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Making the Case for Compliance.

Everyone, from the 4-star to the troops in the field, has to understand why auditable financial statements are critical to understanding the costs of defending the United States and our interests around the world.

It was easy to spend money during the Second World War. Nobody questioned the need to buy the incredible numbers of airplanes, tanks, guns, and ammunition that would help defeat a clearly identifiable enemy. After all, our national survival was at stake. During the Cold War that followed, for the most part, there was again little question about combat readiness and troop and materiel needs. But in 1990, just about the time the first Chief Financial Officers Act was being passed, the Soviet Union--the so called "Evil Empire" that we needed to be prepared to fight and defeat--ceased to be.

Suddenly, it wasn't all that dear who the enemy was, what we would need to fight that enemy even what being "prepared" meant. And the whole attitude of Congress and the public changed from being grateful for the protection afforded by a top-notch, well-equipped fighting force, to skepticism. Do we really need all those missiles, ships, and airplanes?

Commanders and comptrollers in the Department of Defense had to be able to answer those questions. They had to be able to measure and quantify how the money being requested would lead to a stronger, more prepared military. At the same time, Congress was looking for ways to get a handle on government spending. During the prosperous 1980s, the United States had seen an unprecedented rise in the amount of its national debt. Reducing government spending would help bring things back under control. The need for better management in government led to the passage of the Chief Financial Officers Act of 1990. The Act was followed by an entire collection of laws designed to bring performance-based management to the government. These laws, taken as a whole, raised an expectation that every federal government agency civilian or defense, would produce accurate, auditable financial documents that reflected the total spectrum of an agency's activities. More important, those agencies that could produce CFO Act compliant repor ts would have a much easier time going before Congress when budget time came around each year.

The DoD agencies need to comply with the CFO Act and its successors. Agencies must show that they can devise and implement strategic plans and produce the kind of clean financial reports that will give them credibility at budget time. It is not an easy thing to do. There are major disconnects between the funding mechanisms and the various reporting requirements for the Department. More important, DoD financial managers have to convince everyone with a stake in the military that sound financial practices are a primary way to assure the proper level of preparedness and security. The current DoD business processes are driven, to a great extent, by the way the funding is allocated. Funding comes from a wide range of appropriations. There are separate allocations for operations and maintenance, personnel, procurement, etc., and Congress expects to receive reports on spending that reflect the allocation's vertical stovepipes.

Conversely, most performance-based management schemes are horizontal, and the Congressionally-mandated vertical reporting makes true performance-based reporting difficult. These conflicting expectations drive the current DoD business processes, requiring that most financial managers keep the equivalent of two sets of books, one for Inspector General or General Accounting Office compliance reasons, and the other for Congress. However, with proper business process reengineering, the Department's agencies should be able to create an environment where they can supply credible financial statements to all the stakeholders. Within the DoD, the critical issue isn't accounting at all. It's management and the role/use of financial information as a management tool. At what level--Major Command, installation, tactical/field activity--do auditable financial statements matter? They matter at every level. Everyone in the military has to understand that the inability to express our activities financially along with the lack of auditable financial statements, hurts our credibility--and thus the mission. To the extent that each individual in the military is responsible for the public's trust and confidence, so is that individual responsible for the effective management of assets and people.

As DoD financial managers, our primary mission is to provide our organizations with the resources needed to protect and defend the interests of our country. Complying with the requirements of the CFO Act and the legislation that followed it, and producing clean, auditable financial reports, is an essential part of fulfilling that mission. And making sure everyone, from field personnel to the senior leaders at the Pentagon, understands that is the only way it will ever happen.

Roger Scearce is a vice president with American Management Systems in the DoD Financial Management Solutions Group. Before joining AMS in May 1999, he served as Deputy Director, Defense Finance and Accounting Service (DFAS), where he helped manage the day-to-day finance and accounting activities of the Defense Department. Prior to that, he served more than 27 years in the U.S.A Army and served in the Gulf War before concluding his military service as a Brigadier General. He is an active member of the American Society of Military Comptrollers (ASMC), Washington Chapter, and Association of Government Accountants (AGA).
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Article Details
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Author:Scearce, Roger W.
Publication:Armed Forces Comptroller
Article Type:Brief Article
Geographic Code:1USA
Date:Jun 22, 2000
Previous Article:The U.S. Army Corps of Engineers -- Aligning Our Business With the CFO Act (The Financial Management Journey Continues).
Next Article:Federal Accounting Standards: Close Enough for Government Work?

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