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Tuesday, August 29, 2006

Defense gets better on business

DOD’s size, incompatible systems still hinder financial management

With an operating budget in excess of $400 billion, and assets and liabilities that exceed those of Exxon, IBM, Ford and Wal-Mart combined, the sheer size of the Defense Department has created massive challenges for attempts to improve financial management.

But as Congress continues to apply pressure for reform, DOD has made significant strides in several areas, department officials say.

For example, more than 200 business systems have now been certified as effectively modernized, with each modernization saving DOD at least $1 million.

“I believe we’re making real progress,” said Theresa McKay, DOD’s deputy chief financial officer, at a Senate Homeland Security and Government Affairs Subcommittee on Federal Financial Management, Government Information, and International Security hearing on DOD financial management earlier this month.

Electronic bill-paying

Systems modernization has resulted in other cost-savings efficiencies as well. Currently, 95 percent of DOD’s vendor payments now are done electronically, up from 86 percent in 2001, resulting in more than $6 million in savings, according to agency statistics.

And in the area of audit readiness—a long-running weakness for the department—the agency recently completed an accurate and auditable valuation of all of its military equipment.

Since equipment represents 27 percent of all DOD assets, this full valuation is critical, agency officials say.

“This is especially significant, because the department has never before had an accurate valuation of its military equipment,” McKay said.

Indeed, even Government Accountability Office comptroller general David Walker, a frequent critic of DOD’s financial management, has acknowledged some progress on the reform front. At the same Senate hearing, Walker cited DOD’s 2005 issuance of the Financial Improvement and Audit Readiness (FIAR) plan, aimed at improving financial practices. He also praised DOD for recognizing that reform was needed, and for accomplishing some systems modernization.

“The approach that they are taking now is vastly superior to the approach that they were taking before,” Walker told lawmakers.

Yet much work remains, Walker said. He urged DOD to “declare a war on waste” and completely overhaul its legacy information management systems. There are more than 3,000 of these systems still operating at DOD, and their use often requires multiple entries for each procurement transaction, which is highly inefficient, he said.

“There are thousands of outdated, nonintegrated systems that don’t talk to each other. We need to kill or disable all nonessential business information systems,” Walker said.

DOD should switch to a more integrated system by 2012 “at the absolute latest,” he added.

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