Defense finance overhaul could save $30 billion annually

A panel of outside experts recommended Tuesday that the Defense Department overhaul its financial management and accounting operations to realize private-sector-like efficiencies. The six-member study group, appointed earlier in the year by Defense Secretary Donald H. Rumsfeld as part of his strategic review, outlined its recommendations Tuesday at a Pentagon news briefing. The Defense Department's current financial accounting and operational systems "don't provide adequately relevant, reliable and timely financial information or adequately support management decision-making," said Stephen Friedman, a panel member who is chairman of Columbia University's board of trustees and a retired chairman of Goldman, Sachs and Co. Friedman noted that Defense's financial management practices have been "criticized intensely for a long time and numerous studies and congressional criticisms over the years have discussed various weaknesses of the system." The study was not an audit "or in any way an exercise in finger-pointing," Friedman emphasized, adding that the group interviewed some 40 current and former government and private sector officials during its two months of work. Improvement of the system, which could take up to 10 years to fully implement, "is doable," he said, and has the support of Defense senior leadership. "The problem is not essentially one of people; there are lots of very conscientious, hard-working people here, and some good things are happening," Friedman said. "The problem is more with the tools that they are required to work with." The Defense Department's financial systems aren't set up to use generally accepted accounting principles or properly interface with management information systems, Friedman said. The current system takes "too long to reconcile various accounts" and is "too cumbersome, too costly, [and] not readily auditable," he added. Most important, Friedman said, is the system doesn't provide "timely information to run this very complex enterprise more efficiently." "It will take time, but studies have pointed out that extremely large amounts of money are savable by Defense as these programs are implemented," he said, adding that estimated cost savings would range from $15 billion to $30 billion annually. "Part of our suggestion is that some of these efficiency improvement steps can be taken long before the full-scale financial integration is accomplished," he concluded.