Lawmakers press Defense on financial management overhaul

Defense Department officials ran into a healthy dose of skepticism on Capitol Hill Tuesday over their plan to fix the department's financial management system.

Members of a House subcommittee said that Defense officials aren't moving quickly enough to overhaul a system incapable of generating a clean financial statement for the department. Meanwhile, Defense's inspector general suggested that developing a new system could take longer than anticipated and "might be prohibitively expensive."

Defense officials last April hired IBM to create a new department-wide financial management system. IBM is obligated to deliver a blueprint for the system in March 2003. Full implementation is expected by 2005. Every military service and business unit will be affected by the shift to the new system.

Rep. Dennis Kucinich, D-Ohio, ranking member of the House Government Reform Subcommittee on National Security, Veterans Affairs and International Relations, said Congress should freeze defense spending unless the timelines are accelerated and the department gets its financial house in order.

"Enron pales in comparison to the mess at the Pentagon," Kucinich said. But he noted that Congress is loath to reject Defense budget increases to solve the problem.

Tina Jonas, deputy undersecretary of Defense for financial management, told the committee that financial reforms are a high priority for Defense Secretary Donald Rumsfeld and the military service secretaries. She pointed out that Rumsfeld has given the Pentagon's chief financial officer the ability to stop Defense agencies from spending money on projects that would create new financial management problems or be incompatible with the new system. Four projects at the Navy are currently under such a review.

Defense "does not have a good track record for deploying large information systems that fully meet user expectations, conform with applicable standards, stay within budget estimates and meet planned schedules," Defense Inspector General Joseph Schmitz told the committee. "Nevertheless, we are cautiously optimistic."

Defense has 1,127 different computer systems that generate financial information. Few of them are able to share data, making it virtually impossible to follow transactions and the flow of money.

"As a result, the department's financial information lacks credibility with Congress and other consumers and is inadequate for the routine support of management decision-making," Stephen Friedman, a senior principal at Marsh & McLennan Capital Inc., told the panel. Last year, Friedman chaired a task force set up by Rumsfeld to assess the department's financial systems.

The task force found that Defense could not produce timely, reliable or accurate financial data. The General Accounting Office, the Defense IG, Congress and even the department itself have all reached similar conclusions in recent years. For example, GAO reported last June that Defense could not track the flow of $1.1 billion earmarked for spare parts and other logistical support. The funds were initially appropriated to Defense but then transferred to the military services. Once that happened, accountants at the Pentagon could not determine whether the money was spent on spare parts or used for other purposes.

Jonas said Defense pays out about $2 million in interest every month because of late payments to contractors. The 1989 Prompt Payment Act requires agencies to pay contractors within 30 days of receiving a product or service, but in many cases, Defense is unable to do so. Fixing the problem would allow the department to reallocate interest payments to mission-related programs.

Defense's financial management problems pose a problem not just for the department, but for the government as a whole. In its annual financial report, released May 31, the Office of Management and Budget said Defense's woes are the largest impediment to a clean governmentwide financial statement.