DOD Business Transformation: Lack of an Integrated Strategy Puts
the Army's Asset Visibility System Investments at Risk
(27-JUL-07, GAO-07-860).
The Department of Defense (DOD) established a goal to achieve
total asset visibility (TAV) over 30 years ago, but to date it
has been unsuccessful. GAO was requested to (1) determine whether
the Army has a systems strategy for achieving TAV, (2) determine
if the Army's business system investment governance structure is
consistent with DOD guidance, and (3) evaluate the Army's effort
to correct previously reported problems with the Logistics
Modernization Program (LMP). GAO obtained an understanding of the
Army's efforts to achieve TAV, oversee and manage its business
system investments, and address previously reported LMP problems.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-07-860
ACCNO: A73529
TITLE: DOD Business Transformation: Lack of an Integrated
Strategy Puts the Army's Asset Visibility System Investments at
Risk
DATE: 07/27/2007
SUBJECT: Accountability
Army procurement
Defense capabilities
Information technology
Internal controls
Inventory control systems
Investment planning
Program evaluation
Program management
Strategic planning
Supply chain management
Systems evaluation
Policies and procedures
Program implementation
GAO High Risk Series
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GAO-07-860
* [1]Results in Brief
* [2]Background
* [3]Army Initiatives Aimed at Achieving TAV
* [4]Overview of DOD's Investment Management Practices
* [5]GAO Has Previously Reported LMP Issues
* [6]Army Lacks an Integrated Strategy for Achieving TAV
* [7]Army's Efforts to Achieve TAV Lack the Benefit of an EA
* [8]Army Strategy to Achieve TAV Does Not Utilize an Enterprisew
* [9]Army's Ability to Effectively Oversee Portfolios of Business
* [10]Army's Oversight of Its Business System Investments Lacks a
* [11]Reliable Processes and Analyses Are Needed to Facilitate Man
* [12]Independent Verification and Validation Would Enhance
Progra
* [13]Validity of GFEBS's Economic Analysis Questionable
* [14]LMP Illustrates Continuing Problems in Implementing Business
* [15]Operational Issues Continue
* [16]System Testing Remains a Concern
* [17]Conclusions
* [18]Recommendations for Executive Action
* [19]Agency Comments and Our Evaluation
* [20]Appendix I: Scope and Methodology
* [21]Appendix II: Comments from the Department of Defense
* [22]GAO Comments
* [23]Appendix III: Army Strategy Does Not Fully Utilize Capabilit
* [24]Funds Control
* [25]Disbursements
* [26]Appendix IV: LMP Problems Continue
* [27]Billing Problems Continue to Plague LMP
* [28]Accuracy of Financial Information Reported by LMP Still a Co
* [29]Adequacy of LMP Testing Continues to Be a Concern
* [30]LMP's Requirements Management Practices Have Improved
* [31]Concerns regarding LMP Testing Processes Remain
* [32]Improved Testing Process Planned
* [33]Appendix V: GAO Contacts and Staff Acknowledgments
* [34]GAO Contacts
* [35]Acknowledgments
* [36]Order by Mail or Phone
Report to the Subcommittee on Readiness and Management Support, Committee
on Armed Services, U.S. Senate
United States Government Accountability Office
GAO
July 2007
DOD BUSINESS TRANSFORMATION
Lack of an Integrated Strategy Puts the Army's Asset Visibility System
Investments at Risk
GAO-07-860
Contents
Letter 1
Results in Brief 4
Background 8
Army Lacks an Integrated Strategy for Achieving TAV 17
Army's Ability to Effectively Oversee Portfolios of Business Systems
Investment Is Not Yet Fully Developed 22
LMP Illustrates Continuing Problems in Implementing Business Systems on
Time, within Budget, and with the Promised Capability 28
Conclusions 30
Recommendations for Executive Action 31
Agency Comments and Our Evaluation 32
Appendix I Scope and Methodology 35
Appendix II Comments from the Department of Defense 38
Appendix III Army Strategy Does Not Fully Utilize Capabilities of ERP
Solution 46
Appendix IV LMP Problems Continue 51
Appendix V GAO Contacts and Staff Acknowledgments 60
Tables
Table 1: Unbilled and Credit Customer Orders at the Tobyhanna Army Depot
for November 2006 through January 2007 52
Table 2: DFAS Billings to the Tobyhanna Army Depot for Accounting Services
52
Figures
Figure 1: LMP Time Line 10
Figure 2: GCSS-Army Time Line 11
Figure 3: GFEBS Time Line 12
Figure 4: Overview of Tiered Accountability for Army Business System
Investments 14
Figure 5: Example of an ERP Vision for Accountability of the Army's PP&E
21
Figure 6: Planned GFEBS and GCSS-Army Fund Control Process 47
Figure 7: GCSS-Army Funds Control Process Utilizing ERP Capabilities 48
Abbreviations
BEA business enterprise architecture
BTA Business Transformation Agency
CIO Chief Information Officer
COTS commercial off-the-shelf
CSC Computer Sciences Corporation
DBSMC Defense Business Systems Management Committee
DFAS Defense Finance and Accounting Service
DOD Department of Defense
DPAS Defense Property Accountability System
EA enterprise architecture
EAMMF Enterprise Architecture Management Maturity Framework
ERP enterprise resource planning
FFMIA Federal Financial Management Improvement Act
FOC full operational capability
GCSS-Army Global Combat Support System-Army
GFEBS General Fund Enterprise Business System
IRB investment review board
IT information technology
IV&V independent verification and validation
LMP Logistics Modernization Program
MAIS major automated information system
MDAP major defense acquisition program
OMB Office of Management and Budget
PBUSE Property Book Unit Supply Enhanced
PCA Pre-Certification Authority
PLM+ Product Lifecycle Management Plus
PP&E property, plant, and equipment
SALE Single Army Logistics Enterprise
TAV total asset visibility
V&V verification and validation
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
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separately.
United States Government Accountability Office
Washington, DC 20548
July 27, 2007
The Honorable Daniel K. Akaka
Chairman
The Honorable John Ensign
Ranking Member
Subcommittee on Readiness and Management Support
Committee on Armed Services
United States Senate
The Department of Defense (DOD) has continually struggled to achieve and
maintain efficient and effective management over the hundreds of billions
of dollars it has invested in tangible assets, including inventory,
supplies, and materials (inventory and related property) and property,
plant, and equipment (PP&E).^1 DOD was responsible for almost 72 percent
($697 billion) of the total $970 billion reported governmentwide value for
these assets, as of September 30, 2006.^2 The nature and severity of DOD's
financial and business management system deficiencies impede the ability
of DOD managers to receive the full range of information needed to
effectively manage day-to-day operations. Of the 27 areas on GAO's high-
risk list,^3 DOD has 8 high-risk areas of its own^4 and shares
responsibility for 7 governmentwide high-risk areas.^5
^1Federal Accounting Standards and the Joint Financial Management
Improvement Program (JFMIP) define inventory, supplies, and materials as
consisting of three subclassifications: (1) inventory--tangible personal
property that is (a) held for sale, (b) in the process of production for
sale, or (c) to be consumed in the production of goods for sale or in the
provision of services for a fee; (2) operating materials and
supplies--tangible personal property to be consumed in normal operations;
and (3) stockpile materials--strategic and critical materials held due to
statutory requirements for use in national defense, conservation, or
national emergencies. Property, plant, and equipment is defined as
tangible assets that have an estimated useful life of 2 or more years, are
not intended for sale in the ordinary course of business, and are intended
to be used or available for use by the entity.
^2The reported amounts are net of allowances and depreciation, as
applicable.
Visibility over its assets has been a DOD concern for decades. If the
information contained in the asset accountability systems is not accurate,
complete, and timely, DOD's day-to-day operations could be adversely
affected by investing in inventory, for example, that is not needed to
meet current needs. When this occurs, the department may obligate funds
unnecessarily, which could lead to not having sufficient obligational
authority to purchase needed items. In recognition of the importance of
asset accountability to successful operations, the department established
a goal to achieve total asset visibility (TAV) over 30 years ago. DOD
defines TAV as the ability to provide timely and accurate information on
the location, movement, status, and identity of units, personnel,
equipment, and supplies and having the ability to act on that information.
Over the years, the military services and defense components have
undertaken numerous initiatives to achieve TAV. Within the Army, one such
initiative has been the Logistics Modernization Program (LMP). In May 2004
and June 2005, we reported that LMP was not providing the Army the
promised capability.^6 DOD's current estimate for achieving TAV is 2010.
This report provides information in support of your continuing oversight
of DOD's progress towards resolving the department's long-standing
problems in achieving TAV. As you requested, our initial effort was
directed at the Army. In September 2006, the Army reported inventory and
related property of about $57 billion and PP&E over $85 billion.^7 The
Army has identified three primary system initiatives directed at achieving
TAV within the service: (1) LMP, (2) Global Combat Support System-Army
Field/Tactical^8 (GCSS-Army), and (3) General Fund Enterprise Business
System (GFEBS). Our objectives were to (1) determine whether the Army has
developed a business system strategy for achieving TAV, (2) determine if
the Army has effectively implemented a governance structure to oversee and
manage its business system investments in accordance with DOD guidance,
and (3) evaluate the extent to which the Army has made progress in
correcting the previously reported problems regarding LMP's
implementation.
^3GAO, High-Risk Series: An Update, [37]GAO-07-310 (Washington, D.C.:
January 2007).
^4The eight specific DOD high-risk areas are (1) business transformation,
(2) business systems modernization, (3) contract management, (4) financial
management, (5) personnel security clearance program, (6) supply chain
management, (7) support infrastructure management, and (8) weapon systems
acquisition.
^5The seven high-risk areas that DOD shares responsibility for are (1)
disability programs, (2) information sharing for homeland security, (3)
information systems and critical infrastructures, (4) interagency
contracting, (5) human capital, (6) real property, and (7) technologies
critical to national security interests.
^6GAO, DOD Business Systems Modernization: Billions Continue to Be
Invested with Inadequate Management Oversight and Accountability,
[38]GAO-04-615 (Washington, D.C.: May 27, 2004) and Army Depot
Maintenance: Ineffective Oversight of Depot Maintenance Operations and
System Implementation Efforts, [39]GAO-05-441 (Washington, D.C.: June 30,
2005).
To address the first objective, we met with Army program office officials
for GFEBS, GCSS-Army, and LMP and obtained briefings on the intended
purpose of each system. In addition, we conducted walkthroughs and
reviewed documentation related to various transactions to obtain an
understanding of how the systems would exchange data and to assess how the
Army intended to use these systems individually and collectively to
achieve TAV. To address the second objective, we reviewed guidance issued
by DOD, the Army, and the Business Transformation Agency (BTA) related to
investment management. We also obtained an understanding of the Army's
business system investment governance structure and process for ensuring
compliance with the certification and annual system review processes
required by the fiscal year 2005 National Defense Authorization Act.^9 To
address the third objective, we interviewed and obtained briefings from
LMP program management office officials and others, and reviewed and
analyzed LMP system requirement and testing documentation to assess the
extent to which corrective actions had been taken or are planned to
address our prior recommendations. We determined that the documentation
Army prepared and submitted through its business system governance process
to the investment review boards (IRBs) and the Defense Business Systems
Management Committee (DBSMC) as a basis for approving individual Army
business system investments was sufficiently reliable for our purposes.
Our work was performed from May 2006 through June 2007 in accordance with
U. S. generally accepted government auditing standards. Details on our
scope and methodology are included in appendix I. We requested comments on
a draft of this report from the Secretary of Defense or his designee. We
received written comments from the Deputy Under Secretary of Defense
(Business Transformation), which are reprinted in appendix II.
^7As of September 30, 2006, the Army reported net inventory and related
net property valued at about $39 billion for the Army general fund and
about $18 billion for the Army working capital fund. For the same period,
Army also reported net PP&E valued at over $84 billion for the Army
general fund and over $1 billion for the Army working capital fund.
^8Field/Tactical refers to Army units that are deployable to locations
around the world such as Iraq or Afghanistan.
^9Ronald W. Reagan National Defense Authorization Act for Fiscal Year
2005, Pub. L. No. 108-375, S 332, 118 Stat. 1811, 1851-56 (Oct. 28, 2004)
(codified, in part, at 10 U.S.C. SS 186, 2222).
Results in Brief
The Army's current approach for developing GFEBS, GCSS-Army, and LMP lacks
several elements that are critical to the successful implementation of
integrated business systems, such as an Army-level enterprise architecture
(EA),^10 a concept of operations, and a portfolio-based rather than
individual-project-based business system investment review process.
Without these key foundational elements, the risk that the Army's efforts
to achieve TAV will not be successful is greatly increased. While the
Army's efforts to develop these systems and transform its logistics
operations may result in incremental improvements, without these three
essential elements, they are unlikely to achieve the efficiencies that can
be attained through an integrated business system solution. Instead, if
the Army continues on its current path, it runs the risk of investing
significant resources to simply automate its existing inefficient business
processes using more current technology.
As it now stands, the Army plans to invest about $5 billion over the next
several years to develop and implement GFEBS, GCSS-Army, and LMP without
the benefit of a well-defined Army EA. We reported in August 2006,^11 that
the Army was in the initial stages of developing an EA. As of May 2007,
this was still the case.^12 A well-defined EA is an essential tool for
leveraging information technology (IT) in the transformation of business
and mission operations. Our experience with federal departments and
agencies has shown that attempting to modernize systems without an EA to
guide and constrain investments often results in operations and systems
that are duplicative, not well integrated, unnecessarily costly to
maintain and interface, and ineffective in supporting mission goals.^13
Moreover, the development, implementation, and maintenance of an EA are
widely recognized as hallmarks of successful public and private
organizations, and their use is required by the Clinger-Cohen Act of
1996^14 and the related guidance from the Office of Management and Budget
(OMB).^15
^10An enterprise architecture is a blueprint for organizational change
defined in models that describe (in both business and technology terms)
how the entity operates today and how it intends to operate in the future;
it also includes a plan for transitioning to this future state.
^11GAO, Enterprise Architecture: Leadership Remains Key to Establishing
and Leveraging Architectures for Organizational Transformation,
[40]GAO-06-831 (Washington, D.C.: Aug. 14, 2006).
^12GAO, DOD Business Systems Modernization: Progress Continues to Be Made
in Establishing Corporate Management Controls, but Further Steps Are
Needed, [41]GAO-07-733 (Washington, D.C.: May 14, 2007).
In addition to the Army's lack of an EA, the Army also lacked a concept of
operations, which outlines the Army's strategy for achieving TAV,
including how the three systems it has identified as key in attaining TAV
will interoperate. A concept of operations would provide the Army a forum
for interchange among stakeholders--such as oversight entities, program
managers, developers, and users--on major technical and programmatic
issues related to achieving TAV. Without a concept of operations for
achieving TAV, the Army is hindered in its ability to apply an enterprise
view in (1) making decisions as to how GFEBS, GCSS-Army, and LMP will
individually and collectively enhance the Army's asset accountability,
including providing TAV; and (2) determining what changes are needed in
its related business processes. Additionally, the Army's inability to
achieve TAV hinders its and DOD's efforts to resolve the long-standing
problems associated with supply chain management, which has been on our
high-risk list since 1990. Asset visibility is one of the focus issues
critical to successfully addressing this high-risk area. Further, the
Army's lack of a concept of operations has resulted in its failure to take
full advantage of business process reengineering opportunities that are
available when using an enterprise resource planning (ERP)^16 solution.
Rather, the Army's existing strategy perpetuates some of the cumbersome
and ineffective business processes that are currently used in its existing
legacy system environment. The benefits of an ERP solution include
streamlining of business processes and elimination of data redundancy.
^13See, for example, GAO, Information Technology: FBI Is Taking Steps to
Develop an Enterprise Architecture, but Much Remains to Be Accomplished,
[42]GAO-05-363 (Washington, D.C.: Sept. 9, 2005); Homeland Security:
Efforts Under Way to Develop Enterprise Architecture, but Much Work
Remains, [43]GAO-04-777 (Washington, D.C.: Aug. 6, 2004); DOD Business
Systems Modernization: Limited Progress in Development of Business
Enterprise Architecture and Oversight of Information Technology
Investments, [44]GAO-04-731R (Washington, D.C.: May 17, 2004); Information
Technology: Architecture Needed to Guide NASA's Financial Management
Modernization, [45]GAO-04-43 (Washington, D.C.: Nov. 21, 2003); and DOD
Business Systems Modernization: Important Progress Made to Develop
Business Enterprise Architecture, but Much Work Remains, [46]GAO-03-1018
(Washington, D.C.: Sept. 19, 2003).
^14Pub. L. No. 104-106, div. E, tit. LI, SS 5122, 5125, 110 Stat. 186,
683, 685 (Feb. 10, 1996) (codified at 40 U.S.C. SS 11312, 11315).
^15OMB Circular No. A-130, Management of Federal Information Resources, S
8(b) (Nov. 28, 2000).
Furthermore, while the Army has established a business system investment
management governance structure that is consistent with DOD guidance, its
overall investment management approach is still maturing. Currently, the
Army's investment review process is designed to ensure the completion of
certifications and annual reviews of individual business systems rather
than to evaluate business system investments from a portfolio management
perspective. A portfolio-based perspective permits an organization to view
its business system investments in a comprehensive manner to help ensure
that the organization's missions, strategic goals, and objectives are
achieved. Moreover, we found that the Army did not have reliable processes
or analyses, such as independent verification and validation functions or
economic analyses, to support its oversight of program management office
efforts to develop and implement business systems. Until the Army adopts a
business system investment management approach that provides for reviewing
groups of systems and making enterprise decisions regarding how these
groups will collectively interoperate to provide a desired capability, it
runs the risk of investing significant resources in business systems that
do not provide the desired functionality and efficiency.
LMP continues to be plagued by operational problems that have beset the
system virtually since its initial implementation in July 2003. While from
a "big picture" perspective, an EA ,concept of operations, and effective
IT portfolio management are essential elements in an entity's efforts to
transform its operations, it is equally important for the entity to have
the disciplined processes needed to actually implement individual business
systems on time, within budget, and with the promised capability. As we
have previously reported, historically DOD has had difficulty in
accomplishing this goal, and LMP has been no exception. As of September
2006, the Army reported that it had obligated approximately $452 million
to develop and implement LMP. In May 2004 and June 2005, we reported on
operational issues related to LMP, for example, the inability to
accurately recognize revenue and bill customers--a problem that continues
today. We recommended, and the Army agreed, that the implementation of LMP
should be delayed until the operational problems we identified were
resolved. While the Army is working to resolve LMP operational issues, we
continue to have concerns about the adequacy of LMP's system testing given
that the continuing problems with LMP can, in part, be attributed to
ineffective and nonindependent system testing. Until an effective LMP
testing process is implemented, the Army will have little assurance that
the corrective actions it takes (1) are properly developed, and (2) do not
introduce additional defects into the system.
^16An ERP solution is an automated system using commercial off-the-shelf
(COTS) software consisting of multiple, integrated functional modules that
perform a variety of business-related tasks such as payroll, general
ledger accounting, and supply chain management.
We are making five recommendations to the Secretary of Defense to improve
the department's efforts to achieve TAV and further enhance its efforts to
improve its control and accountability over business system investments.
More specifically, we recommend that the Secretary of Defense (1) develop
a concept of operations for the Army; (2) develop policies, procedures,
and processes to manage investments from a portfolio perspective; (3)
establish an independent verification and validation function; (4) ensure
the GFEBS economic analysis update is prepared in accordance with
applicable guidance; and (5) direct that LMP use an independent system
test team.
We received written comments on a draft of this report from the Deputy
Under Secretary of Defense (Business Transformation), which are reprinted
in appendix II. Overall, DOD concurred with our recommendations and stated
that it would work diligently to implement them. The comments included two
sets of specific responses to our recommendations--one set provided by BTA
and another provided by the Army. In its comments, the Army concurred with
each of the recommendations. BTA stated that it fully agreed with our
observations. BTA, though, partially concurred with all the
recommendations on the basis that they were directed jointly to the
Secretary of the Army and the Director, BTA. BTA's comments noted that it
has neither the authority nor the responsibility to direct the actions of
the Army.
We appreciate the department's willingness to address our recommendations.
With regard to BTA's concern, our recommendations do not direct BTA to
oversee or direct the Army. Rather, the recommendations stated that the
specific actions should be undertaken jointly at the direction of the
Secretary of Defense. We continue to believe that a cooperative and
effectively coordinated BTA and Army approach to addressing our
recommendations is most likely to achieve the fundamental business system
transformation necessary to achieve the department's TAV objective.
Background
TAV has been elusive within DOD. Timely, reliable information on the
location, quantity, and status of the department's tangible assets could
significantly improve its ability to more efficiently and effectively
deliver needed items to DOD operating forces and thereby enhance military
readiness. The department has recognized the importance of achieving TAV
and included it as part of its overall business transformation initiative,
which includes the development and implementation of a business enterprise
architecture (BEA). The Joint Chiefs of Staff also identified TAV as one
of four fundamental changes needed to transform the department's logistics
operations.^17
One of the primary factors contributing to DOD's inability to provide
management with TAV is DOD's outdated and ineffective management
information system environment.^18 The Federal Financial Management
Improvement Act (FFMIA) of 1996^19 and other financial management reform
legislation have emphasized the importance of improving financial
management, which necessarily encompasses proper inventory management,
across the federal government. Built upon the foundation laid by the Chief
Financial Officers Act of 1990,^20 FFMIA emphasizes the need for agencies
to have integrated financial management systems that can generate timely,
accurate, and useful information to make informed decisions and to ensure
accountability on a continuous basis.^21 Lacking such critical
information, government leaders will not be positioned to invest
resources, reduce costs, oversee programs, and hold agency managers
accountable for the manner in which government programs are operated.
^17DOD identified the following four fundamental changes in logistics
practices that are needed to transform its logistics operations: (1)
customer wait time, (2) time-definite delivery, (3) TAV, and (4)
Web-based, shared data environment.
^18GAO, Defense Inventory: DOD Could Improve Total Asset Visibility
Initiative with Results Act Framework, [47]GAO/NSIAD-99-40 (Washington,
D.C.: Apr. 12, 1999).
^19Pub. L. No. 104-208, div. A, S101(f), title VIII, 110 Stat. 3009,
3009-389 (Sept. 30, 1996).
^20Pub. L. No. 101-576, 104 Stat. 2838 (Nov. 15, 1990).
^21FFMIA requires the 24 Chief Financial Officers Act departments and
agencies to implement and maintain financial management systems that
comply substantially with (1) federal financial management systems
requirements, (2) applicable federal accounting standards, and (3) the
U.S. Government Standard General Ledger at the transaction level.
Army Initiatives Aimed at Achieving TAV
To improve control and accountability over its assets, the Army has
embarked on a multisystem integration effort that is intended to leverage
commercial ERP software and processes. This integration is the focus of
the Single Army Logistics Enterprise (SALE) initiative. SALE is designed
to integrate information technology requirements, business processes,
business rules, and data from the Army's logistics, financial, and
acquisition transactions for planning and supporting warfighting logistics
operations. According to the Army, SALE is to provide a coordinated ERP
solution built around two individual logistics system development efforts:
(1) LMP and (2) GCSS-Army. Under the SALE vision, GCSS-Army and LMP will
be integrated into a single solution to provide an Army-wide logistics
environment spanning from "the factory to foxhole." On the financial side,
the Army is developing GFEBS to provide financial visibility over its
assets. Each of these efforts is described below.
LMP. In February 1998, the U.S. Army Materiel Command began an ERP
effort--LMP--to replace its legacy materiel and maintenance management
systems--the Commodity Command Standard System and the Standard Depot
System--with LMP. The Army has been using the existing legacy systems for
over 30 years. LMP is intended to transform the Army's Working Capital
Fund logistics operations in six core processes: order fulfillment, demand
and supply planning, procurement, asset management, materiel maintenance,
and financial management. LMP became operational at the U.S. Army
Communications and Electronics Command, Fort Monmouth, New Jersey, and
Tobyhanna Army Depot, Tobyhanna, Pennsylvania, in July 2003. The initial
deployment of LMP consisted of inventory items such as electronics;
electronic repair components; and communications and intelligence
equipment such as night vision goggles, electronic components such as
circuit boards, and certain munitions such as guidance systems included in
missiles. Figure 1 shows the LMP time line as of March 2007.
Figure 1: LMP Time Line
The Communications-Electronics Life Cycle Management Command,^22 Tobyhanna
Army Depot, and the Defense Finance and Accounting Service (DFAS) are the
primary LMP users. When LMP is fully implemented, its capacity is expected
to include more than 17,000 users at 149 locations and it will be
populated with 6 million Army-managed inventory items valued at about $40
billion. LMP is scheduled to reach full operational capability (FOC)^23 in
fiscal year 2010. As of September 30, 2006, the Army reported that
approximately $452 million had been obligated for this system effort and
estimates that it will invest at least another $895 million in LMP.^24
GCSS-Army. The GCSS-Army program was initiated in 1997 to overcome
duplicative databases, poor asset visibility, and stovepiped
communications between numerous existing Army logistics systems. The goal
of GCSS-Army is to integrate multiple logistic functions by replacing
numerous legacy systems and interfaces. Since the program's inception, it
has undergone several revisions, including a change from a custom software
development to a commercial ERP solution, as well as a change in the prime
contractor. According to Army officials, it invested approximately $95
million in the previous efforts before adopting the ERP approach. The
existing ERP effort was started in September 2003 and is currently
estimated to reach FOC during fiscal year 2014. Figure 2 shows the time
line for GCSS-Army as of March 2007.
^22The name of the command changed from Communications and Electronics
Command to the Communications-Electronics Life Cycle Management Command in
February 2005.
^23Full operational capability means that the system has been deployed to
all intended locations.
^24The contractor has submitted claims totaling $850 million to the Army.
According to the LMP Program Office, these claims are being reviewed by
the Army contracting officer, who is expected to make a decision by June
2007.
Figure 2: GCSS-Army Time Line
GCSS-Army is intended to replace 16 stovepiped, legacy logistics systems
that cover certain types of inventory and PP&E. The system is intended to
be operational at all deployable Army units, and provide asset visibility
for accountable items down to the foxhole. As of September 30, 2006, the
Army reported that it had obligated approximately $203 million for the ERP
version of GCSS-Army. Additionally, the Army estimates that another $2.1
billion will be invested in GCSS-Army.
Product Lifecycle Management Plus (PLM+). This initiative is the technical
enabler to integrate LMP and GCSS-Army. PLM+ is the means by which the
Army intends to achieve the SALE vision of integrated logistics systems.
PLM+ is intended to provide a single point of entry and exit for
interfaces to external systems. Furthermore, PLM+ is intended to eliminate
duplicative and costly system interfaces. Additionally, the PLM+
implementation schedule and related funding are aligned with that of
GCSS-Army. PLM+ does not stand alone as an independent capability. As of
September 2006, the Army reported that approximately $31 million had been
obligated for PLM+.
GFEBS. While LMP is intended to provide financial control for the Army
Working Capital Fund, GFEBS is intended to provide this important control
over all non-working capital fund inventory, including that which is
reported in GCSS-Army. GFEBS is an ERP solution that was initiated in
October 2004 and is intended to serve as the Army's general ledger system
for its general fund accounting.^25 As such, GFEBS is intended to improve
the reliability of the Army's financial information and thereby enhance
the Army's management decision-making process. GFEBS is expected to
replace 87 legacy systems, including the 30-year old Standard Army Finance
System. Figure 3 shows the GFEBS time line as of June 2007.
Figure 3: GFEBS Time Line
The Army estimates that GFEBS will reach FOC by 2010. As of September 30,
2006, the Army reported that it had obligated $123 million for the
development of GFEBS. In addition, the Army currently estimates that it
will invest another $1.3 billion to implement GFEBS.
Overview of DOD's Investment Management Practices
In 2005, DOD adopted a "tiered accountability" approach to improve control
and accountability over the billions of dollars it invests annually in DOD
business systems. Under this approach, executive leadership for the
direction, oversight, and execution of DOD investments is the
responsibility of several entities within DOD and its components. As shown
in figure 4 and described below, the investment control process begins at
the component level and works its way up through a hierarchy of review and
approval authorities, depending on the size and significance of the
investment.^26
^25The Army Corps of Engineers will continue to use its existing financial
system--Corps of Engineers Financial Management System.
^26There are four tiers of business systems. Tier 1 systems include all
large, expensive system programs classified as a "major automated
information system" (MAIS) or a "major defense acquisition program" (MDAP)
and subject to the most extensive statutory and regulatory reporting
requirements. Tier 2 systems include those with modernization efforts of
$10 million or greater but that are not designated as MAIS or MDAP or
programs that have been designated as IRB interest programs because of
their effect on DOD transformation objectives. Tier 3 systems include
those with modernization efforts that have anticipated costs greater than
$1 million but less than $10 million. Tier 4 systems are those with
modernization efforts that have anticipated costs of up to $1 million.
Figure 4: Overview of Tiered Accountability for Army Business System
Investments
At the DOD enterprise level, key entities involved in maintaining control
and accountability over Army business system investments with systems
modernizations over $1 million include the DBSMC, which serves as the
highest ranking governance body for business systems modernization
activities; the Principal Staff Assistants, who serve as the certification
authorities for business system modernizations in their respective core
business missions; the investment review boards (IRBs), which form the
review and decision-making bodies for business system investments in their
respective areas of responsibility and review each investment for BEA
compliance; and BTA, which provides support to the DBSMC and the IRBs and
is responsible for leading and coordinating business transformation
efforts across the department. The BTA is organized into seven
directorates, one of which is the Defense Business Systems Acquisition
Executive--the component acquisition executive for DOD enterprise-level
(DOD-wide) business systems and initiatives. This directorate is
responsible for developing, coordinating, and integrating DOD
enterprise-level projects, programs, systems, and initiatives--including
managing resources such as funding, personnel, and contracts for assigned
systems and programs.
To implement tiered accountability within the Army, the Army designated
its Chief Information Officer (CIO) as the Army's Pre-Certification
Authority (PCA) for certification and annual reviews of business system
investments.^27 The PCA is accountable for the component's business system
investments and acts as the component's principal point of contact for
communication with the IRBs. As such, the PCA (1) validates that the
system information for all business systems modernizations over $1 million
is complete and accessible to the IRBs, (2) reviews
development/modernization investments with total cost of $1 million or
less, (3) reviews system compliance with DOD's BEA and enterprise
transition plan, (4) verifies the investment's economic viability
analysis, (5) asserts the status and validity of the investment
information by submitting a component precertification letter to the
appropriate IRB for its review, and (6) provides IT portfolio management
policy guidance and oversight of mission area/domain IT portfolios. Below
the Army enterprise level, the Army has established six functional area
domains within its business mission area.^28 The domains are responsible
for implementing the IT portfolio management process developed by DOD and
the Army to define and justify the portfolio of planned IT expenditures
consistent with strategic objectives and operational requirements.
^27Certification reviews apply to business system
development/modernization programs with a total cost of over $1 million.
This certification review focuses on program alignment with the business
enterprise architecture and must be completed before components obligate
funds for programs. The annual review applies to all business programs.
The focus of the annual review is to determine whether the system
development effort is in compliance with the business enterprise
architecture, meeting its milestones, and addressing IRB certification
conditions.
GAO Has Previously Reported LMP Issues
Our May 2004 report^29 pointed out that the Army had not effectively
managed its implementation of LMP. The report noted that after LMP was
deployed in July 2003, operational difficulties at the Tobyhanna Army
Depot resulted in inaccurate financial management information. More
specifically, the depot was not (1) producing accurate workload planning
information, (2) generating accurate customer bills, and (3) capturing all
repair costs, necessary for the Army to calculate accurate future repair
prices. The report also pointed out that LMP requirements (1) lacked the
specific information necessary to understand the required functionality
that was to be provided, and (2) did not describe how to determine
quantitatively, through testing or other analysis, whether the system
would meet the Army's needs. Subsequently, in June 2005,^30 we reported
that the problems with LMP continued to prevent the Tobyhanna Army Depot
from accurately reporting on its financial operations, including gains and
losses, which adversely affected the depot's ability to accurately set
customer sales prices. Further, the report pointed out that problems
persisted with recognizing revenue and billing customers. We recommended,
and the Army agreed, that the implementation of LMP should be delayed
until the operational problems we identified were resolved. The Army is
continuing to resolve the outstanding issues.
^28DOD defines a mission area as a defined area of responsibility with
functions and processes that contribute to mission accomplishment. The
Army maps its mission areas to the four Global Information Grid Enterprise
Services Mission Areas delineated by DOD, including: Warfighting,
Business, Enterprise Information Environment, and the DOD portion of
National Intelligence. The Business Mission Area includes six domains: (1)
acquisition, (2) financial management, (3) human resources management, (4)
logistics, (5) installations and environment, and (6) civil works.
^29 [48]GAO-04-615 .
^30 [49]GAO-05-441 .
Army Lacks an Integrated Strategy for Achieving TAV
The Army has estimated that it will invest about $5 billion over the next
several years to complete development and implementation of GFEBS,
GCSS-Army, and LMP. However, the Army is making this significant
investment without a clear integrated strategy for how these systems will
be used to achieve TAV over hundreds of billions of dollars of assets. As
we reported in December 2004,^31 because DOD has not developed a clear
long-range strategy, the military services will be exposed to the risk of
spending billions of dollars on duplicative, stovepiped systems that do
not support the department's business transformation goals, including
attaining TAV. More specifically, we found that the Army's current
strategy for achieving TAV, including the implementation of these three
systems, does not embrace two key foundational elements that we had
identified as essential to achieving successful transformation of business
systems and processes: an EA and a concept of operations. Without these
key foundational elements, the Army is at risk of investing billions of
dollars in business systems that may not achieve DOD's and the Army's goal
of achieving TAV. Further, the Army's planned strategy perpetuates some of
the cumbersome and ineffective business processes and data redundancies
that are currently being used in the existing legacy system environment.
Army's Efforts to Achieve TAV Lack the Benefit of an EA
The Army has yet to develop and implement an Army business EA to help
guide its system efforts, including those aimed at achieving TAV. DOD's
acquisition policies and guidance,^32 as well as federal and best practice
guidance,^33 recognize the importance of investing in business systems
within the context of an EA. GFEBS, GCSS-Army, and LMP are not being
managed and developed in the context of a well-defined Army-wide EA. In
August 2006,^34 we reported that the Army was in the very early stages of
developing an EA. We recommended that the Secretary of Defense ensure that
the DOD architecture programs^35 we reviewed develop and implement plans
for fully satisfying each of the conditions in our Enterprise Architecture
Management Maturity Framework (EAMMF) for assessing and improving EA
management.^36 In commenting on the report, DOD agreed with our
recommendation.
^31GAO, Defense Inventory: Improvements Needed in DOD's Implementation of
Its Long-Term Strategy for Total Asset Visibility of Its Inventory,
[50]GAO-05-15 (Washington, D.C.: Dec. 6, 2004).
^32DOD, Department of Defense Directive Number 5000.1 (May 12, 2003);
Department of Defense Architecture Framework, Version 1.0, Volume 1
(February 2004).
^33Pub. L. No. 104-106, div. E, tit. LI, SS 5122, 5125; E-Government Act
of 2002, Pub. L. No. 107-347 S 101, 116 Stat. 2899, 2901-2910 (Dec. 17,
2002) codified at 44 U.S.C. SS 3601-06); OMB Circular No. A-130, S 8(b);
GAO, Information Technology: A Framework for Assessing and Improving
Enterprise Architecture Management (Version 1.1), [51]GAO-03-584G
(Washington, D.C.: April 2003); Chief Information Officer Council, A
Practical Guide to Federal Enterprise Architecture, Version 1.0 (February
2001); and Institute of Electrical and Electronics Engineers, Standard for
Recommended Practice for Architectural Description of Software-Intensive
Systems 1471-2000 (Sept. 21, 2000).
As detailed in our August 2006 report, we assessed the Army's efforts to
develop an EA against the criteria specified in EAMMF. Our EAMMF is a
five-stage architecture framework for managing the development,
maintenance, and implementation of an architecture and understanding the
extent to which effective architecture management practices are being
performed and where an organization is in its progression toward having a
well-managed architecture program. In short, the framework consists of 31
core elements that relate to architecture governance, content, use, and
measurement. These elements reflect research by us and others showing that
architecture programs should be founded upon institutional architecture
commitment and capabilities, and measured and verified products and
results. Our analysis of information provided by the Army indicated that
it had satisfied only 3 percent of all framework elements. In essence,
this means that the Army is at stage 1 of developing and implementing an
EA. While stage 1 agencies may have initiated some enterprise architecture
activity, these agencies' efforts are ad hoc and unstructured, lack
institutional leadership and direction, and do not provide the management
foundation necessary for successful enterprise architecture development.
In May 2007, we reported that the Army still had not developed an EA.^37
As a result, the Army does not have a well-informed basis for determining
if these systems will fit within the context of future Army business
operations and will most efficiently and effectively address the Army's
long-standing weaknesses associated with the lack of asset visibility.
Improving asset visibility is critical to addressing the problems
associated with supply chain management, which has been on our high-risk
list since 1990.^38 Asset visibility is one of the focus areas that are a
critical part of supply chain management.^39
^34 [52]GAO-06-831 .
^35The five DOD architecture programs that were included in our audit were
the Departments of the Army, Navy, and Air Force, and the DOD business
enterprise architecture and the DOD global information grid.
^36GAO, Information Technology: A Framework for Assessing and Improving
Enterprise Architecture Management (Version 1.1), [53]GAO-03-584G
(Washington, D.C.: April 2003).
^37 [54]GAO-07-733 .
In addition, without a clear understanding of its current systems and
business processes--commonly referred to as the "As Is" environment--and
the business operations it envisions for the future--commonly referred to
as the "To Be" environment--the Army will increase the risk that
misalignments can occur that can introduce redundancies and
incompatibilities that can produce inefficiencies and require costly and
time-consuming rework to fix. GFEBS, GCSS-Army, and LMP have proceeded
without a common, institutional frame of reference (for example, EA) that
can be used to effectively manage their relationships and dependencies. In
November 2006, DOD's internal review of GFEBS by BTA noted that the Army
lacked a strategy for integrating GFEBS, GCSS-Army, and LMP.
Army Strategy to Achieve TAV Does Not Utilize an Enterprisewide Perspective
The Army also lacks a concept of operations for how GFEBS, GCSS-Army, and
LMP will collectively achieve TAV. An effective concept of operations
would describe, at a high level, (1) how the three business systems relate
to each other in achieving the Army's TAV goal, and (2) how information
flows from and through these systems. Moreover, we found that the Army's
lack of a concept of operations has contributed to its failure to take
full advantage of business process reengineering opportunities that are
available when using an ERP solution. Without a clear long-term strategy,
the Army lacks a key management control for ensuring that time frames,
results-oriented performance measures, and accountability mechanisms are
established and monitored to help achieve TAV.
Specifically, we noted that the Army's strategy perpetuates some of the
cumbersome and inefficient business processes that are currently being
used in the existing legacy system environment. One of the key benefits of
an ERP is that it can be used to streamline business processes and
eliminate data redundancy. However, some of the basic business processes
being used or expected to be used by GFEBS, GCSS-Army, and LMP are based
on the Army's existing business processes--many of which are error prone,
labor intensive, and redundant. Considering the billions of dollars the
Army is investing in these systems, it is incumbent upon the Army to
embrace and utilize the most efficient and streamlined ERP processes to
the fullest extent possible in its effort to achieve TAV.
^38GAO, High-Risk Series: An Update, [55]GAO-07-310 (Washington, D.C.:
January 2007).
^39The other two focus areas related to supply chain management are
requirements forecasting and materiel distribution.
For example, the Army's planned strategy to improve control and
accountability over its PP&E does not take advantage of the capabilities
of an ERP solution. (See app. III for additional examples in which the
Army's TAV systems initiatives have not effectively streamlined legacy
processes related to funds control and disbursements.) Financial data,
including acquisition cost and depreciation, for most of the Army's PP&E
are currently maintained in the Defense Property Accountability System
(DPAS). PP&E accountability data, such as location and quantity, are
maintained in a variety of legacy systems such as the Property Book Unit
Supply Enhanced (PBUSE) system--which is 1 of the 16 systems that is
expected to be replaced by GCSS-Army. In March 2007, Army Program
Executive Office Enterprise Information Systems officials informed us that
the financial data--such as acquisition cost and depreciation--for the
Army's PP&E will be transferred from DPAS to GFEBS. This maintains the
existing accounting data in an accounting system. On the other hand, the
accountability data--such as location, condition, and number of units--for
PP&E assets will initially be transferred from the current legacy system
to PBUSE or GCSS-Army, depending on whether the items belong to an
installation or an Army unit that may be deployed. The transferring of
items to PBUSE appears to be an interim solution since, according to DOD's
enterprise transition plan GCSS-Army is to replace PBUSE. However,
GCSS-Army is not expected to assume the control and accountability over
items that are recorded in PBUSE associated with the Army Working Capital
Fund or other Army organizational entities that are not considered to be
units that can be deployed (field/tactical units) in military operations.
The Army's decision to segregate its PP&E financial and accountability
data into two separate system solutions reflects its lack of an enterprise
concept of operations and enterprise view for achieving TAV. The Army's
strategy of moving PP&E data from DPAS to PBUSE, and ultimately to another
system, means that one data conversion will take place to move the data
from DPAS to PBUSE--a system the Army is supposed to eliminate with the
implementation of GCSS-Army--followed by another data conversion from
PBUSE to yet another system, not yet identified. Further, the Army is
continuing to limit the capabilities of LMP by transferring all
information on PP&E from DPAS to PBUSE--which as noted before is
considered a legacy business system. As a result, information on PP&E that
could enhance Tobyhanna's operations, especially in the area of workload
planning, will not be available within the LMP environment.
Thus, the approach being taken by the Army is simply to adapt the
processes used by the legacy systems rather than use the streamlined
processes inherent in the ERP solution. If the functionality of an ERP
solution was fully utilized by the Army, it would increase the likelihood
that TAV could be accomplished within each of the three systems for the
specific type of PP&E items each was responsible for. For example, GFEBS
would contain both the financial and accountability information related to
nontactical/non-working capital fund PP&E, GCSS-Army would have all the
information associated with tactical PP&E, and LMP would have the data
related to Working Capital Fund PP&E. Figure 5 illustrates one way that an
ERP approach could be utilized to achieve physical and financial
accountability control of the Army's PP&E.
Figure 5: Example of an ERP Vision for Accountability of the Army's PP&E
While the Army's approach may result in incremental improvements in its
asset accountability, it does not take full advantage of the (1) benefits
of adopting enterprise processes and (2) functionality that is available
in the ERP solution it has selected to support those processes.
Fundamental to a successful ERP implementation is the reengineering of an
organization's business processes in a manner that helps ensure that the
right resources (people, material, machinery, and funds) are available in
the correct quantities when needed.^40 While Army has stated that its use
of ERP software would help reengineer its business processes, we found
that at least some business processes that are being used or expected to
be used in the future do not reflect reengineered processes necessary to
most effectively implement an ERP solution. By perpetuating the use of
cumbersome, error-prone, and ineffective business processes in its asset
accountability operations, the Army will diminish its capability to
achieve TAV and improve accountability over its assets.
Army's Ability to Effectively Oversee Portfolios of Business Systems Investment
Is Not Yet Fully Developed
While the Army has established a governance structure to oversee its
business system investments--including its asset accountability system
investments--that is consistent with DOD guidance, additional actions are
needed to enhance oversight, control, and accountability. The Army's
business system investment oversight efforts to date have primarily
focused on ensuring that business systems modernizations over $1 million
are reviewed in accordance with the criteria specified in the fiscal year
2005 National Defense Authorization Act. Both DOD and Army officials
acknowledged that the department's and Army's investment review processes,
particularly related to their ability to review business system
investments from a portfolio perspective, are in the early stage of
maturity. Portfolio management is a conscious, continuous, and proactive
approach to allocating limited resources among competing initiatives in
light of the investments' relative benefits. Taking an enterprise view
enables an organization to consider its investment comprehensively, so
that collectively the investments optimally address the organization's
mission, goals, and objectives. In addition, we found that the Army did
not have reliable processes and analyses to support its oversight of
individual systems modernization program efforts intended to improve asset
visibility. Specifically, (1) the Army has not established or implemented
an independent verification and validation (IV&V) process for the three
systems--GFEBS, GCSS-Army, or LMP and (2) the August 2004 GFEBS economic
analysis was not prepared in accordance with DOD and OMB guidance.^41
40Thomas F. Wallace and Michael H. Kremzar, ERP: Making It Happen, (New
York, N.Y.: John Wiley & Sons, Inc. 2001).
Army's Oversight of Its Business System Investments Lacks a Portfolio
Perspective
The Army's oversight of its business system investments--including system
investments intended to achieve TAV--continues to be focused on the review
and approval of individual business system investments. In May 2007, we
reported that DOD needed to improve its policies and procedures associated
with managing its business system investments as portfolios.^42 More
specifically, we found that DOD had not yet progressed from project-based
processes to portfolio-based processes, a key element for effectively
managing business system transformation efforts. DOD informed us that DOD
components are responsible for developing and managing their own portfolio
management processes.
Army IT guidance for managing IT investments requires portfolios to be
managed and monitored using established quantifiable outcome-based
performance measures to determine whether to recommend continuations,
modification, or termination of individual investments within a
portfolio.^43 However, the Army has not implemented processes or
procedures that facilitate an enterprise view toward management and
oversight of portfolios of business system investments intended to
collectively provide a specific capability or functionality. Rather, the
Army's current business system investment process focuses primarily on
reviewing and approving investment packages submitted by the responsible
program management office for individual systems improvement efforts that
have development/modernization funding over $1 million. Individual
business system investments that exceed the $1 million systems
modernization threshold are required to be reviewed by the appropriate IRB
and approved by the DBSMC.
^41An economic analysis of Army's LMP initiative is not required because
it is considered a procurement of a service as opposed to an actual
system, and therefore is not subject to the criteria established by
Department of Defense Directive 5000.1 and Department of Defense
Instruction 5000.2. Subsequent to the draft of this report being submitted
to DOD for comment, we were informed that the Office of the Deputy
Assistant Secretary of the Army for Cost and Economics had determined that
GCSS-Army is economically viable. We have not evaluated the results of
that analysis.
^42GAO, Business Systems Modernization: DOD Needs to Fully Define Policies
and Procedures for Institutionally Managing Investments, [56]GAO-07-538
(Washington, D.C.: May 11, 2007).
^43U.S. Army, Army Knowledge Management (AKM) Guidance Memorandum,
Capabilities-Based Information Technology (IT) Portfolio Governance
Implementing Guidance (Jan. 5, 2006).
Army officials acknowledged that the Army's ability to provide
portfolio-based investment review and oversight is in the early stages of
development. For example, while the Army has begun a process to share
investment package information, including cost, schedule, and performance
data, across its mission areas and domains, Army officials acknowledged
that the information provided by a program management office, as well as
the associated oversight and review, is centered largely on the
functionality and capabilities of individual systems. For example, annual
certifications for the three systems, LMP, GCSS-Army, and GFEBS, which the
Army intends to utilize collectively in achieving TAV, are not submitted
or reviewed as a portfolio, but rather as individual system investments.
The Army has not yet implemented the processes to evaluate and improve its
progress toward achieving TAV using portfolio-based projects such as
costs, schedule, performance, and risks. As a result, the Army's ability
to effectively oversee the development of the portfolio of systems
intended to collectively provide the Army with TAV is limited. Until the
Army's governance process, policies, and procedures mature, including its
ability to apply a corporate portfolio perspective in managing and
overseeing subportfolios of business system investments intended to
provide a desired capability or function, the Army is at risk of
implementing systems that (1) do not provide the desired capability,
including TAV; (2) are stovepiped in their functionality; (3) do not
interoperate in an efficient manner; and (4) are not supported by
efficient and effective business processes.
Reliable Processes and Analyses Are Needed to Facilitate Management Oversight of
Business System Investments
The Army has not implemented reliable processes and analyses needed to
enhance its management oversight of program management office efforts to
develop and implement its TAV, as well as other business systems on time,
within budget, and with the intended capability. Both DOD's and the Army's
business system investment oversight processes are highly dependent upon
the reliability of investment information provided by Army program
management offices. Thus, the reliability of that business system
investment information is critical to both DOD's and the Army's ability to
effectively oversee, manage, and redirect--if necessary--the services'
business system development and modernization efforts. However, we found
that the Army had not yet established an independent verification and
validation function for any of the three systems we reviewed. In addition,
the economic analysis submitted by the program management office for GFEBS
was not prepared in accordance with DOD or OMB guidance. As a result, the
economic analysis submitted by the program management office to DOD and
the Army oversight entities justifying the Army's investment in GFEBS was
based on questionable costs and benefits.
Independent Verification and Validation Would Enhance Program Oversight
The Army had not yet established an IV&V function^44 for any of the three
systems--GFEBS, GCSS-Army, and LMP. While the Army has established a
verification and validation function for LMP, it was not an independent
review because the reviewer reports directly to the LMP program management
office. Independence is a key component to reliable verification and
validation function.
Best business practices have demonstrated that use of an IV&V function is
an invaluable means to providing management reasonable assurance that a
planned system, or the portfolio of systems, will satisfy its planned use
and users. An effective IV&V review process should provide an independent
assessment to DOD and Army management of the overall status of the
project, including a discussion of any existing or potential revisions to
the project with respect to cost, schedule, and performance. The IV&V
reports should identify to management the issues or weaknesses that
increase the risks associated with the project or portfolio to senior
management so that they can be promptly addressed. These assessments
involve reviewing project documentation, participating in meetings at all
levels within the project, and providing periodic reports and
recommendations, if deemed warranted, to senior management. The IV&V
function should report on every facet of a system project such as:
Testing program adequacy. Testing activities would be evaluated to ensure
they are properly defined and developed in accordance with industry
standards and best practices.
Critical-path analysis. A critical path defines the series of tasks that
must be finished in time for the entire project (or portfolio of projects)
to finish on schedule. Each task on the critical path is a critical task.
A critical-path analysis helps to identify the impact of various project
events, such as delays in project deliverables, and ensures that the
impact of such delays is clearly understood by all parties involved with
the project(s).
^44According to the Institute of Electrical and Electronics Engineers,
verification and validation processes for projects such as the Army ERPs
can be used to determine whether (1) the products of a given activity
conform to the requirements of that activity and (2) the software
satisfies its intended use and user needs. This determination may include
analyzing, evaluating, reviewing, inspecting, assessing, and testing
software products and processes. The verification and validation processes
should assess the software in the context of the system, including the
operational environment, hardware, interfacing software, operators, and
users.
System strategy documents. Numerous system strategy documents that provide
the foundation for the system development and operations are critical
aspects of an effective system project. These documents are used for
guidance in developing documents for articulating the plans and procedures
used to implement a system. Examples of such documents include the
Life-cycle Test Strategy, Interface Strategy, and Conversion Strategy.
Validity of GFEBS's Economic Analysis Questionable
Our analysis of the August 2004 GFEBS economic analysis found that it was
not prepared in accordance with OMB and DOD guidance.^45 The purpose of an
economic analysis is to give the decision maker insight into economic
factors that have a bearing on accomplishing the stated objective of the
system investment, for example implementation of GFEBS to improve the
Army's financial accountability. As such, it is important that the
economic analysis reliably identifies factors, such as cost and
performance risks and drivers that can be used to establish priorities and
allocate resource allocations. While it may be appropriate to invest in a
particular IT investment, such as GFEBS, for reasons other than estimated
economic benefits, nonetheless, the issues we identified raise questions
as whether the funds invested in GFEBS were economically justified. Our
specific concerns with the August 2004 GFEBS economic analysis are
highlighted below.
o Inappropriate cost savings. At least $142 million of estimated
savings were not savings, but rather, should have been classified
as transfers--which do not equate to economic benefits. Transfers
represent shifts of control over resource allocation from one
group to another that do not result in a net change in the value
of the resources involved in the transfer. For example, we found
that the Army claimed over $88 million of savings related to
transferring real property management from the Army's legacy
system to GFEBS. Since the Army's real property management
responsibilities were not eliminated, only transferred from the
legacy system environment to GFEBS, this represents a transfer
rather than an economic benefit for the Army. Additionally, the
Army claimed benefits of about $54 million related to GFEBS
reducing the length of time funds are borrowed by the Treasury to
meet the Army financial obligations by facilitating the Army's
ability to make just-in-time disbursements. OMB guidance provides
that there are no economic gains from a pure transfer payment
because the benefits to those government entities that receive
such a transfer are matched by the costs borne by those government
entities that provide the transfer.^46 The Army's inappropriate
classification of transfers resulted in an overstatement of the
economic benefits that would be achieved by implementing GFEBS.
Additionally, in November 2006, BTA's enterprise risk assessment
management review of GFEBS questioned justifying the GFEBS program
on factors not fully within the program's control.
^45OMB Circular No. A-94, Guidelines and Discount Rates for Benefit-Cost
Analysis of Federal Programs (Oct. 29, 1992); Department of Defense
Instruction 7041.3, Economic Analysis for Decisionmaking (Nov. 7, 1995);
Department of the Army, U.S. Army Cost and Economic Analysis Center,
Economic Analysis Manual (February 2001).
o Lack of sensitivity analysis. The analysis did not include an
assessment of the effects of the uncertainty inherent in estimates
of GFEBS benefits and costs, as stipulated in OMB and DOD
guidance.^47 Because an economic analysis uses estimates and
assumptions, it is critical that a sensitivity analysis be
performed to understand the effects of the imprecision in both
underlying data and modeling assumptions. This analysis is
required since the estimates of future benefits and costs are
subject to varying degrees of uncertainty. Sensitivity analysis
refers to changing the value of a given variable in a model to
gauge the effect of change on model results. It varies a single
data element or assumption while holding the other data elements
and assumptions constant to determine what amount of change in
that element is required to raise or lower the resulting benefit
and cost elements. In this way, GFEBS data and assumptions can be
risk-ranked for decisionmaking and auditing. The Army's failure to
conduct a sensitivity analysis of GFEBS, as part of its economic
analysis, to identify the effect of uncertainties associated with
different assumptions increases the chance that decisions
regarding GFEBS will be made without a clear understanding of the
possible impact on GFEBS estimates of costs and benefits. Army
officials informed us that they will consider including a
sensitivity analysis of the effect of uncertainties when they
update GFEBS's economic analysis.
o Lack of documentation supporting benefits and cost assumptions.
The GFEBS program management office could not provide us with
benefits and costs data needed to replicate their analyses. As a
result, we were unable to trace the cost and benefit estimates
reported in the GFEBS economic analysis to original source
documentation to assess and validate the reliability and
applicability of the data. OMB and DOD guidance stress the
importance of maintaining documentation supporting assumptions
used in a cost-benefit analysis.
^46OMB Circular No. A-94, S 6(a)(4).
^47OMB Circular No. A-94, S 9; Department of Defense Instruction 7041.3, S
E3.2.2.
LMP Illustrates Continuing Problems in Implementing Business
Systems on Time, within Budget, and with the Promised Capability
LMP continues to be plagued by operational problems that have
beset the system virtually since its initial implementation in
July 2003. While, an EA, concept of operations, and effective IT
portfolio management are essential elements in the Army's efforts
to transform its operations, it is equally important for the Army
to have disciplined processes in place to implement its business
systems on time, within budget, and with the promised capability.
Many of DOD's approximately 2,980 business systems are
nonintegrated, stovepiped, and not capable of providing
departmental management and the Congress accurate and reliable
information on DOD's day-to-day operations. LMP is no exception.
As previously noted, LMP was to have reached FOC in fiscal year
2005, but currently FOC is estimated for fiscal year 2010--a
slippage of 5 years. Further, LMP's estimated program costs have
also increased. Tobyhanna Army Depot--the only depot that is
operating LMP--and DFAS personnel have stated that improvements
have been made in LMP's operating efficiency. However, problems in
the areas of revenue recognition and billing continue. These
problems can, in part, be attributed to ineffective system
testing. The operational issues confronting LMP and our concerns
about the effectiveness of the system testing are highlighted
below and discussed in more detail in appendix IV.
Operational Issues Continue
Tobyhanna Army Depot continues to experience problems with LMP
accurately recognizing revenue and billing customers. These
problems have existed virtually since the implementation of LMP in
July 2003. While the Army and its contractor--Computer Sciences
Corporation (CSC)--have made numerous attempts to fix the problem,
they have not been successful. Additionally, the accuracy of LMP
financial reports continues to be questionable. For instance, the
DOD Inspector General's audit of the Army's Working Capital Fund
financial statements for fiscal year 2006 noted that LMP was not
properly recording transactions in accordance with the U.S.
Government Standard General Ledger requirements.
For the 3-month period ending January 31, 2007, we found that
LMP's continuing billing problems resulted in (1) customers not
being billed for costs incurred that should have been billed and
(2) customers being billed too much. Based upon the billing
information provided by the LMP program management office, there
were 146 customer orders valued at approximately $5.4 million that
were not billed (or recognized as revenue) during the January 31,
2007, billing cycle. Customer billings and the associated revenue
provide the means by which the depot finances its day-to-day
operations. Similarly, during the January 31, 2007, billing cycle
about 308 customer orders, amounting to about $5.8 million, were
shown as being overbilled and a credit should have been provided
to the customer. Moreover, the continuing billing and revenue
recognition problem may be a factor contributing to higher depot
bills from DFAS. According to DFAS personnel, the recurring
billing problems have resulted in DFAS personnel processing
Tobyhanna Army Depot's bills manually. Based on information
provided by DFAS, the number of hours spent to provide DFAS
accounting services--including billings for the Tobyhanna Army
Depot--has increased from approximately 17,800 hours in fiscal
year 2004 to over 22,600 hours in fiscal year 2006.
System Testing Remains a Concern
Our prior audits^48 of LMP identified significant weaknesses with
the LMP program management office's efforts to effectively
implement the requirements management and testing processes needed
to reduce risks to acceptable levels. During our current audit, we
found that the requirements management processes have improved--a
critical first step--but concern remains with respect to the
adequacy of the testing.
Our analysis of 10 selected LMP corrective actions identified
specific testing weaknesses in each of the corrective actions
reviewed. For example, none of the test scripts provided adequate
information that linked the items tested to the specific
requirement being tested. This linking is commonly referred to as
traceability and is characteristic of a disciplined testing
process. The test scripts reviewed contained headings for
information on the scenario, key data requirements, expected
results, actual results, and whether the test was considered
successful. However, the actual test script did not contain the
level of specificity that clearly delineated how a specific
requirement identified in the requirement document(s) and the
associated requirement(s) in that document were being tested. As a
result, it was not possible to determine if all LMP system
requirements were properly tested. Without linking a given
requirement to the tests designed to exercise that requirement, it
was impossible to obtain reasonable assurance that (1) all the
requirements were tested and (2) the applied test provided
adequate coverage for each requirement.
^48 [58]GAO-04-615 and [59]GAO-05-441 .
After discussing our concerns with the LMP program management
office and its contractor in February 2007, the LMP program office
requested that its verification and validation (V&V) contractor
perform an assessment of the LMP testing process. According to
information provided by the LMP program office and the V&V
contractor, in March 2007, the review found that the LMP testing
process was adequately planned but that it did not support a clear
understanding of the (1) requirement being tested and (2) tests
used to determine whether a requirement was adequately
implemented. The V&V contractor's assessment substantiates our
analysis of the LMP testing process. According to the V&V
contractor, these areas need to be addressed before the Army Test
and Evaluation Command conducts its review of LMP.
According to LMP program management office officials, the CSC is
developing and implementing a testing process that is designed to
address the concerns raised by us and the Army V&V contractor. CSC
is expected to have a testing program that clearly links the
requirements to the tests being conducted and to establish an
independent test group to ensure that the testing process is
following best practices. However, until the Army has reasonable
assurance that an effective testing process has been properly
implemented, we are reiterating our June 2005 recommendation that
LMP not be deployed to additional locations until the Army has
assurance that LMP is providing the intended functionality and,
more specifically, that LMP can accurately bill its customers and
recognize revenue.
Conclusions
The Army's efforts to develop and implement GFEBS, GCSS-Army, and
LMP may result in incremental improvements in the Army's
accountability and visibility over its billions of dollars in
tangible assets. However, the Army has not developed or utilized
key management tools and concepts necessary to successfully
transform its business processes to achieve TAV. The primary
question that the Army has yet to effectively consider and address
is how these systems and associated processes, individually and
collectively, will provide the desired functionality necessary to
achieve TAV. Until the Army develops and implements an Army EA,
concept of operations, and portfolio-based management and
oversight processes, it continues to risk (1) investing billions
of dollars in asset accountability systems that may not enhance
the department's and the Army's goal of achieving TAV, and (2)
further delay DOD's efforts to remove supply chain management from
our high-risk list.
It is also important that the Army take action to implement the
disciplined processes necessary to implement asset accountability
systems on time, within budget, and with the promised capability.
Continuing problems with LMP are illustrative of the consequences
in failing to address these issues. Although LMP became
operational 4 years ago, it continues to encounter operational
problems. While there have been some improvements in LMP, key
functionality, such as accurately billing customers and
recognizing revenue, remains problematic. The Army's inability to
resolve these persistent LMP problems can, in part, be attributed
to inadequate system testing. Until LMP implements an effective
testing process, it will have little assurance that the
development and corrective actions it takes (1) are properly
developed, and (2) do not introduce additional defects into the
system.
Recommendations for Executive Action
To improve the department's efforts to achieve TAV and further
enhance its efforts to improve the control and accountability over
business system investments, we recommend that the Secretary of
Defense direct the Secretary of the Army and the Director, BTA, to
jointly take the following five actions:
o Develop a concept of operations that (1) clearly defines the ERP
vision for accomplishing total asset visibility within the Army;
(2) addresses how its business systems and processes, individually
and collectively, will provide the desired functionality to
achieve TAV; and (3) determines the desired functionality among
the selected systems.
o Develop policies, procedures, and processes to support the
oversight and management of selected groupings of business systems
that are intended to provide a specific capability or
functionality, such as TAV from a portfolio perspective, utilizing
indicators such as costs, schedule, performance, and risks.
o Establish an IV&V function for GFEBS, GCSS-Army, and LMP.
Additionally, direct that all IV&V reports for each system be
provided to Army management, the appropriate IRB, and BTA.
o Require that any future GFEBS economic analysis identify costs
and benefits in accordance with the criteria specified by DOD and
OMB guidance, to include a sensitivity analysis.
o Direct that LMP utilize systems testers that are independent of
the LMP system developers to help ensure that the system is
providing the users of the system the intended capabilities.
Agency Comments and Our Evaluation
We received written comments on a draft of this report from the
Deputy Under Secretary of Defense (Business Transformation), which
are reprinted in appendix II. Overall, DOD concurred with our
recommendations and stated that it would work diligently to
implement them. The comments included two sets of specific
responses to our recommendations--one set provided by BTA and
another provided by the Army. In regard to the response provided
by the Army, it concurred with each of the recommendations. BTA
stated that it fully agreed with our observations. BTA, though,
partially concurred with all the recommendations on the basis that
they were directed jointly to the Secretary of the Army and the
Director, BTA. BTA stated that under U.S. Code Title 10 and in
accordance with DOD's tiered accountability, the Army has complete
authority for execution of its programs and responsibility for
implementing the recommendations. BTA's comments noted that it has
neither the authority nor the responsibility to direct the actions
of the Army.
We appreciate the department's willingness to address our
recommendations. With regard to BTA's concern, our recommendations
do not direct BTA to oversee or direct the Army. Rather, the
recommendations stated that the specific actions should be
undertaken jointly at the direction of the Secretary of Defense.
We continue to believe that a cooperative and effectively
coordinated BTA and Army approach to addressing our
recommendations is most likely to achieve the fundamental business
system transformation necessary to achieve the department's TAV
objective. Further, the involvement of the Office of the Secretary
of Defense, including BTA, in the Army's investment management
practices is consistent with 10 U.S.C. SS 186 and 2222, which
provide for DOD policymaking and oversight of Army business system
functions.
In regard to the responses provided by the Army, it acknowledged
the importance of a concept of operations in achieving its goal of
TAV and in optimizing its business system investments. Further,
the Army acknowledged that there are risks involved in attempting
to effectively integrate the various system efforts. Going
forward, as we recommended, it will be important that the Army
develop a clear, long-term strategy to help ensure that time
frames, results-oriented performance measures, and accountability
mechanisms are established and monitored to achieve TAV.
We are sending copies of this report to the Secretary of Defense;
Acting Secretary of the Army; Under Secretary of Defense
(Acquisition, Technology, and Logistics); Under Secretary of
Defense (Comptroller); Deputy Under Secretary of Defense (Business
Transformation); Deputy Under Secretary of Defense (Financial
Management); Assistant Secretary of Defense (Networks and
Information Integration); Assistant Secretary of the Army
(Acquisition, Logistics, and Technology); Assistant Secretary of
the Army (Financial Management and Comptroller); Army Chief
Information Officer; Army Deputy Chief of Staff (Logistics);
Commander, U.S. Army Materiel Command; and other interested
congressional committees and members. Copies of this report will
be made available to others upon request. In addition, this report
is available at no charge on the GAO Web site at
[57]http://www.gao.gov .
Please contact McCoy Williams at (202) 512-9095 or
[email protected], Keith A. Rhodes at (202) 512-6412 or
[email protected], or William M. Solis at (202) 512-8365 or
[email protected] if you or your staff have questions on matters
discussed in this report. 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 are
listed in appendix V.
McCoy Williams
Director
Financial Management and Assurance
Keith A. Rhodes
Chief Technologist
Applied Research and Methods
Center for Technology and Engineering
William M. Solis
Director
Defense Capabilities and Management
Appendix I: Scope and Methodology
To determine whether the Army has developed a business system
strategy for achieving total asset visibility (TAV), we met with
program office officials for the General Fund Enterprise Business
System (GFEBS), the Global Combat Support System-Army (GCSS-Army),
and the Logistics Modernization Program (LMP). We obtained
briefings on the intended purpose of each system and walkthroughs
of various scenarios that described how the systems would transmit
data between them. We also met with officials from the Office of
Program Analysis and Evaluation, the Office of the Assistant
Secretary of Defense (Network and Information Integration)/the
Department of Defense (DOD) Chief Information Officer, and the
Business Transformation Agency (BTA) to identify and discuss any
issues/concerns they have related to the implementation of GFEBS
and GCSS-Army. Furthermore, we reviewed reports by the Army Audit
Agency and the DOD Inspector General to ascertain if they had
previously reported upon system weaknesses related to the three
systems and how those weaknesses would affect the Army's vision of
an integrated systems strategy.
In order to determine if the Army has effectively implemented a
governance structure to oversee and manage its business system
investment in accordance with DOD guidance, we reviewed guidance
issued by the Office of the Secretary of Defense, the Army, and
BTA related to investment management. We also obtained an
understanding of the Army's process to comply with the
certification and annual system review processes required by the
fiscal year 2005 National Defense Authorization Act.^1 We also
obtained and analyzed documentation related to the certification
and annual system review process. Furthermore, we reviewed the
Selected Capital Investment Review reports as of February 2006 and
February 2007 to ascertain if there were any cost, schedule, and
performance issues discussed in these reports for the GFEBS,
GCSS-Army, and LMP. We also reviewed Defense Acquisition Executive
Summary reports for GFEBS to ascertain if there were any cost,
schedule, and performance issues discussed in these reports.
Similar reports were not required for GCSS-Army and LMP.
Additionally, we met with BTA officials to obtain an understanding
of how the Enterprise Risk Assessment Model is to be utilized as
part of the department's investment management criteria.
^1Ronald W. Reagan National Defense Authorization Act for Fiscal Year
2005, Pub. L. No. 108-375, S 332, 118 Stat. 1811, 1851-56 (Oct. 28, 2004)
(codified, in part, at 10 U.S.C. SS 186, 2222).
To evaluate the extent to which the Army has made progress in
correcting the previously reported problems regarding LMP's
implementation, we met with officials from the LMP program office
and the Computer Sciences Corporation (CSC). Briefings were
provided that detailed the specific corrective actions taken in
response to the various issues discussed in our two previous
reports.^2 To substantiate the corrective actions taken to address
the accounting issues, we reviewed the Defense Finance and
Accounting Service (DFAS) 1307 accounting reports^3 and discussed
the issues detailed in the reports with DFAS personnel responsible
for preparing the reports. We also reviewed the fiscal year 2006
Army Working Capital Fund Financial Statements to ascertain the
specific issues related to LMP. Further, we met with DOD Inspector
General personnel and reviewed their workpapers to obtain an
understanding of the deficiencies discussed in the fiscal year
2006 Army Working Capital Fund Financial Statements.
To assess whether the Army had established and implemented
disciplined processes related to requirements management and
testing we:
o obtained an understanding of the Army's revised procedures for
defining requirements management frameworks and compared these
procedures to its current practices;
o reviewed guidance published by the Institute of Electrical and
Electronics Engineers and the Software Engineering Institute and
publications by experts to determine the attributes that should be
used for developing good requirements; and
o selected 10 requirements and performed an in-depth review and
analysis to determine whether they had the attributes normally
associated with good requirements and whether these requirements
traced between the various process documents. These requirements
were to have followed the revised requirements management process.
^2GAO, DOD Business Systems Modernization: Billions Continue to Be
Invested with Inadequate Management Oversight and Accountability,
[60]GAO-04-615 (Washington, D.C.: May 27, 2004) and Army Depot
Maintenance: Ineffective Oversight of Depot Maintenance Operations and
System Implementation Efforts, [61]GAO-05-441 (Washington, D.C.: June 30,
2005).
^3We reviewed the 1307 reports for March 2004, September 2004, March 2005,
September 2005, March 2006, September 2006, December 2006, and February
2007.
To augment these document reviews and analyses, we discussed our
analysis with LMP program office and CSC officials. We also met
with officials from the Office of Program Analysis and Evaluation,
the Office of the Assistant Secretary of Defense (Network and
Information Integration)/DOD Chief Information Officer (CIO), and
the Business Transformation Agency to identify any issues/concerns
they have related to the implementation of LMP.
We performed our audit work from May 2006 through June 2007 in
accordance with U. S. generally accepted government auditing
standards. We conducted our work at the Office of the Assistant
Secretary of Defense (Networks and Information Integration)/DOD
Chief Information Officer; the U.S. Army Materiel Command; the
Army CIO; and the Business Transformation Agency. We visited the
Army Program Executive Office Enterprise Information Systems and
GFEBS program office at Ft. Belvoir, Virginia. We also visited the
Army contractor's site for LMP, Computer Sciences Corporation in
Marlton, New Jersey--and for GCSS-Army--Northrop Grumman in
Chester, Virginia. We also visited the Tobyhanna Army Depot,
Tobyhanna, Pennsylvania and DFAS Indianapolis, Indiana. We
requested comments on a draft of this report from the Secretary of
Defense or his designee. We received written comments from the
Deputy Under Secretary of Defense (Business Transformation), which
are reprinted in appendix II.
Appendix II: Comments from the Department of Defense
Note: GAO comments supplementing those in the report text appear at the
end of this appendix.
See comment 1.
See comment 3.
See comment 2.
GAO Comments
The following are GAO's comments on DOD's letter dated July 6,
2007.
1. See the "Agency Comments and Our Evaluation" section of this
report.
2. In regard to the GFEBS economic analysis, the program office
did not provide the necessary support for us to replicate the
estimated program savings.
3. In regard to the sensitivity analysis, the Army's approach of
adding the uncertainty surrounding the costs of interfaces into
the estimate is not consistent with OMB, DOD, and Army guidance,
as discussed in the report. Rather, a sensitivity analysis is
accomplished by changing the numerical value of a given variable
to gauge the effect of that change on model results, such as the
benefit-to-cost ratio. A sensitivity analysis identifies key
assumptions and varies a single assumption while holding the
others constant to determine what amount of change in that
assumption is required to raise or lower the resulting dominant
benefit or cost estimates by a set amount.
Appendix III: Army Strategy Does Not Fully Utilize Capabilities
of ERP Solution
Fundamental to successful enterprise resource planning (ERP)
implementation is the reengineering of an organization's business
processes in a manner that helps ensure that the right resources
are available when needed. While the Army has stated that through
the successful implementation of the General Fund Enterprise
Business System (GFEBS), the Global Combat Support System-Army
(GCSS-Army), and the Logistics Modernization Program (LMP) will
reengineer its business processes, we found some business
processes that have been adopted or are expected to be adopted
have not embraced the basic concept of an ERP solution. Details
concerning the Army's strategy for handling funds control and
disbursements are highlighted below.
Funds Control
The funds control concept that will be utilized by GCSS-Army and
GFEBS is that all funds control activities will be handled by
GFEBS. Accordingly, an interface must be developed to transmit the
appropriate information between the two systems in order to ensure
that all of the information is in agreement. Figure 6 illustrates
how the process is intended to work.
Figure 6: Planned GFEBS and GCSS-Army Fund Control Process
As shown in figure 6, information will have to be transmitted from
GCSS-Army each and every time there is a transaction that is associated
with funds control. This approach does not take full advantage of the
capabilities within the ERP software that will be utilized by GCSS-Army.
Figure 7 shows an example of more efficient and streamlined funds control
process based on ERP concepts that eliminates these various transactions
having to be processed between GFEBS and GCSS-Army.
Figure 7: GCSS-Army Funds Control Process Utilizing ERP Capabilities
We were informed by GFEBS program officials that funds control for the
activities associated with GCSS-Army needed to be maintained in GFEBS
because (1) GCSS-Army was not considered an official accounting system,
(2) the version of the software initially selected by GCSS-Army could not
meet the requirements of the Federal Financial Management Improvement Act
of 1996 (FFMIA),^1 and (3) the Army wanted to centrally manage general
fund activities. In effect, the Army's approach mirrors the functionality
in the stovepiped processes of the legacy systems, dedicated processes to
obtain information for specific reasons rather than ensuring a given
process provided the information needed from an enterprise point of view.
Furthermore, the concern that the version of software being used by
GCSS-Army had not been certified as compliant with federal requirements
can be easily addressed. Army officials have stated that the software
vendor is committed to obtaining the necessary certifications and expects
that these will be granted before GCSS-Army is deployed. From a corporate
perspective, whether one system or two systems is the proper approach is
not necessarily the question that the Army needs to answer. Rather, the
Army needs to address how best to utilize the capabilities of the ERP to
achieve an effective funds control system.
^1Pub. L. No. 104-208, div. A, S101(F), title VIII, 110 Stat. 3009,
3009-389 (Sept. 30, 1996). FFMIA requires the 24 Chief Financial Officers
Act departments and agencies to implement and maintain financial
management systems that comply substantially with (1) federal financial
management system requirements, (2) applicable federal accounting
standards, and (3) the U.S. Government Standard General Ledger at the
transaction level.
Disbursements
The Department of Defense (DOD) Inspector General recently reported that
LMP has been implemented without the functionality to match proposed
disbursements with corresponding obligations before making any payments.^2
This process is referred to as prevalidation, which was mandated with the
passage of the fiscal year 1995 Department of Defense Appropriations Act^3
because of DOD's long-standing difficulty in properly matching
disbursements with corresponding obligations. Implementing LMP without
this functionality is an example of suboptimizing the system, resulting in
the failure to address a long-standing weakness in matching obligations
with proposed disbursements for the Army Working Capital Fund. This
functionality is part of the basic software package that is being used by
LMP. We noted that the Army expects to use the same ERP software package
for GFEBS.
The DOD Inspector General reported that, rather than reengineering its
business processes, the Army decided to follow its existing business
processes that were inefficient and precluded the Army from being in
compliance with the fiscal year 1995 legislative requirement. As a result
of this decision, the Army has not taken full advantage of the
capabilities within the ERP software package being used to implement LMP.
Considering that the Army has already invested approximately $452 million
in LMP, and as previously noted is expecting to invest hundreds of million
more, taking full advantage of its capabilities is also a prudent
financial decision. Because the Army failed to reengineer its business
processes, it continues to use an off-line database, managed by the
Defense Finance and Accounting Service (DFAS), to compare entitlement and
accounting data and provide approval for prevalidation requests. The DOD
Inspector General report noted that the database contained errors in the
accounting data, which resulted in prevalidation failures and the need for
additional research and rework by DFAS.
^2DOD Inspector General, Controls Over the Prevalidation of DOD Commercial
Payments, Report Number D2007-065 (Arlington, Va.: Mar. 2, 2007).
^3Pub. L. No. 103-335, S 8137, 108 Stat. 2599, 2654-55 (Sept. 30, 1994).
A more efficient and streamlined process could be achieved by adopting ERP
processes for disbursements. For example, by utilizing ERP concepts LMP
would be the accounting system of record and responsible for ensuring that
the applicable federal requirements governing fund control and
disbursements were effectively implemented. Further, the disbursements
would be made directly by the Department of the Treasury--much like the
process used by civilian agencies--rather than going through DFAS. We
recognize that this approach involves some technical issues, such as
building the necessary interfaces with the Department of the Treasury.
However, the commercial-off-the-shelf (COTS) package adopted by LMP is
already required by its Office of Management and Budget certification to
provide the necessary support for these interfaces. The elimination of the
DFAS interfaces, which are not inherently supported by the COTS package,
should help reduce the cost and risk associated with this change.
Appendix IV: LMP Problems Continue
The Tobyhanna Army Depot continues to experience financial management
problems because significant operational and developmental issues related
to the Logistics Modernization Program (LMP) have not been resolved. More
specifically, LMP continues to experience problems with accurately
recognizing revenue and billing customers. This problem has existed
virtually since the implementation of LMP in July 2003. While the Army and
its contractor have made numerous attempts to fix the problem, they have
not been successful. While we found that the requirements management
processes have improved--a critical first step in reducing risk to
acceptable levels^1--we continue to have reservations about the adequacy
of LMP's testing.
Billing Problems Continue to Plague LMP
LMP's continuing billing problems have resulted in (1) customers not being
billed for costs incurred that should have been billed and (2) customers
being billed too much. According to information provide by the LMP program
office, 146 customer orders valued at approximately $5.4 million were not
billed during the January 31, 2007, billing cycle. Customer orders that
were not recognized as revenue and billed represent funds that Tobyhanna
Army Depot is entitled to, because the work requested by the customer was
performed. It is essential that revenue is properly recognized and
customers billed for work performed because it is the means by which the
depot finances its day-to-day operations. Similarly, during the January
31, 2007, billing cycle about 308 customer orders amounting to about $5.8
million were shown as being overbilled and a credit should have been
issued to the customer. It is critical that the credit be provided to the
customer as soon as possible since the customer may be able to use these
funds to meet other funding demands.
Our analysis of the January 2007 billings for Tobyhanna disclosed that, of
the 146 unbilled customer orders, 61 (about 42 percent) related to fiscal
years 2006 and 2007. Similarly, for the credits, 178 of 308 customer
orders (about 58 percent) were for fiscal years 2006 and 2007. From a
dollar perspective, most of these billings also related to fiscal years
2006 and 2007 transactions. The fact that these billing problems have
persisted clearly indicates that the various efforts by the Army to
resolve this critical aspect of the system have failed. Table 1 shows the
dollar value and the number of customer orders related to unbilled work
and credits for 3 months--November and December 2006 and January 2007.
^1Acceptable levels refer to the fact that any systems acquisition effort
will have risks and will suffer the adverse consequences associated with
defects in the processes. However, effective implementation of disciplined
processes reduces the possibility of the potential risks actually
occurring and prevents significant defects from materially affecting the
cost, timeliness, and performance of the project.
Table 1: Unbilled and Credit Customer Orders at the Tobyhanna Army Depot
for November 2006 through January 2007
Unbilled Dollar value of Customer Dollar value of
customer unbilled customer orders with customer orders with
Month orders orders credits credits
November 84 (3,161,490) 291 3,156,533
2006
December 92 (2,637,903) 301 4,772,884
2006
January 2007 146 (5,367,798) 308 5,792,851
Source: LMP program office.
The continuing billing problem at Tobyhanna is also a factor contributing
to higher depot bills from the Defense Finance and Accounting Service
(DFAS)--the Department of Defense's (DOD) centralized finance and
accounting organization. According to DFAS personnel, the recurring
billing and other problems have resulted in DFAS processing Tobyhanna's
bills manually and performing other manual actions that are not required
by the other depots that do not use LMP. According to the information
provided by DFAS, the number of hours spent on DFAS accounting services
billings for Tobyhanna has increased between fiscal years 2004 and 2006.
Table 2 shows the number of hours and related amounts DFAS billed
Tobyhanna in each year.
Table 2: DFAS Billings to the Tobyhanna Army Depot for Accounting Services
Fiscal year Number of hours Amount billed (dollars)
2004 17,737 1,105,168
2005 21,197 1,360,407
2006 22,653 1,432,777
Source: GAO based upon data provided by DFAS.
Furthermore, according to DFAS personnel, while the accounting needs of
other depots requires the support of one full-time DFAS staff, DFAS uses
three full-time personnel to service Tobyhanna due to the numerous manual
workarounds associated with LMP. The manual workarounds required to
address LMP's billing issues results in higher DFAS bills for Tobyhanna,
which in turn increases the prices charged by Tobyhanna to its customers
for the work performed. Since Tobyhanna is part of the Army Working
Capital Fund, the costs incurred for accounting services are passed on to
the customer in the form of higher depot prices. During the course of our
audit, LMP program officials stated that they were finalizing efforts to
revise the billing process. At completion of our field work, the LMP
program office stated that it anticipated having the revised process in
place in the August 2007 time frame.
Since billing and revenue recognition have been such a long-standing
issue, and given that the entire process is fundamental to the efficient
and effective operation of the Working Capital Fund, it is incumbent upon
the LMP program office to closely monitor the planned corrective actions
and obtain reasonable assurance that the revised process is meeting the
Army's expectations. System testing is a critical process that should help
improve an entity's confidence that the system will satisfy the
requirements of the end user and will operate as intended. If the planned
corrective actions do not resolve the existing problem, Tobyhanna's
operations will continue to be adversely affected. As we have previously
recommended, LMP should not be deployed to any additional locations.^2
Accuracy of Financial Information Reported by LMP Still a Concern
LMP continues to experience difficulty in accurately reporting on the
results of operations. For example, the DOD Inspector General's fiscal
year 2006 financial statement audit of the Army Working Capital Fund
identified instances in which LMP was not properly recording transactions
in accordance with the U.S. Government Standard General Ledger
requirements. Further, our analysis of the DFAS monthly report on depot
operations--commonly referred to as the 1307 report^3--found that
inaccurate account balances continue to persist in LMP. These issues have
presented many challenges that are reflected throughout the Army Working
Capital Fund financial statements as adjustments, corrections, and
footnote disclosures. More specific details on the problems are
highlighted below.
^2GAO, Army Depot Maintenance: Ineffective Oversight of Depot Maintenance
Operations and System Implementation Efforts, [71]GAO-05-441 (Washington,
D.C.: June 30, 2005).
^3We reviewed the 1307 reports for March 2004, September 2004, March 2005,
September 2005, March 2006, September 2006, December 2006, and February
2007.
o The DOD Inspector General Report on Internal Controls and
Compliance with Laws and Regulations noted that the nonfederal
accounts payable account was misstated by approximately $175
million at the end of fiscal year 2006. This misstatement arose
because Army entities using LMP had not resolved approximately $89
million in abnormal accounts payable balances reported by the
Supply Management business area. An abnormal account balance is
one in which the recorded amount has been incorrectly classified.
During fiscal year 2006, the LMP program office initiated systemic
corrections to reduce the reported abnormal balances. Our analysis
of the first quarter fiscal year 2007 financial statements noted
that the reported balance had been reduced to approximately $81
million. The LMP program office was continuing to research the
issue.
o Our analysis of the DFAS 1307 reports found that abnormal
balances in accounts payable have been reported since fiscal year
2004. LMP program officials stated that abnormal balances were
primarily due to the migration of remaining obligations on open
contracts from the legacy systems. Substantial effort was made in
fiscal year 2006 to correct the abnormal accounts payable balances
that were reported by LMP, which resulted in a reduction from $334
million at the end of fiscal year 2005 to $88 million at the end
of fiscal year 2006. The Army's efforts to clean up abnormal
account balances continued in fiscal year 2007.
The Army has developed a specific plan to address the financial
management problems recognized in these statements. For example, a
Tobyhanna Army Depot on-site support team has been assembled to
complete the data cleanup, validate that all system and procedural
issues have been identified, document business processes and
procedures, and train Tobyhanna users. However, until these
problems are corrected, LMP will not be able to provide reliable
and accurate financial information to the Congress or Army
management.
Adequacy of LMP Testing Continues to Be a Concern
Our prior audits^4 of LMP identified significant weaknesses with
LMP's efforts to effectively implement the requirements management
and testing processes needed to reduce risks to acceptable levels.
During our current audit, we found that the requirements
management processes have improved--a critical first step--but we
continue to have reservations about the adequacy of the testing.
LMP program officials stated that these testing weaknesses are
being addressed and expect that an improved testing process will
be effectively implemented to reduce risks to acceptable levels.
^4GAO, DOD Business Systems Modernization: Billions Continue to Be
Invested with Inadequate Management Oversight and Accountability,
[72]GAO-04-615 (Washington, D.C.: May 27, 2004) and [73]GAO-05-441 .
LMP's Requirements Management Practices Have Improved
During the current review, Army and contractor Computer Sciences
Corporation (CSC) officials stated that they have acted upon our
prior recommendations and taken steps to improve the program's
requirements management practices. In setting forth the revised
requirements management process, LMP and CSC officials noted that
the new process generally envisioned having several documents that
outlined the requirements that needed to be addressed with each
document containing specificity needed for the intended audience.
To ascertain if the Army's stated corrective actions were being
adhered to, we selected 10 requirements for detailed review. Our
analysis found that the LMP documentation in support of the
requirements management practices was generally in compliance with
the stated process. More specifically, the requirements reviewed
were generally consistent between the documents and appeared to
contain the necessary specificity to reduce requirement-related
defects to acceptable levels. Our observations were consistent
with the conclusions reached by a subsequent review performed by
the LMP verification and validation contractor, who examined the
same documentation that we analyzed.
Concerns regarding LMP Testing Processes Remain
Our review of the stated testing processes found that many of the
attributes associated with a disciplined testing process were
present. However, based upon our review and analysis of the 10
selected corrective actions, we still have concerns that the LMP
testing process may not be adequate since we identified specific
weaknesses in the 10 corrective actions reviewed. System testing
is a critical process utilized by disciplined organizations and
improves an entity's confidence that the system will satisfy the
requirements of the end user and operate as intended. The stated
testing process included the following:
o Documenting scenario testing. A scenario is a business process
that typically consists of several events. For example, a scenario
could be developed for small purchases, which would include events
such as (1) initiating a purchase request, (2) approving the
request, (3) obligating the necessary funds, (4) ordering the
item, (5) receiving the item, and (6) paying for the item. One
benefit of testing scenarios is that it helps to ensure that
information is accurately passed from one process to another. For
instance, the denial of a requisition prevents the purchase of the
item.
o Linking requirements to the test cases. Linking requirements and
test cases helps ensure that either (1) all requirements are
adequately tested or (2) the risks associated with not testing a
requirement can be properly evaluated. Because it is not
economically feasible to develop a testing program that can find
every defect, it is critical that an approach be developed to
ensure that testing resources are focused on the areas of highest
risk. Accordingly, linking the requirements makes it easier to
determine which combinations of items are not tested, thereby
enabling the Army to evaluate the risks of not conducting those
tests.
o Regression testing. Regression testing is a process that helps
ensure that changes made to the system have not adversely affected
functionality that was working prior to a change being made to the
system. In essence, it is a process that retests the entire system
to ensure that the problem fixed did not have an adverse effect on
other functions within the system.
While the processes described above are an improvement over what
we have seen in the past, we continue to identify weaknesses in
the testing process. For example, none of the test scripts
provided adequate information that linked the items in the test
script to a specific requirement. This linking is commonly
referred to as traceability and is characteristic of a disciplined
testing process. The test scripts reviewed contained headings for
information on the scenario, key data requirements, expected
results, actual results, and whether the test was considered
successful. However, the actual test script failed to contain the
level of specificity that clearly delineated how a specific
requirement identified in the requirement document(s) and the
associated requirement(s) in that document were being tested. As a
result, it is virtually impossible to ascertain if the requirement
was properly tested. For example, several requirements defined
rules that were expected to be implemented. Without linking a
given requirement to the tests designed to exercise that
requirement, it was impossible to obtain reasonable assurance that
(1) all the requirements had been tested and (2) the test provided
adequate coverage for each requirement.
A review of the test script for one corrective action showed that
the identified expected results were "output of report should show
open accounts receivable items for customers in the range noted."
Our analysis of the documentation disclosed that the test scripts
only tested to make sure that a report could be printed for (1) a
specific customer, (2) a consecutive range of customers (e.g.,
customers 1 through 10), (3) federal and nonfederal customers (the
exact condition tested was not specified since the user was only
required to pick one of the conditions), and (4) receivables
associated with a specified general ledger account. While this
testing addressed the requirements that the report be printed
using these conditions, the scripts did not provide evidence that
other requirements were tested and the data presented were valid.
For example, the report was expected to put receivables into 11
different age categories (for example 0 to 30 days, 31 to 60 days,
etc.); however, no evidence was provided to show that the balances
shown on these reports (1) were consistent with known results and
(2) the accounts selected provided adequate coverage of the ranges
specified. The latter is especially important since two of the
ranges overlap. LMP and CSC officials agreed that the
documentation did not always provide the level of detail that was
needed to (1) document which requirements contained in applicable
requirement documents were being tested and (2) ensure that all of
the specific tests that were required to provide reasonable
assurance that the application worked as expected were completed.
Furthermore, we were informed that the system testing was
conducted by the developers and subject matter experts. Using
developers and subject matter experts, and depending on those
individuals' comprehensive body of knowledge as the foundation for
a testing effort, carries significant risks since this is not a
recognized best practice. A basic testing principle is that a
developer should not test his or her own work, nor should a
development organization test its own work. These testing
principles are based on the concept that testing is the process of
executing a program with the intent of finding errors. Testing is
normally considered a "destructive" process while the development
activities are normally considered a "constructive" progress. It
is very difficult for a developer to change the perspective
required to successfully develop a program into the perspective
necessary to adequately test a process.^5 This does not mean that
the developers are not involved in the testing process since a
best practice is to have them responsible for testing the code
they develop to ensure that it is ready for the next stage of
testing.^6
Further, as noted in our May 2004 report,^7 our analysis of LMP's
December 2003 and January 2004 project status reports identified
numerous instances in which the Army continued to experience
problems with the accuracy of data related to budgeting; workload
planning and forecasting and depot maintenance operations; and
accounting records such as customer orders, purchase orders and
requisitions, obligations, and disbursements. DFAS and Army
officials acknowledged that these problems were attributable to
relying on subject matter experts to develop tests for their
respective functional areas, and not performing end-to-end testing
across the various functional areas.
^5Glenford J. Myers, The Art of Software Testing (New York, N.Y.: John
Wiley & Sons, Inc., 1979).
^6Rex Black, Critical Testing Processes: Plan, Prepare, Perform, Perfect
(Boston, Mass.: Addison-Wesley, 2004).
^7 [74]GAO-04-615 .
After discussing our concerns with the LMP program office and CSC
officials in February 2007, the LMP program office requested the
verification and validation (V&V) contractor to perform an
assessment of the LMP testing process. According to information
provided by the LMP program office and the V&V contractor, in
March 2007, the review found that the LMP testing process was
adequately defined in the planning documentation and noted that
the LMP testing philosophy was governed by the concepts that (1)
the change should operate as intended, (2) the change should not
be harmful to the existing functional environment, (3) testing
should be practical, and (4) the testing efforts should be cost
efficient. The V&V contractor analysis of the LMP testing process
also found that the testing documentation--which was the same
documentation that we analyzed did not support a clear
understanding of the (1) requirement being tested and (2) tests
used to determine whether a requirement was adequately
implemented. According to the V&V contractor, these key areas need
to be addressed. The V&V contractor assessment substantiates our
analysis of the LMP testing process.
Improved Testing Process Planned
LMP program office officials and the V&V contractor agreed that
the testing process currently being utilized could be improved.
They also noted that the LMP program had begun implementing an
initiative to improve the testing program that should address the
weaknesses we identified. The following outlines two key
components of LMP's improved testing efforts.
o Establishment of an independent test group. This is a critical
step and, if effectively implemented, can serve as a strong
foundation for building an effective testing process. An
independent testing group is a best practice.
o Development and implementation of an automated testing program.
CSC is developing an automated testing process which was expected
to reduce the testing burden and eliminate user errors in the
testing process. For example, the user may not detect that the
application did not provide the expected result or record an error
when the application did operate as expected. These are commonly
referred to as testing defects and are to be expected when manual
testing activities are conducted.
LMP program officials are of the opinion that these two actions
will help address the problems of adequately linking the
requirements to the testing and documenting the testing that is
actually performed. These actions, if effectively implemented, are
a significant step forward and can help reduce the risks
associated with testing to acceptable levels. However, the
effective implementation will have to overcome a number of past
problems, including ensuring that the tests provide adequate
coverage. While developing automated tests can improve the
reliability of the testing efforts and help facilitate an
effective regression testing program, the key is whether the
automated tests are testing the correct items. In our discussions
with CSC, we were informed that the existing test scripts were the
basis for developing the new automated test. Whether this approach
will provide an effective testing process is yet to be seen. As we
noted above, the test scripts that will be used as the basis for
developing the automated test scripts do not provide the necessary
link to the requirements that are being tested or provide the
detailed information necessary to write the detailed test scripts
called for in the automated process.
Appendix V: GAO Contacts and Staff Acknowledgments
GAO Contacts
McCoy Williams, (202) 512-9095 or [62][email protected] Keith A.
Rhodes, (202) 512-6412 or [63][email protected] William M. Solis,
(202) 512-8365 or [64][email protected]
Acknowledgments
In addition to the above contacts, the following individuals made
key contributions to this report: J. Christopher Martin,
Senior-Level Technologist; Darby Smith, Assistant Director; Evelyn
Logue, Assistant Director; F. Abe Dymond, Assistant General
Counsel; Beatrice Alff; Sunny Chang; Harold Brumm, Jr.; Francine
DelVecchio; K. Eric Essig; Jason Kelly; Jason Kirwan; Alyson
Mahan; and Debra Rucker.
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[75]www.gao.gov/cgi-bin/getrpt?GAO-07-860 .
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Highlights of [76]GAO-07-860 , a report to the Subcommittee on Readiness
and Management Support, Committee on Armed Services, U.S. Senate
July 2007
DOD BUSINESS TRANSFORMATION
Lack of an Integrated Strategy Puts the Army's Asset Visibility System
Investments at Risk
The Department of Defense (DOD) established a goal to achieve total asset
visibility (TAV) over 30 years ago, but to date it has been unsuccessful.
GAO was requested to (1) determine whether the Army has a systems strategy
for achieving TAV, (2) determine if the Army's business system investment
governance structure is consistent with DOD guidance, and (3) evaluate the
Army's effort to correct previously reported problems with the Logistics
Modernization Program (LMP). GAO obtained an understanding of the Army's
efforts to achieve TAV, oversee and manage its business system
investments, and address previously reported LMP problems.
[77]What GAO Recommends
GAO makes five recommendations to DOD and the Army: (1) develop a concept
of operations for the Army; (2) develop policies, procedures, and
processes to manage investments from a portfolio perspective; (3)
establish an independent verification and validation function; (4) require
that any future General Fund Enterprise Business System (GFEBS) economic
analysis is prepared in accordance with applicable policies; and (5)
direct that LMP use an independent system test team. Overall, DOD
concurred with the recommendations and stated that it will work diligently
to close them.
Supply chain management has been on GAO's high-risk list since 1990. One
area that has contributed to this long-standing problem has been DOD's
inability to maintain control and accountability over hundreds of billions
of dollars of assets. DOD plans to improve its asset management through
its business system modernization. In this regard, GFEBS, the Global
Combat Support System-Army (GCSS-Army), and LMP are aimed at achieving TAV
within the Army. The Army estimates that it will invest approximately $5
billion to develop and implement these systems. However, this investment
is being made without a clear integrated strategy.
o GFEBS, GCSS-Army, and LMP are not being developed in the context
of a well-defined Army-wide enterprise architecture. As a result,
the Army does not have an informed basis for determining if these
systems will fit within the context of future Army business
operations and will efficiently and effectively address the Army's
long-standing weaknesses associated with the lack of asset
visibility.
o The Army lacks a concept of operations that would describe, at a
high level, (1) how the three business systems relate to each
other in achieving the Army's TAV goal, and (2) how information
flows from and through these systems. Moreover, GAO found that the
Army's lack of a concept of operations has contributed to its
failure to take full advantage of business process reengineering
opportunities that are available when using an enterprise resource
planning solution.
Without these key foundational elements, the Army is at risk of investing
about $5 billion in business systems and still not achieving DOD's and the
Army's goal of TAV.
Furthermore, while the Army has established a governance structure that is
consistent with DOD guidance, its processes are still maturing. The Army's
governance structure is designed to certify and review individual business
systems rather than to evaluate these investments from a portfolio
perspective. Such a perspective permits investments to be viewed in a
comprehensive manner to help ensure that the organization's missions and
objectives are achieved. GAO also found that the Army did not have
reliable processes and analyses, such as an independent validation and
verification function or economic analyses, to support its oversight of
individual business systems. Until the Army's investment processes mature,
it runs the risk of investing in business systems that do not provide the
desired functionality and efficiency.
Additionally, LMP continues to be plagued by problems that have beset the
system since its implementation in July 2003. LMP continues to experience
problems with accurately recognizing revenue and billing customers, which
can, in part, be attributed to ineffective system testing.
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