DFAS Accounting Failures: Pentagon Finance Chaos Explained

What Is the Defense Finance and Accounting Service?

Ensuring that the men and women who serve in 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," and is also 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, as testimony to its efficiency, "more than 300 installation-level offices" have been consolidated into nine sites, and the number of accounting systems and software packages used by the DoD has been reduced from 330 to 111 ("Agency overview," 2016). However, a Reuters exposé of Pentagon and DFAS accounting practices by Paltrow (2013) revealed that the Pentagon has shown a "continuing reliance on a tangle of thousands of disparate, obsolete, largely incompatible accounting and business-management systems," which depend on ancient computer languages and filing systems. This makes it very difficult to locate current data — assuming it exists — thereby impeding the accuracy of final accounting results. In fact, the Pentagon acknowledges that throughout the U.S. military and defense infrastructure, approximately 2,200 computer accounting systems are in use (Paltrow, 2013). Even if DFAS does not use that many itself, it must navigate a bureaucracy that relies on unwieldy and outdated management systems.

DFAS serves a diverse range of clients in its electronic activities, spanning from payroll to accounting, and covering agencies as varied 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" — a diversity that further complicates its accounting given the variation in methods between these agencies ("Agency overview," 2016).

Accounting itself is given a relatively low priority within the DoD, as security needs are seen as paramount. This creates a mentality of requesting funds first and accounting for how they are spent later. As a result, the difficult task of "coordination [which] is required between dozens of agencies, combatant commands, field activities, and military services" for accounting purposes — as well as for updating methods and computer systems — is routinely 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 significant resistance to making the cumbersome changes needed to render the system more uniform (Harte, 2015).

One of the unique features of DFAS is that it is not directly funded through federal appropriations. Instead, it charges its customers directly, setting "annual rates two years in advance based on anticipated workload and estimated costs calculated to offset any prior year gains or losses" — functioning 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 substantial criticism that DFAS has not fulfilled its stated aims of making the accounting of 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," mounting evidence suggests the system still needs fundamental reform (Harte, 2015).

References

Agency overview. (2016). DFAS. Retrieved from http://www.dfas.mil/pressroom/aboutdfas.html

Crawford, J. (2016). Audit reveals Army's trillion-dollar accounting gaffes. CNN. Retrieved from http://www.cnn.com/2016/08/23/politics/us-army-audit-accounting-errors/

Harte, J. (2015). The Pentagon is still terrible at accounting for your tax dollars. Foreign Policy. Retrieved from http://foreignpolicy.com/2015/08/03/the-pentagon-is-still-terrible-at-accounting-for-taxpayer-dollars-marine-corps-800-million-gao/

Kapadia, S. (2013). IG turns 'blind eye' to DFAS' fudged financial records, Grassley reports. Federal News Radio. Retrieved from http://federalnewsradio.com/defense/2013/11/ig-turns-blind-eye-to-dfas-fudged-financial-records-grassley-reports/

Lindorff, D. (2016). The Pentagon money pit. Counter Punch. Retrieved from http://www.counterpunch.org/2016/08/11/pentagon-money-pit/

Paltrow, S. (2013). Special report: The Pentagon's doctored ledgers conceal epic waste. Reuters. Retrieved from http://www.reuters.com/article/us-usa-pentagon-waste-specialreport-idUSBRE9AH0LQ20131118

Paltrow, S. (2016). U.S. Army fudged its accounts by trillions of dollars, auditor finds. Reuters. Retrieved from http://www.reuters.com/article/us-usa-audit-army-idUSKCN10U1IG

Syrmopoulos, J. (2016). Pentagon cannot account for $6.5 trillion dollars. Global Research. Retrieved from http://www.globalresearch.ca/pentagon-cannot-account-for-6-5-trillion-dollars/5541244