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Pentagon Priorities

Financial reform at the Department of Defense is hindered by an element that could guarantee failure even if every other obstacle were eliminated: lack of a consistent leader.
Julia Homer, CFO Magazine
October 1, 2004

What, you may well ask, does the financial management of the Department of Defense have to do with corporate finance? Not enough, apparently. As senior writer Kris Frieswick explains in "Losing Battles," since 1985 the DoD has been trying to fix its financial-management systems so that it can produce auditable, transparent financial reports.

But the Pentagon has repeatedly lost this struggle — to the tune of $35 billion. To win, the department must overcome the obstacles common to all reengineering projects: internal resistance to change, conflicts of interest, and scope creep.

Granted, the complexity and scale of the DoD's initiative is hard to comprehend, let alone monitor. The Pentagon's budget for financial systems this year — $19 billion — exceeds the gross domestic product of more than 120 countries. That budget supports more than 4,000 systems — 542 for finance and accounting alone.

But financial reform at Defense is hindered by an element that could guarantee failure even if every other obstacle were eliminated: lack of a consistent leader. The comptroller of the DoD (its equivalent to CFO) is a politically appointed position that can change every 3.5 years. Reforming financial systems takes 7 to 10 years, at least. You can do the math.

Without a consistent hand at the helm, the Pentagon can't keep track of wayward inventory or inflated contractor bills, no matter how much it spends on systems. But it must find a way. The private sector labors mightily to protect shareholders, as it should. The DoD is responsible for protection of a much higher order.




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