United States General Accounting Office

GAO Report to the Secretary of Defense

April 1996 DOD

INFRASTRUCTURE

DOD Is Opening

Unneeded Finance and

Accounting Offices

G O A

years

1921 - 1996

GAO/NSIAD-96-113

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

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 report1

 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.

Background 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.

1

DOD Infrastructure: DOD’s Planned Finance and Accounting Structure Is Not Well Justified

(GAO/NSIAD-95-127, Sept. 18, 1995).

Page 1 GAO/NSIAD-96-113 DOD Infrastructure
B-271427 

DOD Is Planning to

Open Facilities It

Does Not Need

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

Page 2 GAO/NSIAD-96-113 DOD Infrastructure
B-271427 

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

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 We recommend that you direct the Under Secretary of Defense

(Comptroller) to terminate plans to open the five facilities that DFAS

Page 3 GAO/NSIAD-96-113 DOD Infrastructure
B-271427 

determined are no longer needed to effectively carry out DOD’s finance and

accounting operations.

Agency Comments

and Our Evaluation

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

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

Page 4 GAO/NSIAD-96-113 DOD Infrastructure
B-271427 

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.

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

Page 5 GAO/NSIAD-96-113 DOD Infrastructure
Appendix I 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

Charles I. Patton, Jr., Associate Director

James E. Hatcher, Assistant Director

James E. Fuquay, Evalutor-In-Charge

Cheryl K. Andrew, Senior Evaluator

(709177) Page 6 GAO/NSIAD-96-113 DOD Infrastructure
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