Financial Management:

An Overview of Finance and Accounting Activities in DOD

NSIAD/AIMD-97-61: Published: Feb 19, 1997. Publicly Released: Feb 19, 1997.

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Pursuant to a congressional request, GAO provided information on the Department of Defense's (DOD) management of its financial operations, focusing on: (1) DOD's rationale for creating the Defense Finance and Accounting Service (DFAS); (2) the current size of the DOD finance and accounting infrastructure; and (3) the various finance and accounting activities performed by DOD personnel.

GAO reported that: (1) Before fiscal year 1991, the military services and defense agencies independently managed their finance and accounting operations. Because these decentralized operations were highly inefficient and failed to produce reliable information for decision makers, DOD created DFAS to consolidate, standardize, and integrate finance and accounting operations. DFAS inherited 26,000 finance and accounting personnel but about 18,000 personnel remained with the military services to perform managerial accounting and customer service activities at local installations and bases. (2) By the end of fiscal year 1998, DFAS expects that all 332 installation-related finance and accounting offices will be closed and their operations transferred to 5 large centers and no more than 21 new operating locations. This consolidation will help DFAS, between fiscal years 1996 and 2000, reduce its budget from $1.64 billion to about $1.47 billion (in constant 1996 dollars); its personnel from 23,500 to about 20,000; and the number of finance and accounting systems from 217 to about 110. The military services reported that they still have close to 17,000 personnel in their finance and accounting network and are not planning any specific reductions. (3) DOD's finance and accounting activities are generally divided into 9 functional areas (accounting, payroll, contract payments, etc.). Improving these areas is an enormous task, involving the replacement of many antiquated systems and processes. The task is even move difficult considering the volume of transaction that must be continued while improvements are being made. Annually, for example, DOD disburses around $260 billion on 17 million invoices, 6 million payroll accounts, and 2 million travel vouchers.

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