In what can aptly be described as a moment of bipartisan cooperation, a Democrat-controlled Congress passed the Chief Financial Officers Act of 1990. In a report published shortly thereafter by the General Accounting Office, the CFO Act was heralded as “the beginning of what promises to be a new era not only in federal management and accountability, but also in efforts to gain financial control of government operations.”
The report added: “This is the most comprehensive and far-reaching financial management improvement legislation since the Budget and Accounting Procedures Act of 1950… The CFO Act will lay a foundation for comprehensive reform of federal financial management.”
A key provision of the bipartisan legislation is a requirement that federal agencies undergo independent financial audits. Heretofore, this most basic of internal controls was too often foreign to the public sector. Accounts of a federal agency paying $200 for a hammer or $600 for a toilet seat were common fodder for journalists and late-night comics alike. To their credit, federal lawmakers recognized the need for reform and enacted the CFO act as an integral part.
In general, the CFO act has lived up to its billing. Well more than 20 federal agencies of varying sizes and missions have been independently audited, which in turn have produced aggregate savings of tens of billions of dollars. Even some of the largest federal agencies, including the Social Security Administration, have demonstrated improved financial stewardship and operational efficiency.
However, as we approach the law’s 15-year anniversary — the CFO act was signed by President George H.W. Bush on Nov. 15, 1990 — the largest federal agency, the Department of Defense, has yet to undergo an independent financial audit. Indeed, the Department of Defense is the only federal agency required by the CFO act to be independently audited that has failed to do so. In an era when the agency’s budget has increased from $267.2 billion in fiscal 2000 to $419.2 billion in fiscal 2006, and the Pentagon is prosecuting the war on terrorism both at home and abroad, the case is even more compelling.
This truth is not lost on either the administration or select lawmakers. The White House, through the Office of Management and Budget, has twice issued Statements of Administration Policy this year urging Congress not to cut the funds budgeted to help the Department of Defense prepare for its audit. Defense Secretary Donald Rumsfeld has echoed these calls. The issue is now in conference between the two Defense Appropriations Committees.
The amount at issue is $137.5 million in funding reserved for the auditing activities. While some may dismiss this as a mere rounding error given the Department of Defense’s current budget, the ultimate cost of such a move would be exponentially more expensive. For example, Mr. Rumsfeld estimates that improving business operations alone could save 5 percent of the Department of Defense’s annual budget. Based on the fiscal 2006 budget alone, this represents a savings of approximately $21 billion.
The root issue isn’t the cost of financial auditing activities, but rather the implication, that the Pentagon isn’t accountable to the same financial standards to which lawmakers hold the private sector and other federal agencies.
GAO Comptroller David Walker recently testified that the Pentagon suffers from major areas of weakness, including inadequate management of overall business transformation, decades-old financial management problems and various contracting and selected supply chain challenges — shortcomings that would be corrected by an audit.
In a September report on the global war on terrorism, the GAO found numerous problems with the Department of Defense’s ‘s processes for recording and reporting costs of its counterterrorism efforts, while raising significant concerns about the overall reliability of DOD’s reported cost data.
Given these findings, cutting the funds required for audit readiness and establishing reliable and effective internal controls, would be counterproductive
After 15 years, reasons for failing to undergo an independent financial audit have become nothing more than excuses. Those who argue that the Department of Defense, because of its enormity and complexity, is incapable of establishing sound internal financial controls are guilty of using inverted logic. Indeed, the opposite is true: It is because the Department of Defense’s budget is so big — and its mission to our national security so critical — that it can no longer forgo an independent financial audit.
Dan Crippen served as chief domestic policy adviser to President Reagan from 1987 to 1989 and as director of the Congressional Budget Office from 1999 to 2003.
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