DOD ripped on 'backdoor spending'

Government Efficiency, Financial Management and Intergovernmental Relations Subcommittee

The Defense Department may have used "bogus adjustments to conjure up billions of dollars in backdoor spending" that occurred outside congressional appropriations, a key lawmaker on agency management issues says.

The criticism by Rep. Stephen Horn (R-Calif.) comes on the heels of a new study by the General Accounting Office that showed that DOD's pervasive financial management problems may have resulted in $615 million in inappropriate or illegal military spending.

Defense officials, speaking at a July 26 hearing before the House Government Reform Committee's Government Efficiency, Financial Management and Inter.governmental Relations Subcommittee, said they are investigating the matter and taking steps to prevent recurrences.

The GAO audit found that Defense agency financial systems and practices are so inadequte that DOD must make hundreds more account adjustments than all other federal agencies combined.

Even Horn, the subcommittee chairman, referred to the issue as "arcane," but it is important because DOD appears unable to assure lawmakers that money allocated by Congress is spent as intended.

"It is a visible symptom of the department's long-standing problems with financial management," said Rep. Jim Nussle (R-Iowa), chairman of the House Budget Committee. "Such errors are nearly inevitable given the daunting complexity and needless fragmentation of current financial management."

Before 1990, lawmakers were concerned that Congress lacked adequate controls over agency spending, espe.cially within DOD. They were concerned that agencies would spend money in amounts and for purposes that had not been approved.

After 1990, however, Congress put a five-year limit on appropriations spending. After that period, an account is considered closed and can no longer be used.

However, the law does allow agency officials to make adjustments in the records of those closed accounts, said Jeff.rey Steinhoff, GAO's managing director of financial management and assurance.

DOD has made broad use of those adjustments. The GAO report states that from 1990 through Sept. 30, 1999, DOD adjusted 333 closed accounts valued at $26 billion. By comparison, during the same period, all other federal agencies combined made adjustments affecting 21 closed accounts valued at $5 million.

Adjustments affecting closed DOD accounts during fiscal 2000 alone exceeded $2.7 billion, Steinhoff said.

DOD officials told lawmakers that they are taking steps to make short- and long-term improvements. The Defense Finance and Accounting Service is changing its systems to recognize and prohibit adjustments to canceled appropriations and prohibit proposed adjustments not enacted at the time of the original payment, said JoAnn Boutelle, director of commercial pay services at DFAS.

This will create more checks and balances in the process, said DFAS Director Thomas Bloom.

Meanwhile, DOD is working to create an enterprisewide financial management architecture that will make such adjustments unnecessary, said Tina Jonas, DOD's deputy undersecretary for financial management. However, even the Pentagon's optimistic schedule does not call for DOD's financial systems to be fixed for at least six years.

Lawmakers continue to express frustration. Rep. Jan Schakowsky (D-Ill.), the subcommittee's ranking minority member, said Congress should not give DOD a budget increase until there is some indication that the issue is under control.

"I don't know what it is going to take to give top-level DOD personnel a wake-up call," she said. "Until DOD gets its financial house in order, it should not be rewarded with an increase."