Printer Friendly

Financial management within the North Atlantic Treaty Organization.

The purpose of this article is to describe financial management practices within the North Atlantic Treaty Organization (NATO) and, in so doing, to acquaint United States military personnel and civilian employees with those processes. Secondarily, knowledge of NATO financial management may encourage some personnel to seek NATO assignments during their careers.

Background

The Department of Defense (DoD) has assigned staff to NATO since its inception in 1949. There are approximately 2,500 U.S. military and 900 U.S. civilian personnel assigned to NATO entities. Within those numbers, the NATO financial community includes nearly 150 U.S. personnel assigned to NATO military commands and agencies. This article focuses on the NATO military commands.

The NATO Financial Regulations and the implementing rules and procedures govern NATO financial management. Last updated in 1981, the Regulations focus on budgetary management and control and also address contracting, accounting, treasury operations, and auditing.

Figure 1 offers a high-level depiction of the NATO military organization. Each Supreme Commander has a board structure to determine resource requirements and to allocate resources. A financial controller at NATO Headquarters, subordinate financial controllers, and associated staffs manage day-to-day financial operations. The contracting function also is part of the financial controller organization within NATO.

[FIGURE 1 OMITTED]

Budget Formulation

The NATO Military Authorities (Supreme Commanders) receive funds via two appropriation channels:

* Operation and maintenance (O&M) funds emanate from the Military Budget Committee's (MBC) recommendation of a funding ceiling for over 60 budgets that the North Atlantic Council approves annually in December prior to the beginning of the NATO fiscal year (which is the calendar year). The O&M budget is approaching US $1 billion per year.

* Capital investment funds are provided via the NATO Security Investment Program (NSIP). The North Atlantic Council approves Capability Packages and specific capital projects. The NSIP has over $10 billion of Undelivered Orders. For 2005, the estimated cash outlay for approved NSIP projects is about $800 million.

NATO considers the over 10,000 military personnel to be donated labor. As such, they are not reflected in the preceding values. The 3,000+ NATO civilians are funded by the O&M budget. The largest O&M budget is for Airborne Early Warning and Control Force fleet operations at $300 million.

Planning and Programming

The DoD uses the Future Years Defense Plan, while NATO uses a similar document called the Medium Term Financial Plan. The purposes are similar in attempting to display resource requirements over the medium term. NATO places special emphasis on programming when its capital investment resource requirements will come on line. In practice, the Senior Resource Board recommends and the North Atlantic Council approves only a cash outlay forecast for the next year for on-going NSIP projects and an O&M budget for the budget year.

Budgeting

The NATO Military Authorities budget process closely follows the U.S. model, with top-line figures approved by the North Atlantic Council, then apportioned to the Supreme Commanders, and finally allocated to Regional Commands. With over 60 budgets, there is an exceptional amount of detail for trifling amounts. Budgets are screened by higher-level budget staffs and ultimately by the MBC. The MBC may cut funds for such common reasons as concern about executabilty and may freeze funds pending clarification of an issue.

After a budget is approved, the financial controller has wide authority to make intra-and interbudgetary transfers, although above-threshold transfers require MBC approval. NATO has the mid-year review process that is virtually identical to the one used by most DoD components.

Treasury Operations

The NATO Military Authorities call cash from member nations three times per year: April, June, and October. The October cash call reconciles financial impacts such as foreign exchange gains and losses, interest earned, and bank fees. The latter are required since NATO is not a sovereign nation and, as such, must award competitively solicited contracts to obtain banking services. To minimize foreign exchange fluctuations, cash calls are made in the currency of the member nation to the maximum extent possible; for example, the U.S. transfers U.S. dollars to Supreme Allied Command Transformation (SACT) in Norfolk, Virginia, using the Defense Finance and Accounting Service-Ramstein, which charges an Army O&M appropriation.

Accounting

In the past five years, NATO has made significant progress, bringing its accounting into the twenty-first century. The NATO Military Authorities fielded a commercial off-the-shelf software package (Oracle Financials) to 23 sites. NATO's adaptation of Oracle is called the NATO Automated Financial System. In addition, NATO adopted International Public Sector Accounting Standards that the NATO Military Authorities have implemented. The chart of accounts and transaction sets mirror the U.S. Government Standard General Ledger, although the NATO version is much simpler. General-purpose financial statements and budgetary execution data are available in "real-time," and the NATO Military Authorities are developing a managerial accounting system that will be responsive to the needs of executive management. At present, the NATO Military Authorities are hampered by an inflexible personnel system that does not allow for staff training and staff movement without the employee's consent.

Audit

The NATO International Board of Auditors (IBAN) conducts external and financial audits. The Supreme Commanders' audit staffs, which work for the respective financial controllers, perform internal audits. The IBAN reports to the North Atlantic Council. An ad hoc group of financial counselors resolves disagreements between auditors and clients.

The advent of the use of international accounting standards is forcing a much higher level of professional competence within the IBAN in terms of information technology and accounting knowledge. For example, the current U.S. Board Member is detailed from the U.S. Government Accountability Office; however, there currently is only one U.S. person on the IBAN staff. The NATO Military Authorities have U.S. civilian and military staff internal auditors.

Final Thought

Assignment of DoD personnel to NATO financial management positions is straightforward from a duty perspective. While the mix of civilian and military staff is not unlike that found in U.S. headquarters, there are cultural differences and languages encountered in working with people from 26 nations.

Jim Luedeke recently completed a six-year assignment as SACT financial controller. Previously, he was assigned to the Defense Finance and Accounting Service. Luedeke is a certified public accountant and charter member of the Army Acquisition Corps. He authored previous articles during a prior assignment in Moscow, Russia.
COPYRIGHT 2005 American Society of Military Comptrollers
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2005, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
Printer friendly Cite/link Email Feedback
Author:Luedeke, Jim
Publication:Armed Forces Comptroller
Geographic Code:1USA
Date:Jan 1, 2005
Words:1055
Previous Article:Leadership in the "commons".
Next Article:Meteorology and Oceanography Command takes CNO's Sea Enterprise to heart.
Topics:


Related Articles
U.N. treaty to aid 'international' fish.
NATO proposes its own "Rapid Reaction Corps". (Insider Report).
News IQ.
The DISAM Journal of International Security Assistance Management.
North Atlantic Treaty Organization's future. (Legislation and Policy).
Bush, Senate back NATO expansion. (Insider Report).
Bush welcomes NATO expansion.

Terms of use | Privacy policy | Copyright © 2021 Farlex, Inc. | Feedback | For webmasters |