The FFM Subcommittee held a hearing on financial management at the Department of Defense. Since Fiscal Year 2005 DoD has become more focused on financial management as a critical area for reform. In GAO’s words, “DoD has finally come to the realization that all of their “business systems” whether payroll, logistics, supplies, personnel, etc., must be viewed as financial in nature, because they all involve a cost.”
However, this has not always been the case. DoD’s fiscal year 2006 budget was more than the combined defense spending of the rest of the world. There are over 3,700 “business systems” at DoD that are not integrated, “stove-piped,” and unable to effectively communicate with one another. Until recently, there has been a lack of financial standardization between DOD’s component services (Air Force, Army, Navy, and Defense Agencies) and DOD decision-makers. This has resulted in poor financial management decision-making by DOD that requires increased financial oversight by Congress for such issues such as inventory, account balances, payments, etc.
DoD has never received any kind of an audit opinion due to a lack of accurate and reliable financial information. The Department has a new goal of receiving an unqualified, or “clean” audit by 2016. The Financial Improvement and Audit Readiness (FIAR) Plan is DoD’s targeted approach, developed in December 2005, to set incremental goals for making DoD auditable. This hearing will focus largely on the goals and implementation of the FIAR Plan.
• The Department of Defense has never gotten a financial audit. In fact, DoD has never produced auditable financial statements – in other words, they can’t undergo an audit, much less pass one.
• Of the 26 “high-risk” areas designated by GAO, 14 are at DoD. GAO has been reporting to Congress that DoD is at the top of its “High-risk” list for years.
• In 2004, the Department set the goal of undergoing a full audit by 2007. That deadline has not been met, and in fact, has been moved to the year 2016.
• DoD has made progress in implementing many of GAO’s recommendations over the past several years; but much more work remains to be done. The Financial Audit and Improvement Readiness (FIAR) Plan to incrementally move the Department to an auditable state by 2016 and the Standard Financial Information Structure (SFIS) to categorize DoD financial information are two key elements driving the Department’s plan for financial management improvement. Initial steps have been made, but the ultimate success of these efforts will remain unseen for ten years.
Impact on Taxpayers:
• Every dollar wasted or misspent is a dollar we don’t spend preparing and equipping our warfighters. GAO reported that our battle-wounded soldiers were hounded by debt collectors for debt they incurred by no fault of their own, but rather the financial blunders of DoD record-keeping. GAO found that as many as 73 percent of these reported debts were caused by overpayments of pay allowances, pay calculation errors, and erroneous leave payments made by DoD.
• The United States Department of Defense fiscal year 2006 budget was more than the combined defense spending of the rest of the world. Congress approved a $440 billion plus dollar budget for DoD for fiscal year 2007. This amount reflects a 7 percent increase over 2006 and a 48 percent increase over 2001, and doesn’t even include war expenses. According to the U.S. Government Accountability Office, the federal government’s fiscal exposures at the end of 2005 totaled more than $46 trillion--translating into a burden of about $156,000 per American, or $375,000 per full time worker. With this kind of impact on the taxpayers, Americans deserve to know where such a large portion of their hard-earned tax dollars are being spent at the Department of Defense.
These Findings Demand a Response:
• Congress must perform more rigorous oversight of the Department of Defense, and in doing so, must demand transparency and results at a much faster rate than the current plan proposes.
• Regardless of staffing turnover and change in authority, senior management officials must be held accountable for continuing to improve financial management at DoD and implementing the FIAR Plan. This will only happen if Congress is diligent in its oversight duties.
August 2006 Hearings
Current record
Senator Tom Coburn
172 Russell Senate Office Bldg. Washington, DC 20510
