DOD Infrastructure: DOD Is Opening Unneeded Finance and Accounting
Offices (Letter Report, 04/24/96, GAO/NSIAD-96-113).
GAO reviewed the Department of Defense's (DOD) plan to open new finance
and accounting offices.
GAO found that: (1) the Defense Finance and Accounting Service (DFAS)
estimated that it needed 16 finance and accounting offices to support
DOD finance and accounting operations; (2) by limiting the number of
offices to 16, DOD could maintain its projected savings of $120 million
and avoid spending $51 million in construction costs; (3) DOD has
proceeded with its plan to open 21 finance and accounting offices; and
(4) Congress did not require DOD to revise its plan to open 21 offices,
but DFAS and the Under Secretary of Defense (Comptroller) may have
misinterpreted the language of an authorization act to mean that it was
required to open the unnecessary offices rather than allowed to open
them without congressional approval.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: NSIAD-96-113
TITLE: DOD Infrastructure: DOD Is Opening Unneeded Finance and
Accounting Offices
DATE: 04/24/96
SUBJECT: Military downsizing
Federal agency reorganization
Defense cost control
Defense operations
Financial management
Military facilities
Federal agency accounting systems
Facility construction
IDENTIFIER: Hawaii
Memphis (TN)
San Antonio (TX)
Lexington (KY)
Newark (OH)
Rantoul (IL)
Lawton (OK)
Seaside (CA)
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Cover
================================================================ COVER
Report to the Secretary of Defense
April 1996
DOD INFRASTRUCTURE - DOD IS
OPENING UNNEEDED FINANCE AND
ACCOUNTING OFFICES
GAO/NSIAD-96-113
DOD Infrastructure
(709177)
Abbreviations
=============================================================== ABBREV
DOD - x
DFAS - x
Letter
=============================================================== LETTER
B-271427
April 16, 1996
The Honorable William J. Perry
The Secretary of Defense
Dear Mr. Secretary:
We are currently evaluating the Department of Defense's (DOD)
response to the recommendations included in our September 1995
report\1 and have a matter for your immediate attention.
Specifically, DOD is opening new finance and accounting offices even
though its recent analysis shows that they are not needed.
--------------------
\1 DOD Infrastructure: DOD's Planned Finance and Accounting
Structure Is Not Well Justified (GAO/NSIAD-95-127, Sept. 18, 1995).
BACKGROUND
------------------------------------------------------------ Letter :1
Our September report evaluated both DOD's justification and its cost
analysis for consolidating over 300 defense accounting offices into 5
large existing finance centers and 20 new sites called operating
locations. The 20 sites are located in the continental United
States. Our evaluation did not address the 21st site, which was
opened in Hawaii to provide finance and accounting support for
military services operating in the Pacific theater.
The report noted that DOD's plan to reduce the size of its finance
and accounting operations was a necessary step toward reducing
infrastructure and improving operational efficiency and
effectiveness. However, we challenged the need for 20 operating
locations because (1) DOD's analysis showed that finance and
accounting operations could be consolidated into as few as 6; (2)
some planned sites, particularly those that would be located on
military bases that had been closed or realigned, would require about
$173 million in renovation costs; and (3) DOD, in its decision-making
process, had not considered additional operational efficiencies that
are expected from business process reengineering initiatives. In
short, we believed the planned infrastructure would be larger and
more costly than necessary. DOD generally concurred with our
findings and recommendations and agreed to reassess the need for 20
operating locations and update the number of personnel needed to
support future finance and accounting operations. The Defense
Finance and Accounting Service (DFAS), the organization that has
management control of the five finance centers and operating
locations, was tasked to conduct the reassessment, which was
completed on January 2, 1996.
DOD IS PLANNING TO OPEN
FACILITIES IT DOES NOT NEED
------------------------------------------------------------ Letter :2
DFAS' reassessment concluded that 16 operating locations (15 in the
continental United States and 1 in Hawaii) were needed to support
DOD's consolidated finance and accounting operations. By limiting
the number of locations to 16, DFAS states that it could maintain its
projected annual savings of $120 million in operations and
maintenance costs and avoid spending about $51 million in military
construction costs.
The 16 operating locations that DFAS believes it needs include 14
opened during fiscal year 1995 plus 2 locations planned for Memphis
and San Antonio. The five locations no longer needed would be
located in or near Lawton, Oklahoma; Lexington, Kentucky; Newark,
Ohio; Rantoul, Illinois; and Seaside, California. According to DFAS'
reassessment, your decision to reduce military personnel,
efficiencies expected from business process reengineering and systems
improvement initiatives, and realignment of functions between DFAS
and the military departments are factors that have reduced DOD's
requirement from 21 operating locations to 16.
Nevertheless, on February 8, 1996, the Under Secretary of Defense
(Comptroller) recommended to you that DOD continue the original plan
(to open all 21 operating locations) subject to congressional
approval. Although you had not yet concurred with the
recommendation, DOD officially opened the Lawton facility on February
16, 1996, and the Seaside facility on March 29, 1996. During fiscal
year 1996, operations will be limited at these facilities. Staffing,
for example, will not be complete at Seaside until the end of fiscal
year 1997 and at Lawton until 1999.
Both facilities also require military construction projects to bring
them up to par. DFAS, for example, plans to spend about $19 million
in military construction funds to renovate the Seaside facility.
Once completed, the facility will accommodate about 450 employees.
Because of decreased requirements, however, DFAS no longer believes
it needs any employees at Seaside. Yet it is adjusting its workload
requirements at other locations and is planning to put about 225
employees there. DFAS officials were unsure what impact this reduced
workforce would have on their renovation plans, but said the existing
facilities would accommodate about 200 people without any major
renovation or construction project.
The Lawton facility has a similar situation. Although DFAS no longer
believes it needs an operating location at Lawton, it plans to spend
about $12.8 million in military construction funds on a facility to
accommodate about 550 DFAS employees. DFAS officials said, however,
that the existing facilities at Lawton could be configured to house
about 400 employees without the need for any military construction
funds.
DFAS plans to spend an additional $19.2 million on facilities in
Lexington and Rantoul, which are scheduled to open in 1999 and 2001,
respectively. No military construction funds are needed for the
planned operating location in Newark.
DOD'S ACTIONS ARE NOT REQUIRED
BY CONGRESSIONAL DIRECTION
------------------------------------------------------------ Letter :3
There is considerable evidence that Congress wanted DOD to reassess
its requirements and to open only those operating locations needed to
perform finance and accounting operations. Both the Senate Committee
on Armed Services and the Senate Committee on Appropriations asked
DFAS to reexamine its requirements before establishing additional
operating locations. The House Committee on National Security, while
not requiring a reassessment, reported that the DFAS consolidation
plan would result in a larger infrastructure than necessary.
Finally, the National Defense Authorization Act for Fiscal Year 1996,
enacted on February 10, 1996, restricts DOD's opening of new
operating locations. DOD must report the need for any new operating
location to Congress and allow at least
30 days to elapse before they are established. As permitted by this
statute, DFAS plans to prepare and submit an analysis supporting the
need for the Newark, Lexington, and Rantoul operating locations.
According to DFAS officials, these three facilities may still be
opened on the schedule previously approved by you, unless Congress
takes action during the 30-day waiting period called for in the
Authorization Act.
As for the Lawton and Seaside facilities, section 353 (c)(3) of the
Authorization Act allows DFAS to continue with plans to open an
operating location if by February 10, 1996, a date for commencing
operation had been established and funds had been expended for that
purpose. Because it had already announced plans to open these
locations and had expended some funds for that purpose, DFAS and the
Under Secretary of Defense (Comptroller) interpreted this provision
of the act as congressional direction to open Lawton and Seaside. We
believe they have misinterpreted the language in the Authorization
Act. While the act does allow DOD to open Lawton and Seaside without
the reporting requirement and 30-day waiting period, it does not
direct DOD to open them.
RECOMMENDATION
------------------------------------------------------------ Letter :4
We recommend that you direct the Under Secretary of Defense
(Comptroller) to terminate plans to open the five facilities that
DFAS determined are no longer needed to effectively carry out DOD's
finance and accounting operations.
AGENCY COMMENTS AND OUR
EVALUATION
------------------------------------------------------------ Letter :5
On March 27, 1996, we met with representatives from DFAS and DOD's
Comptroller's Office to get official oral comments on a draft of this
report. They did not dispute the fact that five locations are no
longer needed. They remain convinced, however, that two of the
locations--Lawton and Seaside--should be opened in accordance with
language in the National Defense Authorization Act of 1996. They
said that section 353 (c)(3) of the act was crafted specifically for
the Lawton facility and its interpretation extends coverage to
Seaside. Not opening them, in their view, would violate the intent
of Congress. Accordingly, DOD will proceed with the consolidation of
finance and accounting operations at these two locations. With
respect to the other facilities at Lexington, Newark, and Rantoul,
the DOD representatives agreed that a report justifying their need
would have to be submitted to Congress before they are opened.
As discussed above, section 353 (c)(3) of the act gives DOD the
authority to open the Lawton and Seaside facilities but does not
mandate it to do so. Consequently, we continue to believe you have
the discretion to cancel the opening of any new finance and
accounting location that DOD no longer believes is necessary to
perform finance and accounting operations. Therefore, we made no
revision to our draft report and are sending copies of our final
report to the congressional committees that have jurisdiction in this
area.
SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :6
We are in the process of examining the documentation and support
behind DFAS' reassessment of the number of sites required to perform
finance and accounting functions. As part of this effort, we
discussed results of the reassessment with officials at DFAS
Headquarters and the Cleveland, Columbus, Denver, and Indianapolis
centers. We also reviewed language in the reports prepared by the
Senate Committee on Armed Services, Senate Committee on
Appropriations, House Committee on National Security, and the House
Committee on Appropriations and the National Defense Authorization
Act for Fiscal Year 1996 to determine congressional intent related to
the size of the DFAS infrastructure.
Based on this preliminary work, we found that DOD was planning to
open five facilities it no longer believes are needed and decided to
bring this to the Secretary's attention before the decision became
final. We plan to continue our review to determine if DOD's analysis
supports the need for 16 operating locations and will report on the
results of that work at a later date.
We performed our review from November 1995 through March 1996 in
accordance with generally accepted government auditing standards.
---------------------------------------------------------- Letter :6.1
As you know, the head of a federal agency is required by 31 U.S.C.
720 to submit a written statement on actions taken on this
recommendation to the Senate Committee on Governmental Affairs and
the House Committee on Government Reform and Oversight within 60 days
of the date of this report. You must also send a written statement
to the Senate and House Committees on Appropriations with the
agency's first request for appropriations made over 60 days after the
date of this report.
We are sending copies of this letter to the Chairmen and Ranking
Minority Members of the Senate and House Appropriations Committees,
Senate Armed Services Committee, House National Security Committee,
Senate Governmental Affairs Committee, House Government Reform and
Oversight Committee, and the Director, Office of Management and
Budget. If you have any questions on this matter, please call me on
(202) 512-8412. Major contributors to this report are listed in
appendix I.
Sincerely yours,
David R. Warren
Director, Defense Management Issues
MAJOR CONTRIBUTORS TO THIS REPORT
=========================================================== Appendix I
NATIONAL SECURITY AND
INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C.
--------------------------------------------------------- Appendix I:1
Charles I. Patton, Jr., Associate Director
James E. Hatcher, Assistant Director
James E. Fuquay, Evalutor-In-Charge
Cheryl K. Andrew, Senior Evaluator
*** End of document. ***