and Disadvantages of Using a Lump Sum
    Payment Option

DOD identified the most salient advantages and disadvantages resulting
from implementing a lump sum payment method for paying retention
bonuses.13 We generally concur with DOD's observations about the positive
and negative aspects of using lump sum bonuses. DOD's report cited a 1985
GAO study14 that found lump sum payments had three main advantages: more
cost-effective, better visibility to Congress, and more adaptable to
budget cuts than paying bonuses incrementally. The 2003 DOD report cited
another important consideration in awarding bonuses in lump sum payments.
Because enlisted personnel prefer "up-front" payments and are willing to
receive less money initially than more money offered in the future, we
believe that the federal government could reenlist more personnel for the
same amount of money if bonuses were paid in a lump sum.

DOD cited several disadvantages to using a lump sum payment option. For
example, there are significant up-front costs associated with paying both
lump sum SRB payments in the implementation year and completing the
anniversary payments for SRBs awarded previously. The first year of change
would require the largest budget increase, and each subsequent transition
year would become less costly. The implementation of a lump sum SRB
program could become cost neutral over the long term if bonuses paid in a
lump sum eliminated the need for equal amounts of anniversary payments in
succeeding years. It could even save money if sufficient reenlistees were
attracted with less money because up-front compensation-even if less-is
more attractive than compensation promised in the future.

DOD's report addressed other potential disadvantages of using a lump sum
payment method. These include the possibility that a recipient will fail
to stay in the military for the full reenlistment period after receiving a
bonus and the problem associated with recouping all or part of bonus
amounts from personnel who do not complete their obligated term of
service. Despite these disadvantages, our 1985 report stated our support
for the use of lump sum retention bonuses. The Marine Corps began using
the lump sum payment option for its SRB program in fiscal year 2001 and is

13 The Army, Navy and Air Force currently pay 50 percent of the
reenlistment bonus up front, and they pay the remaining 50 percent in
equal installments over the term of reenlistment.

14 U.S. General Accounting Office, Navy Management and Use of the
Selective Reenlistment Bonus Program, GAO/NSIAD-85-143 (Washington, D.C.:
Sept. 9, 1985).

Conclusions

the only service currently using this payment method. In February 2004,
the Marine Corps expects to have preliminary results from an evaluation of
its use of lump sum payments.

Although not required by the mandate to do so, DOD and the services could
have made the response to concern five more informative for Congress by
identifying alternative strategies for implementing the lump sum option
and estimating the costs of each strategy for each service. For example,
one strategy might be to phase in the lump sum payment option. Phasing in
lump sum payments could provide DOD with increased program administration
flexibility and decreased budgetary problems caused by switching from
installment payments in a single year.

Overall, our analysis of DOD's May 2003 congressionally mandated report on
the SRB program showed that DOD's report did not provide sufficient
information to enable Congress to determine whether the program is being
managed effectively and efficiently. With one exception, DOD's report did
not thoroughly address congressional concerns about the effective and
efficient management of the SRB program. Of DOD's responses to the five
congressional concerns, three were incomplete or nonresponsive-those
regarding program effectiveness and efficiency in correcting retention
shortfalls in critical occupations, DOD actions to match program execution
with appropriations, and DOD's evaluation of the services' program
administration. A fourth response-regarding replacement program
guidance-did not provide information essential for us to make an
independent determination as to the response's adequacy. DOD directly and
fully addressed one of mandated concerns-the advantages and disadvantages
of lump sum bonus payments. Although the SRB program is expected to grow
to over $800 million in fiscal year 2005, the report did not address
factors that may have reduced the services' retention concerns and could
reduce SRB program cost. Underlying many of these shortcomings is a lack
of empirically based information caused by DOD's limited reviews of the
SRB and inconsistent use of evaluation procedures and metrics. DOD's
possible elimination of the requirement for a detailed annual review and
continued reliance on service-specific procedures and metrics could
further weaken Congress's ability to monitor the SRB program.

  Recommendation for Executive Action

To assist Congress in its efforts to monitor the management of the SRB
program and to ensure that DOD is effectively and efficiently targeting
retention bonuses to critical occupations, we recommend that the Secretary
of Defense direct the Office of the Under Secretary of Defense for
Personnel and Readiness to (1) retain the requirement for an annual review
of the SRB program and (2) develop a consistent set of methodologically
sound procedures and metrics for reviewing the effectiveness and
efficiency of all aspects of each service's SRB program administration.

Agency Comments 	In written comments on a draft of this report, DOD
concurred with our recommendations. DOD further stated that, with regard
to our recommendation to develop review procedures and metrics, it would
(1) conduct research to develop meaningful metrics for reviewing the
effectiveness and efficiency of all aspects of each service's
administration of the SRB program and (2) implement those metrics so that
they are consistent with DOD's Human Resource Strategy Plan. DOD's
comments are reprinted in their entirety in appendix II.

We are sending copies of this report to the Secretary of Defense. We will
also make copies available to appropriate congressional committees and
to other interested parties on request. In addition, the report will be
available at no charge at the GAO Web site at http://www.gao.gov.

If you or your staff have questions about this report, please call me
at (202) 512-5559. Key staff members contributing to this report were
Jack E. Edwards, Kurt A. Burgeson, Nancy L. Benco, and M. Jane Hunt.

Derek B. Stewart
Director, Defense Capabilities and Management

                       Appendix I: Scope and Methodology

We reviewed the Department of Defense's (DOD) May 2003 congressionally
mandated report and documents used in the preparation of that report. That
information was supplemented with prior Selective Reenlistment Bonus (SRB)
program guidance, budget request documentation, and other information
gathered during our 2002 review of the SRB program. To assess the adequacy
and accuracy of the information contained in DOD's report, we obtained and
reviewed documentation used by the Office of the Secretary of Defense
(OSD) to support its responses. For example, we reviewed the eight studies
cited in DOD's response to concern one in the mandate. In addition, we
reviewed information provided by each of the services, as well as past GAO
and DOD reports on the SRB program. We compared findings from these past
reports to DOD's mandated responses to assess the validity of what was
presented. We updated the program budget analysis from our 2002 review
using budget data contained in DOD's Military Personnel budget
justification books prepared for Congress. We sought to review updated SRB
program guidance, but DOD indicated that these pre-decisional documents
would not be released until the final versions had been approved.

We met with DOD officials to update information obtained during our 2002
review of the SRB program. Interviews were primarily conducted with
officials in the Office of the Under Secretary of Defense for Personnel
and Readiness because these officials were the primary authors of DOD's
report. We also met with personnel responsible for administering the
services' SRB programs. We obtained updated retention data contained in
prepared statements used by DOD during congressional hearings. We also
reviewed the results of DOD's 2002 status of forces survey and the Air
Force's 2002 quality of life survey.

We conducted our review from June through September 2003 in accordance
with generally accepted government auditing standards.

Appendix II: Comments from the Department of Defense

Appendix II: Comments from the Department of Defense

                                 Now on p. 16.

                                 Now on p. 16.

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