GAO: Defense finance systems $6.9 billion over budget, years behind schedule

After a $5.8 billion investment, six out of nine Defense IT systems critical to the department's ability to achieve a financial audit are two to 12 years behind schedule. In addition, the systems collectively have experienced cost overruns of at least $6.9 billion, according to a review by the Government Accountability Office.

Asif Khan, director of financial management and assurance at GAO, told the Senate Homeland Security and Governmental Affairs Committee on Wednesday only one of 10 enterprise resource planning systems essential to transforming business operations at Defense has been completed.

The ERP systems are intended to replace more than 500 legacy systems that now cost hundreds of millions of dollars to operate annually, according to GAO. The successful implementation is essential to the department's ability to meet statutory requirements for financial management and auditing.

Congress required Defense, which is responsible for more than half the federal government's discretionary spending, to achieve an independent audit by 2017, a goal the department is not likely to meet. To date, no military service has been audited, although the Marine Corps is undergoing an audit.

Sen. Tom Carper, D-Del., chairman of the Subcommittee on Federal Financial Management, Government Information, Federal Services and International Security, said it is critical the department be ready for an audit by 2017.

"Not only will an audit help the Department of Defense ensure that billions of tax dollars are being spent properly, but it will help make certain that our troops have the equipment they need when and where they need it," he said.

Sen. John McCain, R-Ariz., noted, "If this were a corporation in America, the shareholders would have fired management long ago." In 2009, Defense changed its approach to improving financial management by focusing on two specific areas: budget data and information about mission-critical assets. By making those the top priorities, officials believe they can leverage efforts more effectively across the department to meet the most critical financial management data needs, while continuing to work toward being able to audit the department's financial records -- an approach endorsed by GAO, Khan said.

"Our business systems are not conducive to audits," Defense Comptroller Robert Hale told lawmakers.

"The Department of the Navy is a leader here -- the Marine Corps particularly," he said. While the Marine Corps audit is not due to be completed until Nov. 15, Hale said it's clear the service won't be able to meet that deadline.

"The Marine Corps will get a disclaimer," he said. Nonetheless, the exercise has been invaluable in developing lessons for all the services. For example, the audit has shown steps Defense entities must take to meet audit requirements in areas such as closing out contracts and reconciling accounts with the Treasury Department, he said.

"It's not sexy stuff. It's blocking and tackling," Hale said. "We've just got to get better at it."

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