Defense Department urged to appoint chief manager

To help resolve longstanding financial problems, the Defense Department needs to change its management structure, a General Accounting Office analyst told lawmakers Wednesday.

The Pentagon would benefit from designating a chief management official to oversee the integration of its multiple financial systems, said Gregory Kutz, director of financial management and assurance at GAO, in testimony before the House Government Reform Subcommittee on Efficiency and Financial Management. He proposed making the post an Executive Level II official appointed by the president and confirmed by the Senate to serve a seven-year term.

Subcommittee members invited Kutz and Lawrence Lanzillotta, acting undersecretary of Defense and comptroller, to update them on progress toward completing the Business Management Modernization Plan, a project started in 2001 to integrate the department's thousands of disparate systems for transactions ranging from settling accounts to procuring equipment.

The Defense Department is notorious for poor financial management, and consistently holds the rest of the government back from achieving a clean annual audit opinion. Defense is aiming for a clean audit by 2007, Lanzillotta told lawmakers. But he added that the process of modernizing management systems is never really complete because technology changes rapidly.

"This transformation will never stop," Lanzillotta said. The Pentagon's financial management problems "evolved over several decades," he noted in written testimony.

It may be difficult to find one person qualified to head this "colossal" effort, Lanzillotta said. Defense would find it nearly impossible to hire a single person qualified to fill the overarching management role envisioned by Kutz, he said.

To succeed in the hypothetical position, an official would need exceptional technical expertise and leadership skills strong enough to manage the equivalent of a large private-sector conglomerate, Lanzillotta said. The department had to advertise for two years just to find a program manager for the business modernization project, he noted.

But a high-level official with broad responsibilities is necessary to provide sustained leadership for projects, Kutz said. "The tenure of the department's top political appointees has generally been short in duration, and as a result, it is sometimes difficult to maintain the focus and momentum that are needed to resolve the management challenges facing DoD," he explained. The Pentagon's previous comptroller, Dov Zakheim, stayed in the position about three years.

In addition to appointing a management leader, the Pentagon should assign responsibility for systems integration to the officials heading each of the Defense Department's broad business areas, such as acquisition, logistics, personnel and accounting, Kutz recommended. If these officials wished to make investments in, for example, technology, they would need to have their plans approved by investment boards with members from across the department.

This approach would help the Defense Department take a more cohesive approach to resolving financial management problems, rather than leaving decisions to officials within each of the defense agencies and branches of the military services, Kutz said. The current House and Senate versions of the fiscal 2005 Defense authorization bill include language that would give the leaders of the Pentagon's business areas more responsibility for investment decisions, and hold them accountable for progress on management initiatives.

But Lanzillotta cautioned lawmakers against completely overhauling the department's current management structure. By centralizing all business system decisions, the department would lose "operational expertise and perspective," he said.

Kutz argued that without a change, the department cannot hope to integrate business systems. Unless leaders of business areas "control the funding, they will not have the means to effect real change," he said. "Continuing to provide business system funding to the military services and defense agencies is an example of the department's embedded culture and parochial operations."