DoD’s costing exercise a silver lining in the troublesome audit effort

With President Donald Trump expected to release his fiscal 2019 budget request to Congress Monday, the focus on spending will undoubtedly come back to the fact that the Defense Department still can’t close its books.

The Pentagon kicked off its first-ever departmentwide audit in December for fiscal 2017, and lawmakers are paying close attention to how it goes. Without a doubt, the audit will be one of the most daunting tasks the DoD back-office personnel and systems have faced in decades. The inspector general reported in November that among DoD’s biggest barriers is data accuracy and accessibility.

But if there is a glimmer of light in the long, dark audit tunnel, it’s coming from an effort to establish common terms around costs for all lines of businesses.

David Tillotson, DoD’s assistant deputy chief management officer, said at the recent Association of Government Accountants Financial Systems Summit that standardizing around this data will let the services and agencies more easily make internal comparisons as well as compare their efforts to the commercial sector.

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“The administration will add some money to our budget, but not all the money we really need. So you can expect the department to find money by asking if we can be more efficient or stop doing specific work,” he said. “We are running a lot of things that are very identifiable as not combat missions. More importantly, we can identify a lot of things that have analogs to the commercial space, so why not look at things through same productivity lines as anyone else in this business? Take the combatant command for transportation, they are a large multi modal transportation provider or the Air Mobility Command, they are emulating lessons from the airlines. All of this is to drive this efficiency effort forward.”

Mark Easton, the deputy comptroller at DoD, added the services and agencies struggled to answer basic questions about what certain mission areas cost.

“This provides us with that opportunity and clearly it complements the audit,” he said. “If we are using financial information to make decisions, that will improve the quality as will standards and reducing the number of disparate systems. We still are facing a significant culture barrier to getting this done, but this is where the money is, so we have to look for it.”

He said a lot of this cost data comes from general ledger systems in the services and agencies.

“We deployed a team and went down to the executive level of databases of  the general ledgers. They decomposed the cost elements down to the accounting codes, and then exposed and documented the diversity and complexity on how we were doing things. The accounting standards were open enough that each base could pick its own codes. Now we have documented those elements and codes, and can reflect the data back to the CFOs and told them to impose more rigor.”

Tillotson said DoD has been working on this costing effort for about 18 months and already has completed real property, IT, medical, and is in the middle of doing cost comparisons now for logistics and supply and the costs of financial management. DoD also will apply this approach to human resources and community services.

Tillotson said the end goal is threefold: validate their outcomes against the private sector; see how they are doing in terms of costs as compared to the private sector; and to use the data to make better decisions across the DoD.

“The better financial management data gets, the better our data sets are and the better our mapping is and that helps clean up our financials,” he said. “As we make internal DoD decisions, we can’t keep doing data calls so this will help us as we review our business practices.”

Tillotson said DoD already is seeing benefits. In the real property  area, for example, DoD looked at how offices leased space and then compared it to available space within military bases in the area.

“There is a Defense agency that leases a building in Atlanta, but we also have two military bases in the area. The lease is above market rate so our next question was can we put that office on base and jettison the lease?” he said. “In the National Capital Region, we eliminated $30 million of lease costs by making better use of military space. We are paying for it whether it’s used or not so why not use it?”

Read more of the Reporter’s Notebook.