DoD CFOs to Congress: If you’d like a clean audit, stop reorganizing us

The Obama administration has already voiced its objections to the major reshuffling of DoD’s organizational chart the Senate proposed in its version of this year’s Defense authorization bill, complaining that the plans were drawn up “without careful study and consideration.” But several of the department’s top financial officials said last week that the Senate plan is directly at odds with one of Congress’ top priorities:  getting DoD to pass an audit.

Their argument, in essence, is that it’s taken the better part of seven years to get the department’s current bureaucratic structure in sync and working together toward auditability, and moving the puzzle pieces around just one year before the audit deadline would be unhelpful.

In particular, Mike McCord, DoD’s undersecretary for comptroller matters and its chief financial officer, objected to a provision that would move the sprawling Defense Finance Accounting Service (DFAS) out from under his control and place it under a brand new undersecretary for management in February 2017, just a few months before the department hopes to submit fully-auditable financial statements for the first time in its history.

“It disrupts what I see as an end-to-end financial management process that I think should be under the CFO,” he told the House Armed Services Committee last week. “But that’s only one of the many changes which we think are excessive in the Senate bill, and many of these changes are being thrown at us right as there’s a transition of administrations.”

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DFAS, in addition to handling virtually all of the military’s payments to its personnel and contractors, manages many of the IT “feeder systems” that have to communicate with all of the military services and defense agencies. Ensuring they produce a proper paper trail for all of their transactions is vital to a successful audit.

The Senate bill wouldn’t affect just DFAS. The new undersecretary for management would take charge of a grab bag of DoD functions that currently report to other leaders, including the Defense Logistics Agency, the military commissary system, the Defense Contract Audit Agency, the Defense Contract Management Agency, the Pentagon’s police force and the Defense Technical Information Center.

Taken together, those and other reorganization proposals in the bill would be counterproductive, at least from an audit perspective, said Dr. Susan Rabern, the Navy’s assistant secretary for financial management.

“Any structural changes at this point would be very disruptive,” she said. “We now have in place the systems, the people, the processes. It’s taken us years to get to this point and I do believe these organizational changes would be adverse to our progress.”

Defense officials argued the potential for organizational discontinuity is worsened by the fact that the Senate bill would amount to the third congressionally-mandated reorganization of DoD’s top management offices in as many years.

For instance, DoD has already been reshuffling itself to comply with the 2015 Defense Authorization Act that first ordered it to create the position of an undersecretary for management. Lawmakers’ main intent at the time was to combine what are now the deputy chief management officer and the chief information officer into a single, more influential position that could tackle both IT and business problems within the department. A major rationale at the time was that combining authority for those functions was necessary to get DoD ready for an audit.

Officially called the Undersecretary of Defense for Business Management and Information, the new office must be up and running on Feb. 1, 2017 under current law.

But this year’s Senate bill would reverse course before the changes even take effect. It would maintain the CIO as a separate position and rename it as Assistant Secretary of Defense for Information — reminiscent of the Assistant Secretary of Defense for Networks and Information Integration that was abolished in 2012.

A Senate Armed Services Committee fact sheet explained that senators wanted to reduce “seams” between the various Pentagon offices that have a hand in the various corners of Defense policy that touch on cyber policy.

“This would not be an intelligence function,” committee officials wrote. “It would oversee the security DoD information network as well as defense space policy and cyber warfighting activities.”

Meanwhile, a new management undersecretary would still take office in February of next year, but the title, under the Senate bill, the job would now be called Undersecretary of Defense for Management and Support. The fact that it would take over responsibility for organizations like the DCAA and DLA are side effects of another major provision in the bill which would do away with the Undersecretary of Defense for Acquisition, Logistics and Technology.

AT&L would be replaced by a new undersecretary for research and engineering who’d focus primarily on bringing more innovative systems to the military. Most of DoD’s acquisition management and policy functions would fall to a new, lower-level assistant secretary.

Read more DoD Reporter’s Notebook stories.