DOD puts financial fix at $32 billion

The Defense Department will have to spend at least $32 billion to have financial systems that are compliant with financial accounting standards, the DOD deputy inspector general told a House subcommittee Tuesday.

The IG's projection comes from tabulating the costs for improving long-standing problems with DOD's accounting systems. The DOD Financial Management Improvement Plan provides the framework for the improvements.

Furthermore, the department's deputy IG, Robert Lieberman, noted that the $32 billion figure is probably conservative. The actual costs could be "considerably higher," he said.

DOD was one of three agencies to receive a failing grade in Rep. Stephen Horn's report card on the status of federal financial management. The U.S. Agency for International Development and the Agriculture Department also received F grades.

Horn (R-Calif.), chairman of the House Government Reform Committee's Government Efficiency, Financial Management and Intergovernmental Relations Subcommittee, called the status of DOD accounting an "intolerable situation."

The department's pervasive accounting problems are largely responsible for the federal government's overall inability to receive an unqualified opinion on its consolidated financial statements.

Rep. Jan Schakowsky (D-Ill.), the subcommittee's ranking minority member, noted that the DOD IG testified in 1995 that the department could have auditable records by 2000. Today, the projection is that the department could have clean books by the middle of this decade.

"That's not progress," Schakowsky said, adding that it might be necessary to tie the department's budget to financial management improvements.

At the hearing, representatives from the General Accounting Office and the IG's office agreed that years of efforts to fix financial management problems have been futile.

"Although progress has been made, financial reform has largely failed," said Gregory Kutz, GAO's director for DOD, State Department and NASA financial management.

"The level of frustration is high," Lieberman said, and DOD is unable to even say precisely how much progress has been made.

In January, the DOD comptroller put a process in place to monitor the development of critical financial systems at DOD organizations in an effort to end stovepiped systems.

"We believe this initiative is important and offers the best hope for more effective management of this critical activity," Lieberman testified.

Financial management reform is a top priority for Defense Secretary Donald Rumsfeld, said Lawrence Lanzillotta, DOD's principal deputy and deputy undersecretary for management reform.

"We have a world-class armed forces. We intend to achieve world-class financial management," he said.