GAO finding: Defense needs financial remedy

The problem: DOD does not have accurate information for managing its $250 billion
annual budget and more than $1 trillion in assets, GAO auditors said. Making matters
worse, DOD investments in modern computer systems and networks have neither reduced
operating costs nor improved performance, said the report, Financial Management:
Improved Reporting Needed for DOD Problem Disbursements

DOD established the Defense Finance and Accounting Service in 1991 to improve DOD's
financial operations and reduce costs-a job DFAS officials insist they are doing despite
GAO's findings.

According to DFAS, it reduced DOD's problem disbursements-expenditures that it cannot
reconcile with its accounting records-to $18 billion last year from $51 billion in 1993.

But the department's figure is off by at least $25 billion, GAO officials said at a
hearing this month of the Senate Governmental Affairs Committee.

Among the accounting errors GAO cited were payments of benefits and salaries to
fictitious workers, missing soldiers, prisoners and deceased employees. The department is
paying $5 million to $6 million a year in retirement payments to dead people overseas, GAO
auditors found.

Though GAO and Pentagon officials both acknowledged that there is a continuing
disbursement problem, they do not agree on the magnitude of the problem or the ability of
DOD's finance systems to track billions of dollars in military spending.

"I strongly disagree with the GAO conclusion that the department's financial
management processes are incapable of producing information needed to ensure adequate
accountability and to support decision-makers," DOD comptroller John Hamre told the

Hamre cited DOD's progress in standardizing and reducing the number of its financial
systems. In 1991, there were 324 such systems departmentwide, including 37 military and
retired payroll systems, 27 civilian payroll systems, 10 vendor payment systems and 197
separate accounting systems.

But by the end of fiscal 1996, DOD had cut that figure to 217 and plans to continue
downsizing to 32 systems by fiscal 2002, Hamre said.

Nevertheless, the department still has more than a hundred accounting systems, each
with its own costly operations and maintenance tail, GAO said.

To remedy the problem, GAO made six recommendations:

Hamre said DOD is doing these things and has a game plan to eliminate problem
disbursements. The department's long-term goal is to use standard shared data with a
central database for financial data.

DOD users will update or access information in a corporate database that will lead to
one set of official records for contract management, payment and accounting purposes, he

As part of this plan, DOD is developing two new systems to create a shared data
environment: the Standard Procurement System and Defense Procurement Payment System

SPS will merge DOD's procurement and contract administration.

Hamre said the system will provide more timely responses to customer requests, cut
procurement costs, reduce procurement lead times and provide more accurate buying data.

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