Future Financial Management


Throughout this treatise, many methods of better financial management have been indicated, but the question of the future continues unless some definite steps are now taken to prepare for an emergency or a repeat of the conditions of limited war. Planning is currently under way within the Department of the Army to establish procedures which could provide for effective utilization of resources, and the lessons learned in Vietnam will contribute to the shape of these plans. One such plan is entitled LSS-71 and, while primarily a logistics procedure, embodies the financial implications as a major portion. It is perhaps a tribute to the planners of the late 1950s and early 1960s, that the financial procedures envisioned are virtually the same as had been included in plans of that era, such as a single service concept for common supplies and other relief from peacetime limitations imposed by Congress. If those earlier recommended methods of financial control were never implemented, what hope do we have that the situation will be altered in the future? It would appear that now is the time to assure that the elements of the plan are approved at all levels so that their activation will be automatic in case of another limited war. By seriously considering the innovations required in these periods of conflict, it is conceivable that some changes will be dictated in our peacetime structure for financial management as well.

Far too often in the past, our approach to resource management has been based on reaction rather than action. An installation commander, faced with the requirement to respond to a query of some higher authority, has concentrated on that specific area of interest, to the detriment of other programs just as important. Our current accounting system at installation level is designed more to render reports required at higher echelons, including the Department of Defense and Congress, than to provide for the informational needs of the local commander. It is a fortunate commander who has developed a comprehensive method of gathering all of the information required to effectively manage his resources on a day-to-day basis.


More of a problem is the seeming lack of co-ordination between missions given and the funds to adequately support these missions. This was pointed out repeatedly during the Vietnam War when many tactical decisions were made in joint channels, including the Department of Defense and the White House. These decisions were passed down through the Commander in Chief, Pacific, and Headquarters, Military Assistance Command, Vietnam, to the U.S. Army, Vietnam, for implementation. Rarely was there any real co-ordination of the impact on funds which some of these decisions had. In the period when there was no limitation on funds available, this was not a major consideration, but diversions from other necessary programs were required later to finance these decisions. This is not to say that financial considerations would, or should have changed the outcome, but had commanders been made aware of what was being deleted from the program in order to meet the new requirement their actions may have been far different. It is possible that some alterations would have been dictated. We are currently trying to obtain levels of funding which will allow us to perform some of the maintenance and act on other programs which were deferred for years in order to provide money for some of these actions in Vietnam.

The ideal situation would be for the budget to actually fit the pattern which I described earlier and merely be a reflection of the amounts of money required to carry out all of the approved programs, as indicated in the Five Year Defense Program. While this may never become a total reality, we should strive toward that end. One way in which to accomplish this would be to make Congress more aware of the elements of the plan and the funds required to pursue it. Vietnam has forced the budgeteers and programers to move in this direction. A great deal of emphasis has been and is being given to the development of factors both for bulk allocation of funds and for specific requests for information. This approach could well prove to be the salvation of our financial management program. Once data is developed which is accurate enough to convince the Office of the Secretary of Defense and Congress of its validity, we no longer would be debating the cost of a particular budget item, but whether or not it should be accomplished at all. If it was decided that it was necessary, there would be an automatic price tag involved. While this utopian approach may never be reached completely, the closer we come to making programming decisions automatic budget decisions, then the easier the task of effective management of resources will become. We cannot just stop with Congress, but the same idea must permeate the entire


Department of Defense. Any commander given a mission should be given the resources to accomplish this mission virtually in the same directive, or else be allowed to identify in the previously approved program that item which will not be accomplished due to the diversion of funds to the new one.

The above concept will require a shift in the thinking of many individuals involved in the utilization of resources, since human nature makes it difficult to admit that by some miracle of better management one cannot assume new missions without more resources. In actuality, if an installation commander can take on new projects without letting others suffer as a result, he is admitting that he was not achieving maximum results from his present funding level prior to the assignment of the new program. Admittedly, this has not been the interpretation generally prevalent in the past, but it should be in order to insure a truly effective financial management posture within the Army.

If program decisions could, in fact, become budget decisions, it is conceivable that this could have a very desirable effect on two deterrents to effective resource management. The first, I have mentioned before-late approval of the budget by Congress. Although we will never completely divorce dollars from the consideration of the programs of the Department of Defense, if we could merely standardize the formulation process, the discussions of what a particular program should cost would diminish and there would be a good chance that budget approval could be granted much earlier in the fiscal year under consideration. Not only that, but once a program was approved, if it lasted over a number of years, individuals involved in pursuing that program could rely on funds being made available since to do otherwise would eliminate the project and thereby negate any value from money already expended. The key element here remains the Army's ability to forecast accurately the total cost of any of the elements of their program. This would include taking into consideration external influences such as a factor for inflation, the side effect costs associated with the introduction of a new weapon into the inventory, replacement comparison costs with the weapon being eliminated, and all other elements which might be affected even extraneously by the project under consideration. In other words, a totally complete program should be submitted, and, more important, once approved, cost data should be developed to prove, or disprove, the validity of our costing procedures. The more reliable these become and the more


we can prove to Congress that we are capable of effective financial management, the less suspect will be our budget, and the quicker it will gain approval.

The second deterrent, of which I spoke, is almost an extension of the first, since it involves the installation commander and his reliability index in the use of funds. There is a rather prevalent myth that a 99.9 percent obligation of available funds indicates effective utilization of resources. Even more germane is the feeling that if one does not achieve this figure, the next year's budget will be cut, since one obviously does not need all of the funds which were requested. It appears to me that both of these statements should be incorrect, particularly in an environment where accurate factors provide accurate costs for accomplishing a particular mission. As a matter of fact, the above two statements could only be true in an environment where more missions were assigned than resources to effectively pursue them. This destroys true management of resources and leads to "stop-gap" measures, which are designed to apply enough resources to each little area to keep it from falling apart, merely delaying the inevitable day when some inspection reveals an activity which is desperately in need of funds and there are none to be found. If a commander, through better financial management, can perform the task with only 90 percent of the funds which had been estimated for its cost, then he should receive the plaudits of his superiors for an outstanding job. Certainly, his next year's budget should not reflect any change for this exemplary accomplishment, except for the possible revisions to factors based on similar performance by a number of commanders under like conditions.

In one area alone, the Army should have learned its lesson in this regard-repairs and utilities maintenance. For years the Congress approved budgets which included funds to maintain the facilities on installations. They did not seriously question either the amounts requested or whether or not the maintenance was actually being performed. Considerable liberties were taken with these funds, however, and they were diverted to other higher priorities in many cases. The required maintenance was deferred. As a result many of the facilities reached the point that something had to be done, but this required funds. Once Congress was aware of this situation, their reaction was naturally one of shock. In effect, the members of Congress asked some rather embarrassing questions about what had been done with the money which had been appropriated for this purpose. They then imposed an additional control on funds to insure that we used the funds for repairs and utilities maintenance


which they had given us. They gave us a floor; we had to spend a certain amount of money in this category. This action typifies the reaction which one can expect on any area in which mismanagement of funds is indicated, but, worse, from a congressional point of view, it is an indictment of the Army as a whole. The only way to escape these added controls and the extremely close scrutiny of Congress in all areas is to prove ourselves capable of their trust to manage effectively.

As I have indicated earlier, I feel that the Army will emerge from Vietnam with a relatively good reputation in Congress, but there naturally will be some closer looks given the expenditures of the entire Department of Defense. This will require that commanders at all echelons become interested in all aspects of the financial management structure, and in the development of a comprehensive plan to insure that information is immediately available regarding costs of alternatives prior to reaching a decision. There will be times when more mundane actions must be pursued in order to have a complete program which makes the best overall utilization of funds. If this does not become the rule, our reputation can quickly diminish to one in which Congress and other higher echelons are directing each activity to the lowest detail. This will certainly be admitting a failure in effective resource management.

If this same interest were carried over into the planning for any type of engagement which might occur in the future, perhaps our financial management posture could gain the same reputation which is enjoyed by our combat troops ability to react to any situation. Throughout Vietnam, numerous laudatory comments were made about our ability to build up so quickly without a major drain on Reserves or National Guard. Also considered exemplary was our rapid establishment of a logistics base to supply the troops, and to construct necessary facilities in an area which almost defies construction efforts. When questions arise as to whether or not prudent use of our resources was made in accomplishing these tasks, the Army may be criticized severely.

In order to remedy this for future limited wars, we must plan for a viable organization to accomplish this activity. I feel strongly that we should plan for the immediate establishment of an organization something like the Centralized Financial Management Agency to be implemented at the outset of hostilities. We should ask Congress for relief from statutory requirements which hamper operations, and that approval should be granted now to be effective immediately whenever conditions warrant. Further, we should strive to have any deviation authority authorized by Congress passed to


the lowest possible level to provide the maximum flexibility to the commander who must insure that he takes every action to obtain the best mission accomplishment through effective utilization of all factors at his disposal-including efficient financial management.