	Rationale for Creating DFAS

Before 1991, the military services maintained separate finance  and accounting operations that were duplicative and inefficient. Before fiscal year 1991, the military services and defense agencies each had their own financial management structure, consisting of a headquarters comptroller organization; finance and accounting centers; and accounting, finance, and disbursing offices at military bases. This has allowed it to reduce the number of locations and personnel needed to perform these operations and to begin standardizing its accounting systems and processes. DFAS is currently consolidating all its activities into 5 centers and  not more than 21 operating locations. DFAS currently has 23,500 employees. According to DOD, however, there should have been about 18,000 finance and accounting personnel left with the military services in 1994. Between fiscal years 1996 and 2000, DFAS estimates its budget will decrease by about 10 percent—from $1.64 billion in fiscal year 1996 to $1.47 billion in 2000 in constant 1996 dollars. DOD’s $240-billion appropriation for fiscal year 1996 was used to pay about 6 million people and about 17 million invoices charged to nearly 12 million contracts. To process financial transactions and account for the receipt and expenditure of funds, DFAS and military services’ finance and accounting operations are generally divided into nine functional activities. Finance and Accounting in the Department of Defense

This appendix provides an overview of the Department of Defense’s (DOD) finance and accounting operations. Annually, DFAS processes about 2.1 million travel settlements. We focused our work on describing how DOD is organized to perform finance and accounting, the size of the finance and accounting infrastructure, and the various activities that are performed by DFAS and the military services. To determine the type of activities DOD finance and accounting personnel are responsible for performing, we reviewed DOD’s Chief Financial Officer Financial Management 5-Year Plan, the DFAS Customer Service Plan, the responsibility matrices negotiated by DFAS with each of the military services, and work flow descriptions for each finance and accounting activity. 1, 1995). 9, 1994). A recorded menu will provide information on how to obtain these lists.
Why GAO Did This Study

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.

What GAO Found

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.