Financing Defense

o CEO worth his or her salt is going to make a strategic decision without good financial information," Defense Department Comptroller Dov Zakheim told reporters at a recent Pentagon briefing. But that's just what managers at Defense have been doing for years. The reason? Financial systems that barely communicate with each other-if they communicate at all. In fact, Defense is so massive that officials aren't even sure how many financial-related computer systems they have. "We're in the region of 1,100 systems," Zakheim said. "That is huge. It is untenable."

But that will change-and soon, Zakheim said. Defense is launching a new, five-year project to update and consolidate the department's financial environment. In fact, Zakheim said the effort to modernize Defense's financial systems is a key component of Defense Secretary Donald Rumsfeld's overall Defense transformation initiative. "[In] general, transformation has been viewed as new weapons systems or communications, or even culture," Zakheim said. "And those are all important and accurate and key elements of transformation. But there's another one too, and that's transforming the way we do business in this place."

A team of contractors led by IBM Corp. will first create a transformation blueprint. Anne Altman, the managing director of IBM's federal division, says IBM's own financial turnaround in the mid-1990s was one of the reasons it got the job. IBM had been saddled with 145 financial systems worldwide, but it quickly got rid of 90 of them, cutting operating costs by 38 percent. IBM also closed 59 of the data centers that supported these systems, leaving just eight in place.

IBM will be helped by Accenture, American Management Systems Inc., DynCorp, KPMG LLP and Science Applications International Corp. The team will help identify the essential pieces of financial information Defense workers need to do their jobs, says Roger Scearce, AMS' vice president for Defense Department financial management solutions. Scearce, a former deputy director of the Defense Finance and Accounting Service, is a consolidation veteran, having served on the team that won praise for revamping that agency's financial systems. And his experience should come in handy, considering the challenge. As Zakheim pointed out, Defense's financial systems all use different kinds of software. "We've got to get every Defense component, agency, field activity . . . to identify and use data the same way," he said.

The review will identify the systems Defense needs to preserve and others that will have to be redesigned or eliminated altogether. In some cases, the team may implement commercial, off-the-shelf technology from one or more companies, while, in other cases, it may choose to leave "damn good" legacy systems in place, Scearce says.

"These are individual systems," Zakheim said. "They relate not just to dollars and finances per se. They relate to health [and] medical [information]. They relate to supply. They relate to other elements of personnel." He said these "feeder systems . . . obviously affect the cash flow of this department and are critical if you're going to come up with financial statements that make any sense."

Defense's inventory of financial systems is still growing. Zakheim said he hoped to cut the number of systems by 90 percent. "This means Defense is not going to have one super system that deals with every transaction," he said.

Zakheim has created a program office with a staff of 21 to manage the project. The real weight will fall on the shoulders of Tina Jonas, Defense's first deputy undersecretary for financial management. Jonas will work closely with IBM to ensure the department gets what it pays for. The transformation should be complete in five years, Zakheim said. After IBM delivers its blueprint in March, the contractors and the department will begin buying software to support the plan. From April 2004 to May 2005, the software will be tested and prepared for a Defense-wide installation slated for completion in 2007.

The 1990 Chief Financial Officers Act is a major force behind the Defense effort. "The federal government believes financial statements should be produced for every agency in the executive branch so taxpayers can see how the government is using and managing their dollars," Scearce says. "Right now, I don't believe we do that very well."

When pressed about whether Defense would continue to have problems producing clean audits until 2007 or 2008, Zakheim said the department's inability to account for all its money would persist as long as the majority of Defense commands have trouble with their books. More importantly, he said, Defense needs to focus on building the "basic substructure that yields up a clean audit." "I think Rumsfeld has a vision of not only battlefield and situational awareness, but also business and management awareness," Scearce says. "It all comes down to everything being accounted for. Everything we do affects accounting."