Can DOD handle its business?

It has been 22 years since the Defense Department launched financial management reform efforts under the Chief Financial Officers Act of 1990. After more than two decades of legislation, failed programs and billions of dollars spent, the department still isn’t audit-ready. But with unprecedented fiscal pressure bearing down, 2012 might just be the year DOD eradicates its systemic bookkeeping troubles.

There is a sense of optimism powered, at least in part, by declarations from Defense Secretary Leon Panetta that DOD would not only deliver on financial management reform but would do so at an accelerated pace, producing a statement of budgetary resources by 2014 and full audit readiness by 2017.

The Government Accountability Office has published a series of reports over the years outlining DOD’s problems, making recommendations and noting progress. The latest report, released April 18, reveals improvements but also enduring challenges.

Although much work lies ahead, GAO auditors say the goals aren’t unattainable — if the right steps are taken.

“It is critical that DOD continue to build on its current initiatives,” Asif Khan, GAO’s director of financial management and assurance, wrote in the April 18 report. “Oversight and monitoring will also play a key role in making sure that DOD’s plans are implemented as intended and that lessons learned are identified [and] addressed. Absent continued momentum and necessary future investments, the current initiatives may falter, similar to previous well-intended, but ultimately failed, efforts.”

Examples of endemic financial mismanagement go back as far as the 1970s and have ballooned over the years to hundreds of billions of dollars falling between the cracks. Some blame DOD’s inherently decentralized, bureaucratic structure. Alvin Tucker, executive director of the American Society of Military Comptrollers and former deputy chief financial officer at DOD, said today’s issues go back to the 1990 CFO Act, the first law to require audits and financial statements.

“The structure and framework wasn’t there to support that kind of framework,” Tucker said. “It required enterprise resource programs and changes in procedures and processes. DOD is the most diverse government organization, has the most resources and is all spread out. Consequently, it’s been a long-term problem.”

But DOD officials are confident that their current activities are propelling DOD into a new era of business reform. At a Senate Armed Services Committee hearing in April, two top DOD finance officials outlined promising efforts to overhaul financial operations. DOD Comptroller Robert Hale and Beth McGrath, DOD’s deputy chief management officer, said they’ve instituted new tools and training, established new oversight rules, and improved the business enterprise architecture.

The ERP thorn

Much is riding on notoriously difficult enterprise resource planning systems, considered to be DOD’s business backbone. Sen. Claire McCaskill (D-Mo.) said DOD’s ERPs “cumulatively are $6 billion over budget and 31 years behind schedule,” and a failure to fix them could threaten true reform.

Although Hale and McGrath highlighted successes with the Marine Corps’ Global Combat Support System and the Defense Logistics Agency’s EProcurement program, GAO said it had found problems in others.

For example, six ERP systems will deploy too late for the audit-readiness deadline, and the Navy’s system was approved for deployment without full compliance and might be inaccurate and unreliable, GAO said.

And then there are the Army’s General Fund Enterprise Business System and the Air Force’s Defense Enterprise Accounting and Management System, two of DOD’s biggest and perhaps most troubled ERPs. GAO cited interoperability deficiencies between existing systems and the new ERPs, interface flaws, a lack of query features and inadequate training.

However, GAO also noted that DOD is taking corrective action.

Tucker was confident that a more realistic attitude within DOD, recognition that success rides on more than ERPs and a willingness to tackle the tough problems will facilitate financial reform.

“It’s going to take a lot of effort and cost a lot, but it will be worth it because there are efficiencies and savings,” Tucker said. “The important part is Secretary Panetta putting his weight behind it. That’s a huge impact. As long as the department has the will to do it, it will get done.”