Can DOD handle its business?

It has been 22 years since the Defense Department launched financial management reform efforts under the Chief Financial Officers Act of 1990. After more than two decades of legislation, failed programs and billions of dollars spent, the department still isn’t audit-ready. But with unprecedented fiscal pressure bearing down, 2012 might just be the year DOD eradicates its systemic bookkeeping troubles.

There is a sense of optimism powered, at least in part, by declarations from Defense Secretary Leon Panetta that DOD would not only deliver on financial management reform but would do so at an accelerated pace, producing a statement of budgetary resources by 2014 and full audit readiness by 2017.

The Government Accountability Office has published a series of reports over the years outlining DOD’s problems, making recommendations and noting progress. The latest report, released April 18, reveals improvements but also enduring challenges.

Although much work lies ahead, GAO auditors say the goals aren’t unattainable — if the right steps are taken.

“It is critical that DOD continue to build on its current initiatives,” Asif Khan, GAO’s director of financial management and assurance, wrote in the April 18 report. “Oversight and monitoring will also play a key role in making sure that DOD’s plans are implemented as intended and that lessons learned are identified [and] addressed. Absent continued momentum and necessary future investments, the current initiatives may falter, similar to previous well-intended, but ultimately failed, efforts.”

Examples of endemic financial mismanagement go back as far as the 1970s and have ballooned over the years to hundreds of billions of dollars falling between the cracks. Some blame DOD’s inherently decentralized, bureaucratic structure. Alvin Tucker, executive director of the American Society of Military Comptrollers and former deputy chief financial officer at DOD, said today’s issues go back to the 1990 CFO Act, the first law to require audits and financial statements.

“The structure and framework wasn’t there to support that kind of framework,” Tucker said. “It required enterprise resource programs and changes in procedures and processes. DOD is the most diverse government organization, has the most resources and is all spread out. Consequently, it’s been a long-term problem.”

But DOD officials are confident that their current activities are propelling DOD into a new era of business reform. At a Senate Armed Services Committee hearing in April, two top DOD finance officials outlined promising efforts to overhaul financial operations. DOD Comptroller Robert Hale and Beth McGrath, DOD’s deputy chief management officer, said they’ve instituted new tools and training, established new oversight rules, and improved the business enterprise architecture.

The ERP thorn

Much is riding on notoriously difficult enterprise resource planning systems, considered to be DOD’s business backbone. Sen. Claire McCaskill (D-Mo.) said DOD’s ERPs “cumulatively are $6 billion over budget and 31 years behind schedule,” and a failure to fix them could threaten true reform.

Although Hale and McGrath highlighted successes with the Marine Corps’ Global Combat Support System and the Defense Logistics Agency’s EProcurement program, GAO said it had found problems in others.

For example, six ERP systems will deploy too late for the audit-readiness deadline, and the Navy’s system was approved for deployment without full compliance and might be inaccurate and unreliable, GAO said.

And then there are the Army’s General Fund Enterprise Business System and the Air Force’s Defense Enterprise Accounting and Management System, two of DOD’s biggest and perhaps most troubled ERPs. GAO cited interoperability deficiencies between existing systems and the new ERPs, interface flaws, a lack of query features and inadequate training.

However, GAO also noted that DOD is taking corrective action.

Tucker was confident that a more realistic attitude within DOD, recognition that success rides on more than ERPs and a willingness to tackle the tough problems will facilitate financial reform.

“It’s going to take a lot of effort and cost a lot, but it will be worth it because there are efficiencies and savings,” Tucker said. “The important part is Secretary Panetta putting his weight behind it. That’s a huge impact. As long as the department has the will to do it, it will get done.”

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Reader comments

Sun, May 13, 2012

Why does DOD (or entire Fed Gov, for that matter), need more than one accounting system? What part of 'it's all the same store' do they not understand? Take it AWAY from the services, and common-service it under a sec-def level command that follows GAAP, using an accounting package blessed by GAO and US Treasury.

Fri, May 11, 2012

How is it possible that DoD’s financial data are going to be sufficiently available and reliable to support audit-readiness assertions for Statements of Budgetary Resources (SBRs) by FY 2014, but not sufficiently available and reliable by that time to support audit-readiness assertions for Balance Sheets and Income Statements? The answer, of course, is that budgetary accounting (which is what you have to do to produce audit-ready SBRs) is different from financial accounting (which is what you have to do to produce audit-ready Balance Sheets and Income Statements). Federal agencies have always had to do budgetary accounting (budgets, after all, are what they run on), but with the passage of the CFO and GMRA laws in the early 1990s, all federal agencies had to start doing financial accounting as well, because the Congress (at GAO's urging it's worth noting) decided federal agencies ought to report on their financial performance in the same way that private-sector businesses do (even though federal agencies are not trying to make money, which is what financial accounting is designed to measure). In September 2010, at another one of these hearings on DoD’s audit problems, Senator Tom Carper of Delaware did something interesting: He asked Mr. Hale to “please tell us if some of what the Congress is demanding in this area doesn’t make sense.” Unfortunately, Mr. Hale didn’t take him up on his offer – and he still hasn't.

Fri, May 11, 2012

As with all of these "epiphanies," numerous staff are not surprised. I was once one of those and left DoD in teh 1990s when the political decision was made to force all services into (mostly) the Army way of doing business. While I have the highest respect for the troops in teh field, their business management was and still is pathetic. Quite frankly, the Navy wasn't much better. Neither service balanced their books to the US Treasury and essentially took the attitude "we can't be shut down, they'll just have to give us more money." Since its inception, there was a diligent effort on the part of the USAF to manage funds more wisely. In the early 1970s, they deployed a worldwide system that I have come to understand as what may well have been the most effective and well designed system for government accounting ever. I say that based on over 30 years now of experience with numerous business systems, in the USAF, DoD, other Federal Agencies and the private sector as an ERP systsems Project Manager. That system was auditable, balanced to teh Treasusry every year and very adaptable. However, those of us that tried to defend our position were overrun and most of us left. Along came the endless hordes of contractors pushing a never ending stream of systems that never work, aren't designed for the government and only serve to put billions in their pockets. The senior managers that supported this political direction have overtaken everything and there is really no chance of things ever working properly. Unfortunately, that mindset appears to be everywhere and at some level, everything is flawed and wracked by waste, fruad and probably corruption. Call my cynical as many will, but we have lost our direction in this once great nation and are positively doomed. Look at Greece, Portugal, Spain, etc., as we are fats approaching that point.

Fri, May 11, 2012 Paul St. Louis

Wow, this could explain a lot for us in the VA. We've been getting a lot of Acquisition staff from DoD lately. their abilities to respond to emergency needs and provide essential services has been pretty awful. I wonder if we haven't gotten some that bailed before they risked actually needing to be responsible for their work in the DoD.

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