The Defense Department’s convoluted web of accounting systems over the years has become the proverbial Hydra whose ugly heads continue to multiply every time someone cuts one off.
Many have attempted to untangle the clutter and kill the beast, with little or no success.
To take another stab at the problem, the Pentagon brought in a new team of experts headed by Paul A. Brinkley, undersecretary of defense for business transformation, who came to the Defense Department in 2004 after an extensive career in the private sector.
Under the broad label of “business transformation,” the Pentagon wants to consolidate thousands of fragmented information systems that track everything from how much money it pays to contractors to the location of inventories and the status of payroll accounts.
Unless that’s accomplished, officials argue, it will become increasingly difficult to account for taxpayers’ defense dollars, which the Pentagon is now spending to the tune of more than $450 billion a year.
Based on his experience in private industry, Brinkley contends that many of the traditional strategies for tackling business reforms at the Pentagon have failed because they tended to focus on meeting overambitious deadlines, rather than realistically looking at the problem.
“The Defense Department generally is oriented to big goals, big targets,” Brinkley says. The prevailing wishful thinking is that, “On this date, we’ll throw the switch and everything is going to be good.”
On the business side of things, however, this approach is not likely to work, he explains, because the task is so mind-numbingly complex, and more significantly, because the Defense Department cannot be managed as your run-of-the-mill Fortune 500 corporation.
A case in point is a decision that was made several years ago to set a 2007 deadline for a “clean audit” of the Defense Department’s finances. That self-imposed goal proved to be, at the very least, impractical.
“It’s better to have gradual improvements” leading up to a clean audit, rather than determine that on this specific day, “we’ll get a clean audit.” Even corporations don’t work that way, he says. “But the culture here wants to do the big thing, declare the big victory.”
The “clean audit” issue has caused some heartburn within Brinkley’s office because it has opened up the Defense Department to criticism that it is not accountable for the funds it spends. Among the critics are members of Congress, the Government Accountability Office and other watchdog organizations.
What is often misunderstood is that the Pentagon, in fact, can be audited with today’s systems, although the process is drawn out and laborious. As part of the “business transformation” effort, the intent is to make the audit less cumbersome and error prone, says Thomas Modly, deputy undersecretary of defense for financial management, who oversees reform efforts along with Brinkley.
Exhaustive audits are done now, he says. “But it is a very manual, labor-intensive and expensive process. The level of accuracy is probably not where it needs to be.”
Modly and Brinkley recently drafted a long-term blueprint to begin a slow but sure consolidation of disparate computer systems within the military services and the Defense Department, so that eventually coherent information can be generated relatively smoothly. But that will take many years, and no firm deadline will be set this time around, Brinkley insists. The defense secretary was scheduled to sign off on the plan in December.
When the 2007 deadline was imposed, “nobody understood what it would take to get there,” Modly says. The only way to accomplish that goal, if at all, would involve expensive computer systems that would be programmed to “work around” the existing databases. “We could get there in 2007, but it would be extremely expensive, and it wouldn’t have been sustainable. You would be doing many manual workarounds, each year the same expensive workarounds, to get to the clean audit.”
Monthly reports are sent to Congress documenting war costs, but they are not done the way a modern corporation would do them. “We do it through a series of data calls and some analysis. We estimate what percentages of those dollars are actually spent on one operation, versus others. It’s very cumbersome, expensive, error prone.
“Our goal is an automated process so you can slice and dice information however you want to, like a real corporation would do it.”
In the current plan, there is no single deadline, but rather “hundreds of deadlines for different standards,” Modly adds. “We are doing it incrementally.” Financial information systems, for example, have up to 24 months to comply.
“Our audits today cost billions of dollars,” Brinkley says. As more systems are modernized and consolidated, the costs will drop, he asserts.
Brinkley’s office spends $4.2 billion a year on business systems modernization.
Modly says he is optimistic about a clean “automated” audit becoming a reality sooner than anyone expects. “We currently have a clean opinion of about 16 percent of our assets and 42 percent of our liabilities.” Between now and 2007, those numbers will grow to 38 percent and 49 percent, respectively. “Each year, it will get bigger.”
As with past attempts at reforming defense management practices, it remains to be seen whether they will fizzle out or achieve real results. In this case, the Pentagon has to hope that Hercules has finally arrived to remove the monster from its dark marsh and destroy it.