DOD's broken IT accounting system

Improvements needed in the reliability of Defense budget submissions

Long-standing problems with the Defense Department's accounting processes resulted in a $1.6 billion problem in the agency's fiscal 2004 information technology budget submissions, according to auditors from the General Accounting Office.

In a December 2003 report, GAO auditors said that DOD needs better policies and procedures to allow IT budget requests and expenditures to be tracked.

DOD's IT budget submission for fiscal 2004 contains "material inconsistencies, inaccuracies or omissions that limit its reliability," the auditors said. They found a

$1.6 billion discrepancy between DOD's IT budget summary report and its detailed Capital Investment Reports out of the overall $28 billion budget request.

As a result, officials from Congress and the Office of Management and Budget are forced to make IT funding decisions based on unreliable information.

"Major initiatives do not consistently use the same type of appropriations to fund the same activities," the report said. "To fund the same types of activities, some DOD organizations used the research, development, test and evaluation appropriations, and others used the operation and maintenance appropriations." DOD's IT budget summary doesn't include all of the costs of the IT initiatives, which is contrary to federal guidelines.

"These problems are largely attributable to insufficient management attention and limitations in departmental policies and procedures, such as guidance in DOD's Financial Management Regulation, and to shortcomings in systems that support budget-related activities," the report said.

About 95 percent of the Navy's nearly $582 million discrepancy can be attributed to the Navy Marine Corps Intranet program, the report said.

Capt. Chris Christopher, deputy NMCI director for future operations, communications and business initiatives, said officials in the NMCI director's office are reviewing the GAO report to determine how that conclusion was reached, but he could not comment further.

However, a Navy officer familiar with the NMCI program and its accounting practices said the allegation that the $8 billion project accounts for 95 percent of the Navy's oversight doesn't pass the "smell test."

A Navy spokesperson blamed the discrepancy on new budgeting and accounting procedures that were implemented after the Navy had completed most of its IT reporting.

The Navy benefits from using NMCI to improve the accuracy of its budgetary data and reporting, the spokesperson said, because the program allows network and IT infrastructure costs to be listed as separate expenses, rather than lumped into command operating budgets.

Officials from DOD's Office of the Chief Information Officer were not available for comment, and DOD did not submit a written reply to the report. GAO officials said department officials provided "official oral comments," in which they agreed or partially agreed with GAO's recommendations.

DOD's planned actions include:

Negotiating with OMB for a later submission date for DOD's exhibits to ensure that the information is reliable.

Working with OMB to ensure the use of consistent definitions and terminology to describe the development and modernization of services.

Assessing, on a departmentwide basis, the establishment of a cost accounting system.

Evaluating ap proaches to reducing or eliminating duplicative data entry.

Considering appropriations realignments during the fiscal 2006 budget cycle.

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Missed it by that much

General Accounting Office auditors found the following discrepancies in various fiscal 2004 Defense Department budget documents for information technology projects:

Navy — $581.9 million

Multiple Defense organizations — $530.6 million

Air Force — $362.8 million

Secretary of Defense and seven agencies — $89.0 million (American Forces Information Service, Defense Contract Management Agency, Defense Human Resources Activity, Defense Information Systems Agency, Defense Security Service, Tricare and Washington Headquarters Services)

Army — $55.6 million

Source: General Accounting Office

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Share-in-savings contracts

In a share-in-savings contract, the agency does not pay upfront costs. Instead, the vendor makes money based on the savings or revenue it generates from a program.

Among the advantages:

Such contracts require little or no upfront funding.

They create interdependent relationships with vendors.

The contractor bears 90 percent or more of the risk.

Payment is made only after results are achieved.

Source: General Services Administration

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