Professional Profile of the Defense Finance and Accounting Service (DFAS): Chaos

What is the Defense Finance and Accounting Service?

Ensuring that the men and women who work for the United States military receive their salaries promptly is critical. The Defense Finance and Accounting Service (DFAS) serves this vital function. The DFAS was created in 1991 by the Secretary of Defense, "to standardize, consolidate, and improve accounting and financial functions throughout the Dod. The intent was to reduce the cost of the Department's finance and accounting operations while strengthening its financial management" ("Agency overview," 2016). Today, the organization pays all "military and civilian personnel, retirees and annuitants, as well as major Dod contractors and vendors" as well as is responsible for accounting and financial record-keeping for the Dod ("Agency overview," 2016). The agency was formed to consolidate different administrative functions but has been the target of a great deal of criticism because its presence has actually had the opposite effect

According to its website, in testimony to its efficiency, "more than 300 installation-level offices" have been consolidated into nine sites within the service and the proliferation of accounting systems and software needed for the Dod has been reduced in number from 330 to 111 ("Agency overview," 2016). However, in a Reuters expose of Pentagon and DFAS accounting practices by Paltrow (2013) the Pentagon has shown "continuing reliance on a tangle of thousands of disparate, obsolete, largely incompatible accounting and business-management systems" which use ancient computer languages and filing systems. This makes it very difficult to find current data, assuming it exists, thus impeding the accuracy of final accounting results. In fact, the Pentagon states that throughout the U.S. military and defense infrastructure, 2,200 computer accounting systems are used (Paltrow 2013). Even if DFAS does not use that many itself, it must navigate a bureaucracy that makes use of unwieldy and out-of-date management systems. DFAS serves a diverse range of clients in its electronic activities, spanning from payroll to accounting and agencies as diverse as the "Executive Office of the President, the Department of Energy, the Department of Veterans Affairs, the Department of Health and Human Services and the Broadcasting Board of Governors" further complicating its accounting given the variation of methods between these agencies ("Agency overview," 2016).

Accounting itself is given a relatively low priority in the Dod, given that security needs are seen as paramount, which creates a mentality of asking for money first, and then accounting for how it is spent later. This means that the difficult task of "coordination [which] is required between dozens of agencies, combatant commands, field activities, and military services" for accounting as well as updating methods and computer systems is ignored (Harte 2015). Since "other financial concerns, such...

While "DFAS operations are subject to oversight by Dod as well as the executive and legislative branches of the federal government" there has been a great deal of criticism that the DFAS has not been fulfilling its stated aims of rendering the bureaucracy of accounting for military spending more transparent and efficient ("Agency overview," 2016). Despite the fact that the military invested $15 billion in modernizing its accounting software and "spent tens of millions of dollars hiring accounting firms to help the military services meet their [Congressional] requirements," there is mounting evidence that the system still needs reform (Harte 2015)
Accounting Issues

In recent years despite its supposed cost savings for taxpayers due to consolidation, all evidence points to the fact that the DFAS is not living up to its stated mission of integrity, service, and innovation ("Agency overview," 2016). The DFAS was recently implicated in a notorious accounting scandal. In an audit of the agency's work described as "scathing," it was noted that "the U.S. Army made trillions of dollars of accounting mistakes and often did not have the receipts or invoices needed to support figures in its budget" (Crawford 2016). It was also found that despite the much-praised changes in the consolidated software systems, critical data was found to be missing. "16,000 files vanished from the computer system of the Defense Finance and Accounting Service (DFAS) because of a flaw in the computing software" (Crawford 2016). The report was highly critical of the lack of accountability in the DFSAS system in terms of record-keeping and validating results. "Some employees of the Defense Finance and Accounting Services (DFAS)" in the report, "referred sardonically to preparation of the Army's year-end statements as 'the grand plug,'... accounting jargon for inserting made-up numbers" (Paltrow 2016).

To an outsider, the idea of losing such a large amount of money might seem absurd but the misplaced trillions are actually relatively small relative to the Dod's entire budget. Furthermore, given the interrelated nature of all accounting systems, "making changes to one account also require making changes to multiple levels of sub-accounts... [This] created a domino effect where, essentially, falsifications kept falling down the line. In many instances this daisy-chain was repeated multiple times for the same accounting item" (Paltrow 2016).

It should be noted that this disregard for conventional financial accounting standards has long been pervasive throughout the Defense Department. In fact, "for years, the Inspector General -- the Defense Department's official auditor -- has inserted a disclaimer on all military annual reports. The accounting is so unreliable that 'the basic financial statements may have undetected misstatements that are both material and pervasive'" (Paltrow 2016). While this would be worrisome for any federal department, the sheer size of the Defense Department's budget makes this particularly troubling and the report indicates that the problem is pervasive and longstanding. The missing $6.5 trillion "represents at…