Cost increases and schedule delays in DoD’s business systems modernization program place achievement of DoD’s auditability goals at risk, according to a report just released by DoD’s Inspector General (IG). 

The IG reports that DoD’s continued use outdated legacy systems due to business systems modernization schedule delays and cost increases reduces the projected savings to be achieved from implementation of these new systems.  More importantly, according to the report, these cost increase and schedule delays jeopardize DoD’s ability to “achieve an auditable Statement of Budgetary Resources by FY 2014” or full financial statement audit readiness by 2017, as directed by DoD Secretary Leon Panetta.

IG auditors evaluated DOD’s six Enterprise Resource Planning (ERP) systems considered critical to DoD’s goal of achieving audit readiness:  the Army’s General Fund Enterprise Business System (GFEBS) and Logistics Modernization Program (LMP), the Navy Enterprise Resource Planning (ERP) system, the Air Force Defense Enterprise Accounting and Management System (DEAMS), and DoD’s Defense Agency Initiative (DAI) and the Defense Logistics Agency’s Enterprise Business System (EBS). 

The IG found that the six ERP systems have experienced $8 billion in costs increases and schedule delays of from 1.5 to 12.5 years.  DoDIG-reported life cycle cost increases ranged from a low of $71 million for GFEBS to $3.9 billion for LMP.

The IG report compares the latest life cycle cost estimates (available when the IG audit as conducted) to the original estimates.  The IG report acknowledges that these estimates continue to change as work progresses.  For example, in its response, the Navy provided a new estimate for its ERP that was $100 million below the IG estimate.

According to the IG, DoD’s Chief Management Officers relied too much on Program Offices’ “self compliance assertions” that business processes were streamlined when they approved funding.  The IG report asserts that this lack of management review and verification of PMO reporting for ERP systems will cause continued delays and cost increases.

To address its findings, the IG recommends:  1) the Deputy Chief Management Officer (DCMO) and the Service CMOs “develop procedures to review business processes and limit funding to programs that are not demonstrating adequate business process reengineering,” and the USD(Comptroller/CFO) to link material weaknesses’ resolutions to ERP systems, identify how and when deficiencies will be corrected, and track the effects of ERP schedule delays on DoD audit goals.

In responding to the IG report, DoD generally agreed that costs have increased and the programs are experiencing schedule delays.  Even so, DoD asserts these new systems are adding functionality and the department continues to be on track to achieve full audit readiness by 2017. 

These cost increases, according to the Services, are due to:  the addition of new requirements; overly aggressive initial schedules; unanticipated complexities from implementing commercial off-the-shelf software; staffing problems, design, development, and testing modifications, BRAC-related activities, restatement of agency IT priorities, and work stoppage associated with contract challenges.

The Services also stated they continue to improve the review and evaluation process, which should address the IG concerns.  The report agrees the services will meet the intent of IG recommendations if improvements are implemented and complete and accurate before funding is improved.

DoD’s Deputy Chief Financial Officer (DCFO) stated that the 2012 Financial Improvement Audit Readiness (FIAR) Plan status report included expanded information on ERP systems that addressed the IG concerns.  Ongoing FIAR status reports will include expanded information on IT application controls and impacts of schedule delays.  The IG report stated that these actions met the intent of their recommendations.