Driving change: defense financial management: results of 2006 survey: according to a recent...

About the Survey

Between January and March 2006, the American Society of Military Comptrollers sponsored surveys of Department of Defense (DoD) and military service executives and managers on their opinions of trends and prospects in financial management. Grant Thornton LLP conducted

37 in-person interviews with top financial management executives and 127 online interviews with financial managers and analysts in the field. Survey respondents were guaranteed anonymity, which ensured the confidence and full cooperation of the participants. Grant Thornton also analyzed the results of the two surveys and reached the following conclusions.

Unity of Vision

According to the in-person survey, financial executives throughout the Defense community are remarkably united in holding a vision of a transformed financial management environment and workforce. They see a future in which the Defense community has common information systems and standards; a smaller, better-trained financial workforce; and considerable automation of manual processes and transactions, the latter enhanced by Internet-based applications. Financial data will have single-source entry, with standard systems and processes that are well documented, auditable, and highly credible. The data will be readily available at all levels, and financial reports can be produced at any level to meet management and customer needs.

The keys to achieving this vision include the Standard Financial Information Structure (SFIS) and the Financial Improvement and Audit Readiness (FIAR) Plan. The SFIS is the Department's common business language, which will provide an enterprise-wide standard for categorizing financial information along several dimensions to support financial management and reporting functions. The DoD Business Transformation Agency (BTA) is responsible for the SFIS initiative.

The FIAR Plan is the Department's roadmap for improving and resolving DoD component- and auditor-identified weaknesses. Developed and managed by the Office of the Under Secretary of Defense (Comptroller), the FIAR Plan documents a long-term, phased approach to reaching an unqualified opinion on financial statements for the Department's 31 financial statement reporting entities.

Figure 1 shows the change drivers that will aid in achieving the vision for Defense financial management.

[FIGURE 1 OMITTED]

Warfighters and Financial Management

According to in-person interview respondents, Operation Iraqi Freedom has made more visible the need for better financial management and accountability for funds expended in the field. The need for better internal controls in combat theaters of operation necessitates that more personnel receive training in controls and financial management. In addition, financial systems and processes used by field units need to be user-friendly and simple. According to several executive respondents, the military services need to make wide use of the Deployable Disbursing System (DDS). The DDS will consolidate all overseas disbursing systems, handling payments, collections, foreign currency transactions, and other functions performed in remote field locations.

Information Systems

Only one in four financial personnel responding to the online survey said that the financial information systems he or she uses work well. One third said that these systems need major improvements such as the following:

* Make systems more user-friendly

* Reduce manual processes and workarounds

* Apply better data validation and more checks and balances to avoid duplication

* Develop more online viewing capabilities

* Improve documentation

* Provide better, faster technical support

Respondents generally agreed that the Department must do the following:

* Reduce the number of systems (many want a single, standard DoD-wide financial system)

* Make various DoD systems more compatible

* Develop more integrated systems

* Consolidate financial systems within the comptroller arena

* Develop better cost-accounting capabilities

* Apply analytical tools across all functions

* Use standard, formal training on systems, not on-the-job training

Base Realignment and Closure (BRAC), Jointness, and the Business Transformation Agency

Most in-person and online interview respondents were positive about BRAC and jointness. Several in-person repondents said that the 2006 BRAC decisions and jointness are major enablers in the transformation of Defense community financial management. This especially is true for efforts aimed at standardizing financial definitions, processes, and information systems across the military services and Defense agencies. Some in-person respondents, however, feared that BRAC closings of many Defense Finance and Accounting Service offices will cause short-term problems for some customers.

Many in-person survey respondents applauded the mission of the recently established BTA, which is to transform business operations for better warfighter support and to enhance financial accountability throughout the Department. Several top executive respondents, however, said they have adopted a wait-and-see attitude about the new agency.

Internal Control

Executives from some Defense agencies said that they have not yet started working on compliance with OMB Circular A-123, "Management's Responsibility for Internal Control" (revised December 2004). Others stated that their organizations already comply with this directive. Most agreed that Circular A-123 will lead to a greater focus on controls and a more integrated program of review. Others caution against letting control compliance become an administrative exercise instead of a way to improve operations.

Conclusion: Keep Driving Change

Along with a common vision for a transformed Defense financial management environment, survey respondents had a common concern: the fear that the Department and its components, the Congress, and the Administration will not sustain the momentum needed to make that vision a reality. Budget pressure resulting from the war on terrorism and mounting federal deficits lend urgency to efforts to improve Defense financial management, according to several respondents. "We need to get done all we can as fast as we can," said an executive participant. "The window of opportunity will not last."

Systems and Decision Making

Executive respondents to the 2006 survey think that systems must change in a direction that leads to a higher level of service that supports executive decision making. Said one, "We need more adaptive, flexible information systems. We still have very rigid systems that serve pretty well to capture data and report out to the Office of Management and Budget (OMB) and to prepare the annual budget. But we cannot do what-if analyses. If something new comes up related to the mission of helping Pakistan [in the aftermath of] an earthquake, for example, we cannot readily run scenarios to see where we could adjust. The desired state is to look within my overall funding/budget architecture to see quickly how I could tweak it to free up funds and get a new or changed mission done."

Rhoda Canter is a partner and Al Tucker, CDFM, is a senior manager in Grant Thornton LLP's Global Public Sector group, headquartered in Alexandria, Virginia. Both are members of ASMC's Washington Chapter.

Rhoda Canter and Al Tucker, CDFM