Defense Finance and Accounting Service organizational structure and functions

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

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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 Even if DFAS does not use that many itself, it must navigate a bureaucracy that makes use of unwieldy and out-of-date management systems.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 as financing wars abroad while complying with legislated spending caps, were considered more urgent tasks," there is great change resistance to instituting the cumbersome changes needed in the unwieldy system and to make it more uniform (Harte 2015).

One of the unique features of the DFAS is that it is not directly funded through federal appropriations but rather it directly charges its customers, setting "annual rates two years in advance based on anticipated workload and estimated costs calculated to offset any prior year gains or losses," almost like a private agency ("Agency overview," 2016). 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 about 15 years' worth of U.S. military spending" which means that the DFAS "has not been tracking or recording or auditing all of the taxpayer money allocated by Congress -- what it was spent on, how well it was spent, or where the money actually ended up" (Lindorff 2016).

Accounting Issues

While it has not been established that any of the 'missing' trillions are, in fact, stolen, the inability to account for their existence suggests a worrisome disregard for accepted accounting practices and also for federal law. Although "beginning in 1996 all federal agencies were mandated by law to conduct regular financial audits," the Pentagon has not complied with that law for twenty years (Syrmopoulos 2016). The inability to comply with the law is seen by many observers as symptomatic of its bloated budget and "wasteful spending habits. In reality, they are a representation of the poor decision-making, and lack of oversight and accountability that plague our nation's government as a whole" (Syrmopoulos 2016). The lack of accountability reflects the fact that because national security is such a high priority, a great deal of leeway is given to the Dod which is seen as critical to national security, to the point where ignoring standard accounting practices is second-nature (Syrmopoulos 2016).

This is also not the first time that the DFAS has experienced problems. In 2013, complaints about fraudulent practices plagued the agency. "In addition to potentially falsified financial statements, Sen. Chuck Grassley (R-Iowa) issued a report stating that government inspectors had 'turned a blind eye'" to "the inaccuracies in DFAS' financial records" and called its work "substandard" (Kapadia 2013) "Audits are a primary oversight tool for rooting out fraud and waste in the government....The DFAS audits were deliberately fumbled and fudged, and all the bungling that took place acted to screen pervasive inaccuracies in Dod's financial reports from public view" (Kapadia 2013).

Challenges of Working at DFAS

According to Paltrow (2013), working at an agency which frequently exhibited flagrant disregard for the facts was extremely challenging for employees. Retired account Linda Woodford who "spent the last 15 years of her career inserting phony numbers in the U.S. Department of Defense's accounts" notes that "Woodford and her fellow DFAS accountants there set about preparing monthly reports to square the Navy's books with the U.S. Treasury's" but "numbers were missing. Numbers were clearly wrong. Numbers came with no explanation of how the money had been spent or which congressional appropriation it came from" (Paltrow 2013). In other words, there was effectively a culture of ignoring the fact that numbers accountants were being given did not add up and employees felt powerless to act. When "mystery numbers remained" even after attempts to find the data, Woodford and other accountants were ordered to make "unsubstantiated change actions" which means to enter "false numbers" to fill in the gaps (Paltrow 2013).

The accounting irregularities at the Pentagon frequently result in wasteful spending, demonstrating that accounting problems are often revelatory of more serious issues. The "Pentagon is largely incapable of keeping track of its vast stores of weapons, ammunition and other supplies; thus it continues to spend money on new supplies it doesn't need and on storing others long out of date" (Paltrow 2013). It has also frequently been in arrears to those whom it owes money. "It has amassed a backlog of more than half a trillion dollars in unaudited contracts with outside vendors; how much of that money paid for actual goods and services delivered isn't known" (Paltrow 2013). A lack of accurate data means that "it repeatedly falls prey to fraud and theft that can go undiscovered for years, often eventually detected by external law enforcement agencies" (Paltrow 2013).

Improving DFAS

Improving DFAS accounting is essential given the number of individuals who make use of it for vital functions, including members of the military who depend upon it to receive their pay. Given the urgency of doing so, Congress passed a law in 1994 legally requiring that the Pentagon "adhere to modern accounting standards" by 1997, a deadline which it has been extending for many years (Harte 2015). In 2010, "Congress told the Pentagon to comply by 2017" and in 2014 the DFAS issued a report that it would "be ready for a partial account of its finances -- a much less detailed accounting than requested of the military services" but that deadline has passed as well (Harte 2015). The current deadline of 2017 is also unlikely to be adhered to, given that few changes have been made in the fundamental structure of the agency.