DOD wages financial management war

The Defense Department next month will complete a $100 million project that few thought could be finished on time and within budget: the world's largest financial enterprise architecture.

The financial management enterprise architecture project, an ambitious undertaking designed to consolidate and standardize all of DOD's financial reporting systems, is scheduled to be completed in April, just one year after the contract was awarded.

The project is designed to help the department obtain a clean financial audit — something it has been unable to do. With DOD on the brink of war, this goal would seem to be low on the agency's priority list. However, senior DOD officials have stressed the importance of the effort to DOD's warfighting mission.

"No [chief executive officer] worth his or her salt is going to make a strategic decision without good financial information," DOD chief financial officer Dov Zakheim said on the agency's Web site.

Catherine Santana, deputy director for enterprise architecture in the DOD Financial Management Modernization Program Office, stressed that the architecture is not just a narrative that outlines how the department pays its bills.

"We're not talking about an accounting program here," she said. "This is to keep track of every single dollar brought in and sent out, whether it's through procurement, logistics, payroll, etc. This architecture will have a design on every business process that the DOD does."

DOD has long had an unwieldy financial reporting process, partly because the department is made up of large agencies, many of which use disparate financial reporting systems even within their own organizations.

All but three of the 24 largest federal agencies obtained clean financial audits for fiscal 2002, according to the Office of Management and Budget. In addition to DOD, the laggards were the Small Business Administration and the U.S. Agency for International Development.

General Accounting Office officials have blamed DOD for keeping the federal government from having auditable records across all agencies.

Santana said what DOD is trying to do has never before been accomplished on such a large scale.

"We awarded the [enterprise architecture] contract in April of 2002 and we're going to have the architecture in place at the end of April 2003," she said. "This is a massive undertaking that has taken hard work by hundreds of people on both the federal and private sides."

The architecture, which was developed by lead contractor IBM Corp. and five subcontractors, will provide a road map for DOD agencies to standardize the format of their financial records.

The department currently deals with disparate systems without standards, Santana said, and because of that, there is no accurate, reliable and timely data. Such data is essential for budgeting purposes, for acquiring goods and services, and for making proper management decisions about the organization's operations, officials said.

The architecture will provide the framework for collecting, maintaining and sharing that data. The architecture consists of hundreds of diagrams and schema that describe how information should be collected, processed and reported across DOD.

Santana said the program received $100 million in fiscal 2002 and $96 million in fiscal 2003, and $113 million has been requested for fiscal 2004.

"We have selected 134 industry- leading best practices to incorporate into the enterprise architecture design," Santana said. "We built an [outline] that was completely unconstrained by laws, rules and regulations — basically a wish list if we could get whatever we wanted."

But because DOD must operate within the constraints of the law and specific regulations, she said, some leading practices could not be fully deployed. For example, industry leaders have far more flexibility to manage their budgets.

IBM's role is to provide the tools so that DOD can implement its own re- engineered business processes, guidelines and standards, said Angela Allen, IBM Global Services' vice president for DOD services.

"As the business of the Defense Department changes, they may require a modernization of their systems, and the enterprise architecture can help," Allen said. "We in the private sector understand the need to have accurate financial data in the hands of the right people at the right time."

The IBM team and those from the federal side had to break down how finances are reported throughout DOD and determine where industry standards could apply to make the process more efficient. They then had to develop hundreds of blueprints to instruct people within DOD on the new procedures.

The DOD Financial Management Modernization Program Office is overseeing the work on the project. The Defense Finance and Accounting Service awarded a blanket purchase agreement to IBM in April 2002 for the initial $100 million contract. The IBM team includes American Management Systems Inc., KPMG LLP, DynCorp, Science Applications International Corp. and Accenture.

DOD officials anticipate it will take five years to carry out the plan outlined in the architecture. That includes the adoption of new applications, business processes and systems.

"There are 1,700-plus systems that support the business scope of the architecture," Santana said. Zakheim "would like to see us at 10 percent [of the number of legacy systems] of where we are today, and that will be part of the ongoing process," she said.

David Kleinberg, a former deputy chief financial officer at the Transportation Department who now works as a consultant, said DOD's undertaking is impressive in its scope and motivation. The federal government's move to do business more like the private sector can only increase efficiency, he said.

"In theory, if you can emulate the private sector with [enterprise resource planning] stuff, where you have one set of data that is consistent, it would be wonderful," Kleinberg said. "This is an enormous undertaking, magnified by a huge magnitude because of the size of the DOD."

Everyone involved realizes the architecture is just the first step in the much larger Financial Management Modernization Program.

"Once you have that North Star, that lodestone, building the system and tweaking the standards has to be the goal," Kleinberg said. "We're still not talking about implementation of the plan, which is much harder, but we're talking about a defined path to that implementation."

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DOD's money woes

A 2001 report, led by Stephen Friedman, retired chairman of Goldman Sachs & Co., found that the Defense Department faces a number of land mines as it attempts to fix its financial wreck. The problems include:

* Bad data: DOD is unable to produce on a consistent basis reliable financial and managerial information that can help officials make decisions.

* Complex requirements: The agency has had overly complex data requirements, which are driven by appropriation funding rules, elaborate policies and procedures, and outdated guidelines for excessively detailed expenditure tracking.

* Outdated business processes: There are convoluted business processes that fail to streamline the steps involved.

* "Use it or lose it" rules: A cultural bias toward the status quo, because DOD agencies have traditionally faced "use it or lose it" budget rules, meant that a military service could not reallocate savings within the organization. DOD officials have changed those rules so that savings can be used within the service that generated them.

* Focus on audits: Department officials' focus on producing auditable financial records has necessitated a Herculean effort that distracted DOD from the goal of providing useful data for managing activities. DOD officials have since issued a moratorium on attempting to obtain a clean audit opinion while they focus on cleaning up the agency's financial mess.

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Exponential problems

The Defense Department not only has hundreds of financial management systems — more than 873 as of a recent count. DOD also has myriad systems that feed data into that structure for a total of more than 1,700 interfaces connecting all those systems, DOD officials estimate.

The financial management architecture is designed to get a handle on all of those systems and create a DOD standard for financial data.