DOD 'backdoor spending' blasted

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 was outside of congressional appropriations, Rep. Stephen Horn (R-Calif.) said during a hearing July 26.

The comments come as a General Accounting Office report showed that DOD's pervasive financial management problems, combined with a score of other issues, may have resulted in $615 million in inappropriate or illegal DOD spending.

Defense officials, speaking before the House Government Reform Committee's Government Efficiency, Financial Management and Intergovernmental Relations Subcommittee, said they are investigating the matter and are taking steps to prevent such problems from occurring.

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

The issue, which even Horn, the subcommittee chairman, referred to as "arcane," is important because DOD appears unable to even assure lawmakers that money allocated by Congress is spent as appropriated.

"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 did not have adequate controls over agency spending, especially within DOD. They were concerned agencies would spend money in amounts and for purposes that had not been approved.

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

The law did allow adjustments in the records of those closed accounts, said Jeffrey Steinhoff, GAO's managing director for financial management and assurance.

DOD made broad use of those adjustments. The GAO report states that from 1990 through Sept. 30, 1999, DOD made adjustments to 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 appropriation 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 so that it will 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 DFAS' commercial pay services.

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

Meanwhile, DOD is working to create an overall financial management enterprise architecture that will make such adjustments unnecessary, said Tina Jonas, DOD's deputy undersecretary for financial management.

Even under the Pentagon's optimistic schedule, DOD's financial systems will not be fixed for at least six years.

The GAO report, "Canceled DOD Appropriations: $615 Million of Illegal or Otherwise Improper Adjustments," was released in conjunction with the hearing.