DOD Business Systems Modernization: Billions Being Invested	 
without Adequate Oversight (29-APR-05, GAO-05-381).		 
                                                                 
Despite its significant investment in business systems, the	 
Department of Defense (DOD) continues to have long-standing	 
financial and business management problems that preclude the	 
department from producing reliable and timely information for	 
making decisions and for accurately reporting on its billions of 
dollars of assets. GAO was asked to (1) identify DOD's fiscal	 
year 2005 estimated funding for its business systems and (2)	 
determine whether DOD has effective control and accountability	 
over its business systems modernization investments.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-381 					        
    ACCNO:   A22998						        
  TITLE:     DOD Business Systems Modernization: Billions Being       
Invested without Adequate Oversight				 
     DATE:   04/29/2005 
  SUBJECT:   Accountability					 
	     Budget functions					 
	     Data integrity					 
	     Defense budgets					 
	     Defense cost control				 
	     Defense economic analysis				 
	     Financial management				 
	     Internal controls					 
	     Noncompliance					 
	     Cost effectiveness analysis			 
	     Enterprise architecture				 
	     Reporting requirements				 
	     Business operations				 
	     DOD Business Management Modernization		 
	     Program						 
                                                                 

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GAO-05-381

                 United States Government Accountability Office

                     GAO Report to Congressional Requesters

April 2005

DOD BUSINESS SYSTEMS MODERNIZATION

               Billions Being Invested without Adequate Oversight

                                       a

GAO-05-381

[IMG]

April 2005

DOD BUSINESS SYSTEMS MODERNIZATION

Billions Being Invested without Adequate Oversight

                                 What GAO Found

DOD's business and financial management weaknesses have resulted in
billions of dollars wasted annually in a time of increasing fiscal
constraint. These weaknesses continue despite DOD requesting over $13
billion in fiscal year 2005-about $6 billion less than in fiscal year
2004-to operate, maintain, and modernize its existing duplicative business
systems. The difference is more a reclassification of systems rather than
an actual spending reduction. Some of the reclassifications appeared
reasonable and others were questionable due to inconsistent information.
At the same time, DOD reported an increase in the number of business
systems to 4,150 as of February 2005-an increase of about 1,900 systems
since April 2003. The duplicative and stovepiped nature of DOD's systems
environment is illustrated by the numerous systems in the same business
area. For example, DOD reported that it has over 2,000 logistics
systems-an increase of approximately 255 percent since April 2003.

DOD still does not have an effective departmentwide management structure
for controlling business systems investments. Furthermore, DOD is not in
compliance with the National Defense Authorization Act for Fiscal Year
2003, which requires the DOD Comptroller to determine that system
improvements with obligations exceeding $1 million meet the criteria
specified in the act. Based on limited information provided by DOD, system
improvements totaling about $243 million of obligations over $1 million
were not reviewed by the DOD Comptroller in fiscal year 2004.
Cumulatively, based upon DOD's reported data, system improvements totaling
about $651 million of obligations over $1 million were not reviewed by the
DOD Comptroller before obligations were made since passage of the 2003
act.

DOD Business Systems with Obligations in Excess of $1 Million for
Modernizations Not Submitted to the DOD Comptroller (Dollars in Millions)

                                      Component Fiscal year Fiscal year Total 
                                                2003               2004 
                                           Army         $78         $40  $118 
                                           Navy          62          93  $155 
                                      Air Force          53          79  $132 
                       Defense Logistics Agency         168          10  $178 
                                        TRICARE           6          17   $23 
                    U.S. Transportation Command           1           1    $2 
                 Defense Finance and Accounting          40           3   $43 
                                        Service                         
                                          Total        $408        $243  $651 

Source: GAO analysis of DOD reported information.

The 2005 defense authorization act directed that DOD put in place a
management structure to improve the control and accountability over
business systems investments by placing more responsibility with the
domains. At the same time, each military service has its own investment
review process. Absent an integrated management structure that clearly
defines the relationship of the domains and the military services, DOD
will be at risk that the parochialism contributing to the current problems
will continue.

                 United States Government Accountability Office

Contents

  Letter

Results in Brief
Background
DOD Lacks Accurate Information on the Costs and Number of

Business Systems Limited Progress Made in DOD's Efforts to Control Its
Business

Systems Investments Conclusion Recommendations for Executive Action Agency
Comments and Our Evaluation

1 3 6

11

21 33 34 35

Appendixes                                                              
                Appendix I:             Scope and Methodology              40 
               Appendix II:    Comments from the Department of Defense     42 
                               DOD Business Systems Modernizations with    
              Appendix III:                 Obligations in                 
                               Excess of $1 Million Approved by the DOD    
                                            Comptroller in                 
                                           Fiscal Year 2004                48 
                             Modernizations with Obligations in Excess of  
              Appendix IV:                  $1 Million Not                 
                              Submitted for the Required DOD Comptroller   50 
                                                Review                     
                             Modernizations with Obligations in Excess of  
                Appendix V:                 $1 Million Not                 
                              Reviewed by DOD Comptroller per July 2004    
                                              Memorandum                   52 
              Appendix VI:      GAO Contacts and Staff Acknowledgments     54 

Tables Table 1:

Table 2: Table 3: Table 4:

Distribution of DOD's $13.3 Billion IT Budget Request for
Fiscal Year 2005 for Business Systems and Related
Infrastructure 13
Comparison of DOD Business Systems Inventories by
Domain 18
Reported DOD Business Systems by Domain and
Component 19
Identification of Business Systems Modernizations by
DOD Component That Did Not Have DOD Comptroller
Review as Required by the Fiscal Year 2003 National
Defense Authorization Act 26

Contents

Abbreviations

BEA business enterprise architecture
BMMP Business Management Modernization Program
CFO Chief Financial Officer
CIO Chief Information Officer
CMO chief management official
DCD/DCW DFAS Corporate Database/DFAS Corporate Warehouse
DFAS Defense Finance and Accounting Service
DIMHRS Defense Integrated Military Human Resources System
DITPR DOD Information Technology Portfolio Data Repository
DLA Defense Logistics Agency
DMLSS Defense Medical Logistics Standard Support
DOD Department of Defense
ERP Enterprise Resource Planning
FFMIA Federal Financial Management Improvement Act
IG Inspector General
IT information technology
ITMA Information Technology Management Application
JFMIP Joint Financial Management Improvement Program
OMB Office of Management and Budget
OPM Office of Personnel Management
TRANSCOM U.S. Transportation Command

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separately.

A

United States Government Accountability Office Washington, D.C. 20548

April 29, 2005

Congressional Requesters

The Department of Defense (DOD) continues to confront pervasive
decades-old financial management and business system problems. These
problems continue despite the department spending billions of dollars
annually to operate, maintain, and modernize its business systems.1
Additionally, our reports2 continue to show that the department's
stovepiped and duplicative systems contribute to fraud, waste, and abuse.
Of the 25 areas on GAO's governmentwide "high-risk" list, 8 are DOD
program areas, and the department shares responsibility for 6 other
highrisk areas that are governmentwide in scope.3 These problems also
preclude the department from producing reliable, timely, and useful
information to make sound decisions and to accurately report on its
trillions of dollars of assets and liabilities.

This report is a continuation of our reviews to provide Congress
information on DOD's continuing significant investments in its business
systems and its control and accountability over these investments. More
specifically, as agreed with your offices, our objectives were to (1)
identify the amount of funding DOD requested for fiscal year 2005 to
operate, maintain, and modernize its business systems and (2) determine
whether DOD has effective control and accountability over its business
systems modernizations investments.

1 Business systems include those that are used to support civilian and
military personnel, finance, logistics, procurement, and transportation.

2 See, for example, GAO, Defense Inventory: Opportunities Exist to Improve
Spare Parts Support Aboard Deployed Navy Ships, GAO-03-887 (Washington,
D.C.: Aug. 29, 2003); Military Pay: Army National Guard Personnel
Mobilized to Active Duty Experienced Significant Pay Problems, GAO-04-89
(Washington, D.C.: Nov. 13, 2003); and DOD Travel Cards: Control
Weaknesses Resulted in Millions of Dollars of Improper Payments, GAO04-576
(Washington, D.C.: June 9, 2004).

3 GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: Jan.
2005). The eight specific DOD high-risk areas are (1) approach to business
transformation, (2) business systems modernization, (3) contract
management, (4) financial management, (5) personnel security clearance
program, (6) supply chain management, (7) support infrastructure
management, and (8) weapon systems acquisition. The six governmentwide
high-risk areas are (1) disability programs, (2) interagency contracting,
(3) information systems and critical infrastructure, (4) information
sharing for homeland security, (5) human capital, and (6) real property.

To determine how much DOD plans to spend on the operation, maintenance,
and modernization of its business systems in fiscal year 2005, 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 was
developed. To determine the effectiveness of the department's efforts to
control and account for its business systems investments, we met with
officials in DOD's office of the Business Management Modernization Program
(BMMP)4 and the business domains5 and reviewed available documentation.
Further, we asked the military services and defense agencies for a list of
fiscal year 2004 reported obligations6 exceeding $1 million for business
systems modernizations, which we used in determining if the obligations
were reviewed by the DOD Comptroller to

4 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 business enterprise architecture.

5 The six domains and the respective domain leaders for fiscal year 2004
were (1) acquisition-Under Secretary of Defense (Acquisition, Technology
and Logistics); (2) financial management-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); and (6) enterprise information
environment-Assistant Secretary of Defense (Networks and Information
Integration)/Chief Information Officer. In September 2004, the accounting
and finance domain and the strategic planning and budgeting domain were
combined into one domain and renamed the financial management domain.

6 We did not independently determine if the list of obligations for system
modernization reported to us was complete and accurate.

ascertain whether financial systems improvements met the criteria
specified in the fiscal year 2003 defense authorization act.7

Our work was performed from August 2004 through February 2005 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 Under Secretary of Defense for
Acquisition, Technology and Logistics are reprinted in appendix II.

Results in Brief	DOD has made limited progress in putting in place the
management structure and controls that will help eliminate its continual
spending of billions of dollars on systems that do not address corporate
solutions to long-standing financial and business-related problems. Over
the past several years, we have made numerous recommendations aimed at
improving the department's control and accountability over its business
systems investments. DOD has made some efforts to address our
recommendations, but has not yet implemented key corrective actions to
fully address them.

For fiscal year 2005, DOD requested over $13 billion to operate, maintain,
and modernize its existing business systems environment. On its face, this
is about $6 billion less than the $19 billion requested in fiscal year
2004. But we found the difference reflects more a reclassification of
systems than a reduction in spending on business systems. Also, the number
of business systems reported by DOD continued to increase-from 2,274
systems in

7 Subsection 1004(d) of the Bob Stump National Defense Authorization Act
for Fiscal Year 2003, Pub. L. No. 107-314, 116 Stat. 2458, 2630 (Dec. 2,
2002), provides that any amount in excess of $1 million may be obligated
for financial system improvements before approval of DOD's 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. The provision was repealed on October 28, 2004, by
the Ronald W. Reagan National Defense Authorization Act for Fiscal Year
2005, Pub. L. No. 108-375, S: 332, 118 Stat. 1811, 1851 (Oct. 28, 2004)
(codified, in part, at 10 U.S.C. S:S: 185, 2222), which enacted a new
similar $1 million limitation on obligations for business systems
modernizations. The act notes that failure to comply with the new
provision after September 30, 2005, will result in a violation of 31
U.S.C. S: 1341(a)(1)(A), the Anti-Deficiency Act.

April 2003 to 4,150 systems in February 2005. The duplicative and
stovepiped nature of DOD's systems environment is illustrated by the
numerous systems it has in the same business areas. For example, DOD
reported in its BMMP systems inventory that it has over 2,000 logistics
systems-which is an increase of approximately 255 percent in the reported
number since April 2003. These systems are not integrated and thus have
multiple points of data entry, which can result in data integrity
problems. Some business domains advised us that not all of the reported
systems are included in the IT budget request. This has been a continuing
problem as we have previously reported concerns with the accuracy and
reliability of DOD's IT budget submission.8

Regarding the reclassified spending in DOD's fiscal year 2005 budget
request, we found that DOD reclassified 56 systems, totaling about $6
billion, from business systems in its fiscal year 2004 budget to national
security systems9 in its fiscal year 2005 budget request. Some of the
reclassifications appeared reasonable, while for others it is unclear how
the system should be classified. For example, in the case of the
Transportation Coordinators' Automated Information for Movements System
II, the program management office stated that the DOD CIO reclassified the
system as a national security system, even though it had been classified
as a business system since at least fiscal year 1999. In addition, the
Navy's Enterprise Resource Planning (ERP)10-first reported as a new
program in the fiscal year 2005 IT budget request-was incorrectly
classified as a national security system even though its forerunners, four
ERP pilot projects, have been classified as business systems since their
inception. Navy ERP program officials agreed with us that the program was
misclassified and stated that it would be changed to a business system in
the fiscal year 2006 budget request. Incorrect reclassification of
business systems obscures visibility over spending for these systems and
can preclude scrutiny by Congress and the DOD business domains, including
the fiscal year 2004 DOD Comptroller

8 GAO, Information Technology: Improvements Needed in the Reliability of
Defense Budget Submissions, GAO-04-115 (Washington, D.C.: Dec. 19, 2003).

9 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.

10 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.

statutory review, and hinders the department's ability to develop a
comprehensive list of its business systems.

Given that DOD does not yet know how many business systems it has or
whether all business system funding is reflected in the IT budget, it is
not surprising that DOD continues to struggle to establish an effective
DODwide management oversight structure and processes to control its
ongoing and planned investments. In analyzing the list of business systems
modernizations with reported obligations exceeding $1 million provided to
us by DOD, we found that the department is not in compliance with the
fiscal year 2003 defense authorization act provision requiring the DOD
Comptroller to review financial system improvements. Based upon
information reported to us by the military services and DOD components,
obligations totaling about $243 million were made by the military services
and defense agencies for system modernizations in fiscal year 2004 that
under DOD's definition of modernization and DOD's representation of
functionality, constitute financial system improvements that were not
referred to the DOD Comptroller for the required review. In addition,
given the reliability problems with DOD information, there is no certainty
that the information reported to us is complete or accurate.

To improve the control and accountability over business systems
investments, we have previously proposed that Congress appropriate funding
for DOD's business systems to business domain leaders rather than the
military services and defense agencies. While provisions in the fiscal
year 2005 defense authorization act have given the domains responsibility
to oversee the department's business systems investments, the domains have
not been given the resource control necessary to carry out these
responsibilities. Currently, DOD components control budget authority from
multiple appropriations and continue to make their own parochial
investment decisions with little or no control by the domains. The domains
acknowledged that they had virtually no input into the fiscal year 2006 IT
budget request.

We are making four recommendations to the Secretary of Defense aimed at
improving the department's control and accountability of business systems
investments. In its written comments on a draft of this report, DOD agreed
with our recommendations and briefly outlined its actions for addressing
them. We have reprinted DOD's written comments in appendix II.

Background	Because DOD is one of the largest and most complex
organizations in the world, overhauling its business operations represents
a huge management challenge. In fiscal year 2004, DOD reported that its
operations involved $1.2 trillion in assets, $1.7 trillion in liabilities,
over 3.3 million military and civilian personnel, and over $605 billion in
net cost of operations. For fiscal year 2005, the department received
appropriations of about $417 billion. Execution of DOD's 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 operation. To support DOD's
operations, the department performs an assortment of interrelated and
interdependent business processes, including logistics management,
procurement, health care management, and financial management.

Transformation of DOD's business systems and operations is critical to the
department providing Congress and DOD management with accurate and timely
information for use in the decision-making process. 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." Secretary
Rumsfeld has estimated that successful improvements to DOD's business
operations could save the department 5 percent of its budget a year, which
equates to over $20 billion a year in savings.

Pervasive Financial and Business Management Problems Affect DOD's
Efficiency and Effectiveness

For several years, we have reported that DOD faces a range of financial
management and related business process challenges that are complex,
long-standing, pervasive, and deeply rooted in virtually all business
operations throughout the department. As the Comptroller General testified
in November 2004,11 DOD's financial management deficiencies, taken
together, continue to represent the single largest obstacle to achieving
an unqualified opinion on the U.S. government's consolidated financial
statements. To date, none of the military services has passed the test of
an independent financial audit because of pervasive weaknesses in

11 GAO, Department of Defense: Further Actions Are Needed to Effectively
Address DOD Business Management Problems and Overcome Key Business
Transformation Challenges, GAO-05-140T (Washington, D.C.: Nov. 18, 2004).

internal controls and processes and fundamentally flawed business systems.

In identifying improved financial performance as one of its five
governmentwide initiatives, the President's Management Agenda recognized
that obtaining a clean (unqualified) financial audit opinion is a basic
prescription for any well-managed organization. At the same time, it
recognized that without sound internal controls and accurate and timely
financial and performance information, it is not possible to accomplish
the President's agenda and secure the best performance and highest measure
of accountability for the American people. The Joint Financial Management
Improvement Program (JFMIP)12 Principals have defined certain measures, in
addition to receiving an unqualified financial statement audit opinion,
for achieving financial management success. These additional measures
include (1) being able to routinely provide timely, accurate, and useful
financial and performance information; (2) having no material internal
control weaknesses or material noncompliance with laws and regulations;
and (3) meeting the requirements of the Federal Financial Management
Improvement Act of 1996 (FFMIA).13 DOD does not meet any of these
conditions. In September 2004, the DOD Comptroller identified 11 major
deficiencies that would affect the department's ability to prepare
accurate and reliable financial statements for fiscal year 2004.
Subsequently, the DOD Inspector General issued a disclaimer of opinion on
DOD's fiscal year 2004 financial statements, citing material weaknesses in
internal controls and noncompliance with FFMIA requirements. Pervasive
weaknesses in DOD's financial management and related business processes
and systems have (1) resulted in a lack of reliable information needed to
make sound

12 JFMIP was a joint and cooperative undertaking of the Department of the
Treasury, GAO, the Office of Management and Budget (OMB), and the Office
of Personnel Management (OPM), working in cooperation with each other and
other federal agencies to improve financial management practices in the
federal government. Leadership and program guidance were provided by the
four Principals of JFMIP-the Comptroller General of the United States, the
Secretary of the Treasury, and the Directors of OMB and OPM. Although
JFMIP ceased to exist as a stand-alone organization as of December 1,
2004, the JFMIP Principals will continue to meet at their discretion.

13 FFMIA, Pub. L. No. 104-208, div. A, S: 101(f), title VIII, 110 Stat.
3009, 3009-389 (Sept. 30, 1996), requires the 24 major departments and
agencies covered by the Chief Financial Officers Act of 1990, Pub. L. No.
101-576, 104 Stat. 2838 (Nov. 15, 1990) (31 U.S.C. S: 901(b), as amended),
to implement and maintain financial management systems that comply
substantially with (1) federal financial management systems requirements,
(2) applicable federal accounting standards, and (3) the U.S. Standard
General Ledger at the transaction level.

decisions and report on the status of DOD activities, including
accountability of assets, through financial and other reports to Congress
and DOD decision makers; (2) hindered its operational efficiency; (3)
adversely affected mission performance; and (4) left the department
vulnerable to fraud, waste, and abuse, as the following examples
illustrate.

o 	Mobilized Army National Guard soldiers have experienced significant
problems getting accurate, timely, and consistent reimbursement for
out-of-pocket travel expenses. These weaknesses were more glaring in light
of the sustained increase in mobilizations for Army National Guard
soldiers over the last 3 years. Our case study units experienced a broad
range of travel reimbursement problems, including disputed amounts for
meals that remained unpaid at the end of our review and vouchers that were
submitted five or more times before being paid. One of the primary causes
for these problems is rooted in the paper-intensive process used by DOD to
reimburse Army National Guard soldiers for their travel expenses.14

o 	Manual processes and nonintegrated pay and personnel systems affect the
Army's ability to generate timely active duty medical extension orders and
ensure that soldiers are paid correctly. The current stovepiped,
nonintegrated systems are labor-intensive and require extensive
error-prone manual entry and reentry. The inadequate control resulted in
some soldiers being removed from active duty status in the automated
systems that control pay and access to benefits, including medical care.
In addition, because these soldiers no longer had valid active duty
orders, they did not have access to the commissary and post exchange-which
allows soldiers and their families to purchase groceries and other goods
at a discount. In one case we reviewed, during a 12-month period, while
attempting to obtain care for injuries sustained from a helicopter crash
in Afghanistan, one Special Forces soldier fell out of active duty status
four times. During the times he was not recorded in the system as being on
active duty, he was not paid and he and his family experienced delays in
receiving medical

14 GAO, Army National Guard: Inefficient, Error-Prone Process Results in
Travel Reimbursement Problems for Mobilized Soldiers, GAO-05-79
(Washington, D.C.: Jan. 31, 2005).

treatment. In all, he missed payments for 10 pay periods-totaling
$11,924.15

o 	The processes and automated systems relied on to provide active duty
payments to mobilized Army Reserve soldiers are so error-prone,
cumbersome, and complex that neither DOD nor, more importantly, the Army
Reserve soldiers themselves could be reasonably assured of timely and
accurate payments. Specifically, at eight Army Reserve units that we
reviewed, 332 of 348 soldiers (95 percent) experienced at least one
problem with the active duty pay and allowances they were entitled to
receive. Many of the soldiers experienced multiple pay problems associated
with their active duty mobilizations. Some of the pay problems soldiers
experienced often lingered unresolved for considerable lengths of time,
some for over a year. Of the $375,000 in active duty pay and allowance
problems identified in our case studies, the majority were overpayments.
We referred one individual for criminal investigation because he did not
mobilize with his unit, but he erroneously received over $36,000 in active
duty pay and did not report this overpayment. We also identified 294
soldiers who were underpaid a total of about $51,000 in active duty pay
and allowances.16

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 decision-making process.
One of the key elements we have reported17 as necessary to successfully
execute the transformation is establishing and implementing a business
enterprise architecture (BEA). In this regard, the department has
undertaken a daunting challenge to modernize its existing business systems
environment through the development, maintenance, and implementation of
the BEA, or modernization blueprint. As previously noted, the department
has designated six domain owners to be responsible for implementing the
BEA. The importance of developing, maintaining, and

15 GAO, Military Pay: Gaps in Pay and Benefits Create Financial Hardships
for Injured Army National Guard and Reserve Soldiers, GAO-05-125
(Washington, D.C.: Feb. 17, 2005).

16 GAO, Military Pay: Army Reserve Soldiers Mobilized to Active Duty
Experienced Significant Pay Problems, GAO-04-911 (Washington, D.C.: Aug.
20, 2004).

17 GAO, Department of Defense: Status of Financial Management Weaknesses
and Progress Toward Reform, GAO-03-931T (Washington, D.C.: June 25, 2003).

implementing an enterprise architecture is a basic tenet of both
organizational transformation and IT management. Managed properly, an
enterprise architecture can clarify and help optimize the
interdependencies and relationships among an organization's business
operations and the underlying IT infrastructure and applications that
support these operations. Employed in concert with other important
management controls, such as portfolio-based capital planning and
investment control practices, architectures can greatly increase the
chances that organizations' operational and IT environments will be
configured to optimize mission performance. Our experience with federal
agencies has shown that investing in IT without defining these investments
in the context of an architecture often results in systems that are
duplicative, not well integrated, and unnecessarily costly to maintain and
interface.18

A key element of an enterprise architecture is the development and
implementation of a transition plan. According to relevant guidance and
best practices, the transition plan should provide a road map for moving
from the "As Is" to the "To Be" environment. An important step in the
development of a well-defined transition plan is an analysis that compares
the "As Is" and "To Be" architectures to identify differences. Options are
explored and decisions are made regarding which legacy systems to retain,
modify, or retire, and which new systems either to introduce on a
temporary basis or to pursue as strategic solutions. Accordingly,
transition plans identify legacy, migration, and new systems, and sequence
them to show, for example, the phasing out and termination of systems and
capabilities and the timing of the introduction of new systems and
capabilities. Furthermore, they do so in light of resource constraints,
such as budget, people, acquisition/development process maturity, and
associated time frames.

To improve DOD's control and accountability over business systems
investments, Congress included provisions in the Ronald W. Reagan National
Defense Authorization Act for Fiscal Year 2005.19 The act directs that a
management structure be put in place that (1) makes domains

18 GAO, DOD Business Systems Modernization: Important Progress Made to
Develop Business Enterprise Architecture, but Much Work Remains,
GAO-03-1018 (Washington, D.C.: Sept. 19, 2003).

19 Ronald W. Reagan National Defense Authorization Act for Fiscal Year
2005, Pub. L. No. 108-375, S: 332, 118 Stat. 1811, 1851 (Oct. 28, 2004)
(codified, in part, at 10 U.S.C. S:S: 186, 2222).

responsible for the control and accountability over business systems
investments, (2) requires domains to establish a hierarchy of investment
review boards from across the department, and (3) directs the boards to
use a standard set of investment review and decision-making criteria to
ensure compliance and consistency with the BEA. The act also directs the
establishment of a departmental review board called the Defense Business
Systems Management Committee that is to be chaired by the Deputy Secretary
of Defense.

DOD Lacks Accurate Information on the Costs and Number of Business Systems

Until DOD has complete, reliable information on the costs and number of
business systems operating within the department, its ability to
effectively control the money it spends on these systems will be limited.
DOD's fiscal year 2005 budget request for its business systems was $13.3
billion, which on its face is about $6 billion, or 29 percent, less than
its fiscal year 2004 budget request. We found that this decrease can be
attributed to DOD's reclassification of some business systems to national
security systems, not to a reduction in spending on its systems. While
some of the reclassifications appeared reasonable, our analysis showed
that others were questionable or inconsistencies exist, which hinders
DOD's ability to develop a definitive business systems inventory. DOD CIO
officials acknowledged that there were inconsistencies in the
classifications of systems as either business systems or national security
systems and stated that they were working to improve the classification
criteria.

DOD CIO officials also stated that they are working toward a single system
repository for the department that will include information to be used in
developing the budget. At the same time the amount of requested business
system funding declined, the reported number of business systems increased
by about 1,900-from 2,274 in April 2003 to 4,150 in February 2005. Given
the ever-changing numbers-for both funding and systems- the department
continues to lack reasonable assurance that all business systems are
included within the reported inventory and that all business system
funding is accurately detailed in the budget.

Fiscal Year 2005 Budget Request for DOD's Business Systems Environment Is
$13.3 Billion

For fiscal year 2005, DOD requested approximately $28.7 billion20 in IT
funding to support a wide range of military operations as well as DOD
business systems operations. Of the $28.7 billion, our analysis showed
that about $13.3 billion was for business applications and related
infrastructure. Of the $13.3 billion, our analysis of the budget request
disclosed that about $8.4 billion was for infrastructure and related
costs. Business applications include activities that support the business
functions of the department, such as personnel, health, travel,
acquisition, finance and accounting, and logistics. The remaining $15.4
billion was classified as being for national security systems. Of that
amount, our analysis ascertained that about $7.5 billion was for
infrastructure and related costs.

Of the $13.3 billion, $10.7 billion was for the operation and maintenance
of the existing systems and $2.6 billion was for the modernization of
existing systems, the development of new systems,21 or both. The Office of
Management and Budget 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 funds are to
be for operating and maintaining systems at current levels (i.e., without
major enhancements), while development/modernization funds are to be for
developing new IT systems or making major enhancements to existing
systems. Table 1 shows the distribution, by DOD component, of the reported
$13.3 billion between current services and modernization funding.

20 DOD categorizes its funding request as follows: business systems-$5
billion; national security systems-$7.8 billion; shared infrastructure and
information assurance activities- $14.8 billion; and related technical
activities-$1.1 billion.

21 According to the department's definition in its Financial Management
Regulation, development/modernization/enhancement include (1) new
applications and infrastructure capabilities that are planned and under
development; (2) any change or modification to existing applications and
infrastructure capabilities which is intended to result in improved
capabilities or performance of the activity, including (a) all
modifications to existing operational software (other than corrective
software maintenance) and (b) expansion of capabilities to new users; (3)
changes mandated by Congress or the Office of the Secretary of Defense;
and (4) personnel costs for project management.

Table 1: Distribution of DOD's $13.3 Billion IT Budget Request for Fiscal
Year 2005 for Business Systems and Related Infrastructure

                              Dollars in millions

                                                 Current Development/  
                                      Component services modernization  Total 
                                           Navy   $3,278          $206 $3,484 
                                      Air Force    2,630           726 $3,356 
                                           Army    1,780           607 $2,387 
            TRICARE Management Agency (TRICARE)      803           255 $1,058 
                 Defense Logistics Agency (DLA)      602           179   $781 
         Defense Finance and Accounting Service      407            59   $466 
                                         (DFAS)                        
             Defense Information Systems Agency      157            34   $191 
                           Other DOD components    1,074           566 $1,640 

                          Total $10,731 $2,632 $13,363

Source: GAO analysis of DOD information.

Note: Based on information DOD reported in its fiscal year 2005 IT budget
request.

As an example of how a component applies funding for current services and
modernization, the budget request for the Standard Procurement System,
which is one of the department's standard systems, will use a combination
of current services and modernization funding. The fiscal year 2005 budget
request for the Standard Procurement System identified about $56 million
in total-$30 million for current services and $26 million for development
and modernization.

Reclassification Limits Oversight of Business Systems

Incorrect system classification hinders the department's efforts to
improve its control and accountability over its business systems
investments. For instance, the incorrect reclassification of business
systems to national security systems precludes scrutiny by the business
domains, including the process utilized to obtain the DOD Comptroller's
determination that authorizes the components to obligate amounts over $1
million for the improvement of financial management systems. Our
comparison of the fiscal years 2004 and 2005 budget requests disclosed
that DOD reclassified 56 systems in the fiscal year 2005 budget request
from business systems to national security systems. The net effect of the
reclassifications was a decrease of approximately $6 billion in the fiscal
year 2005 budget request for business systems and related infrastructure.
The reported amount

declined from about $19 billion in fiscal year 2004 to over $13 billion in
fiscal year 2005.

In some cases, we found that the reclassification appeared reasonable. For
example, in the fiscal year 2005 budget request, the Defense Message
System was classified as a national security system. In our May 2004
report,22 we noted the inconsistent classification of this system among
the military services. The Navy classified the Defense Message System as a
business system but the Army and Air Force classified it as a national
security system. Similarly, the reclassification of the Defense
Information System Network initiative as a national security system
appeared reasonable. For example, the Defense Information System Network
is used to provide a secure telecommunication network-voice, data, and
video- to the President, the Secretary of Defense, the Joint Chiefs of
Staff, and military personnel in the field. These two systems account for
over $2.6 billion of the $6 billion.

However, our analysis of the 56 systems that were reclassified as national
security systems also identified instances for which the reclassification
was questionable. For example, Base Level Communication
Infrastructure-initiative number 254-for several DOD entities was shown as
a national security system in the fiscal year 2005 budget request. Our
review of the fiscal year 2005 budget found that within the Air Force
there were numerous other initiatives entitled Base Level Communication
Infrastructure that were classified as business systems, not national
security systems. The nomenclature describing these different initiatives
was the same. Therefore, it was difficult to ascertain why certain
initiatives were classified as national security systems while others,
with the same name, were classified as business systems. The following are
examples of the inconsistencies in the department's classification of
systems.

o 	The Joint Total Asset Visibility System had been classified as a
business system since at least fiscal year 1999 and was identified as a
business system in the department's original list of 2,274 business
systems in April 2003 and is still being reported as a business system in
the department's systems inventory. We found nothing in our review of the
fiscal year 2005 budget request that warranted a change in classification.

22 GAO, DOD Business Systems Modernization: Billions Continue to Be
Invested with Inadequate Management Oversight and Accountability,
GAO-04-615 (Washington, D.C.: May 27, 2004).

o 	The Transportation Coordinators' Automated Information for Movements
System II was identified as a business system in the department's original
inventory of business systems in April 2003 and has been shown as a
business system in the budget request since 1999. Furthermore, BMMP
currently reports it as one of the department's business systems. Yet it
was reclassified as a national security system in the fiscal year 2005
budget request even though its functionality had not changed. According to
the program management office, the DOD CIO classified the system as a
national security system, but the program management office was informed
by the DOD Comptroller that the system needed to be submitted to the DOD
Comptroller for review in accordance with section 1004(d) of the fiscal
year 2003 defense authorization act. However, the section of the act
relating to the DOD Comptroller review does not apply to national security
systems. In our May 2004 report,23 we noted that the Army reported that it
obligated almost $22 million for modernization of the system in fiscal
year 2003 without its having been subject to review by the DOD Comptroller
for consistency with DOD's BEA.

o 	The Army's Global Combat Support System was reclassified as a national
security system in the fiscal year 2005 budget, even though it is still
being reported as a business system in the department's current inventory.
Furthermore, BMMP officials stated that reclassification was incorrect and
the system was submitted to the DOD Comptroller for review in accordance
with section 1004(d) of the fiscal year 2003 defense authorization act.
The DOD Comptroller approved investment in the system in August 2003 and
January 2004.

In addition, this is the first year in which the Navy ERP was listed in
the budget and incorrectly classified as a national security system. Its
forerunners, four pilot ERP projects, have been classified as business
systems since their inception. DOD officials were not able to provide a
valid explanation why the program was classified as a national security
program. For the fiscal year 2006 budget request, the Navy has requested
that the DOD CIO reclassify the program from a national security system to
a business system.

The misclassification of systems in DOD's budget hinders the department's
ability to develop a comprehensive list of its business systems, thereby

23 GAO-04-615.

affecting its ability to develop a well-defined "As Is" component of its
BEA and a viable transition plan. In addition, improper classification
diminishes Congress's ability to effectively monitor and oversee the
billions of dollars spent annually to maintain, operate, and modernize the
department's business systems environment.

              DOD Is Working to Develop a Single Systems Inventory

DOD CIO officials acknowledged that there were inconsistencies within the
department in the classification of a system as either a business system
or a national security system, which hinder its ability to develop a
single comprehensive business systems inventory. DOD CIO officials also
stated that with the implementation of the DOD Information Technology
Portfolio Data Repository (DITPR)-the new systems inventory
repository-they are working to improve the criteria governing the
classification of systems, and these criteria are being incorporated into
the new systems inventory repository.

As discussed in our May 2004 report,24 DOD has several databases that
contain information on its systems-business and national security-and
these databases have not been reconciled and therefore inconsistencies
exist. We recommended that the department establish a single database for
its inventory of business systems. Subsequently, on July 13, 2004, the DOD
CIO directed establishment of the DITPR. According to BMMP officials, the
department is working toward one database that will contain information
for use in developing the annual budget request and will be considered the
single system repository for the department. Additionally, all existing
databases will be eliminated. Furthermore, the DITPR will automatically
classify each system based on selected information entered for each. For
example, all intelligence, science and technology, and
logistics-warfighting systems are to be classified as national security
systems.

In addition, to help identify and properly categorize its business
systems, we recommended in May 200425 that DOD develop a standard
definition for business systems. In July 2004, DOD established a
definition of a system, but not specifically of a business system. DOD
broadly defined a system as a set of information resources organized for
the collection, storage,

                         24 GAO-04-615. 25 GAO-04-615.

processing, maintenance, use, sharing, dissemination, disposition,
display, or transmission of information. DOD's definition also clarifies
what should not be reported as a system. For example, it excludes such
things as commercial office automation packages, information assurance
initiatives, and architecture initiatives. Additionally, DOD's definition
is aimed at identifying all systems that would obligate $1 million or more
for modernization in any year of the department's 5-year defense plan.

While DOD did not develop a specific definition of a business system, the
fiscal year 2005 defense authorization act26 subsequently provided a
definition. The act defines a defense business system as an information
system, other than a national security system, operated by, for, or on
behalf of the department that is used to support business activities, such
as acquisition, financial management, logistics, strategic planning and
budgeting, installations and environment, and human resources management.
The act states that such systems are to include financial systems, mixed
systems,27 financial data feeder systems, and IT and information assurance
infrastructure. It is incumbent upon the department to ensure that the
definition specified in the act is used consistently throughout the
department and becomes the basis for entering information into the DITPR.
As previously discussed, the accurate and complete identification of DOD's
business systems is crucial for developing a credible "As Is" component
and transition plan for the BEA and ensuring that obligations for
modernizations are reviewed and approved as required by the act.
Furthermore, such information is needed in order to provide complete and
accurate data to Congress for use in monitoring the department's business
systems investments.

DOD Reports Significant The department's reported number of business
systems continues to Increase in the Number of fluctuate, and DOD does not
yet have reasonable assurance that the Existing Business Systems currently
reported number of business systems is complete. As of

February 2005, DOD reported that its business systems inventory consisted
of 4,150 systems, which is an increase of approximately 1,900 reported
business systems since April 2003. Table 2 presents a comparison of the

26 Pub. L. No. 108-375, S: 332, 118 Stat. 1811, 1854 (Oct. 28, 2004)
(codified at 10 U.S.C. S: 2222(j)(2)).

27 A mixed system is an information system that supports both financial
and nonfinancial functions of the federal government or components.

April 2003 and February 2005 reported business systems inventories by
domain.

Table 2: Comparison of DOD Business Systems Inventories by Domain

                                Domain  April 2003 February 2005   Difference 
                           Acquisition         143            179 
                  Financial management         752            600       (152) 
                       Human resources         665            713 
         Installations and environment         128            473         345 
                             Logistics         565          2,005       1,440 
                Enterprise information                            
                           environment          21             40 
                            No domaina           0            140         140 
                                 Total       2,274          4,150       1,876 

Source: GAO analysis.

Note: Based on analysis of BMMP's reported inventory of business systems
as of April 2003 and February 2005.

aA specific domain was not assigned to these systems.

The largest increase is due to the logistics domain increasing its
reported inventory of business systems from 565 in April 2003 to the
current 2,005. We reported28 in May 2004 that the logistics domain had
validated about 1,900 business systems but had not yet entered most of
them into the BMMP systems inventory. Logistics domain officials informed
us that they completed that process and this increase was the result.
According to the logistics domain officials, in making this determination,
they considered an initiative as a business system if it (1) is used by at
least 50 people, (2) costs at least $50,000 annually to operate, and (3)
runs on a network. The criteria used by the logistics domain are stricter
than those developed by the DOD CIO. As previously noted, the department
needs to ensure that the same criteria are used by all the domains in
defining business systems in order to ensure that it develops a complete
and accurate inventory of its business systems.

As shown in table 2, the reported inventory of business systems for most
of the other domains increased, except for the financial management
domain,

28 GAO-04-615.

whose inventory declined. Domain officials attributed the increases to
additional data calls and working closely with the components to identify
systems. The financial management domain attributed the declines to
eliminating nonsystems and duplicate entries in the inventory. For
example, its analysis showed that previously spreadsheets, reports, or
both were incorrectly reported as being systems. For the current
inventory, some of the domains indicated that they used the definition of
a system that was issued by DOD's CIO in the July 2004 DITPR data call.

Table 3 shows the distribution of the 4,150 business systems among the
components and domains.

         Table 3: Reported DOD Business Systems by Domain and Component

                                            Other                       
                       Air                 defense  Multiple            
        Domain       Force Army Navy  DFAS agencies    owner Not        Total 
                                                             determined 
      Acquisition       20   16  122     2       15        2          2   179 
       Financial        41   88  233    93       59       15         71   600 
      management                                                        
    Human resources     84 332   151    30       65       26         25   713 
Installations and                                                    
      environment       36   63  259     1       12        6         96   473 
       Logistics       166 193  1,512    4       76       39         15 2,005 
      Enterprise                                                        
      information                                                       
      environment        4   17  10      0        8        0          1 
       No domain        18   18  66     13       18        2          5   140 
         Total         369 727  2,353 143       253       90        215 4,150 

Source: GAO analysis.

Note: Based on analysis of BMMP reported business system inventory as of
February 2005.

The table shows the stovepiped, duplicative nature of DOD's business
systems. For example, there are 713 human resources systems across all
components whose reported funding for fiscal year 2005 includes
approximately $223 million for modernization and over $656 million for
operation and maintenance. According to DOD officials, the Defense
Integrated Military Human Resources System (DIMHRS)29 is intended to
totally or partially replace 113 of these systems. We were informed that
the

29 DIMHRS is a major IT program that is to provide integrated personnel
and pay system for all components of the military services.

remaining 600 human resources systems are to be reviewed in the context of
the BEA as it is developed.

Furthermore, a human resources domain official acknowledged that for two
of the systems that are to be replaced by DIMHRS-the Army's Electronic
Military Personnel System and the Air Force Military Personnel Data
System-continuing to spend money to modernize these systems was
questionable. We also reported in June 200430 that the fiscal year 2005 IT
budget request did not provide sufficient information to identify or
justify the specific current services and modernizations for 97 of the 113
systems. Because, as noted in table 1, the funding is distributed to and
controlled by the military services and DOD components, the domains have
minimal influence over system funding. As a result, DOD continues to fund
the modernization of systems that it intends to totally or partially
replace. As discussed later, the new requirements and authorities included
in the fiscal year 2005 defense authorization act are aimed at ensuring
that the domains have a vital decision-making role in the control and
accountability of the investments being made in the department's business
systems.

While DOD has reported that its inventory of business systems has
increased by about 1,900, the department continues to struggle with
developing a comprehensive inventory. As detailed in table 3, there are
215 business systems with no component identified-although they have been
assigned to a domain-and 140 business systems with no domain assigned.
BMMP officials stated that they are reviewing each system and working with
the domains to ascertain where each system should be placed. Without the
component being identified, it would be difficult if not impossible to
identify the DOD entity that is responsible for investment reviews of the
systems. Furthermore, it is essential that a domain be identified for each
system in order for the department to meet the requirements set forth in
the fiscal year 2005 defense authorization act.

In discussing the increase in the number of systems identified in DOD,
some of the domains stated that many of the systems are not included in
the IT budget request. They said that some of these systems were likely
developed at the local level and financed by the operation and maintenance
funds received at that location and therefore were not captured and

30 GAO, Budget Justification Issue Paper on Fiscal Year 2005 IT Budget
Request for Systems That Are to Be Replaced by DOD's Planned Defense
Integrated Military Human Resources System (Personnel/Pay) (Washington,
D.C.: June 25, 2004).

reported as part of the department's annual IT budget request. Financing
business systems in this manner rather than within the IT budget results
in Congress and DOD management not being aware of the total amount being
spent to operate, maintain, and modernize the department's business
systems. As a result, Congress and DOD management do not receive complete
and accurate data for use in monitoring the department's business systems
investments.

In addition, according to Army officials, as part of its efforts to
develop the Army's enterprise architecture, the Army has identified about
3,000 systems, and it believes some of these systems should be categorized
as business systems. At this time, the Army is uncertain how many should
be classified as business systems. As shown in table 3, the BMMP inventory
of Army business systems totaled 727 systems as of February 2005. Army
officials did not specify the anticipated time frame for completing their
analysis of these systems.

Limited Progress Made in DOD's Efforts to Control Its Business Systems
Investments

Given that DOD does not know how many business systems it has or how much
is spent on them, it is not surprising that the department continues to
lack effective management oversight and control over business systems
investments. Since February 2003, the domains have been given the
responsibility to oversee the department's business systems investments,
yet the billions of dollars spent each year continue to be spread among
the military services and defense agencies, enabling the numerous DOD
components to continue to develop stovepiped, parochial solutions to the
department's long-standing financial management and business operation
challenges. Furthermore, the department has testified31 that it does not
know whether it was 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
determines that the improvements are consistent with the criteria
specified in the act.32 In this regard, based upon data reported to us by
the military services and DOD components, obligations totaling about $243
million

31 Hearing on Department of Defense Business Transformation Before the
Subcommittee on Terrorism, Unconventional Threats and Capabilities, House
Armed Services Committee, 108th Cong. (Mar. 31, 2004) (statement by Deputy
Chief Financial Officer, Department of Defense, JoAnn Boutelle).

32 Bob Stump National Defense Authorization Act for Fiscal Year 2003, Pub.
L. No. 107-314, S: 1004(d), 116 Stat. 2458, 2629 (Dec. 2, 2002).

were made for systems modernizations in fiscal year 2004 that were not
referred to the DOD Comptroller for the required review.

Further, while the fiscal year 2005 national defense authorization act
directs that the domains are to have increasing oversight of the
department's business systems investments, each of the military services
has established its own management oversight structures. Thus, DOD does
not yet have a comprehensive strategy in place that delineates the
specific roles and responsibilities of the domains and military services.
Absent an integrated strategy, the domains' and military services' efforts
may be duplicative, resulting in the wasteful use of resources and
hindering the overall transformation of the department's business systems
and related operations.

Management Oversight Structure and Guidance Not Finalized

DOD has not yet finalized guidance that clearly defines the roles and
responsibilities of domains or assigns explicit authority for fulfilling
these roles and responsibilities. It also has not established common
investment criteria for system reviews or conducted a comprehensive review
of its ongoing business systems investments. Over the past several years,
we have made numerous recommendations33 aimed at improving the
department's control and accountability over its business systems
investments. Many of the actions that DOD planned to take remained
incomplete as of February 2005.

DOD officials acknowledged that the following actions have not been
completed:

o 	The March 2004 IT portfolio management policy memorandum signed by the
Deputy Secretary of Defense provides the basic structure of the roles and
responsibilities of the domains. In order for the guidance to be
institutionalized within the department, DOD planned to issue a formal DOD
directive to specify the roles and responsibilities of the domains and how
they are to be involved in the overall business systems investment
management process. As of February 2005, the DOD guidance had not been
finalized, and DOD CIO officials did not have a time frame for its
issuance.

33 GAO, DOD Business Systems Modernization: Improvements to Enterprise
Architecture Development and Implementation Efforts Needed, GAO-03-458
(Washington, D.C.: Feb. 28, 2003); GAO-03-1018; and GAO-04-615.

o 	The domains are still working on developing standard and consistent
criteria for performing system reviews. The BMMP program director recently
acknowledged that the differing criteria are being used in the system
review process. Although the domains have used draft guidance listing 27
critical questions34 since July 2004, this DOD guidance has not been
finalized, and a time frame for approval has not been provided.

o 	The domains have not completed a comprehensive system review of their
ongoing IT investments. As discussed previously, the reported business
systems inventory has increased from 2,274 systems in April 2003 to over
4,000 systems in February 2005. A target date for completing these reviews
has not been determined. We have previously reported that best practices
recommend that an organization review ongoing investments periodically to
ensure that they are consistent with its architectural development
efforts.

In a July 16, 2004, memorandum, the DOD Comptroller reiterated the
importance of having all business systems modernizations with obligations
exceeding $1 million approved. The memorandum expanded the congressional
requirements for DOD Comptroller certification to all business systems and
required business domains to submit a fiscal year 2005 system
certification schedule to BMMP officials. Later, in November 2004, the DOD
Comptroller testified35 that the department had started to take actions
that would position it to meet the new, similar review requirements of the
fiscal year 2005 act. The DOD Comptroller's testimony noted that the
department had already identified 132 business systems that represent 78
percent of fiscal year 2005 modernization funding. These systems are
scheduled to be reviewed during the current fiscal year. However, as noted
earlier, DOD has not yet established specific criteria for investment
reviews. Such criteria would include elements to implement

34 These questions must be completed by the system owner for each business
system submitted to the DOD Comptroller for review. The questions include,
but are not limited to, the following for each system: name; purpose;
scope; program overview; system owner/program manager; milestone decision
authority; domain(s); system capabilities; program schedules and
dependencies; system interfaces; economic justification; cost; and whether
system is compliant/consistent with the Clinger-Cohen Act of 1996 (Pub. L.
No. 104106, div. E, 110 Stat. 679 (Feb. 10, 1996)), FFMIA, and the BEA.

35 Status of Financial Management Reform Within the Department of Defense
and the Individual Services: Hearing Before the Subcommittee on Readiness
and Management Support, Senate Armed Services Committee, 108th Cong. (Nov.
18, 2004) (statement by Under Secretary of Defense (Comptroller) Tina
Westby Jonas).

the definition of what constitutes a business system modernization that
would be subject to the provisions in the fiscal year 2005 defense
authorization act. While the act provides a general definition for a
business system modernization,36 it is critical for DOD to issue specific
implementation guidance and criteria to explicitly define business systems
modernizations to ensure that the DOD components and the domains use
clear, consistent guidance in performing the system reviews.

DOD Lacks Reasonable Assurance That It Is in Compliance with Statutory
Investment Management Controls

We found that DOD is not in compliance with the fiscal year 2003 defense
authorization act, which requires that all financial system improvements
with obligations exceeding $1 million be reviewed by the DOD Comptroller.
Based upon the reported obligational data provided to us by the military
services and the defense agencies for fiscal year 2004, we identified 30
modernizations with obligations totaling about $243 million that were not
submitted for the required review. As previously noted, DOD defines a
modernization as an enhancement to existing systems or the development of
new systems. For purposes of this report, we treat modernizations as
defined by DOD the same as "system improvements" as that term is similarly
defined in the fiscal year 2003 defense authorization act. Additionally,
the 2003 act defines financial systems to include "budgetary, accounting,
finance, enterprise resource planning or mixed information system." We
reviewed DOD's representation of the functions performed by these systems
made in the department's fiscal years 2004 and 2005 budget requests.

DOD has acknowledged that it does not have a mechanism to identify systems
that should be reviewed in accordance with the statutory requirements.
Because DOD lacks a systematic means to identify the systems that were
subject to the requirements of the fiscal year 2003 defense authorization
act, there is no certainty that the information provided to us accurately
identified all systems improvements with obligations greater than $1
million during the fiscal year.

BMMP officials stated that the domains were responsible for working with
the components to make sure that business systems with obligations for

36 The act defines a defense business system modernization as (1) the
acquisition or development of a new defense business system or (2) any
significant modification or enhancement of an existing defense business
system (other than those necessary to maintain current services).

modernizations greater than $1 million were submitted for review as
required. There was also general agreement among the domains and BMMP
officials that systems owners were responsible for initiating the $1
million review process. In essence, compliance was achieved via the "honor
system," which relied on systems owners coming forward and requesting
approval. However, the approach did not work. During fiscal year 2004, the
number of systems reviewed was small when compared to the potential number
of systems that appeared to meet the obligation threshold identified in
the fiscal year 2004 budget request. We analyzed the DOD IT budget request
for fiscal year 2004 and identified over 200 systems in the budget that
could involve modernizations with obligations of funds that exceed the $1
million threshold. However, BMMP officials confirmed that only 46 systems
were reviewed, of which 38 were approved as of September 30, 2004. The
remaining 8 systems were either withdrawn by the component/domain or were
returned to the component/domain because the system package submitted for
review lacked some of the required supporting documentation, such as the
review by the Office of Program Analysis and Evaluation, if necessary.

Moreover, although the modernizations of 38 business systems were reviewed
and approved by the DOD Comptroller as required, this does not necessarily
mean these were prudent resource investments or integrated solutions to
DOD's long-standing problems. Although the criteria for the DOD
Comptroller review included compliance with the BEA, we have previously
reported37 that the BEA did not include many of the elements of a
well-defined architecture. For example, DOD does not have a comprehensive
system inventory of its "As Is" environment and has not developed a
transition plan to identify those systems that would not be part of the
architecture. Further, the real value of a BEA is that it provides the
necessary context for guiding and constraining systems investments in a
way that promotes interoperability and minimizes overlap and duplication.
Without it, expensive rework is likely to be needed to achieve these
outcomes.

In an attempt to substantiate that financial system improvements with over
$1 million in obligations were reviewed by the DOD Comptroller, as
provided for in the fiscal year 2003 act, we requested that DOD activities

37 GAO-03-1018 and GAO, DOD Business Systems Modernization: Limited
Progress in Development of Business Enterprise Architecture and Oversight
of Information Technology Investments, GAO-04-731R (Washington, D.C.: May
17, 2004).

provide us with a list of obligations (by system) greater than $1 million
for modernizations for fiscal year 2004. We compared the reported
obligational data to the system approval data reported to us by BMMP
officials. Based upon this comparison and as shown in table 4, 30 business
systems with obligations totaling about $243 million in fiscal year 2004
for modernizations were not reviewed by the DOD Comptroller.

Table 4: Identification of Business Systems Modernizations by DOD
Component That Did Not Have DOD Comptroller Review as Required by the
Fiscal Year 2003 National Defense Authorization Act

                              Dollars in millions

Component

Number of systems not reviewed

Fiscal year 2004 obligations

                                          Army             2            $40.5 
                                          Navy            10             92.8 
                                     Air Force            11             79.1 
                                           DLA             3 
                   U.S. Transportation Command               
                                    (TRANSCOM)             1 
                                          DFAS             1 
                                       TRICARE             2             16.6 
                                         Total            30           $242.5 

Source: GAO analysis of DOD reported information.

Examples of DOD business systems modernizations with obligations in excess
of $1 million included in table 4 that were not submitted to the DOD
Comptroller include the following.

o 	The Navy obligated about $57 million for the Navy Tactical Command
Support System in fiscal year 2004. We previously reported38 that for
fiscal year 2003, the Navy obligated about $22 million for this system
without submitting it to the DOD Comptroller for review.

o 	DFAS obligated about $3 million in fiscal year 2004 for the DFAS
Corporate Database/DFAS Corporate Warehouse (DCD/DCW). In fiscal year
2003, DFAS obligated approximately $19 million for DCD/DCW

38 GAO-04-615.

without submitting it to the DOD Comptroller for review. Additionally, we
reported in May 200439 that DFAS had yet to complete an economic analysis
justifying that continued investment in DCD/DCW would result in tangible
improvements in the department's operations. The department has
acknowledged that DCD/DCW will not result in tangible savings to DOD.
Continued investment is being based upon intangible savings of man-hours
reductions by DFAS.

o 	The Air Force obligated about $25 million for the Integrated
Maintenance Data System in fiscal year 2004. We previously reported40 that
for fiscal year 2003, the Air Force obligated over $9 million for this
system without it being submitted to the DOD Comptroller for review.

o 	The Army obligated over $34 million for its Logistics Modernization
Program in fiscal year 2004. In fiscal year 2003, the Army obligated over
$52 million without the prerequisite review being performed by the DOD
Comptroller.

o 	DLA obligated about $5 million for the Defense Medical Logistics
Standard Support program in fiscal year 2004. We previously reported41
that DLA obligated about $5 million in fiscal year 2003 for this program.

The 2003 act placed limitations on the legal authority of individual
program and government contracting officials to obligate funds in support
of the financial systems improvements for which they are responsible, but
DOD did not proactively manage investments to avoid violations of the
limitations and did not review investments in any meaningful way to
enforce these statutory limitations.

Appendix III provides a list of obligations exceeding $1 million for
business systems modernizations for fiscal year 2004 that were reviewed
and approved by the DOD Comptroller as required by the 2003 act. Appendix
IV provides a list of the individual systems not submitted to the DOD
Comptroller and the related amount of the reported obligations for fiscal
year 2004, as required by the 2003 act. It should be noted that since
passage of the fiscal year 2003 defense authorization act in December 2002
through

39 GAO-04-731R. 40 GAO-04-615. 41 GAO-04-731R.

the end of fiscal year 2004, based upon information reported to us, the
military services and defense components obligated about $651 million for
business systems modernizations without the required review by the DOD
Comptroller. While this amount is significant, it is not complete or
accurate because it does not include any fiscal year 2005 obligations that
occurred prior to the enactment of the fiscal year 2005 defense
authorization act on October 28, 2004.

Additionally, our analysis also identified another 50 business systems
with obligations totaling over $258 million that were not submitted for
review as directed by the DOD Comptroller's July 16, 2004, memorandum. The
memorandum expanded the criteria set forth in the 2003 act to include the
modernization of all nonfinancial business systems that support the
operations of the business domains. Appendix V provides a list of the
business systems not submitted for review in accordance with the July 2004
guidance and the related amount of obligation for each system.

In an attempt to achieve compliance with the requirement of the 2003 act
and the DOD Comptroller's July 2004 memorandum, as of January 2005, the
DOD Comptroller identified 48 business systems that had both fiscal year
2004 and 2005 budgets each greater than $1 million in modernization
funding, but had not been reviewed and approved by the DOD Comptroller.
For the 48 business systems, the DOD Comptroller withheld42 a funding
amount equal to 50 percent of the systems' fiscal year 2005 modernization
funding, which amounts to over $192 million. We discussed the withheld
amounts with BMMP officials, who told us they anticipated that virtually
all of the systems would come off of the "withhold" list by the end of the
fiscal year. According to BMMP officials, a system will be removed from
the withhold list as soon as the system owner, in conjunction with the
domains, has a business system certification package approved by the DOD
Comptroller, thereby showing compliance with the DOD Comptroller's July
2004 memorandum.

42 Withheld funds are those funds appropriated to programs that DOD
temporarily holds back for some period during the funds' periods of
availability before releasing them to programs. Prior to being released
for execution, funds may be withheld by the Office of the Secretary of
Defense for a variety of reasons without obtaining congressional approval.
While funds are withheld, the funds are still designated for the program
but not yet released to that program. Withheld funds are eventually either
released to the designated programs or reprogrammed for other uses.

DOD's process of withholding funding is focused on meeting documentation
requirements related to compliance with the BEA, rather than on the
control of business systems investments. The "withhold" process ultimately
will have very little impact on DOD's control and accountability over its
business systems investment. The department continues to perpetuate the
proliferation of duplicative, nonintegrated, and stovepiped business
systems by spending billions of dollars annually on the modernization of
systems for which DOD lacks reasonable assurance that the investment will
add value to DOD's operations. To gain more control and accountability
over such business systems funding, we have previously recommended43 that
the funding be vested with the "owners" of the various functional areas or
domains. We believe it is critical that funds for DOD business systems be
appropriated to the domain owners in order to prevent the continued
parochial approach to systems investment that exists today. While the
department has stated that the domains would be involved in the fiscal
year 2006 budget review process, as previously noted, we found this not to
be the case. Unless the domains control the funding, it will be difficult
for them to meet the requirements of the Ronald W. Reagan National Defense
Authorization Act for Fiscal Year 2005,44 including control and
accountability over business systems investments.

Congress Acts to Improve DOD's Control and Accountability over Business
Systems Investments

The statutory requirements enacted as part of the Ronald W. Reagan
National Defense Authorization Act for Fiscal Year 2005 are aimed at
improving the department's business systems management practices. The act
directs DOD to put in place a definite management structure that is
responsible for the control and accountability over business systems
investments by establishing a hierarchy of investment review boards from
across the department and directs that the boards use a standard set of
investment review and decision-making criteria to ensure compliance and
consistency with the BEA.

43 GAO-04-615.

44 Ronald W. Reagan National Defense Authorization Act for Fiscal Year
2005, Pub. L. No. 108-375, S: 332, 118 Stat. 1811, 1851-56 (Oct. 28, 2004)
(codified, in part, at 10 U.S.C. S:S: 186, 2222).

More specifically, the act does the following:

o 	Directs DOD to establish specific management oversight and
accountability with the "owners" of the various functional areas or
domains. The legislation defined the scope of the various business areas
(e.g., acquisition, logistics, and finance and accounting) and directed
the establishment of functional approval authority and responsibility for
management of the portfolio of business systems with the relevant under
secretary of defense for the departmental domains and the Assistant
Secretary of Defense for Networks and Information Integration and the CIO
for the department.

o 	Stipulates that no later than March 15, 2005, the responsible approval
authorities, or domains, establish a hierarchy of investment review boards
with DOD-wide representation, including the military services and defense
agencies. The boards are responsible for reviewing and approving
investments to develop, operate, maintain, and modernize business systems
for their respective business areas, including ensuring that investments
are consistent with DOD's BEA.45

o 	Directs the Secretary of Defense to establish the Defense Business
Systems Management Committee with representation including the Deputy
Secretary of Defense, the designated approval authorities, and secretaries
of the military services and heads of the defense agencies. The Deputy
Secretary of Defense is the chairman of the committee with one of the
designated approval authorities serving as the vice-chairman.

o 	Directs that effective October 1, 2005, funds may not be obligated for
a defense business systems modernization that will have a total cost in
excess of $1 million unless the conditions specified in the act are met.46

45 The act requires the use of procedures for ensuring consistency with
the guidance issued by the Secretary of Defense and the Defense Business
Systems Management Committee and incorporation of common decision
criteria, including standards, requirements, and priorities that result in
the integration of defense business systems.

46 A key condition identified in the act includes certification by
designated approval authorities that the defense business system
modernization is (1) in compliance with the enterprise architecture; (2)
necessary to achieve critical national security capability or address a
critical requirement in an area such as safety or security; or (3)
necessary to prevent a significant adverse effect on a project that is
needed to achieve an essential capability, taking into consideration the
alternative solutions for preventing such an adverse effect. Furthermore,
the act's definition of a business system modernization is broader than
specified in the fiscal year 2003 defense authorization act.

The Defense Business Systems Management Committee must agree with the
designated approval authorities'47 certification before funds can be
obligated. More important, the obligation of funds without the requisite
approval by the Defense Business Systems Management Committee is deemed a
violation of the Anti-Deficiency Act.48

o 	Requires that no later than March 15 of each year from 2005 through
2009, the Secretary of Defense shall submit a report to Congress that
describes how DOD plans to comply with the requirements of the act.

o 	Stipulates that all budget requests, starting with the budget request
for fiscal year 2006, include supporting information that (1) identifies
each defense business system for which funding is proposed in that budget;
(2) identifies all current services and modernization funds, by
appropriation, for each business system; (3) identifies the designated
approval authority for each business system; and (4) describes the
required certification for each business system.

While the success of BMMP and improved control and accountability of
business systems investments are critical aspects of the department's
transformation efforts, equally important is the department's ability to
develop and implement business systems that provide the promised
capabilities on time and within budget. As we have previously reported,
the department has not demonstrated the ability to achieve these goals.49
Given that the domains have been designated as being responsible for
reviewing and approving business systems investments, each of the domains'
investment review boards needs to provide effective management

47 Approval authorities, including the Under Secretary of Defense for
Acquisition, Technology and Logistics; the Under Secretary of Defense
(Comptroller); the Under Secretary of Defense for Personnel and Readiness;
the Assistant Secretary of Defense for Networks and Information
Integration/Chief Information Officer of the Department of Defense; and
the Deputy Secretary of Defense or an Under Secretary of Defense, as
designated by the Secretary of Defense, are responsible for the review,
approval, and oversight of business systems and must establish investment
review processes for systems under their cognizance.

48 31 U.S.C. S: 1341(a)(1)(A); see 10 U.S.C S: 2222(b).

49 See, for example, GAO, DOD Systems Modernization: Continued Investment
in the Standard Procurement System Has Not Been Justified, GAO-01-682
(Washington, D.C.: July 31, 2001); DOD Business Systems Modernization:
Continued Investment in Key Accounting Systems Needs to Be Justified,
GAO-03-465 (Washington, D.C.: Mar. 28, 2003); and GAO-04-615.

oversight of each system project's performance and progress toward
predefined cost and schedule expectations as well as each project's
anticipated benefits and risk exposure. Further, each investment review
board should also employ early warning systems that enable it to take
corrective action at the first sign of cost, schedule, or performance
slippages. Effective project oversight requires having regular reviews of
the project's performance against stated expectations and ensuring that
corrective actions for each underperforming project are documented, agreed
to, implemented, and tracked until the desired outcome is achieved. We
have previously recommended50 that until DOD assesses its current systems,
investment should be limited to

o 	deployment of systems that have already been fully tested and involve
no additional development or acquisition cost;

o 	stay-in-business 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, cost-effective, and low risk and can be
delivered in a relatively short time frame.

DOD also has not acted upon this recommendation and continues to invest
billions of dollars without effective oversight and control. With the
fiscal year 2005 act placing more responsibility on the domains, the
implementation of the above four limitations would be one means of
obtaining improved control over business systems investments.

We have previously reported51 that best practices recommend that to
achieve successful transformation, an organization must change its culture
so that it is more results-oriented, customer-focused, and collaborative
in nature. To transform its culture, an effective performance management
system can be a strategic tool to drive internal changes and achieve
desired

50 GAO, Information Technology: Architecture Needed to Guide Modernization
of DOD's Financial Operations, GAO-01-525 (Washington, D.C.: May 17,
2001).

51 GAO, Results-Oriented Cultures: Creating a Clear Linkage between
Individual Performance and Organizational Success, GAO-03-488 (Washington,
D.C.: Mar. 14, 2003).

results by using specific key practices to create a clear link between
individual performance and organizational success. An effective
performance management system pertaining to DOD's business systems would
help the department determine the effectiveness of the domains and
components in carrying out their responsibilities for the control and
accountability of business systems investments.

Although the requirements of the fiscal year 2005 defense authorization
act establish a management structure, each of the military services has
established its own business systems investment review process. At this
point, it is uncertain how they will be integrated with the roles and
responsibilities that are to be exercised by the domains. Given the size
and complexity of the business systems and related operations
transformation endeavor, it is critical that the military services and
domains are fully integrated into one cohesive business system investment
management strategy. However, it is not clear what specific role the
military services will play. If the military services' efforts are simply
viewed as one more level of review, that would be counterproductive to the
overall transformation goals and objectives. Absent guidance that clearly
articulates the relationship and the related roles and responsibilities of
the domains and military services, each will continue to have stovepiped
approaches to business systems investment management that result in more
duplicative efforts. As a result, the department will continue to lack an
overall comprehensive corporate process for ensuring that the billions of
dollars spent on business systems are being spent efficiently and
economically.

Conclusion	DOD's difficulty in simply identifying all of its business
systems and the money spent on them illustrates the enormity and
complexity of transforming the department's business operations. Since
April 2003, the reported inventory has increased by about 1,900 systems.
Also, the department is not aware of which DOD component controls all the
systems nor have all the systems been assigned to a domain. Given these
circumstances, the department has made limited progress in achieving
effective management control and accountability over the billions of
dollars invested annually in its business systems. The department
continues to lack reasonable assurance that the billions of dollars spent
annually on its business systems represent an efficient use of resources.
Because DOD lacks a well-defined BEA and transition plan, billions of
dollars continue to be at risk of being spent on systems that are
duplicative,

are not interoperable, cost more to maintain than necessary, and do not
optimize mission performance and accountability.

While the fiscal year 2005 defense authorization act provides a management
structure to improve the control and accountability over the department's
business systems investments, the appropriate policies and procedures
still must be developed, implemented, and institutionalized to allow the
department to make informed systems investment decisions. An integrated,
comprehensive strategy will be critical to help ensure the domains and
military services do not proceed independently of one another. By doing
less, DOD will continue to waste billions of dollars by perpetuating
today's legacy business systems environment.

Recommendations for Executive Action

To improve the department's control and accountability of business systems
investments, we are making the following four recommendations. We
recommend that the Secretary of Defense direct that the

o 	DOD CIO, in consultation with the domains, review the 56 systems
reclassified from business systems to national security systems to
determine how these should be properly reported in the fiscal year 2007 IT
budget request;

o 	Defense Business Systems Management Committee work with the domain
investment review boards to review the reported BMMP business systems
inventory so systems are defined in accordance with the definition
specified in the fiscal year 2005 defense authorization act;

o 	Defense Business Systems Management Committee develop a comprehensive
plan that addresses implementation of our previous recommendations related
to the BEA and the control and accountability over business systems
investments (at a minimum, the plan should assign responsibility and
estimated time frames for completion); and

o 	comprehensive plan we recommend above be incorporated into the
department's second annual report due March 15, 2006, to the defense
congressional committees, as required by the fiscal year 2005 defense
authorization act, to help facilitate congressional oversight.

Agency Comments and Our Evaluation

We received written comments on a draft of this report from the Under
Secretary of Defense for Acquisition, Technology and Logistics, which are
reprinted in appendix II. DOD concurred with our recommendations and
identified actions it planned to take to improve the department's control
and accountability of business systems investments. For example, the Under
Secretary of Defense for Acquisition, Technology and Logistics, stated
that the department will conduct a review of the 56 systems reclassified
from business to national security systems to determine the proper
classification of these systems in the IT budget requests. In addition,
the Under Secretary of Defense for Acquisition, Technology and Logistics,
noted that on March 17, 2005, the department designated the DITPR as the
database for all DOD business systems and that the DITPR has the
capability to identify all reported BMMP business systems in accordance
with the definition specified in the fiscal year 2005 defense
authorization act. The Under Secretary of Defense for Acquisition,
Technology and Logistics, also stated that the department is developing a
plan and timeline to address our previous recommendations and that this
plan will be included in the department's report due March 15, 2006, to
the defense congressional committees.

In addition to the actions taken in response to our recommendations, DOD
implemented several other key steps after we provided a draft of the
report to the department for comment. Specifically, the department acted
to address certain provisions and requirements of the fiscal year 2005
defense authorization act. On March 19, 2005, the Deputy Secretary of
Defense delegated the authority for the review, approval, and oversight of
the planning, design, acquisition, development, operation, maintenance,
and modernization of defense business systems to the designated approval
authority for each business area.52 Additionally on March 24, 2005, the
Deputy Secretary of Defense directed the transfer of program management,
oversight, and support responsibilities regarding DOD business
transformation efforts from the Office of the Under Secretary of Defense,
Comptroller, to the Office of the Under Secretary of Defense for

52 Approval authorities include the Under Secretary of Defense for
Acquisition, Technology and Logistics; the Under Secretary of Defense
(Comptroller); the Under Secretary of Defense for Personnel and Readiness;
and the Assistant Secretary of Defense for Networks and Information
Integration/Chief Information Officer of the Department of Defense. These
approval authorities are responsible for the review, approval, and
oversight of business systems and must establish investment review
processes for systems under their cognizance.

Acquisition, Technology and Logistics. According to the directive, this
transfer of functions and responsibilities will allow the Office of the
Under Secretary of Defense for Acquisition, Technology and Logistics to
establish the level of activity necessary to support and coordinate
activities of the newly established Defense Business Systems Management
Committee. As required by the act, the Defense Business Systems Management
Committee, with representation including the Deputy Secretary of Defense,
the designated approval authorities, and secretaries of the military
services and heads of the defense agencies, is the highest ranking
governance body responsible for overseeing DOD business systems
modernization efforts.

While these actions are important in establishing the administrative
framework for implementing management reform, we continue to believe that
a new executive position is needed to provide the strong and sustained
leadership to guide these efforts. We have testified on the need for a
chief management official (CMO) on numerous occasions,53 including our
most recent testimony on April 13, 2005.54 The CMO would serve as the
Deputy Secretary of Defense for Management and oversee the department's
business transformation efforts. The day-to-day demands placed on the
Secretary of Defense, the Deputy Secretary, and others make it difficult
for these leaders to maintain the oversight, focus, and momentum needed to
resolve the weaknesses in DOD's overall business operations. This is
particularly evident given the demands that the Iraq and Afghanistan
postwar reconstruction activities and the continuing war on terrorism have
placed on current leaders. Furthermore, the breadth and complexity of the
problems and the hierarchical nature of the department preclude the under
secretaries from asserting the necessary authority to resolve these
longstanding issues while continuing to fulfill their other
responsibilities. A CMO could provide the sustained and focused leadership
that these other top officials are unable to provide. On April 14, 2005, a
bill was introduced in the Senate that requires the establishment of a CMO
that would be

53 GAO, Department of Defense: Long-standing Problems Continue to Impede
Financial and Business Management Transformation, GAO-04-907T (Washington,
D.C.: July 7, 2004); Department of Defense: Financial and Business
Management Transformation Hindered by Long-standing Problems, GAO-04-941T,
(Washington, D.C.: July 8, 2004); and Department of Defense: Further
Actions Are Needed to Effectively Address Business Management Problems and
Overcome Key Business Transformation Challenges, GAO-05140T (Washington,
D.C.: Nov. 18, 2004).

54 GAO, DOD's High-Risk Areas: Successful Business Transformation Requires
Sound Strategic Planning and Sustained Leadership, GAO-05-520T
(Washington, D.C.: Apr. 13, 2005).

appointed by the President and confirmed by the Senate, for a set term of
7

55

years.

As agreed with your offices, unless you announce the contents of this
report earlier, we will not distribute it until 30 days after its issuance
date. At that time, we will send copies to the Chairmen and Ranking
Minority Members, Senate Committee on Armed Services; Senate Committee on
Homeland Security and Governmental Affairs; Subcommittee on Defense,
Senate Committee on Appropriations; House Committee on Armed Services;
Subcommittee on Defense, House Committee on Appropriations; and Ranking
Minority Member, House Committee on Government Reform. We will also send
copies to the Under Secretary of Defense (Comptroller); the Under
Secretary of Defense (Acquisition, Technology and Logistics); the Under
Secretary of Defense (Personnel and Readiness); the Assistant Secretary of
Defense (Networks and Information Integration); and the Director, Office
of Management and Budget. Copies of this report will be made available to
others upon request. In addition, the report will be available at no
charge on the GAO Web site at http://www.gao.gov. If you or your staff
have any questions on matters discussed in this report, please

55 S. 780, 109th Cong. (2005).

contact Gregory D. Kutz at (202) 512-9095 or [email protected] or Keith A.
Rhodes at (202) 512-6412 or [email protected]. GAO contacts and key
contributors to this report are listed in appendix VI.

Gregory D. Kutz
Director
Financial Management and Assurance

Keith A. Rhodes
Chief Technologist
Applied Research and Methodology Center for Engineering and Technology

List of Requesters

The Honorable Tom Davis
Chairman
Committee on Government Reform
House of Representatives

The Honorable Christopher Shays
Chairman
Subcommittee on National Security, Emerging Threats

and International Relations Committee on Government Reform House of
Representatives

The Honorable Todd R. Platts
Chairman
Subcommittee on Government Management, Finance,

and Accountability Committee on Government Reform House of Representatives

The Honorable Adam H. Putnam House of Representatives

Appendix I

Scope and Methodology

We reviewed the Department of Defense's (DOD) approximately $28.7 billion
fiscal year 2005 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 $13.3 billion related to the
department's business systems, the amount allocated for operation,
maintenance, and development/modernization. We also met with the domains
to obtain an understanding of the process followed in determining the
specific number of business systems applicable to each respective domain.

In addition, we compared the fiscal year 2004 and 2005 IT budget requests
to determine the systems that were reclassified from business systems to
national security systems. We analyzed the 56 system reclassifications by
using information in the budget requests, the Business Management
Modernization Program (BMMP) systems inventory, and the list of business
systems modernizations with obligations approved by the DOD Comptroller to
determine if they were reasonable and consistent. For certain systems that
had inconsistent information, we inquired of system program and BMMP
officials about the appropriateness of the reclassifications.

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 Chief Information
Officer (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 systems investments. We also reviewed and
analyzed the DOD budget request for fiscal year 2004 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 financial system
improvements with obligations exceeding $1 million and determine whether
each improvement is in accordance with criteria specified in the act. To
assess DOD's compliance with the act, we obtained and reviewed
obligational data on modernizations in excess of $1 million for business
systems for fiscal year 2004. We compared the obligational data provided
by the military services and defense agencies with information obtained

1 Bob Stump National Defense Authorization Act for Fiscal Year 2003, Pub.
L. No. 107-314, S: 1004, 116 Stat. 2458, 2630 (Dec. 2, 2002).

Appendix I Scope and Methodology

from BMMP officials to determine if the modernizations were reviewed by
the DOD Comptroller as stipulated in the fiscal year 2003 act. We did not
review the accuracy and reliability of the obligational data reported by
DOD. Given the department's previously reported problems related to
financial management, we have no assurance that the data provided were
complete, but the obligational data reported by DOD are the only data
available that can be used for determining the specific amount of
modernization funding spent on each business system.

To augment our document reviews and analyses, we interviewed officials
from various DOD organizations, including the Office of the Under
Secretary of Defense (Comptroller); the DOD CIO; and the Office of the
Under Secretary of Defense (Acquisition, Technology and Logistics). We
conducted our work from August 2004 through February 2005 in accordance
with U.S. generally accepted government auditing standards.

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 the
report from the Under Secretary of Defense for Acquisition, Technology and
Logistics, 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 II
Comments from the Department of Defense

Appendix III

DOD Business Systems Modernizations with Obligations in Excess of $1
Million Approved by the DOD Comptroller in Fiscal Year 2004

Name of system Approval date

Defense Travel System October 2003

Standard Procurement System October 2003

DFAS Operational Data Store October 2003 and September 2004

Composite Health Care System II November 2003

General Accounting and Finance System Reengineered November 2003 and
January 2004

Air Force Reserve Travel System December 2003

DFAS Automated Time, Attendance and Production System December 2003

DFAS Defense Joint Military Pay System-Active Component December 2003

DFAS Defense Joint Military Pay System-Reserve Component December 2003

DFAS Defense Military Pay Office December 2003

DFAS Defense Retiree and Annuitant Pay System December 2003

DFAS Marine Corps Total Force System December 2003

MyPay December 2003

Forward Compatible Payroll System January 2004

Defense Civilian Pay System January 2004

Milpay Systems Transition Program January 2004

Defense Departmental Reporting System January 2004
Global Combat Support System - Army January 2004
Navy Enterprise Resource Planning February 2004 and July 2004
Intra-Governmental Transaction System March 2004
Fuels Automated System April 2004
Advanced Planning and Scheduling April 2004
On Line Vehicle Interactive Maintenance System April 2004
Navy Cash April 2004
Defense Personal Property System May 2004
Navy Standard Integrated Personnel System June 2004
Commissary Advanced Resale Transaction System June 2004
Ebiz July 2004
Business Systems Modernization July 2004
Global Combat Service Support - Marine Corps July 2004
Deployable Disbursing System July 2004
Common Food Management System August 2004
Air Force Reserve Order Writing System September 2004
DFAS Defense Cash Accountability System September 2004
DFARS Transformation Integrated System September 2004

Appendix III DOD Business Systems Modernizations with Obligations in
Excess of $1 Million Approved by the DOD Comptroller in Fiscal Year 2004

                         (Continued From Previous Page)

                          Name of system Approval date

          Air Force Job Order Cost Accounting System II September 2004

                    DISA Wide Area Work Flow September 2004

         Air Force Financial Information Resource System September 2004

               Source: GAO analysis of DOD reported information.

Appendix IV

Modernizations with Obligations in Excess of $1 Million Not Submitted for
the Required DOD Comptroller Review

                              Dollars in millions

                        Component Name of system Amount

                   Army Logistics Modernization Program $34.4

               Defense Civilian Personnel Data System-Sustainment

Subtotal Army $40.5

                Navy Navy Tactical Command Support System $56.5

Automated Teller Machines-At-Sea

Electronic Data Interchange

Conventional Ammunition Integrated Information System 3.9 Shipyard
Management Information Systems-Financials 3.6

SPAWAR Financial Management - ERP

Material Financial Control System

NAVSEA Regional Fleet Maintenance ERP Pilot

Regional Maintenance Automated Information System 1.1 Material Management
Systems 1.1

Subtotal Navy $92.8

               Air Force Integrated Maintenance Data System $24.9

Stock Control System

Integrated Logistics System - Supply

Depot Maintenance Accounting and Production System 6.8

Financial Inventory Accounting & Billing System 3.2

Regionalization of Civilian Personnel Support 7.3

Job Order Production Master System 4.6

Fuels Automated Management System Sustainment - Air 8.4 Force

Purchase Request Process System 2.7

Inventory Tracking System 4.7

            Automated Budget Analysis/Centralized User System          2.6 
                              Subtotal Air Force                     $79.1 
      DFAS  DFAS Corporate Database/DFAS Corporate Warehouse          $2.6 
                                 Subtotal DFAS                        $2.6 
      DLA         Defense Medical Logistics Standard Support          $4.9 
            Subsistence Total Order and Receipt Electronic System      1.4 
                         Distribution Standard System                  3.5 
                                 Subtotal DLA                         $9.8 

Appendix IV Modernizations withObligationsin Excess of $1 Million Not
Submitted for the Required DOD Comptroller Review

(Continued From Previous Page)

Dollars in millions

            Component                                Name of system    Amount 
             TRANSCOM    Transportation Financial Management System      $1.1 
                                                  Subtotal TRANSCOM      $1.1 
              TRICARE     Defense Medical Logistics Standard System      $9.6 

Patient Accounting System

Subtotal TRICARE $16.6

                                  Total $242.5

               Source: GAO analysis of DOD reported information.

Appendix V

Modernizations with Obligations in Excess of $1 Million Not Reviewed by
DOD Comptroller per July 2004 Memorandum

                              Dollars in millions

                        Component Name of system Amount

            Army Personnel Electronic Records Management System $5.3

Personnel Transformation

US MEPCOM Integrated Resource System

Electronic Military Personnel System

Installation Support Modules

US Army Accessions Command Integrated Automation Architecture

Enterprise Human Resources System

Subtotal Army $40.6

             Navy Target Location Design and Hand-Off System $33.2

Electronic Military Personnel Record System

One Touch Support

Joint Engineer Data Management Information Control System

MSC Afloat Personnel Management Center

Automation Identification Technology

NAVAIR Logistics Data Analysis

Predictive Response Center 3.3 Condition-Based Maintenance System 10.7
Human Resources Development Portfolio 2.0 Configuration Management
Information System 3.2 Mounted Cooperative Target ID System 1.8 Total
Fleet Support System 1.6 Surface Warfare Management Information Systems
1.3 InforM-21 1.2

                                   Subtotal Navy                    $106.3 
     Air Force  Reliability and Maintainability Information System    $4.8 
                     Air Force Military Personnel Data System          4.2 
                  Education and Training Technology Applications    
                                      Program                          1.7 

Cadet Administrative Management Information System 1.2

Air Force Recruiter Information Support System 2.6

Joint Personnel Adjudication System 4.1

Programming Depot Maintenance Scheduling System 3.1

Maintenance Repair and Overhaul 2.6

Appendix V Modernizations withObligationsin Excess of $1 Million Not
Reviewed by DOD Comptroller per July 2004 Memorandum

(Continued From Previous Page)

Dollars in millions

                        Component Name of system Amount

MA MRO Business System Modernization

Center of Parts Activity

Air Force Knowledge Services

Enhanced Technical Information Management System 7.2 Enterprise Knowledge
Management/Knowledge 1.3

                                    Kinetics

AFRL Business Support Consolidated Information 24.1

Cadet Education

Exchangeables Production System

Subtotal Air Force $74.8

        TRANSCOM Joint Flow and Analysis System for Transportation $1.6

Core Automated Maintenance System

Global Air Transportation Execution System

Integrated Booking System

Intelligent Road/Rail Information Server

Worldwide Port System

Subtotal TRANSCOM $18.4

     TRICARE  Centralized Credentials and Quality Assurance System    $3.8 
                          Defense Blood Standard System                1.6 
                 Defense Medical Human Resource System Internet        3.4 
                   Enterprise Wide Scheduling and Registration         3.1 
                                 TRICARE Online                        1.6 
                                Subtotal TRICARE                     $13.5 
       AFIS   Network Support - Armed Forces Information Services     $4.9 
                                  Subtotal AFIS                       $4.9 
      Total                                                         $258.5 

Source: GAO analysis of DOD reported information.

Appendix VI

                     GAO Contacts and Staff Acknowledgments

GAO ContactsDarby Smith, (202) 512-7803 J. Christopher Martin, (202)
512-9481

AcknowledgmentsStaff members who made key contributions to this report
were Beatrice Alff, Francine DelVecchio, Francis Dymond, Lauren Fassler,
Kristi Karls, Mai Nguyen, Philip Reiff, and Bernard Trescavage.

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