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Army Financial Management Reform Starts at the Top

Back in antiquity, when I had the honor to command a field artillery battalion in the Republic of Korea, my battery commanders and I engaged in a monthly ritual that we called the Battalion Budget Activities Committee, BBAC for short.

At each committee meeting, our battalion Maintenance and Supply officer would present data comparing each battery's cumulative budget expenditures to date, and those of the battalion overall, to straight-line projections that, if achieved, would entirely consume battalion's annual budget at precisely the end of the fiscal year.

Of course, we really didn't have any money. Instead, what we had was an allocated slice of our division's annual budget, which we could use to requisition materials not automatically issued as part of our unit Table of Organization and Equipment ó items such as spare parts, expendable supplies, health and welfare materials ó a whole litany of catalogued and priced supply items.

Some of these could be astonishingly costly. Winterization kits for our 8-inch self-propelled howitzers, for example ó little more than metal poles and a canvas cover that bolted onto the exposed rear deck of the weapon to protect its crew from South Korea's bitter winter weather ó ran to tens of thousands of dollars ó a price so outrageous that we lodged a complaint about it with the supply chain of command (in which it disappeared without a trace).

Most items were much less expensive. But for a deployed combat unit like ours that spent a considerable time in the field, costs mounted quickly, especially for repair parts. Going over budget of course was a major no-no. But almost as damaging, to the unit's reputation at least, was ending the fiscal year with any significant budget surplus. 

Such a surplus, in the culture of the day, could mean only one of two things: either the budget request submitted by the battalion prior to the fiscal year had been grossly exaggerated, or else the battalion had failed in a timely way to requisition the supply and maintenance replacements for which it had budgeted.

In either case, like a threatened budget deficit, which would require tapping into division's end-of-year contingency funds ó themselves a hedge against over-expenditure ó a surplus could only indicate poor financial management by the unit's commanders. 

So conscious of this risk were we that, in the last month of the fiscal year, the BBAC met weekly to cross-level battery expenditures and insure that requisitions were submitted to expend every last dollar. The goal was a zero-zero final budget report.

Note that nowhere in this exercise were any points given for saving money. Instead, a year-end surplus risked a reduced budget the following year, while a deficit risked at very least a nasty reprimand. Nor were these risks limited to small units like ours. On the contrary, the same pattern reached all the way up the organizational chain.

And apparently continue to do so today, whence a new directive from Under Secretary of the Army Patrick J. Murphy set to take effect on July 1st, aimed at inducing more responsible financial behavior, at a time when the Army like its sister services confronts a level of budget austerity not seen for many years.

Among other injunctions, the new directive instructs commanders to "avoid using budget execution data and obligation rates as the primary measure of fiscal success." It urges leaders henceforth to tie resource requirements and expenditures to specific activities and levels of readiness.

Most important, to eliminate the incentive to "use it or lose it," the directive promises that, in the future, "commanders and staffs will not automatically decrement commands or programsÖwhen they do not spend all [their budgeted] funds" without investigating to determine the reason for the under-expenditure. 

As Lt. Gen. Tom Spoehr, director of the Army's Business Transformation Office and the proponent for this reform, commented, "If there's no pressing requirement for the money, the unit should be able to turn it over without penalty."

In short, the directive proclaims, "organizations [should be] rewarded for finding better ways of operating by allowing them to keep and redirect savings to validated command priorities." However, it also warns, that statement should not be interpreted "to imply that under-execution is always good."

However sensible, the qualifier is evidence that whether this will work remains to be seen. As one analysis noted, "use it or lose it" starts with Congress, which has a habit of cutting funding of programs deemed "in excess of need" because under-spent the year before. Like water (and other substances), such practices tend to roll downhill.

If the Army is serious about this, it will have to convince commanders rightly suspicious of reforms that in the past too often have come back to bite them. That burden starts at the top of the chain of command. Only time will tell whether it reaches down to where, in the hackneyed phrase, "the rubber meets the road."

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