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Reforming Financial Management System Can Save Big

By Jim Garamone
American Forces Press Service

WASHINGTON, April 3, 2002 – When you hear the term "reforming the military financial management system," chances are you just turn off.

The clich is a bunch of policy weenies sitting around discussing esoteric points of spread sheets or flow charts.

The problem with the clich is it allows people to ignore a severe problem that has plagued the Defense Department for years, said Tina Jonas, deputy undersecretary of defense for financial management.

The department's financial management system is a mess and reforming it could channel billions of taxpayers' dollars to constructive pursuits, she said. To give an idea of the scope of the problem, Jonas noted DoD in fiscal 2001 paid $40 million in late fees alone.

"Why should we do that?" she asked. "It's dumb. Let's get our act together to pay on time and use that $40 million on something else."

In fiscal 1999, a defense audit found that about $2.3 trillion of balances, transactions and adjustments were inadequately documented. These "unsupported" transactions do not mean the department ultimately cannot account for them, she advised, but that tracking down needed documents would take a long time. Auditors, she said, might have to go to different computer systems, to different locations or access different databases to get information.

Reform is more than just changing an audit system, but also the way the bureaucracy works. If the department were a business, Jonas said, it would dwarf the world's largest private firms. DoD employs more than 3 million people; it has more than 600 facilities around the world and an annual budget of $370 billion; and it maintains more than $1 trillion in assets, she remarked.

Reforming such a financial giant will take a long time, but it must happen and is one of his highest priorities, Defense Secretary Donald Rumsfeld has said. Officials have estimated this reform effort will take years and billions of dollars. Rumsfeld requested and received $100 million from Congress in fiscal 2002 to begin the process. He has requested another $100 million in fiscal 2003.

The reform means that the department will be a better steward of taxpayer dollars and will enable leaders to make better decisions about projects and programs.

Some of the impediments are a result of years of "business as usual" practices. Different agencies collect and process the same information differently. One Defense computer system may list a soldier as "Pfc. Joseph B. Snuffy" born on 7/4/1983. Another may list him a "Snuffy, Joseph B., PFC, born 4 July 1983." Data from one system cannot be easily transferred to another because they're entered differently. Standardizing collection and processing would go a long way to allowing Defense Department systems to "speak" to each other across service and agency boundaries.

Another example of the need for standardization is in equipment purchases. When the Navy, for example, purchases a vehicle, it is assigned a mind-numbing 82-digit-long number. The Army assigns a 66-digit-long number. Rental car giant Hertz, by contrast, uses 11 digits. Just putting such long strings of numbers into systems can allow errors to creep into the process.

The same sort of problem is seen in virtually every other area of data storage and management, and both these examples point to the need for standardization in the department.

Getting these machines to speak to each other should not be difficult. For example, for years the Defense Department has required contractors and defense agencies to use the electronic data interchange to exchange information to pay bills. The contractors and agencies don't have the same systems or needs, yet they can exchange information and work together.

Financial reform will also give defense leaders better management tools. "Defense leaders should have better information available to them," Jonas said. "A corporation president wants to know, 'How is my company operating? How efficient are we?'

"They have a built-in measurement -- the profit factor. But shouldn't we want to be able to measure how efficient we are with the people's money?"

Developing the measurements that are most helpful to defense leaders is another hurdle. "You can measure anything," Jonas said. "But just because you can measure something doesn't necessarily mean that is helpful." Nor does it mean that officials can use those measurements to fairly evaluate one program or project against another. There is also a cost to gathering information and that must be factored in to any equation of financial reform.

"The key is finding the right metrics to measure," Jonas said. Some of the questions that need to be asked, she said were, "What is important to defense managers and leaders?" "What does the secretary of defense need to make an informed choice?" Once the choice is made, how do you evaluate the progress being made both within the project or program and when compared with other programs?

The final price tag for the changes is not in, Jonas said. "Agency leaders must realize this is important and they will get benefits from (these changes)," she said. "This really is the only way to go. It's a message to the department: 'Think about what you're spending money on.' It's not just money that can be spread around, somebody earned that money."

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