Defense at Risk

Department of Defense operations deemed "high risk" by the General Accounting Office because of either their vulnerability to waste, fraud, abuse, and mismanagement or major challenges associated with their economy, efficiency, or effectiveness:

• Strategic planning
• Human capital
• Financial operations
• Information technology
• Weapons systems acquisition
• Contract management
• Support infrastructure
• Logistics support

Source: GAO

A Few Good Men and Women

If you think finding finance talent is tough in the private sector, try recruiting accountants for government work. Since 1993, the government has reduced its workforce by 324,580 employees through hiring freezes and across-the-board reductions. Consequently, the average age of a government worker has risen, from 42 in 1990 to 46 today. "A significant percentage of the government's workforce is going to be eligible to retire in the next several years," notes U.S. comptroller general and head of the GAO David M. Walker. By 2010, 71 percent of government workers will be eligible to retire.

The difficulty in attracting finance talent, says Dov S. Zakheim, Under Secretary of Defense and CFO of the Department of Defense, is yet another reason why financial management reform is so important. Get government to act more like business, he believes, and talent will flow more freely between the private and public sectors. Today, business school graduates avoid government service because the skills they learn there aren't relevant to the business world, says Zakheim, and instead of building a career, "you just end up as a bitter bureaucrat by the time you are 45." —T.R.

Appreciating Depreciation

For the past decade, radically different (and still evolving) accounting standards have presented another challenge for federal agencies. The Federal Accounting Standards Advisory Board (FASAB) has been rewriting federal government accounting standards since it was established in 1990. In 1996, the board issued a complete set of basic accounting standards, which were recognized as GAAP by the American Institute of Certified Public Accountants in 1999.

"Across the federal government, agencies must take budgetary accounting and encumbrance accounting and move it all into the income statement and balance-sheet accounting that we have in the private sector," says William Phillips, a partner with PricewaterhouseCoopers Consulting's government consulting practice. "Historically, depreciation wasn't important. An agency would build a $200 million building out of cash in a single budget year."

Changing that mindset has been tough, even for the standard-setters. At NASA, former CFO Arnold Holz discovered that the original FASAB standard on property, plant, and equipment mysteriously exempted weapons systems and space hardware from the balance sheet. "From the point of view of a CFO, I thought that was ludicrous," he says. Not only were the costs of its satellites known, but NASA also had engineering estimates on how long they could be expected to operate. "Why not capitalize them and amortize them over their useful life?" he asked. FASAB removed the space-hardware exception, but not the weapons-system exception.

Department of Defense CFO and Under Secretary of Defense Dov Zakheim was quick to echo Holz's objections. "For years, this department resisted having its assets depreciated," says Zakheim. "You can't do a capital budget if you don't know what your assets are." When Zakheim told FASAB to do away with exceptions for DoD assets, he says, "the reaction was total disbelief." —T.R.

Department of Defense

• 2002 budget: $334 billion
• No. of employees: 3.4 million
• CFO's salary: $138,200

National Aeronautics and Space Administration

• 2002 budget: $14.8 billion
• No. of employees: 18,000
• CFO's salary: $130,000

Social Security Administration

• 2002 budget: $490 billion
• No. of employees: 65,000
• CFO's salary: $130,000 (approximate)

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