DoD to miss 2017 audit deadline, says deputy chief management officer nominee

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Jared Serbu | June 4, 2015 7:50 pm

If he’s confirmed by the Senate as the Pentagon’s next deputy chief management officer, Peter Levine will play a major role on DoD’s arduous path toward audit readiness. He’ll also become the first senior Defense official to have openly acknowledged that the department probably can’t meet that goal by its 2017 deadline.

When he testified before the Senate Armed Services Committee Tuesday, Levine had an unusually familiar and friendly audience compared with what most Pentagon nominees confront: He’s spent the past 20 years as one of that committee’s professional staff members, most recently as its staff director. So when asked whether DoD would be able to meet its audit deadline, he said he was giving the same advice he’d been privately delivering to members for the past several years.

“I have always been skeptical that the 2017 deadline will be met, and I can’t change my stripes just because I’m sitting down here at the witness stand,” he said Tuesday. “This is biggest entity in the world. An individual taxpayer or a small business may be able to put their receipts in a shoebox and add them up at the end of the year, but an entity the size of the Department of Defense simply can’t do that. We have to have systems and processes in place that produce good financial information, and when we do, it will not only provide us an auditable financial statement, but it will give the secretary of Defense the answers he needs to make decisions. I think we’ve made significant progress and I think it’s now foreseeable that we can get to an auditable financial statement. I just don’t believe we’ll make it by 2017.”

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While DoD’s DCMO is not directly in charge of the department’s finances, the post does play an integral role in ensuring that the department’s business processes and IT systems can support an audit. Levine said the looming 2017 deadline has helped to pressure military departments and agencies to make auditability a priority.

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But if his prediction is correct, he said Congress will need to think carefully about how to maintain the department’s focus on accurate financial statements and the business processes that support them.

“If we get to 2017 and it doesn’t happen, how do we make sure that the same pressure remains in 2018? We can’t just say, ‘Well, we blew it. Now we’re going to give up and go home.’ We can’t afford to do that,” Levine said.

Five or six targets

Levine played a role in creating the position he’s now been nominated to fill. In 2008, the Senate Armed Services Committee drafted the legislation which created the DCMO post, reflecting Congress’ desire to bring more senior-level attention to the broad topic of “management” within DoD. An inability to attend to the day- to- day business functions of the department, Congress concluded, was at least one factor in massive cost overruns in acquisition programs, and, more generally, inefficient uses of funds.

But Levine said that since his nomination comes late in the second term of a presidency, he will need to work quickly and choose his battles among a large potential universe of priorities.

“I figure I have to identify five or six specific targets in the next year and a half,” he said. “The deputy secretary has already asked the DCMO to review the organization of the office of the secretary of Defense and to look for places where we have redundant or superfluous organizations, and we’ll continue that. The acquisition decision-making process is incredibly inefficient and has to be improved. I think that the civilian personnel system can be dramatically improved. We need to streamline processes and we need to look at organizations and make that process more efficient and less costly.”

With regard to acquisition reform, Levine said he would not attempt to set policy — that’s the job of Congress and Frank Kendall, DoD’s undersecretary for acquisition, technology and logistics, he said.

But he said the DCMO can help to reform procedural elements of the acquisition process which add to cost and schedule without adding any perceptible benefit.

“We just had a GAO report that said that for a program manager to get a milestone decision, it takes two years and 2,000 man hours, and they may have to go to 200 different offices to get their approval. They’re spending all of their time briefing people and changing slides rather than working on the substance of the program,” Levine said. “I think that process, without changing the acquisition policy, can be significantly improved. We need to document the processes we have right now for several different programs, maybe one from each service. We need to ask, ‘Who is it you have to go to? What does this process actually look like when you diagram it?’ So that we can say, ‘You can’t do that anymore. It can’t be this complicated.'”

Better spend tracking needed

Levine also pledged to devote a significant proportion of his time to slimming the bureaucracy of DoD’s headquarters organizations. The department will need to make reductions from its overhead spending and ensure that it is not claiming savings by simply shifting responsibilities to lower-level organizations, he said. Rather, the DCMO will need to ensure that operations are streamlined and, where necessary, cease some functions altogether.

“The Defense Business Board has already told us that we have too many layers of management, too many managers are managing three people, and then those people managing five people. So it’s something we’re going to have to look at,” Levine said. “We are also going to have to look at a civilian hiring process that takes at least six months and maybe eight months to hire a single individual to work at the Department of Defense. That’s just crazy. You lose some of the most talented individuals you’re trying to hire because you can’t offer them a job, even though you know that you want them.”

Levine said DoD also must get a better grasp of how it uses service contracts to support it operations across the department.

Establishing a system to track spending on contract personnel has been a congressional priority since 2008, when that year’s Defense authorization bill told DoD to inventory all of its vendor arrangements in pursuit of a clearer picture of how it is using service contracts. That system now exists, and purports to report the total headcount of service contractors: 629,000 as of this week.

“We now have a very precise number. The problem is accuracy, as with so many of the department’s systems,” he said. “Contractors are hard to count. Sometimes we hire them by the person. But we also have places where you hire for a result. If you have an elevator maintenance contract, you don’t care whether you have six people working on it or five. We also have different systems of counting in the different military departments. The Army requires in all of their contracts that you have to tell us how many people you have working on a project. The other military departments have a conversion factor where they say, ‘We’re spending this number of dollars, we figure it must be this number of people.’ So the number sounds very precise, but it’s a lot less precise than it sounds because of the techniques that they use to gather that information.”

Tipping rice bowls

If the full Senate approves his nomination, Levine would be only the second Senate-confirmed deputy chief management officer in the short history of the position.

The first, Beth McGrath, retired in 2013 after a long DoD career. David Tillotson, formerly the Air Force’s DCMO, has filled the role in an acting capacity since then.

Levine said McGrath “worked hard,” but never had sufficient support from the Pentagon’s top leadership to turn the office into the agent for management change Congress originally envisioned.

So when he was asked to take the job, he was hesitant at first.

“When Deputy Secretary [Robert] Work talked to me about the job and asked me if I would do it, I said, ‘So you want to make me the most unpopular person in the Pentagon?’ He said, ‘Yes, and I’ll be right there with you.’ That was the assurance that I needed, “Levine said. “The DCMO has to go into other people’s rice bowls and tell them they’re not doing it right, and that they need to do it differently. And that’s never going to be something that’s popular in any organization, and certainly not an organization like the Pentagon.”

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