-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-838R		

TITLE:     Contract Management: DOD Vulnerabilities to Contracting 
Fraud, Waste, and Abuse

DATE:   07/07/2006 
				                                                                         
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GAO-06-838R

     

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Unit

Wash

July 7, 2006

The Honorable John Warner

Chairman

The Honorable Carl Levin

Ranking Member

Committee on Armed Services

United States Senate

The Honorable Duncan Hunter

Chairman

The Honorable Ike Skelton

Ranking Member

Committee on Armed Services

House of Representatives

Subject: Contract Management: DOD Vulnerabilities to Contracting Fraud,
Waste, and Abuse

In recent years, the Department of Defense (DOD) has increasingly relied
on goods and services provided by the private sector under contract. Since
fiscal year 2000, DOD's contracting for goods and services has nearly
doubled, and this trend is expected to continue. In fiscal year 2005
alone, DOD obligated nearly $270 billion on contracts for goods and
services. Given the magnitude of the dollar amounts involved, it is
essential that DOD acquisitions be handled in an efficient, effective, and
accountable manner. In other words, DOD needs to ensure that it buys the
right things, the right way.

Enacted January 6, 2006, the National Defense Authorization Act for Fiscal
Year 20061 required us to review DOD's efforts to identify and assess the
vulnerability of its contracts to fraud, waste, and abuse. We reviewed the
areas of vulnerability that DOD faces with regard to contracting fraud,
waste, and abuse, and the recent initiatives that DOD has taken to address
these vulnerabilities, including actions DOD has taken in response to a
March 2005 Defense Science Board report on management oversight in
acquisition organizations.

Because of the limited time available to conduct our work, we relied
heavily on a review of GAO and DOD Office of the Inspector General (DOD
IG) reports issued over the past 5 years (listed in app. I) supplemented
by interviews with senior acquisition policy, general counsel, and
investigative service officials at the Office of the Secretary of Defense
level and within each of DOD's military departments. We also reviewed
relevant studies prepared by or for DOD, the most notable of which is the
report written by the Defense Science Board, a panel of high-level

1 Pub. L. No. 109-163, sec. 841.

outside experts that conducts analyses and advises DOD's top leadership on
such areas as scientific and technical issues and acquisition processes.
We met with a Department of Justice task force established to address
contract fraud. To identify recent DOD initiatives, we interviewed senior
acquisition officials and reviewed applicable policy memorandums and
management oversight reports. We focused on DOD activities and actions
rather than on contractor actions and efforts. Several contracting-related
terms are used in this report and are described in appendix II. We
conducted our review between February and June 2006 in accordance with
generally accepted government auditing standards.

Summary

DOD faces vulnerabilities to contracting fraud, waste, and abuse due to
weaknesses in five key areas: sustained senior leadership, capable
acquisition workforce, adequate pricing, appropriate contracting
approaches and techniques, and sufficient contract surveillance. Because
of numerous concerns about control weaknesses in these areas and others,
GAO has had contract management on its list of high-risk2 areas since
1992.3 DOD's recent reports and studies, plus our discussions with senior
DOD acquisition officials, point to specific weaknesses in these five
areas. One of the senior leadership issues pertains to the tone at the
top, which includes leadership's commitment or lack of commitment to sound
acquisition practices.4 DOD has emphasized making contract awards quickly;
sometimes, however, the focus on speed has come at the expense of sound
contracting techniques. Increased demands on the acquisition workforce
have led to vulnerabilities in contract pricing and competition and in the
selection of the most appropriate contracting techniques. Some practices
have led to insufficient contract surveillance, and such surveillance is
essential for ensuring that contractors provide quality goods and services
as required by their contracts. For each instance in which an area of
vulnerability affects a contract award or execution, DOD risks paying
contractors more than the value of the goods and services they provide.

DOD has taken several steps to address the above contracting
vulnerabilities. In particular, DOD initiated a Defense Science Board
review in November 2004, after a high-level Air Force official pled guilty
to a conflict-of-interest and admitted giving favorable treatment to a
large DOD contractor in negotiations and contract awards involving
billions of dollars. In March 2005, the Defense Science Board concluded
that nothing in the department's existing general acquisition structure or
policies would prevent contracting malfeasance such as that carried out by
the senior Air Force official from happening again. The board also made 20
recommendations to address its concerns. In response, the Office of the
Under Secretary of Defense for Acquisition, Technology, and Logistics
(AT&L) has begun several initiatives, including issuing numerous
memorandums to acquisition personnel reemphasizing their roles and
responsibilities related to ethical conduct and revitalizing ethics
training. AT&L also asked each military service in November 2004 to assess
its own acquisition functions. In March 2006, AT&L completed its analysis
of the military services' self-assessments and proposed six
recommendations to address weaknesses in the oversight, source selection,
and contract award processes to improve the integrity of DOD acquisition
decisions. The military services and DOD have taken other steps to address
fraud, waste, and abuse. Two of the military services established the
Procurement Fraud Working Group, a DOD-wide grassroots forum for
acquisition personnel to discuss ways to better address vulnerabilities to
contracting fraud. The working group recently developed a Web-based
community of practice to allow the immediate dissemination of information.
Since September 2004, DOD has issued several policy memorandums to improve
the oversight of the department's use of interagency contracts and time
and materials contracts. In addition, the military services have each
undertaken specific initiatives, which range from creating new offices to
focus audit and investigative efforts on areas of vulnerability to
promoting general awareness about fraud through training and newsletters.
Because the recent initiatives are still in their early stages, it is too
soon to determine what impact they may have on reducing vulnerabilities to
contracting fraud, waste, and abuse. We provided a draft of this letter to
DOD for comment. The Department concurred with our findings.

2 GAO's high-risk designation is given to major programs and operations
that need urgent attention and transformation in order to ensure that our
national government functions in the most economical, efficient, and
effective manner possible. It also emphasizes programs that at high risk
because of their greater vulnerabilities to fraud, waste, abuse, and
mismanagement.

3 GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: January
2005).

4 "Tone at the top" refers to management's philosophy and operating style,
which sets the degree of risk the organization is willing to take in its
operations and programs, including the acquisition function.

Background

DOD defines fraud, waste, and abuse in the following ways:

           o  Fraud is any intentional deception taken for the purpose of
           inducing DOD action or reliance on that deception. Fraud can be
           perpetrated by DOD personnel-whether civilian or military-or by
           contractors and their employees.
           o  Waste is the extravagant, careless, or needless expenditure of
           DOD funds or the consumption of DOD property that results from
           deficient practices, systems, controls, or decisions. Waste
           includes improper practices not involving prosecutable fraud.
           o  Abuse is the manner in which resources or programs are managed
           that creates or perpetuates waste or contributes to acts of fraud.
           Abuse is also called mismanagement.

Studies have shown that, generally speaking, the position a perpetrator
holds within an organization will tend to have the most significant effect
on the size of losses in a fraud scheme. Trust and access to funds and
assets that come with senior leadership and tenure can become a
vulnerability if the control environment in an organization is weak.
Although waste and abuse are not as well defined as fraud, their effects
can be just as profound.

The amount of DOD funding used to contract for goods and services
continued to increase in the past 5 years, as shown in figure 1. If this
trend continues, more and more funds will be vulnerable to potential
fraud, waste, and abuse unless effective controls are in place.

Figure 1: DOD Contract Obligations for Fiscal Years 2000 to 2005

Oversight and management of DOD contracting activities is shared among
numerous organizations. Collectively, these organizations help detect
instances of fraud, waste, and abuse, try to prevent them from happening,
or are involved in correcting policies and procedures when they occur.
Table 1 shows DOD organizations involved in overseeing and managing
contracting activities and what the primary responsibilities are.

Table 1: DOD Organizations Responsible for Oversight and Management of DOD
Contracting Activities

DOD organization              Responsibility                               
Office of the Under Secretary Provides policy, guidance, and oversight to  
of Defense for Acquisition,   acquisition functions                        
Technology, and Logistics     
(AT&L)                        
DOD Office of General Counsel Establishes procedures to implement policies 
                                 relating to prosecution of identified        
                                 instances of fraud (Department of Justice    
                                 has primary responsibility for handling      
                                 prosecutions related to fraud in federal     
                                 court system); oversees ethics programs      
                                 throughout DOD                               
DOD Inspector General (DOD    Conducts audits and oversees matters         
IG)                           relating to detection and prevention of      
                                 fraud, waste, and abuse; collaborates with   
                                 numerous other DOD entities, as many         
                                 activities are involved in addressing these  
                                 issues across DOD; DOD IG does not issue     
                                 policy regarding acquisition                 
Defense Criminal              Investigates fraud allegations               
Investigative Service         
Defense Contract Audit Agency Makes investigation referrals, usually to    
                                 DOD IG or to Defense Criminal Investigative  
                                 Service, regarding situations that           
                                 reasonably appear to entail fraud that it    
                                 encounters during its contract audits        
Air Force, Army, Navy         Conduct audits and investigations; each      
                                 military department has its own audit        
                                 agency, criminal investigation service, and  
                                 office of general counsel                    

Source: DOD (data); GAO (presentation and analysis).

Table 2 shows prosecutorial actions and monetary collections related to
DOD procurement fraud cases for the last 5 fiscal years. Although fraud
settlements are significant, it is likely that the amount of funds lost to
DOD contracting waste and abuse exceeds those lost from fraud.

Table 2: DOD Procurement Fraud Case Results for Fiscal Years 2001-2005
(dollar amounts in millions)

                                 Military Criminal      Civil                Investigative 
Fiscal     Criminal     Criminal  Article judgment settlement Administrative    recoveries 
year   indictmentsa convictionsa      15b   amount     amount         amount  and seizures 
2001            177          137        6    $38.6     $103.5           $4.9          $0.6 
2002            200          109       14   $313.6     $528.4           $2.4          $4.8 
2003            176          121       10    $40.7     $492.4          $19.3          $3.8 
2004             86          113        7    $28.0      $61.8          $40.2          $0.7 
2005             79           85        2    $27.1     $263.6          $23.7          $0.0 
Total           718          565       39   $448.1   $1,449.6          $90.4          $9.9 

Source: DOD IG (data); GAO (presentation and analysis).

a  Convictions sometimes occur in the year or years following indictments
and therefore may be less than or exceed the number of indictments. In
addition, some indictments do not result in convictions.

b  For minor fraud committed by military personnel, punishment is usually
levied by the commanding officer. Such non-judicial punishment is referred
to as an Article 15 procedure.

DOD Continues to Face Vulnerabilities in Contracting Fraud, Waste, and
Abuse

On the basis of our review of relevant GAO and DOD IG reports from the
last 5 years, as well as current discussions with senior DOD officials, we
found that DOD continues to face vulnerabilities to contracting fraud,
waste, and abuse due to weaknesses in the areas of sustained senior
leadership, capable acquisition workforce, adequate pricing, appropriate
contracting approaches and techniques, and sufficient contract
surveillance. While we believe the overwhelming majority of DOD
acquisition professionals are ethical and hard-working, vulnerabilities in
DOD's contract management organizations and functions are not new. GAO
designated aspects of DOD's contract management as a high-risk area in
1992 because of the large amount of dollars involved and numerous concerns
about control weaknesses over its management of contracts. Despite DOD
efforts to address some of GAO's concerns, changes in the acquisition
environment-such as increasing reliance on contractor-provided services,
reductions in the acquisition workforce, and the introduction or expansion
of alternative contracting approaches-have caused DOD's contract
management to remain on GAO's high risk list.

Sustained Senior Leadership

DOD senior leadership is a critical factor in providing direction and
vision as well as in maintaining the culture of the organization. As such,
senior leaders have the responsibility to communicate and demonstrate a
commitment to sound practices deemed acceptable for the acquisition
function. Without sustained and prominent senior leadership, DOD increases
its vulnerability to contracting fraud, waste, and abuse if it does not
ensure that its decision makers, personnel, and contractors act in the
best interests of DOD and taxpayers. DOD faces vulnerabilities in aspects
of its senior leadership because of certain disconnects, including senior
positions that have remained unfilled for long periods of time, the
acquisition culture fostered by management's tone at the top, and the
management approach used in new industry partnering relationships. In the
March 2005 Defense Science Board report, DOD recognized that senior
positions requiring confirmation by the U.S. Senate remain unfilled for
significant periods of time.5

An environment in which senior positions remain vacant provides
opportunities for determined individuals to circumvent established
policies and procedures for their own personal gain or otherwise fail to
act in the government's best interest. Vacant positions can allow a
breakdown in one key internal control at senior leadership levels, that
being separation of duties. For example, this type of environment allowed
a former senior Air Force official's misconduct to go unchecked as the
official amassed a significant amount of power and control within the
acquisition function. When we recently discussed senior leadership issues
with DOD officials, they acknowledged that some positions remain unfilled.
In addition, an AT&L official emphasized that filling the senior-level
vacancies requires assistance or actions beyond the Office of the
Secretary of Defense.

DOD's tone at the top allows a certain level of vulnerability to enter
into the acquisition process. Senior acquisition officials ultimately
shape the environment that midlevel and frontline acquisition personnel
operate within, and it is that tone that clearly identifies and emphasizes
the values deemed acceptable within the acquisition function. The Defense
Science Board report stated that the department lags behind the "best in
class" in creating a systematic, integrated approach and in demonstrating
the kind of leadership necessary to drive ethics to the forefront of
organizational behavior. DOD officials told us that, in recent years, the
tone set in DOD was one of streamlining acquisitions to get results as
fast as possible. While this is a desired outcome of the acquisition
process, the acquisitions should still be carried out within prescribed
policies and practices. With regard to the situation involving the former
senior Air Force official, the misconduct of that official occurred within
a centralized acquisition process that was often praised for being
streamlined. But the environment failed to provide sufficient management
oversight and control, allowing the abuses perpetrated by this official to
continue to override management controls, disregard organizational
transparency of key decisions, and demonstrate unprofessional behavior
toward other DOD personnel and contractor officials.

5 Defense Science Board. Report of the Defense Science Board Task Force on
Management Oversight in Acquisition Organizations, Washington, D.C.: March
2005.

Effective senior leadership at DOD's major program management level is
also needed to minimize fraud, waste, and abuse. In recent years DOD has
been using a lead systems integrator approach that allows one or more
contractors to define a weapon system's architecture and then manage both
the acquisition and the integration of subsystems into the architecture.
This new approach relies on contractors to fill roles and handle
responsibilities that differ from the more traditional prime contractor
relationship the contractors had with program offices and can blur the
oversight responsibilities between the lead systems integrator and program
management officials. For example, the Army's Future Combat System program
is managed by a lead systems integrator that assumes the responsibilities
of developing requirements, selecting major system and subsystem
contractors, and making trade-off decisions among costs, schedules, and
capabilities. While this management approach has some advantages for DOD,
we found that the extent of contractor responsibility in many aspects of
the Future Combat System program management process is a potential risk.6

Moreover, if DOD uses a lead systems integrator but does not provide
effective oversight, DOD is vulnerable to the risk that the lead systems
integrator may not make its decisions in a manner consistent with the
government's best interest, especially when faced with potential
organizational conflicts of interest. DOD acquisitions require that tough
decisions and trade-offs be made when new technologies do not work out,
available funding is reduced, or changes in performance expectations are
made.

Capable Acquisition Workforce

DOD needs to have the right skills in its acquisition workforce to
effectively implement best practices and properly manage the acquisition
of goods and services. In the ever-changing DOD contracting environment,
the acquisition workforce must be able to rapidly adapt to increasing
workloads while continuing to improve its knowledge of market conditions,
industry trends, and the technical details of the goods and services they
procure. Moreover, effective workforce skills are essential for ensuring
that DOD receives fair and reasonable prices for the goods and services it
buys. However, DOD's acquisition workforce is subject to conditions that
increase the vulnerabilities to contracting fraud, waste, and abuse:

6 GAO, Defense Acquisitions: Business Case and Business Arrangements Key
for Future Combat System's Success, GAO-06-478T (Washington, D.C.: March
1, 2006).

           o  The overall contracting workload has increased.
           o  The demand for contract surveillance (addressed later in this
           report) continues to grow because of DOD's increasing reliance on
           contractors for services.
           o  DOD is making greater use of alternative contracting
           approaches, which offer the benefits of improved efficiency and
           timeliness for acquiring goods and services.
           o  Many contracting personnel are due to retire in the next few
           years, taking with them a wealth of experience and capabilities.

Between fiscal years 1989 and 2002, DOD reduced its civilian acquisition
workforce by about 38 percent without ensuring the department had the
specific skills and competencies needed to accomplish future DOD missions.
The size of the acquisition workforce has remained relatively constant
since fiscal year 2000. However, overall contract obligations and the
number of contract actions processed by DOD have increased nearly twofold,
as figure 2 illustrates.

Figure 2: DOD Contract Obligations and Workforce Size for Fiscal Years
2000-2005

Some of the DOD contracting workload increases can be attributed to
post-September 11, 2001, acquisition demands, including increased
deployments to support military activities overseas. To handle some of the
additional work, DOD has begun using contractors to provide technical
support to its acquisition activities. In other words, contractors are
helping carry out the contracting function.7

The acquisition workforce continues to face the challenge of maintaining
and improving skill levels for using alternative contracting approaches
introduced by acquisition reform initiatives of the past few decades.
Because the contracting approach influences the type of contracting
vehicle to be used and the pricing and payment options considered, this
expanding universe of approaches requires DOD acquisition personnel to
have the knowledge and skills to successfully select and implement each
approach. For example, in the past several years, the workforce has been
increasingly involved with the use of multiple-award indefinite
delivery/indefinite quantity contracts, performance-based contracts, and
interagency contracts. Participants in an October 2005 GAO forum on
Managing the Supplier Base for the 21st Century commented that the current
federal acquisition workforce significantly lacks the new business skills
needed to act as contract managers.8

Finally, DOD will be subject to vulnerabilities in the next few years as
experienced acquisition personnel are expected to retire from government
service and significant amounts of acquisition knowledge and experience
will be lost. As GAO reported in 2005, more than half of DOD's current
workforce will be eligible for early or regular retirement in the next 5
years.9 More recently, Navy officials told us that they already are seeing
a "hemorrhaging" of senior contracting officers as large numbers have
started to retire.

Adequate Pricing

DOD is generally required to obtain fair and reasonable prices for the
goods and services it procures.10 The Federal Acquisition Regulation
provides procedures for making price determinations.11 As our work has
shown, DOD faces various risks associated with obtaining adequate contract
pricing that can lead to vulnerabilities. These pricing risks stem from
non-competitive contract actions, delays in setting requirements for
undefinitized contracts, failure to use available pricing information, and
misclassification of items as commercial items.

The Federal Acquisition Regulation emphasizes the use of competition in
the acquisition process.12 While a competitive environment provides more
assurance of reasonable prices than a noncompetitive one does, DOD
continues to be exposed to contracting vulnerabilities due to practices
that limit competition. For example, we have reported that DOD often did
not promote competition when issuing task orders under General Services
Administration schedule or multiple award indefinite delivery/indefinite
quantity contracts.13

7 Congress has recently placed certain requirements on contractor
performance of DOD acquisition functions closely associated with
inherently governmental functions. 10 U.S.C. 2383, added by sec. 804 of
the Ronald W. Reagan National Defense Authorization Act for Fiscal Year
2005, Pub. L. No. 108-375.

8 GAO, Highlights of a GAO Forum: Managing the Supplier Base in the 21st
Century, GAO-06-533SP (Washington, D.C.: March 31, 2006).

9 GAO-05-207.

10 See Federal Acquisition Regulation 15.402(a).

11 Federal Acquisition Regulation subpart 15.4.

12 Federal Acquisition Regulation part 6.

DOD's lack of timeliness in finalizing requirements for undefinitzed
contract actions, which are usually in the form of letter contracts,
leaves DOD vulnerable to waste and abuse. In fiscal year 2004, DOD
obligated nearly $6.5 billion under letter contracts. While this type of
contract may be necessary to initiate work quickly to meet urgent
operational needs, costs on letter contracts are more difficult to control
because information detailing the requirements and potential costs are
likely vague or undefined. In August 2004, the DOD IG reported that
contracting officials did not adequately definitize the acquisition
requirements within the required time frames, and the report said the
officials did not document the reasonableness of the profit rates charged
by the contractors.14 In another example, an undefinitized contract action
to support ongoing efforts to rebuild Iraq was modified nine times over a
6-month period, increasing costs from about $900,000 to over $200 million
without DOD and the contractor reaching agreement on the scope of work or
price. Delays in definitizing contract requirements can pose various risks
and potentially increase DOD's costs and exposure to waste and abuse.

DOD's failure to use available pricing information for sole-source
contract awards leaves it vulnerable to waste. In the case of sole-source
awards, the contractor may be required to provide the department with
pricing information to support proposed prices and to justify proposed
costs. Furthermore, where such information is not required, DOD
contracting officials should use other available information and
techniques to determine price reasonableness and conduct price
negotiations. DOD contracting officials are expected to review the
information obtained and use appropriate techniques to ensure that DOD
avoids paying unreasonable prices and questionable costs. Prior GAO
reports show that, in some cases, DOD did not sufficiently evaluate the
data or DOD waived the requirement for the contractor to provide the data.
For example, when the Air Force purchased spare parts for the Airborne
Warning and Control System aircraft program, it did not obtain sales
information for the spare parts or similar items to justify the
contractor's proposed price.15 Neither did the Air Force consider analyses
performed by the Defense Contract Management Agency that showed a much
lower price was warranted. Instead, the contracting officer relied on a
contractor-prepared analysis. Similarly, the Army Corps of Engineers (the
Corps) recently purchased portable classrooms from a contractor to support
Hurricane Katrina relief operations.16 The Corps accepted the contractor's
proposed price of $39.5 million although the Corps had information that
the cost of the classrooms was significantly less than what the contractor
was charging. We believe that by not using available information, the
Corps could have, but failed to, negotiate a lower price. When various
pricing information is not fully utilized, DOD contracting activities
remain vulnerable to paying more than warranted.

13 GAO, Contract Management: Guidance Needed to Promote Competition for
Defense Task Orders, GAO-04-874 (Washington, D.C.: July 30, 2004);
Interagency Contracting: Problems with DOD's & Interior's Orders to
Support Military Operations, GAO-05-201 (Washington, D.C.: April 29,
2005); Rebuilding Iraq: FY2003 Contract Award Procedures and Management
Challenges, GAO-04-605 (Washington, D.C.: June 1, 2004).

14 Department of Defense, Office of the Inspector General, Audit Report:
Undefinitized Contractual Actions. Report Number D-2004-112, Arlington,
Virginia: August 30, 2004.

15 GAO, Contract Management: The Air Force Should Improve How It Purchases
AWACS Spare Parts, GAO-05-169 (Washington, D.C.: Feb. 15, 2005).

Also, DOD sometimes uses commercial item procedures to procure items that
are misclassified as commercial items and therefore not subject to the
forces of a competitive marketplace. While the use of commercial item
procedures is an acceptable practice, misclassification of items as
commercial can leave DOD vulnerable to accepting prices that are not the
best value for the department. When an item is designated as commercial,
DOD should be able to determine if the price is reasonable on the basis of
prices in the commercial sector. However, if DOD designates an item as
being a commercial item when it is not readily available in the commercial
market, DOD limits its ability to assess the reasonableness of the
contractor's price because it might have less information on prices to
make its decision. The DOD IG reported in the past few years on two cases
in which a commercial item determination was unjustified.17

Appropriate Contracting Approaches and Techniques

When selecting contracting approaches and techniques for an award, the
government's objective is to negotiate a contract type and price that will
result in reasonable risk and provide the contractor with the greatest
incentive for efficient and economical performance. While the full extent
to which business like contracting approaches and techniques have
transformed DOD's acquisition processes cannot be ascertained, data
collected by GAO suggest that DOD's increased use of certain contracting
approaches and techniques over the past few years has increased DOD's
vulnerability to contracting fraud, waste, and abuse.

The interagency contracting approach enables DOD and other federal
agencies to leverage their buying power and provide a simplified and
expedited method of acquiring goods and services. DOD has the option to go
to other federal agencies to carry out the contracting process for
selected goods and services. When this contracting approach is not
utilized properly, however, DOD is exposed to greater risk of fraud,
waste, and abuse. In January 2005, GAO designated the use of interagency
contracts as a governmentwide high-risk area.18 GAO and DOD IG have
identified instances in which acquisition personnel were provided
insufficient training and guidance on the use of interagency agreements
and a lack of effective management control and oversight over these
contracts occurred. In our high-risk report, we reported that instances of
insufficient oversight of contractor services occurred because of blurred
lines in the shared contract management responsibilities between DOD and
the awarding agency.

16 GAO, Hurricane Katrina: Army Corps of Engineers Contract for
Mississippi Classrooms, GAO-06-454 (Washington, D.C.: May 1, 2006).

17 DOD, Office of the Inspector General, Audit Report: Procurement
Procedures Used for F-16 Mission Training Center Simulator Services,
Report Number. D-2006-065 , Arlington, Virginia: March 24, 2006, and Audit
Report: Contracting for and Performance of the C-130J Aircraft, Report
Number D-2004-102, Arlington, Virginia: July 23, 2004.

18 GAO-05-207.

The DOD IG also reported that the department used interagency contracts to
"park" 19 several hundred million dollars in funds, a violation of DOD
funding policies and regulations.20 Additional vulnerabilities arose when
the non-DOD agency providing acquisition support did not follow prescribed
policies and regulations. For example, DOD obtained interrogator services
in Iraq through a Department of the Interior acquisition center that used
a General Services Administration contract for information technology
services. In this situation, the contracted services were not within the
scope of the contract and were not subject to competition.

DOD also faces vulnerabilities when it misuses multiple-award indefinite
delivery/indefinite quantity contracts and General Services Administration
multiple-award schedules. For multiple award indefinite
delivery/indefinite quantity contracts, DOD is required to provide all
contractors a fair opportunity to be considered for each order unless
certain exceptions apply.21 This is meant to provide an ongoing
competitive environment in which each awardee would be fairly considered
for each order issued.22 When ordering from the General Services
Administration schedules, agencies are required to follow certain ordering
procedures, which, for services, can entail a comparison of quotations
from multiple schedule contractors. But in practice, DOD officials have on
numerous occasions avoided the time and effort necessary to compete
individual orders and instead awarded all the work to be performed to a
single contractor. GAO work shows that this practice resulted in the
noncompetitive award of many orders that have not always been adequately
justified.23 Without competition for individual task orders (or adequate
justification for awarding them noncompetitively), DOD faces increased
vulnerability to fraud, waste, and abuse.

DOD faces additional vulnerability to fraud, waste, and abuse in the way
it structures and implements award and incentive fees. These monetary
incentives are intended to motivate excellent contractor performance and
improve acquisition outcomes. However, GAO recently reported that DOD paid
an estimated $8 billion in award fees for contracts in the study
population regardless of the outcomes of the contract.24 Furthermore, DOD
gave contractors a second opportunity to earn an estimated $669 million of
initially unearned or deferred fees on approximately half of the award-fee
contracts. GAO believes these practices, along with paying significant
amounts of fees for "acceptable, average, expected, good, or satisfactory"
performance, undermine the effectiveness of fees as a motivational tool,
marginalize their use in holding contractors accountable for acquisition
outcomes, and waste taxpayer funds. As our report noted, DOD has little
evidence to support its belief that these fees improve contractor
performance and acquisition outcomes.

19 The term to "park" funds refers to the transfer of budgetary funds by
DOD officials to another agency's acquisition center for the procurement
of goods and services under circumstances where the bona fide need
determination is in doubt.

20 DOD, Office of the Inspector General, Acquisition: DOD Purchases Made
Through the General Services Administration, Report Number D-2005-0 96,
Arlington, Virginia: July 29, 2005.

21 10 U.S.C. 2304c.

22 H.R. Conf. Report No. 103-712, at 178 (1994), reprinted in 1994
U.S.C.C.A.N. 2607, 2608; Senate Report No. 103-258, at 15-16 (1994),
reprinted in 1994 U.S.C.C.A.N. 2561, 2575-76.

23 GAO, Contract Management: Guidance Needed to Promote Competition for
Defense Task Orders, GAO-04-874 (Washington, D.C.: July 30, 2004).

24 GAO, Defense Acquisitions: DOD Has Paid Billions in Award and Incentive
Fees Regardless of Acquisition Outcomes, GAO-06-66 (Washington, D.C.: Dec.
19, 2005).

Sufficient Contract Surveillance

The role of the acquisition function does not end with the award of a
contract. It requires continued involvement throughout contract
implementation and closeout to ensure that contracted services are
delivered according to the schedule, cost, quality, and quantity specified
in the contract. The Federal Acquisition Regulation requires that quality
assurance, such as surveillance, be performed at such times and places as
necessary to determine that the goods or services satisfy the contract
requirements.25 If surveillance is insufficient, is not conducted, or is
not documented when appropriate, DOD risks paying contractors more than
the value of the goods and services provided.

In the past 4 years, GAO and DOD IG have reported that DOD's contracts
have been subject to insufficient surveillance. In July 2004, we reported
that DOD did not have a sufficient number of trained personnel in place to
provide effective oversight of its logistics support contractors. 26 These
contractors provide many of the supplies and services needed to support
the Logistics Civilian Augmentation Program, which has been used to
support operations in both Kuwait and Afghanistan. In another example, we
reported in March 2005 instances of inadequate surveillance on 26 of 90
DOD service contracts we reviewed.27 In each instance, at least one of the
key factors to ensure adequate surveillance did not take place. These
factors are (1) training personnel in how to conduct surveillance, (2)
assigning personnel at or prior to contract award, (3) holding personnel
accountable for their surveillance duties, and (4) performing and
documenting surveillance throughout the period of the contract. The DOD IG
reported similar findings in its reports issued in October 2003 and
October 2005. Officials we met with during this review expressed concerns
about the current state of the acquisition workforce to support
surveillance. The comments included those of Air Force officials who told
us that they are concerned that surveillance remains an "other duty as
assigned" and, consequently, is a low-priority task.

Recent DOD Initiatives to Address Contracting Fraud, Waste, and Abuse

DOD recognizes that its contracting practices leave the department
vulnerable to misusing or wasting taxpayer dollars and is taking some
actions to mitigate the risk. In addition to the Defense Science Board
review, we identified several DOD-wide and military service initiatives
taken since the fall of 2004 that address aspects of the acquisition
process in an effort to deal with vulnerabilities to fraud, waste, and
abuse. These include a DOD analysis of the self-assessments of the
acquisition function made by each military service, the establishment of
the Procurement Fraud Working Group, and issuance of policy to address
concerns about the use of interagency contracting. The Defense Science
Board review and the DOD analysis of the military service self-assessments
are directed primarily at senior leadership and oversight vulnerabilities
and do not deal with the other areas of vulnerability we identified above.
While the initiatives are positive steps, several DOD officials we spoke
with agreed that it is too soon to see an impact, particularly from those
memorandums dealing with the acquisition culture.

25 Federal Acquisition Regulation subpart 46.4.

26 GAO, Military Operations: DOD's Extensive Use of Logistics Support
Contracts Requires Strengthened Oversight, GAO-04-854 (Washington, D.C.:
July 19, 2004).

27 GAO-05-274.

DOD-wide Initiatives

AT&L initiated the Defense Science Board task force review of management
oversight in acquisition organizations in November 2004 to examine the
checks and balances of the processes to ensure the integrity of
acquisition decisions. In the resulting March 2005 report, the Defense
Science Board identified weaknesses in the acquisition function related to
processes, oversight, leadership, and people, and provided 20
recommendations to address these issues. In response, AT&L initiated
multiple efforts to address each recommendation, including the issuance of
several policy memorandums to the defense agencies and the largest defense
contractors to address the issue of ethics. For example, beginning in
fiscal year 2005, AT&L began trying to shift the tone at the top by
issuing a series of memorandums to acquisition personnel and contractors
with the intent of changing the culture and reinforcing the importance of
ethics in the acquisition function. In addition, AT&L issued other
memorandums emphasizing the need for the contracting officer to remain
independent from the program office and stressing acquisition personnel's
responsibility to report unusual practices. Other actions created an
overarching fraud awareness and ethics training program. To assist in this
effort, the Defense Acquisition University, a DOD-run training institute
for the AT&L workforce, appointed a performance learning manager for
ethics who is responsible for ensuring that ethics issues are addressed
not only in the traditional acquisition courses but also in the
executive-level courses. The Defense Acquisition University also added
specific ethics-related information to its Web site, including discussion
vignettes that pose ethical dilemmas or questions for readers to test
their judgment. Appendix III provides a detailed account of the Defense
Science Board recommendations and AT&L's responding actions.

Also in November 2004, AT&L issued a memorandum to the military services
and other defense agencies directing them to perform a self-assessment of
their acquisition organization and processes for use in a DOD-wide
Acquisition Integrity Analysis. In March 2006, AT&L completed the analysis
and proposed six recommendations to address weaknesses in the oversight,
source selection, and contract award processes to improve the integrity of
DOD acquisition decisions. AT&L's recommendations included the need for
several new policies to address (1) specifically prohibiting senior
leaders from performing multiple roles on major acquisition projects, (2)
filling vacant positions from below on an acting basis until permanent
appointments are made, (3) requiring documentation of the source selection
processes, and (4) requiring legal review of the source selection
documentation prior to award. AT&L also recommended that Acquisition
Process Reviews, which are currently performed for other defense agencies,
be instituted for the military services.

In late 2004, the Air Force's and the Army's general counsel offices
initiated a grassroots effort that resulted in the Procurement Fraud
Working Group. The goal of the working group is to provide a discussion
forum that will develop closer working relationships among the relevant
DOD activities and agencies that identify, investigate, and prosecute
contracting fraud-the contracting officers, quality assurance personnel,
investigative staff, and legal staff-and provide an exchange of
information and ideas among these DOD agencies, the Department of Justice,
and other government agencies. The working group, which is hosted by the
Defense Contract Management Agency, recently established a Web site that
allows working group members to solicit advice and share good practices.
The working group held its second annual conference in March 2006. The
conference provided attendees with information on current issues, future
trends, investigative strategies, and enforcement remedies related to
contracting fraud. Although the working group includes members from levels
within various acquisition and investigative functions across DOD, the
working group does not have formal sponsorship or authority from AT&L.

DOD has issued several policies directed at strengthening controls over
these types of contracting approaches and techniques. In September 2004,
AT&L issued policy on the department's surveillance of cost-reimbursable
and time and materials contracts. DOD also issued policies on the use of
interagency contracts in October 2004, March 2005, and March 2006.

Military Department-Specific Initiatives

Each of the military departments has taken steps to address some of the
vulnerabilities related to contracting fraud, waste, and abuse. These
initiatives range from creating new offices to focus resources on the most
vulnerable areas to promoting general awareness about fraud through
training and newsletters.

In December 2005, the Navy centralized its approach to addressing
vulnerabilities to contracting fraud, waste, and abuse by creating its
Acquisition Integrity Office. The office links the legal, audit, and
investigative resources by dedicating units from both the Naval Audit
Service and the Navy Criminal Investigative Service to work alongside the
Office of the General Counsel in a coordinated effort to detect,
investigate, and correct instances of fraud. The idea for this office grew
out of the General Counsel's interest in pursuing fraud and the low number
of suspension and debarment cases involving Navy contractors. The
Acquisition Integrity Office conducts risk assessments of acquisition
functions and has begun data-mining efforts to focus the investigative and
audit resources to areas they deem as being most vulnerable to fraud. The
Acquisition Integrity Office is also developing a newsletter and a "desk
book" reference to educate and assist acquisition personnel in identifying
and addressing fraud. In addition, the office is responsible for issuing
fraud alerts to acquisition personnel, as necessary, to inform them of
identified instances of fraud.

During 2005, the Air Force initiated several changes to its acquisition
policies and procedures to address vulnerabilities identified during the
investigation of the senior level acquisition official convicted of
violating a conflict-of-interest law. To begin, the Air Force made changes
to the Air Force Federal Acquisition Regulation Supplement to require
further documentation of source selections. The Air Force also issued
memorandums regarding ethics and postemployment restrictions as part of an
effort to shift the acquisition culture from the previous emphasis on
streamlining procurement to "doing the right thing." As an additional
initiative, the Air Force created a Special Assistant for Acquisition
Governance and Transparency position to monitor new weapon acquisition
programs and ensure that all weapon acquisitions are fully explained to
Congress and the public. The goal of the special assistant position is to
ensure procurement integrity and adherence to procurement guidance in all
weapon acquisition programs. The Air Force also created an ombudsman
program to handle concerns of government and contractor employees.

Also during 2005, the Army set up new procurement fraud advisers' offices
that are deployed alongside units in Afghanistan and Iraq to address the
high vulnerability to fraud in contracts to support the war and
reconstruction efforts. The advisers' offices also coordinate with Special
Inspector General for Iraq Reconstruction. In addition, the Army created a
Fraud Fighters Web site to promote fraud awareness and discuss various
issues related to fraud as they arise.

Conclusions

With awards to contractors large and growing, DOD will continue to be
vulnerable to contracting fraud, waste, and abuse. As the last several
years have shown, those vulnerabilities have resulted in numerous cases in
which taxpayer dollars were misused or wasted. As these cases have come to
light, DOD has begun to respond. As in other areas, the impact of DOD
actions to make corrections will be evident as policies get translated
into effective practices. Otherwise, DOD will remain at risk. Ongoing
monitoring of results will be the prudent course of action. To do this may
be a challenge because no single office within DOD maintains
responsibility to monitor the efforts related to detecting and preventing
fraud, waste, and abuse across all organizations in DOD.

Agency Comments and Our Evaluation

The Department provided written comments, which are reproduced in appendix
IV. DOD concurred with our findings and stated that it shares our concern
about the areas of vulnerability to contracting fraud, waste, and abuse
that we cited in this letter.

We are sending copies of this report to the Secretary of Defense and
interested congressional committees. We will also make copies 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 have any questions about this report or need additional information
please contact me at (202) 512-4841 or [email protected]. Contact points
for our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. Key contributors to this report were
James E. Fuquay, Assistant Director; Noah Bleicher; Lily Chin; R. Eli
DeVan, Tim DiNapoli, Matthew T. Drerup, Jean K. Lee, and Adam Vodraska.

Sincerely,

Katherine V. Schinasi

Managing Director, Acquisition and Sourcing Management

Senior Leadership

GAO, Highlights of a GAO Forum: Managing the Supplier Base in the 21st
Century,

GAO-06-533SP , Washington, D.C.: March 31, 2006.

GAO, Agency Management of Contractors Responding to Hurricanes Katrina and
Rita, GAO-06-461R , Washington, D.C.: March 15, 2006.

GAO, Defense Acquisitions: Business Case and Business Arrangements Key for
Future Combat System's Success, GAO-06-478T, Washington, D.C.: March 1,
2006.

GAO, Defense Ethics Program: Opportunities Exist to Strengthen Safeguards
for Procurement Integrity, GAO-05-341 , Washington, D.C.: April 29, 2005.

GAO, Defense Acquisitions: Future Combat Systems Challenges and Prospects
for Success, GAO-05-428T, Washington, D.C.: March 16, 2005.

GAO, 21st Century Challenges: Reexamining the Base of the Federal
Government,

GAO-05-325SP , Washington, D.C.: February 1, 2005.

Acquisition Workforce

Department of Defense, Office of the Inspector General, Audit Report:
Report on the DoD Acquisition Workforce Count, Report Number D-2006-073 ,
Arlington, Virginia:

April 17, 2006.

GAO, DOD Civilian Personnel: Comprehensive Strategic Workforce Plans
Needed, GAO-04-753, Washington, D.C.: June 30, 2004.

GAO, March 19 Hearing on Sourcing and Acquisition-Questions for the
Record, GAO-03-771R , Washington, D.C.: May 23, 2003.

GAO, Federal Procurement: Spending and Workforce Trends, GAO-03-443,
Washington, D.C.: April 30, 2003.

Pricing

GAO, Contract Security Guards: Army's Guard Program Requires Greater
Oversight and Reassessment of Acquisition Approach, GAO-06-284 ,
Washington, D.C.: April 3, 2006.

Department of Defense, Office of the Inspector General, Audit Report:
Procurement Procedures Used for F-16 Mission Training Center Simulator
Services, Report Number D-2006-065 , Arlington, Virginia: March 24, 2006.

GAO, Contract Management: The Air Force Should Improve How It Purchases
AWACS Spare Parts, GAO-05-169 , Washington, D.C.: February 15, 2005.

Department of Defense, Office of the Inspector General, Audit Report:
Undefinitized Contractual Actions, Report Number D-2004-112, Arlington,
Virginia: August 30, 2004.

GAO, Contract Management: Guidance Needed to Promote Competition for
Defense Task Orders, GAO-04-874 , Washington, D.C.: July 30, 2004.

Department of Defense, Office of the Inspector General, Audit Report:
Contracting for and Performance of the C-130J Aircraft, Report Number
D-2004-102 , Arlington, Virginia:

July 23, 2004.

GAO, Military Operations: DOD's Extensive Use of Logistics Support
Contracts Requires Strengthened Oversight, GAO-04-854 , Washington, D.C.:
July 19, 2004.

GAO, Rebuilding Iraq: Fiscal Year 2003 Contract Award Procedures and
Management Challenges, GAO-04-605 , Washington, D.C.: June 1, 2004.

Contracting Techniques

GAO, Defense Acquisitions: DOD Has Paid Billions in Award and Incentive
Fees Regardless of Acquisition Outcomes, GAO-06-66 , Washington, D.C.:
December 19, 2005.

GAO, Interagency Contracting: Franchise Funds Provide Convenience, but
Value to DOD Is Not Demonstrated, GAO-05-456 , Washington, D.C.: July 29,
2005.

Department of Defense, Office of the Inspector General, Acquisition: DOD
Purchases Made Through the General Services Administration, Report Number
D-2005-096, Arlington, Virginia: July 29, 2005.

GAO, Interagency Contracting: Problems with DOD's and Interior's Orders to
Support Military Operations, GAO-05-201 , Washington, D.C.: April 29,
2005.

GAO, High-Risk Series: An Update, GAO-05-207 , Washington, D.C.: January
2005.

Contract Surveillance

Department of Defense, Office of the Inspector General, Audit Report:
Contract Surveillance for Service Contracts, Report Number D-2006-010 ,
Arlington, Virginia:

October 28, 2005.

GAO, Defense Logistics: High-Level DOD Coordination Is Needed to Further
Improve the Management of the Army's LOGCAP Contract, GAO-05-328 ,
Washington, D.C.:

March 21, 2005.

GAO, Contract Management: Opportunities to Improve Surveillance on
Department of Defense Service Contracts, GAO-05-274 , Washington, D.C.:
March 17, 2005.

GAO, Military Operations: DOD's Extensive Use of Logistics Support
Contracts Requires Strengthened Oversight, GAO-04-854 , Washington, D.C.:
July 19, 2004.

Department of Defense, Office of the Inspector General, Audit Report:
Contracts for Professional, Administrative, and Management Support
Services, Report Number

D-2004-015 , Arlington, Virginia: October 30, 2003.

GAO, Contract Management: High-Level Attention Needed to Transform DOD
Services Acquisition, GAO-03-935, Washington, D.C.: September 10, 2003.

Delivery order: An order for supplies placed against an established
contract or with government sources.

Indefinite delivery/indefinite quantity contract: A kind of contract used
to acquire goods and services when the exact date of future deliveries is
unknown but a recurring need is likely to arise. There are three types of
indefinite delivery contracts: definite quantity contracts, requirements
contracts, and indefinite quantity contracts. Indefinite quantity
contracts provide for an indefinite quantity, within stated limits, of
supplies or services during a fixed period.

Interagency contract: Agencies may use another agencies' contracting
services to purchase goods and services. Typically, such contracts are
used to provide agencies with commonly used goods and services, such as
office supplies or information technology services. Agencies that award
and administer interagency contracts usually charge a fee to support their
operations.

Lead systems integrator: Typically, the lead systems integrator is the
prime contractor with increased program management responsibilities. These
responsibilities may include greater than usual involvement in
requirements development, design, and source selection of major system and
subsystem subcontractors.

Letter contract: A written preliminary agreement authorizing the
contractor to immediately begin manufacturing supplies or performing
services.

Obligation: As used here, a definite commitment that creates a legal
liability of the government for the payment of goods and services ordered
or received. An agency incurs an obligation, for example, when it places
an order, signs a contract, or purchases a service.

Performance-based contract: Performance-based contracting emphasizes that
all aspects of an acquisition be structured around the results of the work
to be performed as opposed to the manner in which the work is to be
performed. When using this type of contract, the contracting agency
specifies the outcome or result it desires and leaves it to the contractor
to decide how best to achieve the desired outcome.

Sole-source acquisition: A contract for the purchase of goods or services
that is entered into by an agency after soliciting and negotiating with
only one source.

Task order: An order for services placed against an established contract
or with government sources.

Time and materials contract: A contract that provides for acquiring
supplies or services on the basis of direct labor hours at specified fixed
hourly rates that include wages, overhead, general and administrative
expenses, and profit and materials at cost.

#  Recommendation                  Action/status                           
    1 For major procurements,         AT&L is fielding a Best Practices       
      Acquisition, Technology, and    Clearing House. It is also initiating   
      Logistics (AT&L) should codify  implementation of Acquisition Process   
      best practices into policy      Reviews.                                
      (written recommendations by                                             
      advisory bodies to the source   Air Force issued new Air Force Federal  
      selection authority [SSA] and   Acquisition Regulation Supplement       
      the SSA decision and rationale) changes in August 2005 requiring        
                                      documentation of recommendations made   
                                      to the SSA, mandatory independent       
                                      contract clearance approvals,           
                                      notification of solicitation release    
                                      for source selections over $100         
                                      million; and expansion of the Ombudsman 
                                      Program.                                
    2 AT&L should ensure a process    The Acquisition Process Review Working  
      for meaningful feedback to      Group is reviewing the military         
      bidders                         departments'/agencies' use of           
                                      debriefings.                            
    3 AT&L should ensure distribution AT&L issued a memorandum, "Acquisition  
      of delegated acquisition        Integrity," requiring services/agencies 
      responsibilities for major      to prepare policy that reflects         
      procurements                    procedures for ensuring the separation  
                                      of functions in all acquisitions, so    
                                      that authority does not reside in one   
                                      person. AT&L's Acquisition Integrity    
                                      Analysis was completed in March 2006,   
                                      but has not been issued.                
                                                                              
                                      AT&L recommended issuing a new policy   
                                      specifically prohibiting a senior       
                                      leader from performing multiple roles   
                                      for any one major weapon systems or     
                                      major service acquisition. AT&L also    
                                      recommended that vacant positions be    
                                      filled from below to avoid accretion of 
                                      duties at the top.                      
    4 Oversight, source selection,    Addressed by actions in response to     
      and contract negotiations       number 3 above.                         
      should not reside in one person                                         
                                      AT&L issued a memorandum, "Change in    
                                      Milestone Decision Authority" (MDA),    
                                      March 2005, reducing the Air Force's    
                                      MDA authority during management         
                                      organization instability. In January    
                                      2006, AT&L redesignated MDA authority   
                                      for 10 major programs back to the Air   
                                      Force, but limited the authority to the 
                                      Secretary of Air Force until a Senior   
                                      Acquisition Executive is appointed and  
                                      confirmed.                              
                                                                              
                                      Air Force eliminated the Acquisition    
                                      Principal Deputy position, restructured 
                                      the contracting and program management  
                                      decision authority, and realigned its   
                                      Program Executive Officer (PEO)         
                                      structure. Air Force also updated the   
                                      Air Force regulations. The Secretary of 
                                      the Air Force appointed a Special       
                                      Assistant for Governance and            
                                      Transparency.                           
    5 Provide many avenues for        The Acquisition Process Review Working  
      voicing concerns (Ombudsman and Group is reviewing the military         
      ethics offices set up to        departments' oversight initiative.      
      address concerns)                                                       
                                      AT&L is gathering best practices from   
                                      the Defense Acquisition University      
                                      (DAU) and other sources.                
                                                                              
                                      Air Force incorporated new Ombudsman    
                                      program in August 2005.                 
    6 AT&L should oversee processes   Defense Acquisition Performance         
      as well as programs             Assessment (DAPA) study and Acquisition 
                                      Process Review study in AT&L. DAPA      
                                      report was released January 2006.       
                                                                              
                                      Acquisition Process Review Working      
                                      Group met with SAEs and outlined plan   
                                      of action March 2006.                   
    7 Identify and share best         In fall 2004, AT&L fielded the Defense  
      practices                       Acquisition Guidebook, which contains   
                                      repository of best practices.           
                                                                              
                                      Best Practice Clearing House effort is  
                                      in progress.                            
    8 Question unusual practices and  DAU is incorporating the policy and     
      organizational structures       identified Best Practices in            
                                      Acquisition Oversight into the content  
                                      of Acquisition Executive Courses.       
                                                                              
                                      Air Force eliminated the Acquisition    
                                      Principal Deputy position, restructured 
                                      the contracting and program management  
                                      decision authority, and realigned its   
                                      PEO structure. Air Force also updated   
                                      its regulations. The Secretary of the   
                                      Air Force appointed a Special Assistant 
                                      for Governance and Transparency.        
                                                                              
                                      AT&L issued a memorandum, "Question     
                                      Unusual Practices," in October 2005.    
    9 Use mistakes and failures as    DAU plans to incorporate case studies   
      case studies and communicate    based on mistakes and failures in       
      them broadly                    senior-level courses and is reviewing   
                                      level III courses in all functional     
                                      areas for the appropriate use of        
                                      similar case studies.                   
                                                                              
                                      AT&L developed ethics on-line training  
                                      for the Acquisition Professional        
                                      Community (APC). All APC staff were     
                                      required to complete training by        
                                      October 2005 (over 124,000 took the     
                                      training as of December 2005).          
10 Require defense components to   AT&L developed 360-degree assessments   
      perform periodic                for key leaders. Pilot program was      
      self-assessments and            launched in October 2005.               
      demonstrate continuous          
      self-improvement                
11 Develop and periodically review Plan to submit proposed metrics in      
      metrics roll-up on senior       October 2005 was delayed due to request 
      acquisition leaders             for "framing" paper to send to Deputy   
                                      Secretary for decision.                 
12 DOD should articulate more      Issued memorandum, "Ethics and          
      explicitly its vision and       Integrity," signed by Secretary of      
      values as a high-integrity      Defense in September 2005. AT&L         
      organization and expect the     memorandum, "Acquisition Integrity and  
      same of its contractors         Ethics," issued in September 2005.      
13 DOD should put ethics at the    Issued memorandums, "Ethics and         
      forefront of Department         Integrity" and "Growth and              
      communications                  Development," signed by Secretary of    
                                      Defense September 2005.                 
14 Institutionalize an orientation AT&L sent unsigned letter to P&R        
      program in Office of Secretary  requesting OSD Orientation Program for  
      of Defense (OSD) for incoming   Senior Leaders July 2005. AT&L and P&R  
      senior leadership that          met December 2005 to discuss.           
      addresses:                      Washington Headquarters Services is now 
                                      the lead on an orientation program.     
         o  values/objectives of DOD,                                         
         o  importance of leadership  OSD Director of Administration and      
         to sustain an ethical        Management (ODA&M) is coordinating with 
         culture, and                 DAU to provide quarterly leadership     
         o  performance expectation   orientation program to address the      
         tied to both of the above    Defense Science Board recommended       
                                      objectives. Course material developed   
                                      March 2006.                             
15 Senior DOD leadership should    AT&L and Secretary of Defense issued    
      ensure flow-down                memorandums to articulate promotion of  
                                      ethical behavior, encourage prudent     
                                      risk taking, and distinguish it from    
                                      illegal and unethical behaviors in      
                                      September 2005.                         
                                                                              
                                      AT&L issued memorandum on ethics to top 
                                      100 companies and trade associations in 
                                      January 2006. AT&L issued memorandum    
                                      addressing tanker and leasing issues in 
                                      March 2006.                             
16 Secretary of Defense should     This effort requires coordination at    
      place priority on filling       the very highest levels (i.e.,          
      appointed acquisition           Secretary of Defense, President,        
      positions:                      Senate) across multiple branches of     
                                      government.                             
         o  champion reforms to                                               
         streamline nomination and    DOD supports the efforts of the         
         confirmation processes,      administration to correct these         
         o  institute a succession    findings. DAPA study recommended that   
         planning process, and        the Secretary of Defense ask the White  
         o  avoid more restrictions   House Liaison Office to create a pool   
         that would limit interest by of White House precleared, non-career   
         experienced personnel        senior executives and political         
                                      appointees to fill executive positions  
                                      in acquisition.                         
17 P&R modernize Senior Executive  AT&L 360-degree pilot program is        
      Service performance management  serving as a pilot for the              
      practices:                      departmentwide initiative.              
                                                                              
         o  institute 360-degree      AT&L memorandum on rotation and tenure  
         feedback,                    is in process. P&R discouraged changes  
         o  implement 5-year DOD-wide to tenure/rotation policy in light of   
         rotation policy, and         the need for balance between            
         o  reissue bonus and new     accountability/retention and "too much  
         award system                 authority" concern.                     
                                                                              
                                      Addressed by DAU actions in response to 
                                      number 10 above.                        
18 Standards of Conduct-add        AT&L is developing memorandum, "What    
      disclosure requirement for      you do sends a message about your       
      employment of majority children ethics."                                
19 DOD should undertake a top-town DAPA report was issued in December      
      internal assessment to simplify 2005.                                   
      and streamline the acquisition  
      system and better align         
      workforce as a result           
20 AT&L should closely monitor the AT&L Acquisition of Services Policy     
      new defense component services  Review is in progress.                  
      acquisition oversight           
      processes, especially in        
      confirming that these contracts 
      represent the best use of DOD   
      resources                       

Source: DOD (data); GAO (analysis and presentation).

(120518)

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Gloria Jarmon, Managing Director, [email protected] (202) 512-4400 U.S.
Government Accountability Office, 441 G Street NW, Room 7125 Washington,
D.C. 20548

Public Affairs

Paul Anderson, Managing Director, [email protected] (202) 512-4800 U.S.
Government Accountability Office, 441 G Street NW, Room 7149 Washington,
D.C. 20548
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