Culture change in the DoD financial management community: one person's determination became the catalyst for changing the prevailing Department of Defense financial management culture and achieved stunning results.

Top management of many enterprises, both within and outside the government--and, in the latter case, whether large or small or publicly or privately held--tends to periodically undertake a realignment of the organization chart. The rationale is usually the same: to produce a more efficient, meaningful product or service in a timely fashion, whatever that product or service might happen to be. All too often, however, "org chart" changes do little more than shuffle the same people around, without taking sufficient account of the fact that people are far more important than structure. To produce results, it is critical that morale be sustained-if not increased--and that a culture of stagnation become one of vibrancy.

When I became Under Secretary of Defense (Comptroller) and Chief Financial Officer of the Department of Defense (DoD) in 2001, I found a financial management community that was talented but dispirited. Because the DoD's primary task is to fight and win wars, "back-office" activities were seen as necessary evils to be coped with, rather than as a vital element of the Department's mission. The Department and its constituent agencies committed large numbers of staff and many hours of labor to preparing and defending the annual budget. The objective was to have the Congress provide the funds. How they were executed and accounted for was a secondary matter, as long as the Department could ensure that personnel received their pay, benefits, and required training and that weapon systems could be researched, developed, acquired, operated, sustained, and maintained.

To the extent that there was any emphasis at all on monitoring financial execution and management, it was the product of congressional legislation that mandated such activity. Yet that legislation, beginning with the Chief Financial Officers Act of 1990, did not really spur real culture change in the Pentagon. Instead, the Congress was viewed as having added yet another paperwork-based burden on an already overstretched DoD bureaucracy.

In addition, the Department was wary of the General Accounting (now Government Accountability) Office (GAO), which oversaw budget execution and financial management. The GAO would raise a hue and cry if programs were mismanaged or if funds could not be accounted for, which in turn often led to further legislative activity and more paperwork. As a result, a dispirited financial management workforce simply hunkered down, did its job, and left the office every day by 5 p.m.

Commitments of Support and a Blueprint for Change

During my confirmation hearings, I made it clear to members of the Senate Armed Services Committee, notably Senator Robert C. Byrd (D, WV), that I was determined to change the prevailing DoD culture with regard to financial management. I also visited Senator Charles E. Grassley (R, IA), who was not a committee member but was a longstanding champion of good financial management, in order to make a similar promise to him. I signaled my intention to create a new position of Deputy Under Secretary for Financial Management to provide ongoing high-level focus on financial management reform, but refrained from any other organizational chart changes.

To revive the spirits of the Department's financial management team, it was important that its role be recognized and appreciated Department-wide. In that regard, I received wholehearted support from Defense Secretary Donald Rumsfeld, who had enlisted Stephen Friedman, the former Chief Executive Officer (CEO) of Goldman Sachs (later to lead the President's Economic Security Council) to review and recommend changes to the Department's financial management processes. Mr. Friedman's findings provided me with a blueprint for change, and Secretary Rumsfeld gave that blueprint teeth with a series of memoranda that he issued during the course of 2001, including a July 2001 memo that formally created the Financial Management Modernization Program (FMMP).

I also obtained critical support from three other quarters. The Office of Management and Budget (OMB), particularly OMB Comptroller Marc Everson, was committed to realizing the President's new, rigorous management agenda and recognized that a financially sound and well-managed DoD was critical to its successful implementation. At the GAO, David Walker, the comptroller-general (and a retired marine), shared my deep concern about the state of the Department's finances; his engagement and that of his able deputies was sincere and not, as many in DoD assumed, of the "gotcha" variety.

Finally, the new DoD Inspector General, Joe Schmitz, likewise was prepared to commit the Defense Financial Auditing Service, ably led by Paul Granetto, to bolster the financial management community's efforts to realize a clean audit for the Department. As a result, and for the first time ever, both OMB and GAO participated in quarterly reviews of DoD component financial statements. Their involvement brought a new rigor to the review process and helped nudge the more recalcitrant actors to commit themselves to the improved financial management process.

In addition, upon my recommendation, Secretary Rumsfeld authorized the creation of a Defense Business Board, which enlisted the aid of prominent CEOs and other business leaders to help restructure the Department's business activities. Indeed, David Walker agreed to serve as an observer on the board, providing a useful Capitol Hill-based perspective for nongovernmental board members.

For its part, the Congress, in fiscal year 2003, authorized and appropriated $100 million to undertake the financial management modernization effort and to create an all-encompassing Business Enterprise Architecture (BEA). The initial implementation phase of the BEA was completed in April 2003.

Finally, Secretary Rumsfeld agreed that the long-standing planning-programming-budgeting process, which had not undergone any significant change since the 1960s, would be transformed into a planning-programming-budgeting-execution process that would link actual spending to financial management, thereby bringing new credibility to budget needs and estimates.

A True Cultural Shift Takes Place

All of these developments signaled that financial management certainly had become a front-burner issue, even if its workings might have been considered a "back-office" task. The staff responded accordingly.

People were visibly more enthusiastic about their work and seemed to be working more intensely and often for longer hours. As the transformation progressed and was adjusted to account for realities that could not have been anticipated (such as the fact that the original estimate of 1,800 systems requiring integration into an architecture had more than tripled), both OMB and GAO began to have some good words to say about DoD's financial management efforts. While never unaccompanied by a critique of the huge challenges and tasks that still lay before the Department, such praise further bolstered staff morale and signaled to the rest of the Department that serious financial management was here to stay.

It is now possible to see a true cultural shift taking place Department-wide. In 2003, the FMMP became the Business Management Modernization Program, expanding to incorporate acquisition, logistics, and human capital concerns as well as those of the comptroller. In turn, the BEA was--and continues to be--restructured. A new Business Transformation Agency (BTA) has come into being, supported by both an unprecedented partnership between the offices of Ken Krieg, the Under Secretary of Defense for Acquisition, Technology and Logistics, and Tina Jonas, my successor as Under Secretary of Defense (Comptroller). The Secretary of Defense continues to throw his full weight behind the modernization program, as does Deputy Secretary Gordon England, who has presided over the Navy's business and financial transformation as Secretary of the Navy.

The weight of these developments renders it unlikely that financial management, indeed business management generally, will retrench. On the contrary, there is every indication that the culture change is being institutionalized. A dedicated financial management staff, the new BTA, and ongoing encouragement--as well as scrutiny--on the part of the Congress, GAO, and OMB will help ensure that this is the case.

The issue was never one of organization charts, but one of respect deriving from--and contributing to--culture change. The financial management discipline and the professionals in that community now command the respect within DoD, in the Administration, and on the Hill. The Department--and the nation--can only benefit as a result.

The Honorable Dov S. Zakheim, vice president at Booz Allen 14 Hamilton, Inc., was Under Secretary of Defense (Comptroller) and Chief Financial Officer, 2001-2004.