Pentagon efforts to straighten out bookkeeping face billion-dollar cost overruns

Introduction

Multiple Pentagon efforts to account precisely for the flow of military spending are facing major delays and at least an $8 billion cost overrun, according to a new report by the Defense Department’s inspector general.

The internal watchdog, in a report last week, said that the military services have missed their deadlines for designing and integrating new accounting software meant to bring their bookkeeping up to modern standards and manage their parts and weapons inventories more efficiently. In the Army’s case, the launch date for its new accounting system has slid 12 years, from 2004 to 2016.

The delays threaten to derail Defense Secretary Leon Panetta’s goal of completing a major financial audit for the Pentagon by 2017, according to the inspector general’s report. The aim of such audits is give the Pentagon’s top brass a better understanding of how their funds are being spent and help avoid misspending and waste.

Accounting software systems for the Navy and Air Force have also experienced delays and cost overruns. Launch of the Air Force’s program, managed by Accenture, has been postponed from October 2009 launch to April 2017, and its cost has jumped from $420 million to almost $2.2 billion, according to the new report. The Navy’s program, developed by IBM, is to be launched in August 2013, more than two years behind schedule.

“As a result of the schedule delays, DoD will continue using outdated legacy systems and diminish the estimated savings associated with transforming business operations through … modernization,” said Amy J. Frontz, the principal assistant inspector general for auditing, in an introduction to the report.

As noted in an October 2011 article by the Center, Congress has been pressing for more accurate accounting systems partly to help stop improper payments, such as the $1.8 billion the Navy awarded to Northrop Grumman for work on a high-altitude surveillance plane. The Pentagon’s Inspector General found that money was paid without scrutiny, and Northrop eventually refunded $206,000 to the Navy in funds that paid for golf outings in Paris, Singapore, and elsewhere.

The new systems are supposed to be used by more than 268,700 personnel, and replace 238 existing systems, at a total cost now estimated to be $15.2 billion.

The Pentagon’s top financial office did not contest the findings and promised to track the work more closely. But contractors involved in the effort had little to say this week about the reasons for the setbacks.

Computer Sciences Corporation spokesman Joel Shadle declined to comment on his company’s handling of the Army’s long-delayed accounting software. At Accenture, which oversees the Air Force’s new system, spokeswoman Joanne Veto deferred questions to the Air Force. IBM spokeswoman Whitney Forster did not return a request for comment on the Navy’s program.

Army and Air Force officials attributed the delays to the difficulty of adapting “commercial-off-the-shelf” software to their existing accounting routines. Navy officials said the cost of their system had gone up because new requirements were tacked on and more onsite support was needed than the Navy had anticipated.

Russ Rumbaugh, the director of budgeting for the foreign affairs and defense program at the nonprofit Stimson Center, said software contracting is often complicated. “Software moves particularly fast — it moves so fast that a traditional DoD acquisition process doesn’t really keep up with that,” said Rumbaugh, a former Defense analyst for the Senate Budget Committee.

But Rumbaugh added that “it doesn’t look good. They’ve been trying for this audit for a decade and a half now … Certainly their record on this doesn’t give you a lot of confidence.”