August 31, 1999

Thompson letter on GPRA - DoD Attachment 1

MOST SIGNIFICANT OPEN GAO RECOMMENDATIONS ON HIGH RISK AREAS: DEPARTMENT OF DEFENSE

FINANCIAL MANAGEMENT

Description of high-risk area: DOD continues to struggle to overcome the many problems brought about by decades of neglect and to fully institute sound financial management practices. These problems range from being unable to properly account for billions of dollars in assets to being unable to produce reliable and timely information needed for day-to-day management of operations and sound resource decisionmaking.

The open recommendations summarized in the following section relate to areas most in need of actions to improve DOD’s financial management operations. These areas include financial reporting and the preparation of reliable financial statements; strengthening accountability and control over the Department’s substantial investment in plant, property, equipment, and inventories; strengthening the Department’s overall financial management workforce; and implementing procedures that comply with federal accounting standards for environmental and disposal costs, deferred maintenance, operating materials and supplies; and accounting for the cost of operations. In most of these areas, there are additional open recommendations.

GAO Report No. and Date	Recommendation
AIMD-97-29 January 1997	The Senior Financial Management Oversight Council should oversee the development of all financial management systems, including mixed systems.
AIMD-99-44 January 1999	The Secretary of Defense should develop and issue a supplemental plan for: (1) revising the concept of operations; (2) describing how data will be shared among various DOD functional areas; (3) clarifying the role of each of the described initiatives between the current environment and the future concept of operations; and (4) identifying steps the department will take to ensure feeder system data reliability.
AIMD-96-7 January 1999	The DOD Comptroller and the Assistant Secretary of the Navy’s financial reports and to adequately position the Navy and DFAS to prepare auditable financial statements for the Navy, beginning with those for FY 1996.
AIMD-97-45 January 1997	DFAS should develop a more complete analysis of the underlying causes of its problem disbursements in order to ensure the effectiveness of its disbursement reform efforts.
AIMD-97-159R September1997	The DOD Comptroller and the Under Secretary of Defense (Acquisition and Technology) should take action to put in place a DOD-wide policy directing the Department's compliance with the FY98 effective date for the new federal deferred maintenance accounting standard.
T-AIMD-95-143 May 1995	The Secretary of Defense should determine what skills are required for personnel to ensure that DOD's blueprint for reforming its financial management operations is turned into substantive improvements.
AIMD-98-126 June 1998	The Secretary of Defense should ensure that the DOD Comptroller develop and implement a Department-wide, formalized, structured training program for financial management personnel that takes into account the DFAS Financial Management Career Development Plan.
AIMD-98-32 December 1997	The Secreatary of Defense should ensure that the DOD Comptroller and the Under Secretary of Defense (Acquisition and Technology) act jointly to issue guidance for implementing the new accounting standard that requires recognition of the liability associated with DOD’s ammunition disposal costs.
AIMD-98-274 September 1998	DFAS should take action to strengthen payment processing controls by establishing separate organizational responsibility for entering (1) contract and obligation information, (2) invoice and receiving report information, and (3) changes in remittance addresses.
AIMD-99-19 January 1999	The DOD Comptroller should revise the problem disbursement policies and procedures to ensure that the NAVY’s funds control system maintains on an ongoing and current basis, accurate and reliable unobligated and unexpected balances for the Navy’s expired and canceled appropriations consistent with the Antideficiency Act and requirements for accurate and timely financial reporting. The DOD Comptroller should monitor compliance with the revised policies and procedures.
AIMD-97-150 September 1997	To resolve the implementation problems specific to DISA, the Director, DISA should (1) finalize procedures for reconciliation of DISA’s general ledger accounts for property to DPAS property records, including timely reconciliation, and (2) correct the interface program.

DEFENSE INVENTORY MANAGEMENT

Description of high-risk area: DOD uses its secondary inventory – spare and repair parts, clothing, medical supplies, and other items – to support its operating forces. In September 1995, DOD reported that it had a secondary inventory valued at $69.6 billion. Based on DOD data, GAO estimated that about half of the inventory includes items that are not needed to be on hand to support DOD war reserve or current operating requirements. As a result of the lack of progress in implementing some of the key inventory management initiatives, it has become increasingly difficult for inventory managers to manage DOD’s multibillion-dollar inventory supply system efficiently and effectively. Large amounts of unneeded inventory, inadequate inventory oversight, overstated requirements, and slowness to implement modern commercial practices are evidence of the lack of progress.

NSIAD-98-29 December 1997	To improve the management of suspended items, the Secretary of Defense should direct the Secretary of the Air Force to ensure that, at Warner Robins: (1) suspended inventory is properly identified, monitored, inspected, and classified within established DOD timeframes; and (2) suspended items receive adequate visibility at all management levels, up to and including the service headquarters, through targeting suspended inventory problems as an issue for review in the Federal Managers’ Financial Integrity Act assessments.
	The Secretary of the Air Force should direct Warner Robins ALC to establish explicit guidance on responsibility and accountability for resolving suspended inventory status, carry out necessary actions, and follow up to make sure that the actions have been promptly and correctly taken.
	The Secretary of the Air Force should conduct assessments of suspended inventory practices at the four other ALC’s to determine the need for similarly remedial actions and direct any affected ALC to take such actions.
NSIAD-98-47 January 1998	To encourage DLA and the services to more aggressively apply best practices to its operations, the Secretary of Defense should direct the Director, DLA, and the secretaries of each military service to establish a test of the integrated supplier concept at one or more repair depots. DLA and the military services should: (1) establish aggressive milestones for testing and implementing the prime vendor and integrated supplier programs so as not to delay implementing such programs if the tests find them to be feasible; and (2) develop the means to expeditiously measure the total costs and benefits under the prime vendor and integrated supplier programs to compare them to the total costs and benefits incurred under the traditional system.

DEFENSE WEAPON SYSTEMS ACQUISITION

Description of high-risk areas: While DOD has produced many of the world’s most capable weapon systems, its weapon system acquisition processes have often proved costly and inefficient, if not wasteful. Although DOD has many acquisition reform initiatives in process, pervasive problems persist regarding (1) questionable requirements and solutions that are not the most cost-effective available; (2) unrealistic cost, schedule, and performance estimates; (3) questionable program affordability; and (4) the use of high-risk acquisition strategies. Further, GAO has reported that (1) the underlying cause of these persistent and fundamental problems was a prevailing culture dependent on continually generating and supporting the acquisition of new systems; (2) inherent in this culture are powerful incentives and interests that influence and motivate the behaviors of participants in the process – including components of DOD, the Congress, and industry; and (3) it is not unusual for these interests to override the need to satisfy the most critical weapon requirements at minimal cost.

GAO has made many recommendations for addressing specific problems on individual weapon programs and on the acquisition process itself. Currently there are 41 open recommendations in the DOD weapons systems acquisition area. Some of the most important open recommendations are discussed below.

 

GAO Report No. and Date	Recommendation
NSIAD-95-59 April 1995	To minimize commitments to production of F-22 until after successful completion of independent operational test and evaluation, the Secretary of Defense should limit low-rate initial production quantities to that which can be produced using the first ste of hard tooling, about 6 to 8 aircraft a year. Also, the Secretary of Defense should reduce the degree of concurrency in the program because: (1) independent testing of technology advances will not be completed before significant commitments are made to produce F-22 aircraft; (2) the percentage of planned F-22 to be committed to production before completion of independent operational test and evaluation is higher than most recent fighter programs; and (3) the need for the F-22 is not urgent.
NSIAD-96-45 June 1996	The Secretary of Defense should conduct comprehensive cross-service assessments of overall joint close support mission needs, existing close support systems, and planned enhancements on a routine basis to determine whether and which proposed enhancements to close support systems should be funded, and in what quantities and priority. Such assessments might be made within the context of the joint warfighting capabilities assessment process although alternative mechanisms might be explored.
NSIAD-96-190 September 1996	The Secretary of the Army should defer or restrict the purchase of Land Warrior systems until the Army: (1) determines the Army acquisition objective; (2) resolves critical technical and human factor problems; (3) demonstrates successful digital battlefield integration with prototype systems; and (4) ensures that Land Warrior equipped soldiers will outperform standard equipped soldiers in head-to-head testing.
NSIAD-97-121 June 1997	To minimize the risk of prematurely entering production, the Secretary of Defense should direct the Secretary of the Army to establish criteria specifying, at a minimum, that the Crusader system demonstrate that it meets all key requirements and is on schedule for meeting its reliability requirement before entering low-rate initial production and is operationally effective and suitable before entering full-rate production. If, at either point, the Crusader system does not demonstrate that it meets its requirements, then the Secretary of the Army should determine whether an alternative artillery system may be a better way to improve the Army’s artillery capabilities.
NSIAD-97-172 September 1997	The Secretary of Defense should determine the appropriate attrition rates and mission capable rates to calculate Joint Primary Aircraft Training System requirements, taking into account the planned improvements in JPATS safety, reliability, and maintainability, and recalculate the requirements as appropriate.
NSIAD-98-38 April 1998	To avoid spending funds on construction from a design that may require costly modifications to meet requirements, the Secretary of Defense should require the Secretary of the Navy to conduct survivability modeling to assess the impact that reduced capabilities of various subsystems have on the survivability when integrated into the overall New Attach Submarine design.
NSIAD-98-56 February 1998	To close the gap between policy and practice, the Secretary of Defense should take steps to ensure that sound standards for the timing and quality of production-related knowledge are applied to individual weapon system programs and used as a basis for assessing production risks and for tradeoffs.
NSIAD-99-4 October 1998	The Secretary of Defense should clarify the Advanced Concept Technology Demonstration program guidance to (1) ensure the use of mature technology with few, if any, exceptions; and (2) describe when transition to the development phase of the acquisition cycle is necessary and the types of development activity that may be appropriate.
NSIAD-99-28 November 1998	To ensure that the Army considers all its options before it starts to develop a second production source for the FMTV, the Secretary of Defense should direct the Secretary of the Army to delay the Army’s plans for developing a second source to produce FMTV trucks until the Army completes an analysis that compares the costs and benefits of its plans with those of other alternatives and to pursue the alternative that is most beneficial to the government.
NSIAD-99-32 December 1998	The Secretary of Defense, in conjunction with the Chairman, Joint Chiefs of Staff, and the Secretaries of the Army, Navy, and the Air Force, should reevaluate the planned guided weapons acquisition programs in light of existing capabilities and the current budgetary and security environment to determine whether the procurement of all planned guided weapon types and quantities: (1) is necessary and cost-effective in the aggregate; and (2) can clearly be carried out as proposed within realistic long-term projections of procurement funding.

 

 

 

 

 

 

SYSTEMS DEVELOPMENT AND MODERNIZATION EFFORTS

Description of high-risk area: DOD has taken steps to implement legislative requirements to institute modern information technology management practices. However, it faces a major challenge in changing its current organizational structure and culture, which impedes oversight and coordination of information resources from a departmentwide perspective. A prime example of DOD’s poor management of information technology is its $18 billion system migration effort to replace almost 2000 duplicative and inefficient systems. One functional area of the migration effort, which GAO reported on in 1996, spent over $700 million pursuing a substantially flawed effort – which was later abandoned – without rigorous department level oversight. In October 1997, GAO reported that the Department had little assurance that the migration systems being developed would help achieve DOD’s technology goals. Effective information technology project planning and oversight are especially important as DOD moves to coordinate its thousands of decentralized command, control, communications, intelligence, surveillance, and reconnaissance systems in order to ensure information superiority over our nation’s enemies. To this end, GAO made a number of recommendations that would establish and enforce processes to thoroughly examine alternatives and develop business cases before investing new systems. Further, GAO recommended that system investments be consistent with department technical standards and that controls and performance measures be established to allow management "visibility" over system development efforts. Recommendations which are currently open are discussed below.

GAO Report No. and Date	Recommendation
AIMD-98-5 September 1997	To ensure that DOD’s continued investment in migration systems provides measurable improvements in mission-related and administrative processes, the Secretary of Defense should require the Defense components to rank development/modernization migration systems justifications and complete them on an expedited basis.
	The Secretary of Defense should require the Chief Information Officer (CIO) to review these justifications and certify that they include a business case of operational alternatives for each functional area that clearly demonstrates that continued development and deployment of the migration system is the best solution for improving performance and reducing costs in the functional area it serves, when compared to other available alternatives. The alternatives analyzed should include reengineering the functional area’s processes before making investments in information systems and using, when appropriate, the private sector to perform major functions now performed by government personnel and information systems.
	The Secretary of Defense should require the CIO to review these justifications and certify that they include an economic analysis showing a return on investment or other results-based benefits to the Department that justify further investment in the migration system.
	The Secretary of Defense should require the CIO to review these justifications and certify that they include current compliance with applicable Defense technical standards and use standard data, or a schedule and plan for bringing the system into compliance with these standards.
	The Secretary of Defense should require the CIO to establish routine procedures for reporting on the status of reviews of migration system justifications to the Deputy Secretary of Defense so the information can be used in the Department’s planning, programming, and budgeting system.
	The CIO should revise Defense’s policies, practices, and procedures to institutionalize the management of information systems and technology expenditures as investments and ensure that these investments provide measurable improvements in mission performance.

CONTRACT MANAGEMENT

Description of high-risk area: The need for DOD to achieve effective control over its payment process remains and imperative. If it does not, DOD continues to risk erroneously paying contractors millions of dollars and perpetuating other financial management and accounting control problems. While DOD is taking steps to improve its payment process and controls, it will likely take an extended period of time to get its payment problems under control. DOD is also exploring using outside contractors to identify overpayments. DOD’s implementation of health care management programs, particularly the TRICARE program, further illustrates DOD’s difficulty in managing contracts.

GAO Report No. and Date	Recommendation
NSIAD-97-37 April 1997	Explore options to reduce the amount of detail accounting placed on the payments center.
	Close out existing contracts that cannot be reconciled because accurate and complete data are lacking.
	Explore opportunities for using best practices, including streamlined payment techniques, such as purchase cards.
NSIAD-99-12 December 1998	Focus future audit recovery efforts on the most recent purchases.
	Critically review the recovery auditing contractor’s recommendations and implement those that are cost-effective.
	Consider the extent to which it may be cost-effective to undertake moderate internal efforts to identify overpayments before turning audit recovery efforts over to an external group.
	Establish a process for dealing with overpayments due other agencies.
AIMD-98-274 September 1998	Strengthen payment processing controls by separating organizational responsibilities for entering (a)obligations and contract information; (b) invoice and receiving report information; and (c) changes in remittance addresses.
	Revise vendor payment system access levels to correspond with the segregation of organizational responsibilities recommended above.
	Reduce the number of employees with vendor payment system access by (a) identifying the minimum number of employees needing on-line access to specific functions; (b) determining whether the access levels given to each user are appropriate for the user’s assigned duties; and (c) remove access from employees who are no longer assigned to these functions.
	Correct the system security control weaknesses in the operating system (mainframe) on which DFAS Denver’s vendor payment system.
	Assess the costs and benefits of implementing technological and/or administrative controls over user ID’s and passwords.
AIMD-97-36R February 1997	Report in-transit transactions, in accordance with DOD’s 60 and 120 day criteria, along with unmatched disbursements and negative unliquidated obligations in the monthly problem disbursement reports.