Input:
	Background

		NNSA’s Missions and Organization

NNSA largely executes its missions at eight sites that comprise the  nuclear security enterprise and that are managed by seven M&O  contractors. These eight sites are  three national security laboratories—Lawrence Livermore National  Laboratory in California, Los Alamos National Laboratory in New  Mexico, and Sandia National Laboratories in New Mexico and other  locations;  four nuclear weapons production plants—the Pantex Plant in Texas,  the Y-12 National Security Complex in Tennessee, the Kansas City  National Security Complex in Missouri, and tritium operations at  DOE’s Savannah River Site in South Carolina; and  the Nevada National Security Site, formerly known as the Nevada  Test Site.
As shown in figure 1, each of NNSA’s eight sites has specific  responsibilities within the nuclear security enterprise. NNSA also  executes portions of its missions across several other DOE sites, such as  the Pacific Northwest National Laboratory in Washington and the Oak  Ridge National Laboratory in Tennessee. At this time, NNSA’s common  financial reporting efforts are focused on the eight sites, as required by  the National Defense Authorization Act for Fiscal Year 2017.
NNSA’s sites are owned by the federal government but managed and  operated by M&O contractors. According to DOE, the use of M&O  contracts is supported by an underlying principle: the federal government  employs highly capable companies and educational institutions to  manage and operate government-owned or -controlled scientific,  engineering, and production facilities because these companies and  educational institutions have greater flexibility than the government in  bringing scientific and technical skills to bear. As we previously found, an  M&O contract is characterized by, among other things, a close  relationship between the government and the contractor for conducting  work of a long-term and continuing nature.
To support its missions, NNSA is organized into program offices that  oversee the agency’s numerous programs. For example, the Office of  Defense Programs oversees the B61-12 Life Extension Program, and  the Office of Defense Nuclear Nonproliferation oversees the Nuclear  Smuggling Detection and Deterrence Program. NNSA’s program offices  are
Defense Nuclear Nonproliferation;
Safety, Infrastructure, and Operations;
Defense Nuclear Security;
Counterterrorism and Counterproliferation; and
Naval Reactors.
Mission-related activities are primarily overseen by these program offices,  which are responsible for integrating the activities across the multiple  sites performing work. NNSA field offices, co-located at the sites, oversee  the day-to-day activities of the contractors as well as mission support  functions such as safety.

		Cost Accounting Requirements and Methods of Accounting for and Tracking Costs

NNSA is subject to different cost accounting requirements than its seven  M&O contractors. NNSA is required to follow Managerial Cost Accounting  Standards. The principal purpose of Managerial Cost Accounting  Standards is to determine the full cost of delivering a program or output to  allow an organization to assess the reasonableness of this cost or to  establish a baseline for comparison. The standards state that federal  agencies should accumulate and report the costs of their activities on a  regular basis for management information purposes. The standards also  state that agencies should allow flexibility for agency managers to  develop costing methods that are best suited to their operational  environment. Such information is important to Congress and to NNSA  managers as they make decisions about allocating federal resources,  authorizing and modifying programs, and evaluating program  performance. Separate standards—referred to as federal Cost  Accounting Standards—govern how NNSA’s M&O contractors structure  and account for their costs. Federal Cost Accounting Standards provide  direction for the consistent and equitable distribution of a contractor’s  costs to help federal agencies more accurately determine the actual costs  of their contracts and the contractor’s costs associated with specific  projects and programs.
To comply with federal Cost Accounting Standards, M&O contractors  classify costs as either direct or indirect when they allocate these costs to  programs. Direct costs are assigned to the benefitting program or  programs. Indirect costs—costs that cannot be assigned to a particular  program, such as costs for administration and site support—are to be  accumulated, or grouped, into indirect cost pools. The contractor is to  estimate the amount of indirect costs to distribute to each program  (accumulated into indirect cost pools) and make adjustments by the end  of the fiscal year to reflect actual costs. The contractor is then to distribute  these costs proportionally across all programs based on a rate in  accordance with the contractor’s cost allocation model. The final program  cost is the sum of the total direct costs plus the indirect costs distributed  to the program.
In implementing these allocation methods, federal Cost Accounting  Standards provide contractors with flexibility regarding the extent to which  they identify incurred costs directly with a specific program and how they  collect similar costs into indirect cost pools and allocate them among  programs. Therefore, different contractors may allocate similar costs  differently because the contractors’ cost allocation models differ—that is,  a cost classified as an indirect cost at one site may be classified as a  direct cost at another. Because each contractor can allocate similar  indirect costs differently and contractors may change the way they  allocate indirect costs over time, it is difficult to compare contractors’  costs among sites and accurately calculate total program costs when  work for a program is conducted at multiple sites.
The seven NNSA M&O contractors and NNSA’s program offices account  for and track costs differently. We previously found that NNSA’s M&O  contractors have historically developed their own processes to manage  and track costs for work at each site even when their work contributes to  the same program. These processes have generally differed from the  ones NNSA program offices have developed to describe the scope of its  programs. This makes it difficult for NNSA and others to track and  compare costs for analogous activities across programs, contractors, and  sites. For example, in May 2018, we found that NNSA’s work breakdown  structure for the B61-12 Life Extension Program and its $7.6 billion cost  estimate (at that time) did not include $648 million in activities that were  undertaken by other NNSA programs, such as research and  development, test and evaluation activities, and infrastructure elements.
Leading practices for developing work breakdown structures state that a  work breakdown structure should include all activities that contribute to a  program’s end product, and should not treat contributing activities  separately.
DOE’s and NNSA’s financial management and accounting system—the  Standard Accounting and Reporting System (STARS)—provides budget  execution, financial accounting, and financial reporting capabilities for the  department. STARS is also integrated with other agency systems for  procurement, funds distribution, travel, and human resources. The M&O  contractors’ financial systems must be able to directly provide cost reports  to NNSA’s financial management system. The primary source of cost  data contained in STARS comes from summary-level cost reports  provided by M&O contractors, which they report for NNSA’s  appropriations at the budget and reporting code level. Program offices  access STARS financial data through the DOE Office of the Chief  Financial Officer’s integrated data warehouse. While financial data  collected through STARS represent DOE’s official financial data, the data  are not detailed and therefore may not satisfy the information needs of  NNSA’s program offices. For example, STARS financial data do not  differentiate labor costs from other programmatic costs, nor do they  provide detailed information about the costs of activities that contribute to  program costs. In addition, according to M&O contractor representatives,  if one M&O contractor provides funding to another contractor, such as to  conduct testing, NNSA does not have the ability in STARS to identify that  funding was transferred.
In the absence of an automated managerial cost accounting system that  collects data from financial systems and relevant operating systems to  consistently and uniformly produce useful cost information, NNSA’s  program offices developed various systems, tools, and spreadsheets to  track relevant cost information. Specifically, NNSA’s program offices  separately collect cost information from M&O contractors that is more  detailed than costs reported through STARS. Collecting these data  requires M&O contractors to map, or “crosswalk,” their cost data to the  work breakdown structures of one or more of NNSA’s program offices.  Some program offices collect financial data through ad hoc data calls,  rather than regular data calls. Some tools the program offices use include  program management systems or spreadsheets designed to meet each  program office’s programmatic, budgetary, and project requirements. For  example, the Office of Defense Programs built the Enterprise Portfolio  Analysis Tool in 2007 to capture financial data from the M&O contractors  for its programs.
Also, in 2007, officials from the Office of Defense Nuclear Nonproliferation  developed a program management system designed to integrate and  manage data such as scope, schedule, budget, and cost at the program  level with greater detail than the data in STARS. The Office of Safety,  Infrastructure, and Operations later adopted this system and called it the  G2 program management system. M&O contractors use the G2 system  to upload crosswalks of financial data for those program offices’ work  breakdown structures after the costs were incurred. This process allows  M&O contractors to report detailed financial data to the respective  program offices every month. The process to track cost information is  different for each program office and depends on the tool used and the  information collected. However, for all program offices the process to  track cost information is in addition to the financial reporting that M&O  contractors provide for STARS (see fig. 2).

		NNSA’s Approach to Implementing Common Financial Reporting

To implement common financial reporting and standardize financial  reporting by the M&O contractors across programs and sites, NNSA is  pursuing an approach in which the agency collects M&O contractors’  financial data in a common reporting framework using an NNSA-wide  data reporting and analysis tool. M&O contractors produce crosswalks of  their financial data and submit the data to NNSA using a data reporting  and analysis tool called CostEX. NNSA then stores the reported financial  data in the DOE Office of the Chief Financial Officer’s integrated data  warehouse. The Office of Defense Programs has used this process to  collect financial data from the M&O contractors for its programs since  fiscal year 2017. NNSA implemented this process for the broader  common financial reporting effort in fiscal year 2018. Figure 3 illustrates  NNSA’s data management process for common financial reporting.
To implement common financial reporting, NNSA established a common  reporting framework using agreed-upon work breakdown structures and  common cost elements and definitions. However, in January 2019, we  found that NNSA did not establish a common work breakdown structure  for all of the participating program offices, although the agency had  established 22 common cost elements and definitions. Specifically, the  Offices of Defense Programs, Emergency Operations, Defense Nuclear  Security, and Counterterrorism and Counterproliferation used NNSA’s  common work breakdown structure, while the Offices of Safety,  Infrastructure, and Operations and Defense Nuclear Nonproliferation  used their own programmatic work breakdown structures.
The M&O contractors crosswalk their internal financial data into a work  breakdown structure for each of the participating program offices (either  NNSA’s common work breakdown structure or a programmatic work  breakdown structure) using common cost elements and definitions. The  M&O contractors’ business systems capture their financial data at a more  detailed level than is needed for common financial reporting. Each M&O  contractor tracks financial data for its site based on how it manages the  work using projects, tasks, and expenditure types. For example, M&O  contractors collect time and attendance data from their employees based  on the number of hours spent working on a project for the pay period. The  M&O contractors aggregate this information across multiple employees to  report on labor costs for a project. When the M&O contractors prepare  their data for common financial reporting, site managers identify the  component(s) of the applicable work breakdown structure and cost  elements with which the project aligns and crosswalk their financial data  to the NNSA structure using professional judgment. Figure 4 shows an  example of how an M&O contractor crosswalks its financial data into an  NNSA work breakdown structure in CostEX.
After the M&O contractors submit their financial data in CostEX, NNSA  performs data quality and accuracy checks of the M&O contractors’ data,  referred to as “data validation” and “data reconciliation.” NNSA performs  data validation using CostEX, which automatically checks each row for  data quality—such as confirming that the correct contractor is entering  data for the site—and formatting based on 45 validation checks. CostEX  identifies data that do not pass the validation check as errors and rejects  them, and the M&O contractor corrects and resubmits the data until it  passes the validation check. NNSA performs data reconciliation with  STARS using CostEX at the budget and reporting code level. CostEX  extracts STARS data for selected budget and reporting codes and  compares it with the data the M&O contractors submitted for common  financial reporting. CostEX identifies data that differ from the STARS data  by more than $1 as an error and rejects the data, and the M&O contractor  corrects and resubmits the data until it passes the reconciliation check.  According to NNSA officials, it is important for the agency to perform  these data validation and reconciliation checks prior to accepting the  M&O contractors’ financial data to ensure data quality.

	NNSA Made Progress toward Implementing Agency-Wide Common Financial Reporting but Faces Challenges in Fully Implementing the Effort

NNSA has made progress toward implementing common financial  reporting across the nuclear security enterprise since our last report in  January 2019, but it faces challenges in fully implementing the effort. We  identified seven steps related to NNSA’s efforts to implement common  financial reporting in our January 2019 report: (1) identifying an approach  and developing a tool to implement common financial reporting, (2)  developing a policy, (3) establishing common cost elements and  definitions, (4) identifying and reporting costs for programs of record and  base capabilities, (5) implementing a common work breakdown structure,  (6) collecting financial data from the M&O contractors, and (7) publishing  and analyzing data. To date, the agency has completed three steps but  has not yet completed four others, as shown in table 1. As required by the  National Defense Authorization Act for Fiscal Year 2017, NNSA is to  implement common financial reporting by December 23, 2020, to the  extent practicable.
NNSA’s progress to implement common financial reporting in these seven  steps since our January 2019 report is described below:  Identify an approach and develop a tool to implement common  financial reporting. NNSA identified an approach and developed a tool  to implement common financial reporting prior to our January 2019 report.  NNSA continues to use CostEX to collect financial data from the M&O  contractors and stores the data in DOE’s integrated data warehouse.
Develop a policy. NNSA developed a policy for common financial  reporting. NNSA began developing the policy in October 2016 and  approved it in February 2019.
Establish common cost elements and definitions. NNSA established  common cost elements and definitions prior to our January 2019 report.  An NNSA official said NNSA established the cost elements and  definitions based on data that the M&O contractors could readily provide  from their business systems. In fiscal year 2019, NNSA used the  established cost elements to collect the M&O contractors’ data and added  a requirement for the contractors to report data on unpaid commitments.
NNSA officials are considering adding cost elements in the future, such  as additional details on labor categories. NNSA is working with the M&O  contractors to ensure they can provide the additional data.
Identify and report costs for programs of record and base  capabilities. NNSA has not yet identified and reported costs for all  programs of record or costs for base capabilities. The National Defense  Authorization Act for Fiscal Year 2017 required NNSA to establish  definitions and methodologies for identifying and reporting costs for  programs of record and base capabilities as part of its efforts to  implement common financial reporting. According to the program director  for financial integration, NNSA establishes its programs of record in its  congressional budget justification and other documents to align with  agency appropriations, which include Weapons Activities, Defense  Nuclear Nonproliferation, and Federal Salaries and Expenses. Through  common financial reporting in fiscal year 2018, NNSA collected financial  data from the M&O contractors for $8.9 billion of $13 billion from these  appropriations. In May 2018, NNSA issued guidance that identified 25  base capabilities that the M&O contractors used to develop their site  strategic plans. We reviewed the M&O contractors’ site strategic plans for  2018 and found that the contractors identified base capabilities for their  sites, but did not include information about the costs to maintain each  sites’ base capabilities. NNSA is working to determine whether or how  to collect information on the cost of base capabilities through the M&O  contractor site strategic planning process in coordination with the  common financial reporting effort. We will continue to monitor NNSA’s  progress in addressing this requirement.
Implement a common work breakdown structure. NNSA has not yet  implemented a common work breakdown structure across the program  offices in the nuclear security enterprise, but plans to assess the  feasibility of implementing a common structure in fiscal year 2020. The  National Defense Authorization Act for Fiscal Year 2017 requires NNSA  to develop a common work breakdown structure as part of its efforts to  implement common financial reporting. In January 2019, we found that  NNSA decided not to pursue a common work breakdown structure.  Rather, NNSA collected financial data from the M&O contractors using a  common work breakdown structure for four program offices and used  different, programmatic work breakdown structures for two other program  offices. As we found in January 2019, these two offices did not want to  change their work breakdown structures to the common structure. For  example, the Office of Safety, Infrastructure, and Operations did not want  to change its work breakdown structure because it uses the structure for  scope, schedule, and risk management, in addition to budget and cost.  We recommended that NNSA implement a common work breakdown  structure across its participating program offices because without doing  so, NNSA could not ensure that its efforts would result in the collection of  reliable, enterprise-wide financial data that satisfies the needs of  Congress and enables NNSA to report the total costs of its programs. At  the time of that report, NNSA neither agreed nor disagreed with the  recommendation. The agency stated that it would continue to use its  current approach, while focusing on enhancing analysis and reporting to  provide comparative data across the enterprise. Once this was  completed, NNSA planned to assess the effectiveness of the approach  and evaluate what changes, if any, were necessary to the work  breakdown structures to meet the overarching objectives of common  financial reporting.
In May 2019, in response to our recommendation, NNSA changed its  approach and decided to conduct an assessment in fiscal year 2020 of  the feasibility of implementing a common work breakdown structure  across all participating program offices. To do so, NNSA plans to collect  M&O contractors’ financial data in fiscal year 2020 using both the  common work breakdown structure for all program offices and— specifically for the Offices of Safety, Infrastructure, and Operations and  Defense Nuclear Nonproliferation—the programmatic work breakdown  structures while it assesses the feasibility of a common work breakdown  structure. NNSA decided to take this approach to assess the potential  benefits while mitigating potential risks to the program offices that use the  data collected through the programmatic work breakdown structures to  oversee their programs. NNSA officials said that reporting the same data  using two different work breakdown structures will require additional  resources for the M&O contractors to prepare their data submissions,  which NNSA does not view as a long-term solution for common financial  reporting.
NNSA planned to collect data using these two approaches in parallel  starting in November 2019 and make a decision on whether to implement  a common work breakdown structure across the nuclear security  enterprise in March 2020. NNSA plans to assess the feasibility of  implementing a common work breakdown structure using criteria such as  (1) whether using a common work breakdown structure reduces burden  on the M&O contractors, (2) how much it will cost NNSA to update other  program management systems, (3) whether NNSA can collect financial  data quickly enough to meet the needs of the program offices, and (4)  whether financial data collected using the common work breakdown  structure provides program offices with comparable data to support  existing program analysis.
Collect financial data from M&O contractors. Since our January 2019  report, the M&O contractors submitted their financial data for fiscal years  2018 and 2019 for the participating program offices using CostEX.  However, NNSA and the M&O contractors faced challenges in collecting  accurate and consistent financial data for common financial reporting  across the nuclear security enterprise. Specifically, NNSA faced  challenges in (1) fully implementing its data validation and reconciliation  process, (2) collecting financial data from each M&O contractor for all of  the program offices, and (3) communicating information about changes in  a timely manner.
First, NNSA faced challenges fully implementing its data validation and  reconciliation process for fiscal year 2018. NNSA designed CostEX to  automatically validate the M&O contractors’ data to check data quality  and formatting and perform data reconciliation with STARS. However,  according to an NNSA official, for fiscal year 2018, the agency manually  reconciled the M&O contractors’ fiscal year 2018 data with STARS to  identify and fix issues with the process prior to automation. For example,  an NNSA support contractor manually submitted and reconciled data for  one M&O contractor that manages two sites because the M&O contractor  submits combined data for the two sites into STARS, but NNSA collects  financial data for common financial reporting by site. For the fiscal year  2019 data collection effort, NNSA officials said they corrected the  submission issue and CostEX was able to automatically reconcile the  M&O contractors’ data with STARS. Another M&O contractor’s fiscal year  2018 financial data did not reconcile each month with STARS. NNSA  officials and representatives from the M&O contractor said the  reconciliation issue was due to timing differences between when the  contractor reported data into STARS and CostEX. Specifically, M&O  contractor representatives for the site said that when NNSA is delayed in  collecting data for common financial reporting in CostEX, the relationships  between the data reported into STARS and CostEX will have changed,  which may result in reconciliation errors. During that time, the site  changed how it tracked some of the data, which led to differences in how  the data were provided for STARS and common financial reporting, and  which caused the reconciliation errors. NNSA officials said they resolved  the issue with the M&O contractor for fiscal year 2019 and completed  data collection in October 2019.
Second, NNSA faced challenges in collecting data from each M&O  contractor for all of the participating program offices. Specifically, the  Office of Defense Nuclear Nonproliferation made ongoing changes to its  work breakdown structure templates throughout the fiscal year 2018 data  collection effort. This resulted in challenges for the M&O contractors when  reporting data for this program office. NNSA did not collect complete  fiscal year 2018 financial data for this office, in part because one of the  contractors had significant data validation and reconciliation errors,  resulting in data that NNSA could not validate and reconcile.
Third, NNSA faced challenges in communicating information about  changes to the work breakdown structure in a timely manner to M&O  contractors. Leading project management practices emphasize the  importance of establishing and implementing change control processes,  which include reviewing and approving all change requests, documenting  the changes, and communicating the decisions. In fiscal years 2018 and  2019, not all NNSA programs consistently ensured that changes to the  work breakdown structure were approved, documented, or communicated  to the M&O contractors in a timely manner because NNSA had not  established and implemented a work breakdown change control process.  NNSA established aspects of such a process, in which program offices  submitted changes to the work breakdown structures to the financial  integration team so the team could upload the changes into CostEX and  notify the M&O contractors of the changes prior to their data submissions.  However, according to officials with the financial integration team, the  federal program managers did not always follow the process. Officials  with the financial integration team said that in some instances, the sites’  program managers contacted the M&O contractors directly to request  changes to their work breakdown structures. The financial integration  team identified issues with the program offices’ work breakdown  structures when the M&O contractors’ data could not be validated and  reconciled. In such instances, the financial integration team contacted the  program managers to request the updated work breakdown structures for  CostEX. Further, the existing process does not include some aspects of  change control processes that are consistent with leading practices.
Approving changes. Under the existing process, the financial  integration team does not check whether changes that federal  program managers submit to them have been reviewed and  approved, at a minimum, by program office management prior to  making changes to the work breakdown structures in CostEX. The  program director for financial integration said that they defer to the  program offices to ensure that program office management review  and approve changes to the work breakdown structure before the  program managers submit these changes to the financial integration  team.
Documenting changes. NNSA officials said that not all program  offices have tracked changes to their work breakdown structures over  time. NNSA’s Office of Defense Programs has a process for tracking  changes to its work breakdown structure, but that process—or a  similar process—was not utilized consistently by all of NNSA’s other  program offices. If the program offices do not track the changes to  their work breakdown structures over time, they cannot ensure the  data are comparable across fiscal years. According to officials, NNSA  built a tool in CostEX to track work breakdown structure changes  across fiscal years. NNSA officials said the tool was tested at the end  of fiscal year 2019 by the Office of Defense Programs. NNSA plans to  test using the tool to track changes for the other program offices in  fiscal year 2020.
Communicating decisions. NNSA did not always communicate  changes to the work breakdown structure to the M&O contractors in a  timely manner. Representatives from the seven M&O contractors  stated that they encountered challenges in submitting their data in  CostEX on multiple occasions throughout fiscal years 2018 and 2019  because federal program managers in some offices made frequent  changes to the work breakdown structures that often were not  communicated to the M&O contractors in a timely manner. When work  breakdown structures change, representatives from the seven M&O  contractors said they have to redo the crosswalk of their financial data  to the new work breakdown structures before they submit the data— this takes time and additional resources and may result in delayed  data submissions. Representatives from three of the M&O contractors  said the frequency of changes to the work breakdown structures  decreased for the fiscal year 2019 data collection effort, but  representatives from six M&O contractors said they continued to  encounter challenges when changes were made to the work  breakdown structures.
Without establishing and systematically implementing a work breakdown  structure change control process, NNSA will not be able to verify that, at a  minimum, program office management has approved changes to the work  breakdown structure or that these changes have been documented,  potentially leading to challenges in ensuring that the data are comparable  over time. Furthermore, NNSA cannot ensure that changes to the work  breakdown structures are communicated to the M&O contractors in a  timely manner, which results in contractors using additional time and  resources to address validation or reconciliation errors.
Publish and analyze data. NNSA has published the M&O contractors’  financial data for fiscal years 2018 and 2019, but NNSA has not  conducted agency-wide analysis of the data. The NNSA financial  integration team has a website for common financial reporting from which  the program offices can download financial data. However, an NNSA  official stated that agency-wide analysis of the data was not feasible for  fiscal years 2018 or 2019 because NNSA did not use a common work  breakdown structure for all participating program offices. In addition, an  NNSA official stated that the agency needs to collect at least 3 years of  data to produce useful NNSA-wide findings.
Some of the NNSA program offices have started to analyze the financial  data collected through the common financial reporting effort. For  example, the Office of Defense Programs is using financial data collected  through common financial reporting for program evaluation and to make  budgetary decisions. In addition, an NNSA official from the Office of  Counterterrorism and Counterproliferation stated that the office has used  financial data from common financial reporting to identify and address  accounting issues, such as identifying previously unidentified unspent  funds carried over from prior fiscal years and redirecting these funds to  support program activities in fiscal year 2019. However, some of the  program offices have not used the data collected through common  financial reporting for various reasons. For example, officials from the  Office of Safety, Infrastructure, and Operations stated that the fiscal year  2018 data were not useful for analysis because they were not collected in  a timely manner. NNSA officials said they completed data validation and  reconciliation of the M&O contractors’ fiscal year 2018 financial data in  February 2019—nearly halfway through the following fiscal year—making  the data late and not useful for that office’s purposes. Additionally,  officials from the Office of Defense Nuclear Security stated that they have  not used the data collected through the common financial reporting effort  because they want to ensure that the data are accurate and consistent  before using it for decision-making.

	NNSA’s Approach Provides Limited Assurance That Data Collected are Accurate and Consistent to Perform Agency-Wide Data Analysis

		NNSA Has Not Verified Whether Contractors Accurately Crosswalk Financial Data to Work Breakdown Structures

As discussed previously, M&O contractors crosswalk their financial data  into a reporting framework using work breakdown structures and common  cost elements and definitions, and they submit their data to NNSA using  CostEX. To help ensure the accuracy of the data, NNSA performs data  quality checks of the M&O contractors’ financial data submitted using  CostEX. If NNSA cannot validate and reconcile the submitted data using  the agency’s processes, it rejects and returns the data to the M&O  contractor to correct the errors. NNSA also provides the M&O  contractors with error reports from CostEX that they can use to identify  and correct errors.
Each M&O contractor has established processes to check data quality  prior to submitting the data to NNSA in CostEX. For example,  representatives from all of the M&O contractors said they reviewed their  data for missing information and errors before submitting the data into  CostEX. In addition, all of the M&O contractors performed checks to  compare their data submissions for common financial reporting with their  STARS submissions before submitting the data into CostEX. After the  M&O contractors complete their internal data quality checks, they submit  their financial data into CostEX.
At most sites, M&O contractor representatives said the way their site  tracks financial data does not align with how NNSA requests the data be  reported in the work breakdown structure and cost elements. Officials  from NNSA’s Office of Cost Estimating and Program Evaluation said that  because the M&O contractors do not track their financial data using  NNSA work breakdown structures, the contractors have to make  decisions using professional judgment as to how to crosswalk their  project costs, raising concerns that each M&O contractor may make  different decisions about how to allocate costs. The officials said this may  result in data that are not accurate or comparable for conducting agency- wide analysis.
We identified several limitations to the approach NNSA uses to collect  common financial data that could affect the accuracy and consistency of  the data:
NNSA’s data reconciliation process does not ensure M&O  contractors’ financial data are accurate. M&O contractors identified  potential issues with using STARS for reconciliation to ensure data  accuracy. For example, two M&O contractors said that errors can  sometimes occur in their monthly STARS reporting. Errors in STARS  can be created when a number is mistyped or corrections are made to  purchase card or time sheet information. Once the M&O contractor  submits its data to STARS, errors cannot be corrected until at least  the following month. However, because the common financial  reporting data must reconcile with STARS, the M&O contractor has to  submit financial data into CostEX that includes the error. The program  director for financial integration said a process is in place for the M&O  contractors to identify any issues with STARS reporting and correct  their reported data in the future.
More significantly, some M&O contractors said they make changes to  their data before submitting it into CostEX to ensure that the data  reconcile. Specifically, representatives from two M&O contractors said  they compare their financial data for common financial reporting with  their STARS data submission. If data from the two systems do not  match for small dollar amounts, the contractors manually make  adjustments to the data for common financial reporting rather than  making the corrections in their business systems. The representatives  also said they do not notify NNSA officials of the manual changes.
NNSA requires that financial data for common financial reporting  reconcile with STARS. Specifically, NNSA rejects M&O contractor  financial data that differs from the STARS data by more than $1.  According to federal standards for internal control, management  should define objectives clearly to enable the identification of risks  and define risks tolerances. For the fiscal year 2018 data collection  effort, NNSA documentation indicated that M&O contractors reported  financial data for $8.9 billion of costs and reconciled the data with their  STARS cost reporting to a total difference of $5.03. According to an  NNSA official, M&O contractors reported financial data for $10.2  billion of costs and reconciled the data with STARS to a total  difference of $8.97 for fiscal year 2019. However, NNSA has limited  assurance that the financial data provided internally reconcile as  required because the agency does not know the extent of changes  that M&O contractors made to ensure the data reconcile with STARS  or the potential effects of those changes on the accuracy of the data.  Assessing the extent to which M&O contractors make manual  changes to ensure reconciliation with STARS for common financial  reporting and determining the effect of these changes could provide  additional assurance that the financial data collected through common  financial reporting are accurately reported.
M&O contractors crosswalk site projects and tasks to NNSA  work breakdown structures, resulting in the potential for  differences in how costs are allocated. Each M&O contractor  tracks financial data for its site based on how it manages the work  using projects and tasks, as allowed by federal Cost Accounting  Standards. When a site’s projects and tasks do not align with NNSA’s  work breakdown structure, site program managers identify the  component of the NNSA work breakdown structure with which the  project and tasks best align and crosswalk their financial data to the  NNSA structure using professional judgment. One site program  manager said it is sometimes challenging to identify which of their  internal projects and tasks aligns with the NNSA work breakdown  structure, especially when internal projects have similar names to  describe different project scopes. Another site program manager said  the site’s projects and tasks closely align with the NNSA work  breakdown structure approximately 30 to 40 percent of the time, and  contractor representatives use professional judgment to crosswalk the  remaining 60 to 70 percent of their projects and tasks.
To create the crosswalk, site program managers consider which  NNSA program the project mostly supports. It can be difficult to  crosswalk the site data into NNSA’s work breakdown structure,  especially for work that benefits multiple weapons programs. For  example, a site program manager said that the site’s project to  develop inert material for NNSA’s high explosives activities supports  multiple weapons programs. The site tracks that work as one project,  but NNSA’s work breakdown structure requires that the costs be  reported across multiple programs. When M&O contractors make  decisions to crosswalk their financial data using professional  judgment, the contractors do not provide information to NNSA on how  the costs are allocated. By verifying this information, NNSA could  ensure that allocation decisions are made consistently across the  nuclear security enterprise.
M&O contractors provided different financial data for the same  projects. M&O contractors continue to report financial data for some  program offices into multiple systems, including the G2 program  management system, WebPMIS, and spreadsheets. For fiscal year  2018, NNSA compared financial data that the M&O contractors  reported, for two NNSA program offices, into the G2 program  management system and the CostEX tool used for common financial  reporting and found differences between the data reported for the  same budget and reporting codes and levels of the work breakdown.  The program director for financial integration said he worked with the  program offices and identified the cause of the differences in the data.
NNSA cannot ensure the accuracy of the data submitted for common  financial reporting because NNSA does not have an internal process to  verify whether M&O contractors crosswalk their financial data accurately  from their business systems to the NNSA work breakdown structure.  According to federal standards for internal control, management should  use quality information to achieve the agency’s objectives. Under the  financial integration policy, the program director for financial integration is  responsible for executing a plan for NNSA to achieve enterprise-wide  financial integration to collect standardized financial management data;  increase transparency of financial accountability; and improve cost  analysis, comparability, and reporting consistency among programs and  M&O contractors. The program director for financial integration said that  verifying whether the M&O contractors properly crosswalk their data to  the work breakdown structure is an area in which the agency should  improve its common financial reporting effort. NNSA officials stated that  the common financial reporting effort does not have a process to validate  financial data that are more detailed than STARS and indicated that until  the agency has assurances the reported data are accurate, NNSA should  not use that more detailed data for agency decision-making. By  developing an internal process for NNSA to verify the M&O contractors’  crosswalks, the agency will have better assurance that the data collected  through common financial reporting will produce accurate, enterprise- wide financial data that is comparable across the M&O contractors and  that satisfies the needs of Congress and other stakeholders. Further, this  would help address long-term issues with NNSA’s ability to report the  total costs of its programs, in accordance with Managerial Cost  Accounting Standards.

		NNSA Has Not Verified Whether Contractors Accurately Crosswalk Financial Data to Cost Elements

As part of common financial reporting, M&O contractors crosswalk their  financial data to NNSA’s cost elements. Cost elements capture discrete  costs of a particular activity of work and include direct costs such as labor  and equipment and indirect costs such as general and administrative  costs. In March 2018, NNSA established 22 cost elements and  definitions—including 10 indirect cost elements—that the M&O contractors use to report financial data. As we found in our January 2019  report, NNSA officials said this was a critical step toward implementing  common financial reporting because without common cost elements, the  agency was limited in its ability to report lower-level costs consistently  across programs and sites. In addition, having the M&O contractors  report financial data across common cost elements would allow NNSA to  improve its management of programs across the enterprise. NNSA  developed the cost elements and definitions in consultation with the M&O  contractors based on the data they could provide because officials said it  is important for the contractors to report accurate financial data using the  NNSA cost elements.
M&O contractors manage their sites’ financial data using expenditure  types to track the costs of their projects. These expenditure types capture  similar costs as the cost elements, but at a more detailed level, and are  specific to each individual M&O contractor based on how the contractor  manages its expenses. M&O contractors have flexibility to determine how  they structure their work and the expenditures they track in their financial  systems consistent with Cost Accounting Standards. Based on our review  of M&O contractor documents, M&O contractors varied significantly in the  number of expenditure types they tracked. For example, the M&O  contractor for one of the national laboratories tracked its financial data  using over 900 expenditure types, while another national laboratory used  around 50 expenditure types. NNSA officials said that the number of  expenditure types at the sites varies based on the nature of the work  performed at each site.
Most of the M&O contractors cannot crosswalk their expenditures to  certain NNSA cost elements because of how they track costs in their  systems. Specifically, representatives from five of the M&O contractors  said they cannot accurately crosswalk their indirect expenditure types to  NNSA’s indirect cost elements because their systems do not capture the  data in the way that NNSA wants these data reported. M&O contractors  have discretion to classify which costs are considered indirect, and costs  for similar activities can be allocated differently by each contractor. In  fiscal year 2018, NNSA’s M&O contractors reported spending $3.5 billion  on indirect activities. Generally, in cases in which the M&O contractors  could not crosswalk their indirect costs to specific NNSA cost elements,  representatives from one of the M&O contractors said they allocated their  indirect costs to NNSA’s cost elements using percentages, while others  said they reported data that did not adhere to the NNSA cost elements.
Below are examples of situations in which M&O contractors were not able  to accurately report expenditures into NNSA’s indirect cost elements:
Representatives from one M&O contractor said they could not  accurately report financial data for the general and administrative cost  element and site support from other overhead cost elements because  the site did not capture its data in that way. As a result, the M&O  contractor allocated its indirect costs using formulas and composite  rates, rather than reporting actual cost data to NNSA.
Representatives from two M&O contractors said they could not  accurately report financial data across the site support and  infrastructure support cost elements because the structure of their  indirect cost pool did not allow them to track those expenditures  separately. As a result, representatives from one of the M&O  contractors said they reported all of their infrastructure expenditures to  the site support cost element.
NNSA officials said they were aware of the M&O contractors’ issues with  reporting their expenditure types using the NNSA cost elements. Although  M&O contractors are required to provide financial data using NNSA’s cost  elements, the program director for financial integration said he was aware  that M&O contractors report some indirect costs for separate cost  elements to a single cost element in CostEX, meaning that they do not  accurately report some indirect costs based on NNSA’s definitions.  Additionally, the financial integration team identified differences between  indirect cost data collected from the M&O contractors for common  financial reporting and data reported to another group in NNSA’s Office of  Management and Budget. NNSA plans to conduct a review of the data  reported through the two efforts to determine the cause of the differences.  Officials from the Office of Safety, Infrastructure, and Operations stated  that it is important that the common financial reporting effort is able to  collect accurate information on M&O contractors’ costs related to  infrastructure spending.
NNSA is aware of the challenges its M&O contractors have with  accurately reporting their expenditure types against the NNSA cost  elements. However, NNSA cannot ensure that the agency collects  accurate financial data because NNSA does not have a process to verify  how the M&O contractors crosswalk their expenditure types to NNSA’s  cost elements, consistent with the previously described information  quality standard under the federal standards for internal control and  NNSA’s financial integration policy. M&O contractors reporting data  based on allocated—as opposed to actual—costs is not ideal because  NNSA cannot ensure that each M&O contractor is consistently applying  the allocation and because the data may not be standardized and  comparable across the sites, which affects the quality of the data. By  developing an internal process for NNSA to verify how the M&O  contractors crosswalk their expenditure types, the agency could better  ensure that the data collected through common financial reporting will  produce accurate financial data across the nuclear security enterprise  that satisfies the needs of Congress and other stakeholders. Further, this  would help address long-term issues with NNSA’s ability to report the  total costs of its programs.

	Conclusions

NNSA continues to make progress toward implementing agency-wide  common financial reporting. However, NNSA faces challenges in fully  implementing the effort. For example, NNSA has not consistently ensured  that changes to the work breakdown structure are approved,  documented, and communicated to the M&O contractors in a timely  manner because NNSA has not established and implemented a change  control process for the changes. Without establishing and fully  implementing a work breakdown structure change control process, NNSA  will not be able to verify that the changes to the work breakdown structure  are approved by program office management, at a minimum; documented  and tracked for accurate data analysis and comparison over time; and  communicated to the M&O contractors on a timely basis.
NNSA’s approach to implementing common financial reporting relies on  M&O contractors to crosswalk their internal financial data into a common  reporting framework using a work breakdown structure and common cost  elements and definitions, with certain quality checks to help ensure the  accuracy of the data. However, NNSA has limited assurance that the  financial data that the M&O contractors provide for common financial  reporting are accurate because the agency does not know the extent of  the changes the M&O contractors make to the data so that the data  reconcile to the agency’s accounting system or the potential effects of  these changes. By determining the extent of these changes and whether  these changes affect the accuracy of the data, NNSA could have greater  assurance that the financial data collected through common financial  reporting are accurate. Additionally, NNSA cannot ensure that M&O  contractors accurately crosswalk their financial data to either the NNSA  work breakdown structure or the common cost elements because NNSA  has not established processes to verify the information. By developing  internal processes that would allow NNSA to verify how the M&O  contractors crosswalk their data to the work breakdown structure and  common cost elements, NNSA could better ensure that the data collected  through common financial reporting will produce accurate enterprise-wide  financial data that is comparable across the M&O contractors and that  satisfies the needs of Congress and other stakeholders. Further, this  would help to address long-term issues with NNSA’s ability to report the  total costs of its programs.

	Recommendations for Executive Action

We are making four recommendations to NNSA:  The Program Director for Financial Integration, with input from NNSA’s  Office of Management and Budget and respective program offices, should  establish and implement a work breakdown structure change control  process for common financial reporting that ensures changes are  approved by program office management, at a minimum; documented;  and communicated to M&O contractors on a timely basis.  (Recommendation 1)
The Program Director for Financial Integration should assess the extent  to which M&O contractors make manual changes to their financial data to  reconcile with STARS and determine whether it has an effect on the  accuracy of the data collected for common financial reporting.  (Recommendation 2)
The Program Director for Financial Integration should develop and  implement an internal process for NNSA to verify how the M&O  contractors crosswalk financial data from their systems to the appropriate  NNSA work breakdown structure to ensure the reported data are accurate  and consistent. (Recommendation 3)
The Program Director for Financial Integration should develop and  implement an internal process for NNSA to verify that the M&O  contractors are consistently applying common cost element definitions at  their sites and across the nuclear security enterprise. (Recommendation  4)

	Agency Comments

We provided a draft of this report to NNSA for comment. In its written  comments, which are reproduced in appendix II, NNSA agreed with the  report’s four recommendations and described actions it intends to take to  address them. NNSA also provided technical comments that we  incorporated into the report as appropriate.
We are sending copies of this report to the appropriate congressional  committees, the Secretary of Energy, the Administrator of NNSA, and  other interested parties. In addition, this report is available at no charge  on the GAO website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-3841 or bawdena@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made significant contributions  to this report are listed in appendix III.

Appendix I: Status of GAO’s January 2019 Recommendations to the National Nuclear Security Administration on Its Common Financial Reporting Effort

In our January 2019 report on the National Nuclear Security  Administration’s (NNSA) efforts to implement common financial reporting,  we made seven recommendations. Table 2 describes NNSA’s progress  to implement these recommendations, as of December 2019.

Appendix II: Comments from the National Nuclear Security Administration

Appendix III: GAO Contact and Staff Acknowledgments

	GAO Contact

	Staff Acknowledgments

In addition to the individual named above, key contributors to this report  included Hilary Benedict (Assistant Director), Amanda K. Mullan (Analyst  in Charge), Colette Alexander, Antoinette Capaccio, Jennifer Echard,  Cindy Gilbert, Michael LaForge, Jason Lee, Holly Sasso, and Sheryl  Stein.


Input:
	Background

The military services preposition stocks ashore and afloat so that DOD is  able to respond to multiple scenarios during the initial phases of an  operation until the supply chain has been established. The military  services maintain their own configurations and types of equipment and  stocks to support their respective prepositioned stock programs:
The Army stores sets of combat brigade equipment, supporting  supplies, and other stocks at land sites in several countries and  aboard ships.
The Marine Corps stores equipment and supplies for its forces aboard  ships stationed around the world and at land sites in Norway (see fig.  1).
The Navy’s prepositioned stock program provides construction  support, equipment for off-loading and transferring cargo from ships to  shore, and expeditionary medical facilities to support the Marine  Corps.
The Air Force’s prepositioned stock programs include assets such as  direct mission support equipment for fighter and strategic aircraft as  well as base operating support equipment to provide force,  infrastructure, and aircraft support during wartime and contingency  operations.
Prepositioned stocks are employed by the geographic combatant  commanders, who have the authority to, among other things, organize  and employ forces assigned to them as they deem necessary to  accomplish assigned missions. DOD apportions the services’  prepositioned stocks among the geographic combatant commands  according to joint guidance, and the afloat prepositioned stocks may be  apportioned to more than one geographic combatant command.  Requirements for prepositioned stocks are developed based on an  approved operation plan. The services determine how best to meet the  needs of the geographic combatant commanders, which may include the  use of prepositioned stocks. Geographic combatant commanders  periodically review their plans, assess the risk to those plans, and report  the results to the Chairman of the Joint Chiefs of Staff. The approval of  the Secretary of Defense is generally required to use the prepositioned  stocks.

	DOD’s Prepositioned Stock Implementation Plan Does Not Fully Address Four of the Seven Required Elements

DOD’s implementation plan for managing prepositioned stocks includes  information that addresses three of the seven required elements  enumerated in section 321 of the NDAA for Fiscal Year 2014. However,  the plan, which is 5 pages in length, lacks the detail needed to fully  address the remaining four required elements (see table 1).
The Assistant Secretary of Defense for Logistics and Materiel Readiness  approved the implementation plan on August 29, 2017, but an official  from the Office of the Secretary of Defense told us that DOD did not  formally issue the plan. As such, it does not bear a DOD seal, signature,  or issuance number and most prepositioning service officials we spoke  with were not aware of the plan’s existence.
As shown in the table, DOD fully addressed three elements in section 321  of the NDAA for Fiscal Year 2014 by describing how the department will  achieve its vision, desired end state, and goals, assigning roles and  responsibilities, and including a schedule for the implementation of the  plan. However, we assessed the remaining elements as partially  addressed or not addressed because DOD did not provide the required  information in its implementation plan. Specifically:
Element two (comprehensive list of DOD’s prepositioned  materiel and equipment programs, partially addressed). DOD’s  implementation plan contains a list of the department’s prepositioned  stock programs but that list omits one Army and eight Air Force  prepositioned stock programs. In table 2, we compare the list of  prepositioned stock programs that service officials provided to us with  the list in DOD’s implementation plan.
An official from the Office of the Secretary of Defense told us in April 2017  as part of a previous review that the department would not address this  required element in the implementation plan because the department lists  its prepositioned stock programs in its annual report to Congress. The  implementation plan notes that DOD submits a comprehensive list of  materiel to Congress each year per 10 U.S.C. §2229a. However, the  annual report to Congress does not include a comprehensive list of the  department’s prepositioned materiel and equipment programs. Rather,  the annual report describes most of the department’s prepositioning  programs but it omits one Army and six Air Force programs not listed in  the implementation plan. Apart from the statutory requirement, Standards  for Internal Control in the Federal Government state that management  should communicate quality information externally so that external parties  can help the entity achieve its goals and address risks. Without a  comprehensive list of prepositioned materiel and equipment programs,  DOD decision makers do not have all of the information they need to  conduct effective oversight to assist the department in achieving its vision  and goals.
Element three (detailed description of how the plan will be  implemented, partially addressed). The plan identifies policy,  governance, and assessment initiatives through which the department  aims to achieve its goals. However, the plan does not provide a  detailed description of how the department will implement these three  initiatives.
Specifically, the plan states that DOD will identify policy gaps and  revise or develop policy at all levels to better oversee prepositioned  stocks; assigns the Under Secretary of Defense for Acquisition,  Technology, and Logistics, the Chairman of the Joint Chiefs of Staff,  and the services to review and revise the current prepositioning  policies as appropriate; and tasks the geographic combatant  commanders to ensure that theater campaign plans provide clear  guidance for service prepositioned stock planning. However, the plan  does not provide details on when geographic combatant commanders  should finalize clear guidance for service prepositioned stock planning  or describe what the guidance should include. The plan also states  that DOD will use a governance body composed of the Under  Secretary of Defense for Acquisition, Technology, and Logistics; the  Chairman of the Joint Chiefs of Staff; the geographic combatant  commanders; and the services to provide joint oversight of the  prepositioned stock programs. However, the plan is unclear as to  whether the Global Prepositioned Materiel Capabilities Working Group  is the governance body. For example, the plan states that DOD’s joint  oversight framework will include the Global Prepositioned Materiel  Capabilities Working Group but also assigns the group to present  capability shortfalls and gaps to a governance body and implement  governance body decisions. Further, the plan states that DOD will use  current systems of record and established metrics to evaluate  performance and measure prepositioned stock status and capability.  However, these are existing mechanisms to monitor the services’  programs and do not provide details on how the department will  assess implementation of the plan itself.
In 2017, a Joint Staff official told us that the implementation plan  would be broad and high-level but would be more detailed than the  DOD’s strategic policy. However, the plan’s descriptions of the  implementation initiatives lack sufficient detail on what the department  will do to implement the plan. Apart from the statutory requirement,  Standards for Internal Control in the Federal Government establish  that objectives should be defined in specific and measureable terms  that clearly define what is to be achieved. Without sufficient detail,  DOD risks being unable to fully support the emphasis and high priority  that the 2018 National Defense Strategy gives to prepositioned  stocks.
Element six (description of the resources required to implement  the plan, not addressed). DOD’s implementation plan does not  describe the resources required to implement the plan. Rather, the  plan states that prepositioning programs are resourced and managed  by the services in support of combatant command operational and  training requirements. In describing the joint oversight framework, the  plan states that DOD will leverage the processes that already exist to  resource prepositioning stock requirements including a focused effort  on prepositioning as part of the annual planning, programming,  budget and execution process, and the Joint Capabilities Integration  Development System. Officials from the Office of the Under  Secretary of Defense for Policy told us when they were developing the  implementation plan that they understood this element as requiring  information about the resources such as funding, personnel, and  technology that would be needed to implement the plan. However, the  plan does not include a description of the funding, personnel, or  technology resources required to implement the plan. DOD officials  reported that the services received $1.2 billion for prepositioned  stocks in fiscal year 2018 and that the annual report to Congress also  contains further information on the funding. However, this information  does not describe the resources needed to implement DOD’s plan for  prepositioned stocks as required by the NDAA for Fiscal Year 2014.  Apart from the statutory requirement, Standards for Internal Control in  the Federal Government establish that organizations should gather  relevant operational and financial information for effective monitoring.  Without a description of the resources required for implementation,  decision makers do not have enough information to understand  whether the department has sufficient resources to implement the  plan.
Element seven (description of how the plan will be reviewed and  assessed to monitor progress, partially addressed). DOD’s  implementation plan describes how the department will monitor the  services’ prepositioned stock capabilities and readiness but does not  describe how the department will review and assess the plan itself.  The plan states that the department will use standard metrics  contained in the readiness reporting systems of record to monitor  prepositioning capability and readiness of the services’ programs. The  plan assigns the services and combatant commands to assess  prepositioned stock programs and posture annually and notes that all  of the services are to begin reporting through the Defense Readiness  Reporting System in the first quarter of fiscal year 2018. However,  similar to element three, the plan does not fully address the mandated  element in that it does not describe how the department will review or  assess the plan as a tool toward achieving the stated vision and  desired end state. The plan directs the Global Prepositioned Materiel  Capabilities Working Group—which is responsible for providing  oversight of prepositioned stock programs and resolving joint issues  concerning prepositioned stocks—to assess actions to ensure desired  results are achieved but does not describe how it is to do this. Apart  from the statutory requirement, Standards for Internal Control in the  Federal Government state that management should monitor its  internal controls to determine their effectiveness and make  modifications as necessary. Without reviewing and assessing the  implementation plan, DOD will be unable to determine whether the  current plan is helping the department progress toward its identified  vision and desired end state for its prepositioned stock programs.
DOD did not fully address the required elements in the  implementation plan because, according to officials from the Office of  the Secretary of Defense for Policy and the Joint Staff,  implementation of the plan for managing prepositioned stock  programs is the role of the services. According to these officials, DOD  developed the implementation plan without details to allow the  services to determine how to implement their respective  prepositioning stock programs. Further, an official from the Under  Secretary of Defense for Policy noted that DOD’s annual report to  Congress on prepositioned stock programs contains some of the  required information. However, as discussed earlier, we found that the  annual report to Congress does not include all of the information to  satisfy the required elements, such as a comprehensive list of the  department’s prepositioned stock programs; and most service officials  we spoke with were unaware of the plan. Moreover, section 321 of the  NDAA for Fiscal Year 2014 required DOD to develop an  implementation plan that contained all seven elements.
Absent an implementation plan that fully addresses all of the elements  required in the NDAA for Fiscal Year 2014 and aligns with internal  control standards, DOD continues to provide incomplete information  to Congress and stakeholders within the department on its  prepositioned stock programs.

	DOD Has Made Little Progress in Implementing a Joint Oversight Approach for Managing the Military Services’ Prepositioned Stock Programs

		DOD’s Progress in Establishing a Joint Oversight Approach Has Been Slow

In 2011, Congress began mandating DOD take steps to develop a joint  strategy. Beginning in 2005 and subsequently in 2011, we reported that  DOD lacked a joint oversight framework of the services’ programs.  However, as shown in figure 2, DOD has made limited progress in  addressing congressional requirements and our reporting  recommendations related to joint oversight of prepositioned stock  programs.

		DOD’s Guidance on Joint Oversight Lacks Detail and Other Related Efforts Have Limitations

DOD’s recent approach to joint oversight has been to update guidance  and implement other related efforts. For example, over the past 2 years,  the Office of the Secretary of Defense and the Joint Staff have updated  existing documents and issued new policy documents, which each  contain broad statements about the need for joint oversight of the  services’ prepositioned stock programs:  In December 2016, the Chairman of the Joint Chiefs of Staff updated  its Logistics Planning Guidance for Prepositioned War Reserve  Materiel. The document states that all service prepositioned stock  programs require joint alignment with national priorities and global  combatant command requirements across the full range of military  operations. The instruction specifically directs the Joint Staff to  develop a framework for joint oversight processes for synchronizing  the services’ prepositioning strategies to minimize duplicative efforts  and to maximize efficiencies and return on investment for  prepositioned stocks. However, this document does not detail how the  Joint Staff is to develop this framework and does not describe the  elements that are to be included as a part of an effective approach for  joint oversight.
In March 2017, the Office of the Under Secretary of Defense for  Acquisition, Technology, and Logistics issued its Pre-Positioned War  Reserve Materiel Strategic Policy. One of the purposes of the  document is to establish joint oversight of the military services’ pre- positioning efforts to maximize efficiencies across DOD. The directive  assigns the Chairman of the Joint Chiefs of Staff with the  responsibility to develop a framework for synchronizing the services’  prepositioning strategies to minimize duplicative efforts and to  maximize efficiency and return on investment across DOD. However,  similar to the instruction above, this document does not detail how the  Joint Staff is to develop this framework or describe the elements that  are to be included as a part of an effective approach for joint  oversight.
In August 2017, the Assistant Secretary of Defense for Logistics and  Materiel Readiness finalized DOD’s implementation plan for managing  prepositioned stock programs, which we discuss earlier in this  report. The plan calls for improved DOD guidance that builds a  framework and establishes joint oversight to synchronize service  prepositioned stock programs with DOD’s strategic guidance and  priorities. The plan also calls for balancing service prepositioned stock  programs to maximize effectiveness and efficiency while minimizing  potential duplication across the department. However, in addition to  the shortcomings of the plan that we discuss earlier in this report, the  plan also does not provide a detailed discussion of what is needed to  implement a department-wide framework for joint oversight. Further,  although the plan states that clear policy is the foundation for joint  oversight, the plan itself was not issued as formal guidance, and, as  noted earlier, most prepositioning service officials we spoke with were  not aware of the plan’s existence. DOD officials stated that they are  continuing to update existing guidance as needed and that the  services are responsible for implementing and managing their own  prepositioned stock programs.
DOD also provides Congress annual reports on the status of the services’  prepositioned stock programs. However, in June 2015, we reported that  the annual report provided inconsistent information among the services’  programs using a nonstandardized definition of “prepositioned stocks”  and that the annual report is not an effective tool for joint oversight. We  recommended that DOD develop a standardized definition of  “prepositioning” for its annual report that is consistent with the definition  used in the department’s joint service guidance and apply this definition  consistently to identify prepositioning materiel and equipment across  DOD. DOD concurred with our recommendations. However, as of  October 2018, DOD continued to use varying definitions of prepositioned  stocks. A broad definition exists at the strategic level, but service-level  definitions vary depending on what each service’s prepositioned stock  needs are. For example, the Army’s definition of prepositioned stocks is  based on the equipment and stocks required to meet the unique mission  requirements of brigade combat team configurations. Within this  definition, the Army includes equipment sets used for training units, but  the other services do not. DOD officials stated that although there is a  broad definition of prepositioned stocks, the services are responsible for  managing their individual programs to include what equipment and stocks  are a part of their respective programs based on their mission and needs.
Further, in 2008, DOD directed the establishment of the Global  Prepositioned Materiel Capabilities Working Group and assigned it  responsibility for addressing joint issues concerning war reserve materiel  requirements and positioning. According to DOD’s prepositioned stock  implementation plan, the working group is DOD’s focused joint oversight  framework effort to execute the following for prepositioned stock  programs: analyze service and combatant commander input in the annual report  identify potential opportunities to enhance efficiency and reduce  operational risk, present capability shortfalls/gaps to a governance body for  implement governance body decisions in coordination with the  services and combatant commands, and assess actions to ensure desired results are achieved.
According to DOD guidance, the Assistant Secretary of Defense for  Sustainment and the Chairman of the Joint Chiefs of Staff appoint co- chairs for the working group, which will include members from the military  services, the Defense Logistics Agency and the combatant commands    and meet annually or more often, as needed. However, since 2011, our  work has shown that DOD has been unable to ensure that the working  group’s activities include the full range of the tasks the group was  established to perform because the working group lacks clear oversight  and reporting relationships to authoritative bodies within DOD. We  recommended that DOD assess the continued relevance of the Global  Prepositioned Materiel Capabilities Working Group’s assigned tasks, and  DOD concurred. In September 2012, we reported that, according to DOD  officials, the main responsibility of the working group had been to  consolidate the services’ individual submissions on their prepositioned  stock programs into DOD’s annual report for Congress, and that the  working group had met only sporadically and had not yet addressed many  of the duties specified in its charter. This continues to be the case. We  found that, according to DOD officials, quarterly working group meetings  were frequently postponed, attendance was not fully representative of all  stakeholders, and the discussions during a September 2018 meeting we  observed were primarily focused on gathering information from the  services for preparations for the upcoming annual report to Congress and  receiving service updates on the current status of their respective  prepositioned stock programs.
DOD has not fully implemented joint oversight of the services’  prepositioned stock programs because the department’s guidance lacks  detail and the department has not fully implemented requirements within  other intended joint oversight efforts, such as the working group. Instead,  DOD’s approach has been for the services to manage their own  respective programs with limited oversight at the department level.  Standards for Internal Control in the Federal Government state that  objectives should be defined in specific and measureable terms that  clearly define what is to be achieved, who is to achieve it, how it will be  achieved, and the time frames for achievement. These standards also  state that management should evaluate performance and hold individuals  accountable for their internal control responsibilities. In addition, the  NDAA for Fiscal Year 2014 mandates a framework for joint departmental  oversight that reviews and synchronizes the military services’  prepositioned stock strategies to minimize potentially duplicative efforts  and maximize efficiencies in prepositioned stocks across the DOD.  Further, our prior work in the area of fragmentation, overlap, and  duplication in the federal government has found that Congress and  executive branch agencies have opportunities to contribute toward fiscal  sustainability and act as stewards of federal resources. These include  taking actions to reduce, eliminate, or better manage duplication, overlap,  or fragmentation among federal agencies and programs; achieve cost  savings; or enhance revenues. “Fragmentation” refers to those  circumstances in which more than one organization within an agency is  involved in the same broad area of national need and opportunities exist  to improve service delivery.
Without strengthening joint oversight across the department, DOD  continues to have a fragmented approach to its management of  prepositioning programs, which has led to inefficiencies. For example,  according to Joint Staff officials, there is no uniform process by which the  services are reporting the readiness of prepositioned stock assets. Joint  Staff officials also said that having a joint oversight approach would help  them have a more complete picture on the readiness of prepositioned  stocks across the services and help the services in developing more  consistent reporting methods. Service officials we interviewed have also  noted that there may be duplication among DOD’s prepositioned stock  programs resulting from limited joint oversight. For example, Navy  officials stated that because each service utilizes medical assets as a part  of its prepositioned stock programs, there is potential duplicative medical  equipment across the services, which may result in inefficiencies. Finally,  our ongoing classified work is finding a lack of joint oversight related to  DOD’s management of prepositioned stocks in Europe.
Although DOD’s current approach relies on the services managing their  own prepositioned stock programs and Title 10 requires the services to  train, man, and equip their forces, without fully implementing joint  oversight—including providing more detailed information on how to  implement such an approach in its guidance and reviewing its other  efforts, such as the working group—DOD will continue to experience  fragmented management of its prepositioned stock programs. Further,  given the lack of progress DOD has made in the past several years,  providing information to Congress on its efforts in this area could help  hold the department to greater accountability.

	Conclusions

Prepositioned stocks play a pivotal role during the initial phases of an  operation. We have reported for over a decade on the importance of DOD  having a department-wide strategic policy and joint oversight of the  services’ prepositioned stock programs, and Congress has required that  DOD take action in this area. DOD issued guidance to include an  implementation plan for managing prepositioned stock programs.  However, the plan does not address all of the required elements  enumerated in section 321 of the National Defense Authorization Act for  Fiscal Year 2014, and DOD’s various guidance documents include broad  direction for joint oversight. Without revising the implementation plan to  have more complete information—including a full list of programs, a  detailed description of how DOD will implement key initiatives, a  description of the resources required, and an approach for monitoring and  assessing the plan itself—the services will continue to operate their  prepositioned stock programs with limited direction from DOD. Further,  without fully implementing joint oversight, including providing more details  in guidance and reviewing related efforts, and providing accountability to  Congress on how the department will implement such oversight, DOD’s  current fragmented management approach will continue to exist, which  creates the potential for duplication and inefficiencies among the services’  prepositioned stock programs.

	Recommendations for Executive Action

We are making the following six recommendations to DOD:  The Secretary of Defense should ensure that the Assistant Secretary of  Defense for Sustainment, in coordination with the Chairman of the Joint  Chiefs of Staff, issue a more detailed implementation plan or include  implementation plan details in identified formal department-wide guidance  to include an updated list to provide quality information, including all of  DOD’s prepositioned materiel and equipment programs.  (Recommendation 1)
The Secretary of Defense should ensure that the Assistant Secretary of  Defense for Sustainment, in coordination with the Chairman of the Joint  Chiefs of Staff, issue a more detailed implementation plan or include  implementation plan details in identified formal department-wide guidance  to include a detailed description of how DOD will implement the three key  initiatives in the plan—policy, governance, and assessment—including  clearly identifying what is to be achieved in these areas.  (Recommendation 2)
The Secretary of Defense should ensure that the Assistant Secretary of  Defense for Sustainment, in coordination with the Chairman of the Joint  Chiefs of Staff, issue a more detailed implementation plan or include  implementation plan details in identified formal department-wide guidance  to include a description of the resources (i.e., relevant operational and  financial information) required to implement the plan including dollar and  personnel amounts. (Recommendation 3)
The Secretary of Defense should ensure that the Assistant Secretary of  Defense for Sustainment, in coordination with the Chairman of the Joint  Chiefs of Staff, issue a more detailed implementation plan or include  implementation plan details in identified formal department-wide guidance  to include a description of how the department will review and assess the  implementation plan for effectiveness. (Recommendation 4)
The Secretary of Defense should ensure that the Assistant Secretary of  Defense for Sustainment, in coordination with the Chairman of the Joint  Chiefs of Staff, take steps to fully implement joint oversight of DOD’s  prepositioned stock programs, including providing detailed information on  how to implement such an oversight approach in department guidance  and reviewing other joint oversight efforts, in order to synchronize the  military services’ preposition stock strategies to avoid fragmentation.  (Recommendation 5)
The Secretary of Defense should ensure that the Assistant Secretary of  Defense for Sustainment, in coordination with the Chairman of the Joint  Chiefs of Staff, update Congress on the department’s progress in joint  oversight management in the prepositioned stock annual report or in a  separate report. (Recommendation 6)

	Agency Comments and Our Evaluation

We provided a draft of this report to DOD for review and comment. In its  comments, reproduced in appendix II, DOD concurred with each of the  six recommendations and described planned actions it will take to  implement them.
We are providing copies of this report to the appropriate congressional  committees; the Secretary of Defense; the Assistant Secretary of Defense  for Sustainment; and the Chairman of the Joint Chiefs of Staff. In addition,  this report is available at no charge on the GAO website at  http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-5431 or russellc@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff who made key contributions to this report  are listed in appendix III.

Appendix I: Offices That We Contacted

Appendix II: Comments from the Department of Defense

Appendix III: GAO Contact and Staff Acknowledgments

	GAO Contact

	Staff Acknowledgments

In addition to the contact named above, individuals who made key  contributions to this report include Alissa H. Czyz, Assistant Director;  Vincent M. Buquicchio; Pamela Davidson; Mae Jones; Cody Knudsen;  and Yong Song.