Despite years of modernisation efforts that cost taxpayers billions of dollars, thousands of accounting, personnel and logistics systems at the Pentagon remain "fundamentally flawed" and have led to logistics and pay problems for forces serving in Iraq, according to a new report by the US General Accounting Office.

The problems, primarily a lack of management oversight and investment control, stem from "long-standing" challenges to the Pentagon's business modernization efforts, GAO auditors told members of Congress this week.

For example, more than 200 inventory-control systems at the department of defence still aren't integrated, offering little or no visibility of the Pentagon's $1.1 trillion in assets. In addition, the Pentagon has no standard process for identifying critical business systems, nor does it even have a standard definition of what constitutes a business system. "These problems have left the department vulnerable to billions of dollars of fraud, waste and abuse annually, at a time of increasing fiscal constraint," GAO auditors told Congress.

The Pentagon requested $19 billion for 2004 to operate, maintain and modernize its reported 2,274 business systems. The Defense Department's IT management blunders have also adversely affected US military units and service members, including those fighting in Iraq and Afghanistan, according to the GAO.

Because of the lack of IT management at the Pentagon, soldiers, sailors, airmen and Marines experienced "substantial logistical support problems as a result of weak distribution and accountability processes and controls over supplies and equipment shipments in support of Operation Iraqi Freedom," the GAO concluded. These weaknesses resulted in supply shortages, backlogs of material that sat in Iraq but never made it to the units in need, a $1.2 billion discrepancy between the amount of materiel shipped and the amount reported received by military units, cannibalisation of vehicles and duplicate supply requisitions.

Lack of visibility into the supply chain may have also allowed sensitive military equipment to be sold on the open market, according to the GAO. Auditors discovered that the Pentagon had sold new chemical and biological protective garments on the Internet for $3 each. At the same time, the agency was buying the garments elsewhere for more than $200 apiece.

In addition to the supply problems, many National Guard members fighting in Iraq didn't get their pay on time, the GAO found. Of the 481 mobilized Army National Guard soldiers from six Special Forces and Military Police units, 450 had at least one pay problem.

"DOD's inability to provide timely and accurate payments to these soldiers, many of whom risked their lives in recent Iraq or Afghanistan missions, distracted them from their missions, imposed financial hardships on the soldiers and their families and has had a negative impact on retention," the report concluded.

The Pentagon's mismanagement of its IT infrastructure has also led to billions of taxpayer dollars being wasted on systems that have since been canceled due to poor performance and rising costs. For example, Pentagon officials terminated two systems-modernization projects at the Defense Financing and Accounting Service (DFAS) after seven years of development work and a combined investment of more than $179 million.

In a written response to the GAO's findings, David Norquist, acting comptroller at the Pentagon, said the Defense Department has made "significant progress during the past two years regarding its business transformation efforts".

He also noted the continuing development of a Business Enterprise Architecture and a business IT investment governance structure that he said should begin to reap benefits during the fiscal 2006 budget cycle.

Karen Evans, the White House's director of e-government, said fixing the problems outlined in the report is a challenge for a Pentagon that is not only one of the most complex organizations in the world but is also in the midst of fighting a global war on terrorism.

"While the department is fighting the war on terrorism, the senior leadership (there) supports the president's management agenda and is committed to transforming the department's business operations," said Evans. "This is reflected in the financial and management commitment to the Business Management Modernization Program, which is creating enterprise architecture and oversight mechanisms to guide investments in business systems."