Losing Battles

Two decades of failed Pentagon financial reforms put more than just dollars at risk.

Like a second marriage, each new Department of Defense financial-management reform initiative represents the triumph of hope over experience. The DoD, with more than $1 trillion in assets, 3.3 million employees, and a budget of $417 billion for fiscal year 2005, is the largest single business organization on the planet. That it can’t accurately close its books is not surprising. That it continues to try is not surprising. The surprise is that after three elaborate attempts to transform its financial and business-management processes since 1986 — together costing at least $35 billion by some estimates — the department seems not much better off than it was two decades ago.

Officials think the fourth time may be the charm. “We will get a clean audit in 2007,” says Linda Furiga, comptroller of the Defense Logistics Agency (DLA), which is responsible for much of the department’s procurement, supplies, and distribution. She calls the agency’s experience with the newest reform effort, the Business Management Modernization Program (BMMP), “the most exciting time we’ve had in many years. It’s like they’ve shone a light on accounting.”

But can the world’s largest business organization finally approach the transparency and integration of its private-sector brethren? True, the BMMP, which is overseen by DoD comptroller Tina Westby Jonas, has high-level support, starting with Defense Secretary Donald Rumsfeld. And advances in Internet and enterprise-resource-planning (ERP) systems make real integration and interoperability among services more feasible. Still, the dismal history of past reform efforts argues for doubts.

In 1985, in light of the infamous $600 ashtray scandal, President Reagan’s Blue Ribbon Commission on Defense Management was charged with streamlining financial and acquisition policies. Two years later, the executive leading the reforms resigned, calling the Pentagon “not prepared to change the status quo.”

Then, in 1989, Deputy Defense Secretary Donald Atwood launched the Corporate Information Management Initiative with great fanfare. Its target was $36 billion in savings by 1995, but a Clinton Administration study later threw cold water on its work, citing significant resistance to the initiative’s proposed changes. Most were essentially abandoned, after soaking up $20 billion in spending in eight years.

The cost-focused Defense Reform Initiative followed in 1997, spearheaded by President Clinton’s Defense Secretary, William Cohen. Because the individual services and Pentagon agencies were expected to foot the bill, with each one implementing its suggestions, no accurate accounting exists of what was accomplished or how much was spent on the initiative. According to a report issued several years ago by the General Accounting Office (GAO, now called the Government Accountability Office), it failed because its leadership, drawn from the DoD’s various segments, couldn’t put their individual interests aside to focus on departmentwide reform.

Four years later, in 2001, Secretary Rumsfeld ordered the latest study of department financial management. Its findings resulted in the BMMP.

Impregnable Walls

Complicating today’s BMMP financial reforms, of course, are other challenges the DoD must meet, starting with the Iraq War and encompassing questions about its Halliburton relationship, Air Force-Boeing tanker-plane contracts, and revolving-door employment agreements involving government personnel, to name just three.

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