U.S. Senator Daniel K. Akaka (D-Hawaii), chairman of the Senate Armed Services Subcommittee on Readiness and Management Support, welcomed the Department of Defense's selection of a contractor team to develop a DOD-wide financial management enterprise architecture. International Business Machines (IBM) will lead a private-sector team working with the DOD Financial Management Modernization Program Office to design a blueprint for DOD investment in business management information technology.

"I am pleased to see that the Department of Defense is taking action to address its financial management challenges," Akaka said. "Development of a Department-wide financial management architecture is a step in the right direction. Shortcomings in DOD financial management systems are a decades-old problem. While these problems are not exciting or easily understood, correcting them is vitally important. Billions of dollars are at stake."

The General Accounting Office designated DOD financial management as a "high risk" area in 1995, and the designation continues today -- in large part, because neither the Department as a whole nor the military services have yet been able to produce auditable financial statements. GAO's January 2001 High Risk report stated:

"While improved in recent years, financial management remains a high-risk area for the Department. To date, no major part of the Department's operations has passed the test of an independent financial audit because of pervasive weaknesses in the Department's financial management systems.

"DOD has acknowledged that its current financial management systems (1) are flawed with decades-old problems that will be impossible to reverse overnight, (2) for the most part do not comply with federal financial management systems requirements, and (3) were not designed to collect data in accordance with generally accepted accounting principles."

DOD's inability to accurately track costs has an impact on a wide variety of DOD functions and operations. As the GAO High Risk report explained:

"Areas in which DOD has been hampered by the lack of reliable information on the full cost of its programs include: (1) accounting for the costs associated with functions studied for potential outsourcing under OMB Circular A-76, including a long-standing concern over how accurately DOD's in-house cost estimates reflect actual costs; (2) controlling and managing weapon system acquisition, operation, and disposal costs under its overall Defense Reform Initiative; and (3) long-standing problems in accumulating and reporting the cost data needed to help assess the economy and efficiency of its businesslike activities used to provide goods and services in support of the military services."

The Department has acknowledged these problems. In 2001, a DOD financial management study concluded that "Current DOD financial, accounting and feeder/operational management systems do not provide information that could be characterized as relevant, reliable and timely." The Bush Administration requested and received a $100 million appropriation to help it address financial management problems over the next two years.

"I applaud Secretary Rumsfeld and DOD Comptroller Zakheim for moving swiftly to establish an enterprise architecture and implement other recommendations made by the GAO," Akaka said. "The program office and newly assembled contractor team have a daunting challenge ahead. Implementing a new plan while at the same time consolidating or eliminating current financial management systems requires strong and steady leadership. As Chairman of the Readiness Subcommittee, I am committed to work the Administration on the comprehensive approach needed to address current shortcomings."