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The Defense Finance and Accounting Service (DFAS) provides a variety of finance and accounting services to military customers. Because DFAS received customer complaints, its leadership asked RAND to take a comprehensive look at all DFAS-customer interactions to identify problems and determine how those interactions might be improved.
This work grew out of earlier research that RAND conducted for Defense Finance and Accounting Service (DFAS) leadership. That earlier work, discussed in Keating and Gates (1999), focused on DFAS's internal cost structure and the implications that cost structure held for DFAS pricing policies. Because that research focused internally, the logical next step was to focus externally, on the interactions DFAS has with its customers. The scope of the research was deliberately broad; DFAS had received customer complaints, but wanted RAND to take a comprehensive look at all of its customer interactions without preconceived ideas about where the problems lay.
As part of its ongoing improvement efforts, the Department of Defense (DoD) is exploring new ways to enhance the performance of its Defense Finance and Accounting Service (DFAS). Created in 1991, DFAS provides a variety of finance and accounting services, including payroll, bill payment, and budget tabulation, for the military services and other DoD entities. The establishment of DFAS has streamlined DoD finance and accounting operations by consolidating a multitude of service-specific facilities. DFAS handles an enormous volume of transactions. Virtually all of the DoD's annual budget flows through this agency. Recently, DFAS asked RAND's National Defense Research Institute (NDRI) to identify opportunities for performance improvement. The results of this research are documented in two RAND reports, Defense Working Capital Fund Pricing Policies: Insights from the Defense Finance and Accounting Service and Improving the Defense Finance and Accounting Service's Interactions with Its Customers. These studies, led by RAND economist Edward Keating, found that DFAS's performance could be improved through changes in DFAS's pricing system and in the nature of many of its transactions with customers.
GAO discussed the Department of Defense's (DOD) progress in implementing and operating the Defense Business Operations Fund. GAO noted that: (1) DOD has initiated the Corporate Information Management project as a long-term strategy to improve DOD systems; (2) the Defense Finance and Accounting Service (DFAS) has overall responsibility to provide uniform accounting policy guidance, establish requirements for financial systems, provide finance and accounting services, and prepare financial statements; (3) DOD has acknowledged that the Fund's systems are inadequate, but it has not developed a comprehensive cash management policy for the Fund; (4) DOD has established a goal of maintaining a working capital level of $1 billion; (5) billings to customers for services provided by the Fund have not been timely; (6) 11,019 inventory items with understated prices have been identified in an Army financial statement audit; (7) the Fund's financial reports do not accurately reflect the Fund's financial condition; (8) in fiscal year 1992, DOD began issuing activity-based unit cost budgets to the Fund's business areas; and (9) DOD has selected the Defense Business Management System to support the Fund's implementation without evaluating the system's benefits and technical risks or defining all of the features needed.
The Defense Finance and Accounting Service (DFAS), created in 1991 through the consolidation of military service-specific accounting and finance operations, provides a variety of services to Department of Defense (DoD) customers, such as payroll, bill payment, and generation of accounting statements. Examining DFAS data on expenditures and workload to explore possibilities for improved operations, the authors argue that current linear pricing of DFAS services is inappropriate. In particular, DFAS expenditures neither increase nor decrease commensurate with workload. DFAS's pricing could be improved by a switch to a nonlinear approach, distributing fixed costs among customers using open-the-door transfer payments and charging only incremental costs to customers on a per work unit basis. Such a pricing reform would require changes to current Defense Working Capital Fund (DWCF) regulations.