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Sunday, September 13, 2009

Financial Accountability at the DoD: Reviewing the Bidding

The Chief Financial Officers (CFO) Act of 1990 requires the DoD to produce private sector-style financial statements that can win unqualified opinions from auditors. After many years of effort to comply, the department is now projecting that its balance sheets will not be ready until 2017 and is unable to predict when its income statements will be ready. Given that discouraging situation, combined with the increasingly widespread realization that external financial statements are of no practical use for internal management, the question arises whether it makes sense for the DoD to continue its pursuit of “CFO compliance.” A review of the history of the CFO strategy suggests the DoD needs to shift its efforts to the development of managerial cost accounting—not private sector-style financial accounting—if progress is to be made.

-Christopher Hanks

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