In analyzing DOD’s inflation budgeting system, we found that between fiscal years 1982 and 1986 the administration budgeted more than was needed to cover inflation, resulting in an inflation dividend that we estimate to be about $44.5 billion.
We are not able to determine the precise amount of excess funds that is still available in DOD. A major difficulty in making such a determination is that the DOD accounting systems that track how funds are being used are not directly linked to the budgeting process.
We believe, however, that much of the inflation dividend either has been spent on additional defense programs, or has been reprogrammed for other uses. Reprogramming actions in fiscal years 1980 through 1985 totaled about $26 billion. In recent years, frequency of reprogramming actions initiated because surplus funds were available has increased sharply.
That was Comptroller General Charles Browsher in 1986 discussing the overestimating, and over-budgeting, for inflation. Of course, in the 1970s the DOD underestimated the inflation rate and therefore was initially underfunded. Then, higher inflation rates were extrapolated forward without considering the context in which they came about.
This is one of the problems of statistics such as found in “will cost” parametric cost estimates. Existing cost figures for past systems are taken as sacrosanct, and used to estimate future systems, without regard for whether there were inefficiencies in the past or new circumstances in the future.
Another problem is the fact that the DOD does budgeting and accounting on different bases. Budgeting is done by program structure. Accounting is done by organization and object of payment. There is no repository where the entire set of budgets can be related to the expenditures which they create.
That may sound worrisome. What if funding was routed into shell accounts, or what have you?
I personally don’t worry so much about that problem. The accounting is still done using traditional methods of expense control which do a pretty good job ensuring funds are not misused.
I think the usual assumption is that we must therefore tighten up accounting, and particularly, make the accounting systems identify end items which logically align with the budget structure. That indeed appears to be one of the USD Comptroller’s goals (once it becomes auditable in the traditional way).
I think the better route is to revert acquisition budgets to organization and object. Then you might have some alignment between the budget (e.g., Army > SYSCOMS > Installations) and the accounting (e.g., GFIBS > feeder systems).
Source: Defense Economics Issues, Jul. 18, 1986; Committee on Economic. Joint., S. Hrg. 100-1059.
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