Overhauling Financial System May Save DoD $30B Yearly

The six-member study group, appointed earlier in the year by Defense Secretary Donald H. Rumsfeld as part of his strategic review, outlined its recommendations July 10 at a Pentagon news briefing.

DoD's current financial accounting and operational systems "don't provide adequately relevant, reliable and timely financial information or adequately support management decision-making," said Stephen Friedman, a panel member who is Columbia University's chairman of the Board of Trustees and a retired chairman of Goldman, Sachs and Co.

Friedman noted DoD's financial management practices have been "criticized intensely for a long time and numerous studies and congressional criticisms over the years have discussed various weaknesses of the system."

The study was not an audit "or in any way an exercise in finger-pointing," Friedman emphasized, adding that the group interviewed some 40 current and former government and private sector officials during its two month's of work.

Improvement of the system, which could take up to 10 years to fully implement, "is doable," he said, and has the support of DoD's senior leadership.

"The problem is not essentially one of people; there are lots of very conscientious, hard-working people here, and some good things are happening," Friedman said. "The problem is more with the tools that they are required to work with."

DoD's financial systems aren't set up to use "generally accepted accounting principles" or properly interface with management information systems, Friedman said. The current system takes "too long to reconcile various accounts" and is "too cumbersome, too costly, [and] not readily auditable," he added.

Most important, Friedman said, is the system doesn't provide "timely information to run this very complex enterprise more efficiently."

Large U.S. and foreign firms have "dramatically improved efficiency and saved large amounts of money by leveraging technology, streamlining processes and integrating very sophisticated logistical and personnel support systems with their financial systems," Friedman said.

"It will take time, but studies have pointed out that extremely large amounts of money are savable by DoD as these programs are implemented," he said, adding that estimated cost savings would range from $15 billion to $30 billion annually.

"Part of our suggestion is that some of these efficiency improvement steps can be taken long before the full-scale financial integration is accomplished," he concluded.