DoD Financial Systems $6.9 Billion Over Budget

Sep 29, 2010 (09:09 AM EDT)

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The Department of Defense is $6.9 billion over budget and as much as 12 years behind schedule on a series of major financial systems upgrades, according to Congressional investigators.

The delays involve several enterprise resource planning systems that will replace as many as 500 existing systems. For example, the Expeditionary Combat Support System, which would replace disparate Air Force logistics systems with a single, consolidated logistics system, is about $2.2 billion dollars and 4 years behind schedule.

Among other functionality, the new systems, which include systems for the Army, Navy, Air Force and Marines, were slated to allow units to share financial information, create a common authoritative source for financial data, upgrade logistics systems and standardize financial processes within the military branches. Overall, the military spends more than $32 billion annually on information technology.

"The Department of Defense has again proven itself incapable of managing its budget and breaking promises to be auditable by 2017," Sen. Tom Coburn, R-Neb., said in a statement. "The American people deserve financial accountability from the Defense Department, and to know how their hard-earned dollars are being spent."

In a hearing before the Senate government affairs committee's subcommittee on federal financial management on Wednesday, defense officials will admit that many DoD financial systems are old, handle information in ways that don't meet current audit standards, and don't record data at the transactional level. However, they will express concern that Congressional requirements placed on the military to have fully auditable financial systems by 2017 will be a challenge.

"We have concerns that the cost far exceeds any benefits," under secretary of defense and DoD comptroller Robert Hale and DoD deputy chief management officer Elizabeth McGrath said in prepared testimony, adding that meeting this goal would require "expenditure of large sums" of money to improve the quality of information that DoD managers rarely use.

However, despite the massive cost and schedule over-runs, the upgrades are seen as important, as DoD has reported to Congress in the past that it can't assure that information reported in its financial systems is reliable, with the Government Accountability Office blaming the problems on problems with DoD business processes, controls and systems.

"Making sure the Department of Defense's financial books are in order isn't just about being a good steward of taxpayer's money," Sen. Tom Carper, D-Del., said in a statement. "It's about ensuring that our brave service men and women have the equipment and supplies that they need and that we're paying for."

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McGrath and Hale place some of the blame on DoD's scale. "DoD's enormous size and geographical dispersion substantially complicate the challenges associated with meeting audit standards," they said. "Because of our size and mission requirements, it is not feasible to deploy an army of accountants to manually reconcile our books."

"Significant leadership and oversight challenges have hindered efforts to implement these systems on schedule, within cost and with intended capabilities," Asif Khan, director of financial management for the Government Accountability Office, said in prepared testimony. The GAO is unable to predict when the Pentagon will be able to meet its audits requirements, but he said that the military is "headed in the right direction" when it comes to improving its systems.

The Department of Defense recognizes the problems, and has put in place an organization and new governance model in hopes to address them, Hale and McGrath's testimony said. "We understand that there are enterprise-wide weaknesses in DoD financial management that demand an enterprise-wide response," they said.

Shortly after the new administration took office, the DoD worked with the Office of Management and Budget and GAO to re-assess its financial management thinking. The DoD placed priority on the new approach by making it one of DoD's top 10 business priorities, identifying it among the DoD's High-Priority Performance Goals, and making it a key component of the DoD's Strategic Management Plan. It created a governance board that meets quarterly, added financial resources to the effort, and put in place interim goals to be achieved by 2012.

A big part of that approach includes upgrades to old financial management systems and implementations of new systems. These upgrades include three key focuses, according to Hale and McGrath: improving the approach to acquiring and implementing IT systems (an IT Acquisition Reform Task Force has been established to lead that effort), defining target systems architecture, and leveraging the DoD's higher-level Business Enterprise Architecture.

DoD is also working with the Office of Management and Budget, Department of Treasury and GAO to determine if there are more cost-effective paths forward to full auditability. The White House earlier this summer launched an effort aimed at reforming the way the federal government carries out financial system modernizations. As part of that effort, it planned to review about 30 financial system projects. While the Office of Management and Budget didn't list any particular DoD projects in an initial list of the projects under review or place the DoD on its initial public schedule of reviews, it did say that DoD systems would be part of the review.