American Society of Military Comptrollers’ Annual Survey of Defense and Military Department Financial Management Executives may 2008

Supportingthe WArfighter:Linking BudgetS to reSuLtS

american Society of military Comptrollers415 N. alfred Streetalexandria, Va 22314Telephone: (703) 549-0360www.asmconline.org

Grant Thornton LLP333 John Carlyle Street, Suite 500alexandria, Va 22314Telephone: (703) 837-4400www.grantthornton.com/publicsector

the following web sites have information on the defense and national budgets and relate to the department of defense planning, programming, Budgeting and execution System (ppBeS).

internet resources for defense Budget information

Under Secretary of Defense (Comptroller) Defense-wide •Budget Material http://www.defenselink.mil/comptroller/budgetindex.html

FY 2009 Department of Defense Budget Materials •http://www.defenselink.mil/comptroller/defbudget/fy2009/index.html

FY 2009 United States Federal Budget Materials •http://www.whitehouse.gov/omb/budget/fy2009/

U.S. Army Budget Material •http://www.asafm.army.mil/budget/fybm/fybm.asp

U.S. Navy and Marine Corps Budget Material •http://www.finance.hq.navy.mil/fmb/09pres/books.htm

U.S. Air Force Budget Material •http://www.saffm.hq.af.mil/budget/

U.S. Coast Guard Budget Material •http://www.uscg.mil/comdt/DOCS/USCG%20FY09%20Congressional%20Budget%20Submission%201-25-08.pdf

DoD Performance and Accountability Report •http://www.defenselink.mil/comptroller/par/index.html

Office of Management and Budget Performance •Information and Scorecards http://www.whitehouse.gov/results/

Budget of the United States Government •http://origin.www.gpoaccess.gov/usbudget/

Defense Acquisition University Information on PPBES •http://www.dau.mil/performance_support/RDT.asp

about the american Society of military Comptrollers

The American Society of Military Comptrollers (ASMC) is the nonprofit educational and professional organization in the overall field of military comptrollership. Established in 1948 and located in Alexandria, Va., ASMC is open to all uni-formed and civilian financial personnel in the U.S. Military Departments, the Department of Defense and the Coast Guard. The Society promotes the education and training of its members and the development and advancement of the profession of military comptrollership. ASMC provides pro-fessional conferences to keep members abreast of current issues, operates a certification program, occasionally spon-sors research and encourages the exchange of techniques and approaches. For more information on ASMC, please visit www.asmconline.org.

about Grant Thornton

Grant Thornton LLP, founded in Chicago in 1924, is the U.S. member firm of Grant Thornton International (www.gti.org), one of the leading accounting, tax and business advisory organizations. Through member firms in over 100 coun-tries and 500 offices worldwide, including 50 offices in the United States, the partners and employees of Grant Thornton member firms provide personalized attention and the highest-quality service to public and private clients around the globe. Grant Thornton’s Global Public Sector, based in Alexandria, Va., is a global management consulting business with the mission of providing responsive and innovative financial, performance management, and systems solutions to govern-ments and international organizations. Visit Global Public Sector at www.grantthornton.com/publicsector.

budget or financial initiatives until those now under way are fully in place and their effective-ness evaluated, nor do they want any related new legislation.

PPBES has not yet reached its goal of creating closer links between planning, budgeting and execution, with a focus on performance. Indeed, many respondents say there is little difference in life under PPBS or PPBES, and that the reasons for this are not technical. Instead, they are political (congressional priorities, processes and schedules), scale (the sheer size of the Defense budget and the number of people and systems involved) and wartime operations (Afghanistan, Iraq and the Global War on Terror have under-standably been major distractions from PPBES). Yet the major barrier to PPBES is none of these, say survey participants. Instead, they point to a pervasive culture of resistance to transparency within the Defense community.

Culture does not support transparencyRespondents agree that in the aggregate there should be easy access to transparent budget and performance data. Yet there is clear reluctance to make one’s own department, agency or program budget and performance data more visible. Two reasons: an intense competition for resources and a fear of budget cuts and criticism. These are major barriers to implementing PPBES to its fullest extent.

ConclusionRespondents share a desire to make PPBES more than simply a budgeting tool. They want it to be a performance-based system that enables the people and processes in DoD to execute the vital missions of protecting the homeland, pros-ecuting the Global War on Terror, and securing and maintaining safety and security around the world for the United States and our allies.

about this study

In the spring of 2008, the American Society of Military

Comptrollers (ASMC), assisted by Grant Thornton LLP,

surveyed 575 professionals in the Defense accounting

and finance community about topics important to the

future of military financial management: the Plan-

ning, Programming, Budgeting and Execution System

(PPBES); improvement initiatives for 2009 and beyond;

and attributes of future financial leaders. Our survey

included in-person interviews with 61 Defense finan-

cial executives in the Department of Defense (DoD)

and the Uniformed Services. We also did an online

interview of 514 members of the Defense financial

workforce. This study was prepared by Grant Thornton

and combines the results of both surveys.

Human capital still a big issueAs with the 2007 ASMC survey of the Defense financial community, human capital issues dominate the list of risks that keep executives and workforce alike awake at night. Areas of concern in 2008 include the quality of work and work life, proper recognition and pay for individual performance, training, career management and succession planning. The most-mentioned human capital risk was implementation of the National Security Personnel System (NSPS).

PPBESIn 1963, the DoD introduced a new approach to Defense resourcing called the Planning, Programming and Budget System (PPBS). In 2002, DoD revamped PPBS as the Planning, Programming, Budget and Execution System (PPBES). The new approach seeks to forge stronger links between budgets, execution and performance. PPBES affects every Defense warfighting and support organization. Pentagon personnel and major headquarters of the Uniformed Services and agencies work with PPBES daily.

There is almost universal agreement that PPBES is the best method to link performance and budgeting, and strong sentiment to fully implement the system as designed. Respondents do not want to undertake any new

executive Summary

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budget or financial initiatives until those now under way are fully in place and their effective-ness evaluated, nor do they want any related new legislation.

PPBES has not yet reached its goal of creating closer links between planning, budgeting and execution, with a focus on performance. Indeed, many respondents say there is little difference in life under PPBS or PPBES, and that the reasons for this are not technical. Instead, they are political (congressional priorities, processes and schedules), scale (the sheer size of the Defense budget and the number of people and systems involved) and wartime operations (Afghanistan, Iraq and the Global War on Terror have under-standably been major distractions from PPBES). Yet the major barrier to PPBES is none of these, say survey participants. Instead, they point to a pervasive culture of resistance to transparency within the Defense community.

Culture does not support transparencyRespondents agree that in the aggregate there should be easy access to transparent budget and performance data. Yet there is clear reluctance to make one’s own department, agency or program budget and performance data more visible. Two reasons: an intense competition for resources and a fear of budget cuts and criticism. These are major barriers to implementing PPBES to its fullest extent.

ConclusionRespondents share a desire to make PPBES more than simply a budgeting tool. They want it to be a performance-based system that enables the people and processes in DoD to execute the vital missions of protecting the homeland, pros-ecuting the Global War on Terror, and securing and maintaining safety and security around the world for the United States and our allies.

About this study

In the spring of 2008, the American Society of Military

Comptrollers (ASMC), assisted by Grant Thornton LLP,

surveyed 575 professionals in the Defense accounting

and finance community about topics important to the

future of military financial management: the Plan-

ning, Programming, Budgeting and Execution System

(PPBES); improvement initiatives for 2009 and beyond;

and attributes of future financial leaders. Our survey

included in-person interviews with 61 Defense finan-

cial executives in the Department of Defense (DoD)

and the Uniformed Services. We also did an online

interview of 514 members of the Defense financial

workforce. This study was prepared by Grant Thornton

and combines the results of both surveys.

Human capital still a big issueAs with the 2007 ASMC survey of the Defense financial community, human capital issues dominate the list of risks that keep executives and workforce alike awake at night. Areas of concern in 2008 include the quality of work and work life, proper recognition and pay for individual performance, training, career management and succession planning. The most-mentioned human capital risk was implementation of the National Security Personnel System (NSPS).

PPBESIn 1963, the DoD introduced a new approach to Defense resourcing called the Planning, Programming and Budget System (PPBS). In 2002, DoD revamped PPBS as the Planning, Programming, Budget and Execution System (PPBES). The new approach seeks to forge stronger links between budgets, execution and performance. PPBES affects every Defense warfighting and support organization. Pentagon personnel and major headquarters of the Uniformed Services and agencies work with PPBES daily.

There is almost universal agreement that PPBES is the best method to link performance and budgeting, and strong sentiment to fully implement the system as designed. Respondents do not want to undertake any new

Executive Summary

1

2

Executive Summary 1

About the Survey 3

Planning, Programming, Budgeting and Execution System 5

Scoring PPBES progress 6

Suggestions for improving transparency 13

Financial Management Initiatives and Challenges 15

Current initiatives 15

New initiatives 16

Top concerns of the Defense financial community 18

Tomorrow’s Leaders 19

Conclusion 20

Table of Contents

Since 2003, the American Society of Military Comp-

trollers (ASMC) has sponsored an annual survey

of Department of Defense (DoD) and Uniformed

Services executives and managers on their opinions

of trends and prospects in financial management.

Grant Thornton did in-person interviews with 61 finan-

cial executives in the Defense community between

January and April 2008. Participants include assistant

and deputy assistant secretaries, top-level comptrol-

lers, and financial chiefs of agencies and the largest

financial offices. Of these executives, 63 percent are

in the four Uniformed Services, 15 percent with the

Defense Finance and Accounting Service (DFAS) and

22 percent with other DoD organizations.

About the Survey

3

ASMC and Grant Thornton also conducted an online survey of accounting and finance managers and employees in Defense organiza-tions, using some of the same questions in the executive interview. Almost all the 514 online respondents are ASMC members and had the following profile:

22%with other DoD organizations

63%in the four Uniformed Services

86%civil servants

15%with DFAS

In-person interview participants

Online participants

6% private sector or other

8% active duty military

Throughout this report, we refer to in-person survey interviewees as “executives” and online survey respondents as “workforce.” All survey participants were guaranteed anonymity, which ensures their candid and full cooperation.

ScopeThe survey looks at issues facing the Defense financial community today and in the future. These include the Programming, Planning, Budgeting and Execution System (PPBES), with particular focus on linking execution to performance. Survey questions also ask about the relative importance of challenges and issues to Defense, the need for new financial manage-ment improvement initiatives, the attributes financial leaders need in the future and top concerns of the community.

The survey design does not call for a random selection of interviews, which means that the results may not be representative of the universe of all Defense financial management personnel. However, taken together the online and executive surveys span all levels of the Defense financial management community, from top leaders to personnel just starting their careers. The result is a broad, inclusive view of their opinions.

To see an electronic copy of this report and related publications and copies of the question-naires used, visit the ASMC website at www.asmconline.org or Grant Thornton at www.grantthornton.com/publicsector.

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62%employed by Uniformed Services

48%GS-12 to GS-13

17%DFAS

12%GS-14 and above

14%no organizational identification given

34%General Schedule (GS)-11 and below

Online participants’ employers

Professional level of civilian online participants

6% other DoD

organizations

7% National Security

Personnel System (NSPS)

Planning, Programming, Budgeting and Execution System

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of resources and determine whether the Defense and Military Departments are achieving planned performance goals against budget estimates. Figure 1 below shows the phases of the PPBES 5-year planning cycle.

There is a certain interval between when the Federal Government introduces a major manage-ment change and its complete and satisfactory implementation. In 2008, PPBES has been on the Defense scene for about six years, long enough to be at least partially implemented and producing positive results. However, the Defense com-munity has had wartime operations in Iraq and Afghanistan for most of the PPBES implementa-tion period. As the result of wartime supplemental funding, PPBES has been somewhat modified. The true lasting effect of the 2002 change from PPBS to PPBES may not become apparent until the Defense community moves the costs of war into baseline budgets, so that all funding once again falls under PPBES. The following questions (posed to both the contributors to, and the users of, PPBES) help gauge its progress while identi-fying problems and potential improvements.

In the mid- to late 1990s, critics of PPBS said that the system did not do a good job of mea-suring and linking budgets to execution (i.e., how budget money is spent). Further, said some, there was no link or correlation between execu-tion and expected results or performance.

In response, in fiscal year (FY) 2002, DoD introduced a revamped Planning, Programming, Budget and Execution System (PPBES). This new approach seeks to forge stronger links between budgets, execution and performance. It should enable SECDEF to assess the allocation

Figure 1: The Defense Planning, Programming, Budgeting and Execution SystemOverlapping PPBES Cycles

In 1963, then-Secretary of Defense Robert McNamara

introduced a new approach to Defense resourcing

called the Planning, Programming and Budget System

(PPBS). It was a system meant to bring together

the information the Secretary of Defense (SECDEF)

needed for decisions about and to control Defense

program budgets. PPBS became the core resourcing

approach for DoD and the Uniformed Services over

the next four decades.

2010 2011 2012 2013 2014 2015

POM1 2010 › ExECUTIOn

PCP2 2011 Congressional Consideration › ExECUTIOn

POM 2012 Program › Budget › Congressional Consideration › ExECUTIOn

PCP 2013 Plan › Program › Budget › Congressional Consideration › ExECUTIOn

POM 2014 Plan › Program › Budget › Congressional Consideration › ExECUTIOn

PCP 2015 Plan › Program › Budget › Congressional Consideration › ExECUTIOn

1 Program Objective Memorandum 2 Program Change Proposal

Have budgets improved?We asked participants whether enhanced execu-tion reporting under PPBES has improved budgets for their entities. As shown in Figure 2, the executives interviewed in person rate budget improvements for their own entity at 2.0 out of 5, while online respondents from the workforce give this a 2.7 score. Executives rate DoD-wide improvements slightly lower with a 1.9 score.

Figure 2: Have budgets improved because of PPBES?

Executive Respondents (own entity)

Executive Respondents (DOD-wide)

Online Respondents

1 2 3 4 5

Not improved Have improved

Respondents imply that PPBES might be suffering from a fiscal fog of war caused by “churn” from the size and frequency of continuing resolutions and supplemental funding for the Global War on Terror. Supplementals have “… done a lot to hide execution errors,” says one. Underspending draws the ire of superiors, and overspending can be illegal, but both have become more difficult to monitor because of supplementals. Several par-ticipants say that late approval of appropriations forced them to compress 12 months of funds into, in one case, an 8-month use period.

An executive respondent said that his entity has been monitoring spending more closely so it has a better idea of burn rates (i.e., the pace of fund obligation), but it gets no feedback on the output or results of the spending. “I budget to

Scoring PPBES progressParticipants answered a series of questions about the effectiveness of PPBES. In some of the ques-tions, they rank their responses on a scale of 1 to 5, with 1 being the most negative response and 5 the most positive, so that the higher the score, the better the situation. For example, in Figure 2, a score of 1 means that participants did not think that PPBES has improved bud-gets at all, while a score of 5 means they think PPBES has greatly improved budgets.

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buy 100 widgets, and the system monitors how closely I’m following the spend plan, but not how many widgets I actually receive. I could get 100 percent green across the board and never receive a single widget. If I spend all the money on the timeline I planned, then I am successful in the eyes of the system.”

On the other hand, some respondents think that the discipline of the PPBES approach is starting to bring together different offices and functions to work on budgeting, execution and performance. One points out that reporting is now more streamlined. Others said that DoD’s current top financial management leaders have been making a difference in the implementation of PPBES and that there have been improve-ments to budgeting. However, they think that there is still a long way to go.

Finally, an executive argues against reinventing the PPBES process every year: “We go through the process, and we refuse to write down the rules. We have gone through all kinds of prac-tices, like changing to rolling budgets and then cyclical. Now the administration wants to accel-erate budget delivery—no one knows the rules.”

Correlation of execution to performance One of the objectives of PPBES is to make vis-ible the relationship between budget execution and performance. As shown in Figure 3, the average score on the visibility of correlation was 2.9 out of 5 for executives and 3.2 for the work-force, indicating that they think budget and execution are somewhat well correlated in their own entity. Executives thought the correlation weaker for the Defense community as a whole (a 2.6 score out of 5).

Figure 3: Do budget and performance correlate?

Executive Respondents (own entity)

Executive Respondents (DOD-wide)

Online Respondents

1 2 3 4 5

Do Not Correlate Do Correlate

Part of the problem, says a participant, is that there are too many seams in the way the Defense community handles PPBES. For example, says a respondent, the PPBES process is not properly combined at the top between the Office of the Under Secretary of Defense (Comptroller) and the Office of the Secretary of Defense (Program Analysis and Evaluation). “Those offices still operate separately, with unrealistic deadlines and minimal decision information flowing back to the Services,” says the respondent.

At the next level down, an executive respondent says his Military Department does planning and programming (PP) at its headquarters in the Pentagon, while budget and execution (BE) activities happen at the Major Command level. A local-level respondent wonders whether the headquarters at his Uniformed Service and DoD even recognize his sustainment requirements.

“ We go through the process, and we refuse to write down the

rules. We have gone through all kinds of practices, like changing

to rolling budgets and then cyclical. now the administration

wants to accelerate budget delivery—no one knows the rules.”

– executive respondent

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Figure 4: Is decision data timely?

Executive Respondents

Online Respondents

1 2 3 4 5

Less Timely More Timely

For example, several executives in one agency say that their system speeds the flow of execution and performance data. At the local-office level, say these executives, their system delivers data that are 24 hours old, if required—but the infor-mation may still arrive too late for some deci-sions at the highest level. At the program level, information such as contractors’ Earned Value Management (EVM) measures are too tardy to be predictive. Execution data are available faster than performance measures, say some executives.

As local information rolls up the hierarchy, it takes longer to land on leaders’ desks and so is less useful for monitoring and planning pur-poses. Arriving too late to inform top leaders’ actions, measures of execution and performance become lagging indicators or, even worse, “a report card, not a forward-looking management tool.” Instead, top-level leaders often use intu-ition to make decisions about resource alloca-tions and priorities. When fresh information is available to departmental leaders, one respon-dent said that it is often because of “… a lot of effort and elbow grease. There are many manual processes required for pulling together and analyzing information. We meet the deadlines, but it is difficult and very time-consuming for the staff.” Another way that top leaders make sure they will have fresh data is to plan to obtain them well in advance of decision-making.

Says another local, “We keep being asked for reports for headquarters while at the same time being told that headquarters doesn’t really use the information, but is unsure how to ask for what it does need.” There is also a division between civilian and military leaders, who may differ on how to express and monitor performance, as do the various departments and agencies.

Other seams include the seemingly countless number of information systems involved in the PPBES process. “The systems just don’t talk to each other,” says a participant, “so we spend far too much time filling out spreadsheets.” Lack of standardization is another dividing line: stan-dard processes, standard accounting, standard data, standard systems, standard (and consis-tent) metrics and standard tools.

Many participants question whether leaders at the departmental, command and program levels really want the link between execution and performance to be visible. (We discuss this more under “PPBES and culture.”)

Timeliness of data for decisionsDecision makers need fresh execution and perfor-mance data to take timely action during an execu-tion year. Executives rated data timeliness as 2.9 on a 5-point scale, as shown in Figure 4. Several executives think that, within a facility or agency, data for decisions are “timely enough.” However, online respondents gave timeliness a 2.3 score.

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“ We keep being asked for reports for headquarters while at the

same time being told that headquarters doesn’t really use the

information, but is unsure how to ask for what it does need.”

– executive respondent

In addition, at the higher levels, reports on execu-tion and performance usually are summaries of lower-level data, so they lack details that leaders might need to make decisions. One DoD agency executive says, “We only have reports at an aggre-gated level. In order to be actionable, we need information at a more granular level. It is hard to be actionable in the aggregate.” Granularity also speeds the assembly of summary reports. PPBES and many other systems do not yet have such drill-down capabilities, say respondents, but they are seeing signs of progress.

Several participants say that, despite these prob-lems, the situation is improving. Until then, “we make the best decisions we can with the time and information—but they are not the best pos-sible decisions,” says the top financial executive in a Military Department.

Training for PPBESWhen asked about PPBES training in their entities, executives rated it 3.0 out of 5 for adequacy, while online respondents give such training a 2.7 score (see Figure 5).

Figure 5: Is PPBES training adequate?

Executive Respondents

Online Respondents

1 2 3 4 5

Less adequate More adequate

Executives’ responses range from “There is no training” to “I’m not aware of any training” to “Too much training is available.” One execu-tive says, “Training tends to be hit-or-miss—a mosaic of what people are supposed to do, and it is weak on the execution side.” Those who

are aware of training say that it tends to be for action officers and others below the top ech-elon. At the very top, there appears to be no or minimal training in PPBES, but, says an execu-tive, “The problem is senior people rarely feel compelled to follow ‘the system,’ so what would we train them on?”

Several executives say PPBES training is largely on-the-job and focuses on the mechanics of this management approach. A number say that having computer-based training (CBT) for PPBES would help immensely, because it is hard to find time to travel or even do classroom sessions. Although many online respondents agree that more CBT is needed, others say that classroom training is as important.

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“ We make the best decisions we can with the time and

information—but they are not the best possible decisions,”

– executive respondent

Make courses available to contractors as well •as employees and military personnel.

IT infrastructure support for PPBESMost survey participants do not think that the information technology (IT) infrastructure that their entity uses adequately supports the exchange of information among the various systems for budgetary, performance and execu-tion reporting. As Figure 6 shows, executives give the level of support a score of 2.4 out of 5 for adequacy and online respondents give a 3.1 score. Many say they are stuck in the same place as this respondent: “There does not appear to be a DoD-wide system to collect and report budget, execution and performance data, so my command uses Excel© spreadsheets via e-mail.”

Figure 6: Does IT infrastructure support PPBES?

Executive Respondents

Online Respondents

1 2 3 4 5

Less adequate More adequate

As discussed earlier under the topic of “Correlation of execution to performance,” perhaps the greatest technology problem facing PPBES is a myriad of military budget, finance, performance and business systems, most of which do not share information with each other. Many executives point out that within their entity and for DoD as a whole, it requires many manual crosswalks to get information from one system to another to meet reporting requirements. Many, if not most, such systems

Incorporating PPBES training into standard financial and budgeting curricula, such as is now done for Certified Defense Financial Manager (CDFM) training, would also help. Finally, one executive says that his entity has moved away from a “here’s how” type of training and now concentrates on showing people how to get the maximum out of the system, not just how to navigate it.

Online survey respondents point out several basic issues to address before PPBES training can be truly effective. Many say that they have unclear guidelines for PPBES and that the rules seem to change midyear, so some stability would help in developing courses. Other sug-gestions include:

Require more certifications such as CDFM, •the prep courses of which cover PPBES well.

Put more detailed training into PPBES •courses at the Defense Financial Management and Comptroller School, with greater atten-tion to technical skills instead of leadership and generalized decision support.

Add an ongoing learning module on PPBES •at the Defense Acquisition University.

Most PPBES training is too general, so have •tailored training at the installation level (depot, working capital fund, base, etc.). Also, tailor PPBES training to the appro-priate levels and responsibilities of students.

Spend less time addressing cultural issues of •PPBES during courses and more time with “hard” subjects.

Train financial analysts and managers in •PPBES, including biennial refresher courses.

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were designed to track resources such as appro-priations, obligations and disbursements, not to generate financial management information.

Few systems link execution to output, or costs to results. “Our system provides no method to track a cost through the process to a resulting output,” says one interviewee. “One effect this has is that our systems can’t determine how sensitive outputs might be to the various costs that are actually incurred while generating these outputs (fixed vs. other costs). Without this sensitivity, it is difficult at best to understand the impact that shifting funds around may have on other outputs and what the ‘tipping point’ might be.”

Many survey participants say that enterprise resource planning (ERP) systems hold promise for improving PPBES value. ERPs are designed to integrate an organization’s or enterprise’s data sources and processes into a unified system. ERPs are beginning to show good results in individual departments, but have yet to be fully unified across the Defense community. Respondents say that these individual ERPs tend to run on different schedules and collect different types of data, or the same data in different ways.

One reason is that the demands on each Uniformed Service are somewhat different (although perhaps not poles apart, which gives hope for standardization). Another is that leaders are just now learning to use ERPs effec-tively. “Our ERP does exactly what we designed it to do,” says an interviewee. “The problem is that we need to figure out what we want it to do! What decisions will impact costs, and what information do we need to think critically and make a decision?”

What information does the Defense community need to link execution and performance? Many interviewees said the answer is more a matter of mind-set than technology (as we discuss next).

PPBES and cultureA key reason for the mediocre scores shown in Figures 3 through 6 may have more to do with the mind-set or culture of the Defense community than with any technical problem of data exchange.

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they need, when and in what form; it is a waste of money to plan information systems or train people to use them unless that is known.

Intuitive decisions are one thing, and political decisions another. Until someone changes the U.S. Constitution, the people with the purse strings on Capitol Hill will ultimately be in charge of who gets how much and for what purpose. Says a respondent, “If Congress looked at resources and how they are used (e.g., perfor-mance metrics), this would be a powerful incen-tive to move forward. Instead, they are caught up in budget estimates.”

Still, if the military has its mind set on some-thing, it gets done. Strong civilian and military leadership at the top encourages PPBES suc-cess. Some leaders are fervent supporters of going forward with PPBES; they must win over the lagging leaders to speed things along. For example, one interviewee says that the reason some comptrollers use a particular informa-tion system is that they know someone in the Pentagon is watching them. Another says, “The Secretary of Defense believes in and tries to pro-mote data transparency for both financial and operational information. Changes in policies and procedures are not necessary, but rather a change in the attitude of the employees and high-ranking officials that are affected by the policies and procedures.”

Finally, says one respondent, warfighters them-selves have become more cost conscious: “They know they need to be more efficient with the funds they do have and monitor what they get for what they spend.”

Says one executive, “Through PPBES and in terms of linking execution and performance, we are trying to make a fundamental change in how we think and do business.” But do Defense leaders truly understand the nature of the change—that it is more about culture than anything else?

Every question we asked in this part of the survey generated more responses having to do with the culture of government in general—and the Defense community in particular—than any other topic. Take visibility, for example: Military Departments have a reasonable reluctance to make budget, execution and performance information any more visible than it has to be. Visibility often results in budget cuts and con-gressional thrashings. This is the same reason for resisting cost accounting, because it can make problems more visible and put constraints on the intuitive decision making of senior leaders. Besides, according to several interviewees, the Defense community does not offer many incen-tives for being cost conscious—rewards go to those who spend all their money.

A unified PPBES system has to have some standard measures. Yet, off the battlefield, it has never been easy to agree on indicators of mili-tary performance. It is easier to find measures for business functions, so a degree of standard-ization is possible. What is certain, say some interviewees, is that PPBES will not succeed until decision makers know what information

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“ We need a culture where transparency is accepted and dictated

from the top down.”

– executive respondent

Defense dashboards

Many executives in the survey discuss executive dash-boards such as those used throughout the private sector to speed and improve the ability to follow the current “state of the business.” Dashboards let executives and managers spot and correct negative trends and trouble spots before these affect the bottom line. Dashboards come in a variety of forms, from balanced scorecards to actual aircraft-like visual displays of key performance indicators. Defense leaders are increasing their use of dashboards; as in the private sector, the success of these tools depends on the following factors:

Top-down agreement on measures to track and how • to gather, analyze and display them. This includes consulting with combatant commanders, key congressional defense committees and OMB when developing dashboards.

Standard displays that give everyone a common view. • Dashboards for the Uniformed Services and agencies should be derived from DoD-wide standards.

Accurate and timely information for dashboard • measures and reports.

Suggestions for improving transparencyWe asked all survey participants what changes in policy, procedures and legislation would improve transparency in performance and execution reporting. Here are some of the more frequent suggestions:

No new legislation. Out of 575 respondents to our questionnaire, none sees the need for new legislation to promote transparency (or anything else, for that matter), while many specifically say that Congress should not consider making fresh laws for such reporting. Instead, hold people accountable for results, say many respondents.

Pass appropriation bills on time. As discussed at the beginning of this section, supplemental funding tends to muddy the water when it comes to linking performance and execution.

Deal with information systems problems. In a nutshell, the problems are too many systems with too little ability to share infor-mation quickly and easily. ERPs appear to hold the most promise, provided the Defense community first deals with the cultural issues discussed above in “PPBES and culture.”

Accept and promote transparency. An inter-viewee sums up the thoughts of many others: “We need a culture where transparency is accepted and dictated from the top down.”

Allow more flexible spending. One of the reasons for an approach like PPBES is to enable sound, considered changes to execution to increase overall performance in the Defense community. Less restrictive appropriations would allow this. In addition, flexibility would mean less reason to withhold information.

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Make data more accurate, because right now many people do not trust the numbers they get for execution and performance.

Speed the distribution of guidelines and other information. Budget, execution and performance activities and reporting would go faster if lower echelons receive guidance sooner.

Remove disincentives and create incentives for change. Interviewees mention several times that Defense managers are rewarded for spending their entire budget, but not rewarded for saving money. Some of the survey partici-pants suggest that providing incentives to save would go a long way to making a more cost-conscious culture.

Foster better understanding between bud-geters and accountants. An interviewee reports that her entity is combining the accounting and budget staff to improve responsiveness and information flows. Another says that these pro-fessionals need to understand each other better.

Budgeters need to look at the past, not just at forward-year programming. Budgeting would benefit from looking at expired-year informa-tion, how a program or group has performed and trends that may indicate where money was wasted or lost.

Accept variation in performance. The current budget structure assumes stable performance, but it is not stable and can bump up and down for various reasons. Do not assume that the “bumps” are permanent.

Do a true two-year cycle. That is, implement the system as it was intended. In the two-year budget cycle, the second year is to be the time for significant evaluation, analysis and forward thinking. The reality today is that there is little difference between year one and year two. The demands placed on the workforce, the types of activities in which they are involved, and the results and outputs vary little from year to year. Forcing discipline into the cycle will allow more opportunities to link budget and perfor-mance—one of the reasons for changing from PPBS to PPBES.

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In this section, we report what the financial workforce and

its leaders say they think the Defense community should

focus on in the future to improve fiscal operations.

For executives, the four most important cur-rent initiatives to continue are cost, budget execution and performance reporting; DoD-wide business enterprise architecture; ERP systems development; and program efficiency and effectiveness. The workforce agrees with executives on three of the top four, but rate financial management systems as the most important challenge.

Avoiding a hollow military

Why are the executives’ top four choices so critical to Defense? Several executives say that the Defense community is about to go through a fiscal transition. On one hand, an end to the conflicts in Iraq and Afghanistan could put the Defense community in a situation like the post-Vietnam era, when the nation expected a “peace dividend” or sizable reduction in funding. The dividend turned out to be too large, resulting in a “hollow military” with diminished capabilities to meet the threats of the late 1970s and early 1980s, before the last Cold War buildup. On the other hand, whether engaged in a war or going through large budget cuts, national Defense will feel the strain of austerity because of massive Federal deficits and debt.

“Economy and efficiency will become impor-tant,” says one executive. “When it comes time to shrink the military, some people will want to simply cut out programs because that is the easiest thing to do. The reality is that we won’t be able to or can’t just cut all those programs. We have to look at everything and say, ‘Do we need this? What do we give up if we do this? Can we make this program better and more effi-cient?’” Answering those questions is not going to be easy for a Defense community that is not well structured for cost containment.

Current initiativesWe will start with the priority that survey respondents give to several current areas that directly or indirectly relate to financial manage-ment (shown in Table 1).

Financial Management Initiatives and Challenges

Initiative

Importance ranking

In-person survey

(Executives)

Online survey (Workforce)

Cost, budget execution and performance reporting 1 5

DoD-wide business enterprise architecture 2 2

Enterprise resource planning (ERP) systems development 3 4

Program efficiency and effectiveness 4 3

Financial Improvement and Audit Readiness (FIAR) 5 7

Financial statement audits (continue current depth and scope) 6 6

Financial management systems 7 1

Consolidation based on Base Realignment and Closure (BRAC) 8 10

Financial reporting 9 12

Performance and Accountability Report (PAR) 10 8

Accelerated financial statement reporting 11 9

Effective measurement and remediation of improper payments 12 11

Table 1: Current financial management initiatives that should be emphasized over the next two to five years

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Human capital

To both executives and workforce survey respondents, human capital is the most frequently mentioned risk to accomplishing their financial organization’s mis-sion. Many say that the government needs initiatives to increase the number of qualified financial managers and comptrollers. ASMC addresses this perennial problem in depth in our 2007 survey of financial executives, Prepare Yourself for the Future of Defense Financial Management. The 2008 survey offers no new insights into workforce problems so we will not list the many suggestions made this year for new initiatives, with one exception.

There appears to be mixed support for the National Security Personnel System (nSPS). Most executives who mention NSPS are positive about it; the opposite is true for the workforce. Says an executive, “nSPS has the potential to help, even when just learning to under-stand it. We are still struggling in our implementation phase, but more than implementation, a culture change is needed.”

Good financial management systems are very important to financial workers and managers. Throughout the online survey, they give low marks to some current financial management systems and hope fervently for the success of the major new systems now coming online in the Defense community.

Financial reporting is less important to both sets of survey respondents, along with areas that relate to financial reporting, such as FIAR, financial statement audits, PAR and accelerated reporting. The general sense of both groups is that the purely financial reports are mature and understood. Linking financial-focused reports to performance-focused reports is another matter.

BRAC remains in the top 10 for both groups because they are starting to feel the effects of consolidation. One top executive whose field offices are being “BRACed” thought that they would need major personnel replacements in about a year. He was shocked to learn that at one office, half the BRACed employees had already departed, causing a serious personnel shortage. Many workforce respondents strongly oppose the BRAC initiative, saying that benefits do not seem to equal costs and that overly con-solidated functions are harder to manage.

Improper payments rank at or near the bottom, most likely because people inside the Defense community understand that such errors are a tiny percentage of total Defense outlays. However, some executives caution against losing steam in this area because “One, we get bad press. Two, we need a viable vendor base. Three, we need accuracy on whom we owe and how much we owe them. Four, there is the potential to put money back on the table by deobligating it, and we need to know if that’s the case.”

New initiativesWe asked all survey participants to tell us two or three new financial management initiatives that the Federal Government should consider in upcoming years. We also asked what should be avoided in the near future. Here are some of the more frequent responses.

Enterprise focus

Many executives and members of the work-force say that there needs to be more of a Defensewide enterprise focus, as opposed to individual departments or agencies. Personnel need to be rewarded for behavior that demon-strates enterprisewide work, and there should be enterprisewide reviews of internal controls.

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“ We need to take a deep breath and complete some of the current

initiatives. We cannot continue to add new efforts without

finishing some of the old ones.”

– executive respondent

Process improvement

Frequent proposals for improving processes include working more on standard, consistently applied and streamlined budgetary, accounting or financial management policies and proce-dures throughout the Defense community. In particular, workforce respondents call for an end to redundancy and for incremental instead of revolutionary change, and they want a more focused improvement campaign instead of what one terms “the current scattergun approach.” Both executives and workforce want increased training on, and use of, cost accounting.

Financial reports and accountability

Many executive and workforce respondents show strong support for cost, execution and performance reporting and using the informa-tion to hold people accountable. A represen-tative opinion: “If there is no efficient and accurate financial reporting tool in place, we cannot make enterprisewide decisions, let alone local decisions.” Other suggestions include reviewing with Congress the value of audited financial statements relative to the likely cost to DoD of gaining and maintaining unqualified or clean opinions on them over the years.

Also, there need to be more Joint Service finan-cial and performance initiatives and projects.

There are many proposals for mergers. These include consolidating Defense budgeting func-tions much the same as accounting work was combined into DFAS. (One executive who sug-gests this admits that it would be received with the same negative reaction as DFAS’s creation, but savings and efficiency would be significant.) Others suggest consolidating financial manage-ment functions at the facility or base level.

Information systems

Earlier, we reported on ERPs as they relate to execution, performance and results (see “IT infrastructure support for PPBES”). Several respondents want to stop investing in ERP systems that, as one executive says, “ . . . have yet to show their worth. Trying to force our business processes to fit the systems has not worked.” However, many more want more systems consolidation, including merging the Services’ ERP initiatives into one Defense enterprise system.

Other ideas show a strong desire for standard and unified (or at least compatible) systems for budgeting, finance, travel and other busi-ness information. In this context, respondents mentioned the Defense Enterprise Accounting and Management System (DEAMS), Defense Integrated Military Human Resources System (DIMHRS), General Fund Enterprise Business System (GFEBS), and Comprehensive Cost and Requirement System (CCaRS). Respondents strongly plea for realistic schedules needed to thoroughly test new systems before deploying them. The workforce wants systems built to retrieve and analyze information, not just create reports no one reads.

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One executive says that DoD needs to start auditing at least the Statement of Budgetary Resources and other “low-hanging fruit” finan-cial areas available. “This will begin to give us the ability (and credibility) to truly account for, analyze and properly manage funds, expenses and disbursements,” says that executive. Another advocates that the government look at creating a write-off margin or reserve to account for small errors and problems whose correction costs more than the value of their solution.

In a slightly different vein, respondents say to scrub the plethora of financial reports to find out who needs them, why and what use is made of each report. They think that many special-ized reports no longer have strong reasons to continue. Related to this, one executive says, “Congress needs to tell us what they will actu-ally read. Budget forms and formats have not changed for 30 or 40 years. There must be a better way to move money around than by issuing thousands of documents per year. Just tell us what will actually be read because we no longer have the staff to generate so much paper.”

Other suggested initiatives relate to becoming more cost-conscious, increasing flexibility in spending, instituting two-year budgets, and spending more time identifying and mitigating the biggest risks and vulnerabilities, instead of making everything a priority.

Finish current initiatives firstWe would be less than candid to not report one of the most frequent types of response to our question about new initiatives, summarized by one online respondent: “We need to take a deep breath and complete some of the current initia-tives. We cannot continue to add new efforts without finishing some of the old ones.”

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Top concerns of the Defense financial community

Since the start of this annual survey in 2003, ASMC and Grant Thornton have asked participants to tell us their top concerns. Figure 7 shows that the top four concerns of the 2008 survey participants are management, human capital, systems and finance/budgets.

Figure 7: Top concerns of 2008 ASMC Survey respondents

Executive Respondents

Online Respondents

Management Human Capital Systems Finance/Budgets

17%

24%24%29%

41%

36%

17%

12%

Management covers leadership, planning, program and organizational management, transformation, outsourcing and policies other than for human capital, systems and finance/budgets. Human capital refers to recruiting, hiring, training, promoting and rewarding of personnel; to skill levels from entry level to top management; and to workload outstripping staff growth. Systems includes financial management and ERP systems; comments by respondents were about the same as those reported in the previous section of this report, under “Information sys-tems.” Finance/budgets refers to policies and practices in financial management, accounting, internal control and budgetary activities.

Figure 7 makes it clear that Defense executives and work-force have similar concerns. Their greatest concern is management: how leaders lead and decisions are made, monitored and sustained.

From time to time during interviews, executives spoke

of a coming “transition” from wartime to a peacetime

Defense posture or to a more austere Federal budget.

Based on what we have reported thus far, top financial

executives must have a set of attributes rarely found in

the private sector to lead the transition to a future with

tighter and perhaps diminished resources. We asked the

executives in the survey about the attributes they want for

the next senior financial executive in their organization.

Their response:

Thorough understanding of Defense •missions and operations, not just of financial processes.

A customer focus and a collaborative spirit, •to offset a tendency toward disunity between DoD and the Uniformed Services.

Results-oriented, rather than process-oriented.•

Military budget experience and compe-•tence in the field and in the Pentagon will be essential, because leaders will not have the luxury of a budget cycle “to learn on” before a transition to a more austere Defense budget. This includes the ability to under-stand, integrate and orchestrate PPBES elements within their organizations.

Systems experience, including managing •systems contracts.

CPA or CDFM certification and an under-•standing of accounting theory and budgetary, proprietary and cost accounting.

Understanding of risk and risk management.•

Finally, future financial leaders must have a compulsion to be involved with everything that involves money in the Defense community. Fiscal planning and discipline, sound return on investment and maximizing the value of every dollar spent on national Defense demand nothing less.

Excellent communication skills, both up •and down the chain of command and with Congress.

Political know-how and ability to gain the trust •of departmental secretaries and the Congress.

Tomorrow’s Leaders

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Our survey’s results should come as no surprise to those

familiar with Defense budgeting and financial manage-

ment. Indeed, many of the recommendations we hear are

not new—they have in fact been made repeatedly over

the years. Yes, there are many rational reasons why such

proposals have not been implemented, ranging from

congressional priorities, procedures and schedules to the

sheer size and complexity of the Defense enterprise. It is

also true that the current conflicts in Afghanistan, Iraq and

other operations in support of the Global War on Terror

have overshadowed efforts to reform the Defense budget

process and to create a more transparent link between

execution and performance.

These are all rational reasons for lack of prog-ress. Yet, despite these obstacles—indeed, because of them—it is important to strive for full development of PPBES throughout the Defense enterprise. However, the reality is that the Global War on Terror will be waged for decades. The pressures to reduce dependence on supplemental appropriations and to incorporate the cost of war into the Defense baseline will give a renewed impetus to the efforts to link performance and budgets. It will have to be a strong link, because sooner or later a mounting national debt will compel more austerity in both civilian and Defense spending.

This will be a major fiscal transition. Economy and efficiency will increase in importance. Instead of letting political leaders simply cut programs, the Defense community will need to take an enterprisewide view of its mission, threat, priorities and resources. Obtaining that view requires what PPBES can offer: visibility, flexibility and a DoD-wide perspective.

Conclusion

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Additional InformationIf you would like more copies of this survey or an opportunity to hear more about its findings, please contact ASMC or Grant Thornton at the addresses below. We will be pleased to discuss the possibility of providing your organization with a briefing or presentation of survey results at a conference or seminar.

American Society of Military Comptrollers415 N. Alfred StreetAlexandria, VA 22314Telephone: (703) 549-0360www.asmconline.org

Grant Thornton LLP333 John Carlyle Street, Suite 500Alexandria, VA 22314Telephone: (703) 837-4400www.grantthornton.com/publicsector

AcknowledgmentsSurvey Sponsors: American Society of Military ComptrollersHonorable Robert F. Hale, CDFM,

Executive DirectorJennifer Sizemore, Associate Director for

Membership and Chapter Development

Survey Contributors:Grant Thornton LLPAl Tucker, CPA, CDFM, CIA, CGFM,

Survey DirectorVADM Lou Crenshaw USN(Ret.)Ward Melhuish, PartnerSteve Clyburn

American Society of Military Comptrollers415 N. Alfred StreetAlexandria, VA 22314Telephone: (703) 549-0360www.asmconline.org

Grant Thornton LLP333 John Carlyle Street, Suite 500Alexandria, VA 22314Telephone: (703) 837-4400www.grantthornton.com/publicsector