Outside the Beltway

Pentagon’s Broken Payroll System

The military's finance and accounting system has been dysfunctional for decades and is getting worse.

James Joyner · Wednesday, July 10, 2013 · 18 comments

The military’s finance and accounting system has been dysfunctional for decades and is getting worse.

In what is slated as the first installment in a series, “How The Pentagon’s Payroll Quagmire Traps America’s Soldiers,” Reuters combines several anecdotes with some reasonable guesses about the scope of the problem.

As Christmas 2011 approached, U.S. Army medic Shawn Aiken was once again locked in desperate battle with a formidable foe. Not insurgents in Iraq, or Taliban fighters in Afghanistan – enemies he had already encountered with distinguished bravery.

This time, he was up against the U.S. Defense Department.

Aiken, then 30 years old, was in his second month of physical and psychological reconstruction at Fort Bliss in El Paso, Texas, after two tours of combat duty had left him shattered. His war-related afflictions included traumatic brain injury, severe post-traumatic stress disorder (PTSD), abnormal eye movements due to nerve damage, chronic pain, and a hip injury.

But the problem that loomed largest that holiday season was different. Aiken had no money. The Defense Department was withholding big chunks of his pay. It had started that October, when he received $2,337.56, instead of his normal monthly take-home pay of about $3,300. He quickly raised the issue with staff. It only got worse. For all of December, his pay came to $117.99.

All Aiken knew was that the Defense Department was taking back money it claimed he owed. Beyond that, “they couldn’t even tell me what the debts were from,” he says.

At the time, Aiken was living off base with his fiancee, Monica, and her toddler daughter, while sharing custody of his two children with his ex-wife. As their money dwindled, the couple began hitting church-run food pantries. Aiken took out an Army Emergency Relief Loan to cover expenses of their December move into a new apartment. At Christmas, Operation Santa Claus provided the family with presents – one for each child, per the charity’s rules.

Eventually, they began pawning their possessions – jewelry, games, an iPhone, and even the medic bag Aiken used when saving lives in Afghanistan. The couple was desperate from “just not knowing where food’s going to come from,” he says. “They just hit one button and they take your whole paycheck away. And then you have to fight to get the money back.”

Aiken’s injuries made that fight more difficult. He limped from office to office to press his case to an unyielding bureaucracy. With short-term and long-term memory loss, he struggled to keep appointments and remember key dates and events. His PTSD symptoms alienated some staff. “He would have an outburst … (and) they would treat him as if he was like a bad soldier,” says Monica. “They weren’t compassionate.”

They were also wrong. The money the military took back from Aiken resulted from accounting and other errors, and it should have been his to keep. Further, even after Aiken complained, the Defense Department didn’t return the bulk of the money to Aiken until after Reuters inquired about his case.

The Pentagon agency that identified the overpayments, clawed them back and resisted Aiken’s pleas for explanation and redress is the Defense Finance and Accounting Service, or DFAS (pronounced “DEE-fass”). This agency, with headquarters in Indianapolis, Indiana, has roughly 12,000 employees and, after cuts under the federal sequester, a $1.36 billion budget. It is responsible for accurately paying America’s 2.7 million active-duty and Reserve soldiers, sailors, airmen and Marines.

It often fails at that task, a Reuters investigation finds.

This isn’t a new problem but it’s growing worse.

Reuters found multiple examples of pay mistakes affecting active-duty personnel and discharged soldiers. Some are erroneously shortchanged on pay. Others are mistakenly overpaid and then see their earnings drastically cut as DFAS recoups the money, or, like Aiken, they are forced to pay money that was rightfully theirs.

Precise totals on the extent and cost of these mistakes are impossible to come by, and for the very reason the errors plague the military in the first place: the Defense Department’s jury-rigged network of mostly incompatible computer systems for payroll and accounting, many of them decades old, long obsolete, and unable to communicate with each other. The DFAS accounting system still uses a half-century-old computer language that is largely unable to communicate with the equally outmoded personnel management systems employed by each of the military services.

In a December 2012 report on Army pay, the Government Accountability Office said DFAS and the Army have no way to ensure correct pay for soldiers and no way to track errors. These deficiencies, it said, “increase the risk that the nearly $47 billion in reported fiscal year 2011 Army active duty military payroll includes Army servicemembers who received pay to which they were not entitled and others who did not receive the full pay they were due.”

When I left active duty 21 years ago, I continued to be paid for three months. This was rather common among those in my cohort.  Naturally, the Army eventually wanted its money back and, not being an idiot, I’d dutifully refrained from spending it and had it to give. (I was in graduate school on a stipend considerably smaller than a first lieutenant’s salary at the time.)

The department’s authorized 2013 budget, after sequester, totals $565.8 billion – by far the largest chunk of the annual federal budget approved by Congress. Yet the Pentagon is literally unable to account for itself. As proof, consider that a law in effect since 1992 requires annual audits of all federal agencies – and the Pentagon alone has never complied. It annually reports to Congress that its books are in such disarray that an audit is impossible.

In this series, Reuters will delve into how an organization that fields the most sophisticated technology in the world to fight wars and spy on enemies has come to rely on an accounting system of antiquated, error-prone computers; how these thousands of duplicative and inefficient systems cost billions of dollars to staff and maintain; how efforts to replace these systems with better ones have ended in costly failures; and how it all adds up to billions of taxpayer dollars a year in losses to mismanagement, theft and fraud.

For all its errors, Pentagon record-keeping is an expensive endeavor. For fiscal 2012, ended Sept. 30, the Defense Department requested $17.3 billion to operate, maintain and modernize the more than 2,200 systems it uses to manage finances, human resources, logistics, property, and weapons acquisitions, according to an April 2012 GAO report. That amount does not include billions of dollars more in each of the military services’ “operations and maintenance” budgets used for upkeep of the systems. Nor does it cover all of DFAS’s $1 billion-plus budget.

The issue has yet to garner much attention in the political arena, despite continuing debate over the U.S. government’s deficits and efforts to restore fiscal order. More immediately, the mess in Pentagon pay in particular carries implications for national security. In its December 2012 report, the GAO recognized that fielding soldiers burdened with pay errors “may pose financial hardship for the soldiers and detract from their focus on mission.”

Officers complain that the difficulty of keeping track of personnel makes it harder to deploy men and women in times of war. Retired four-star Navy Admiral William J. Fallon says that while serving in 2007 and 2008 as chief of the U.S. Central Command, overseeing joint military operations in Afghanistan and Iraq, he had to maintain “an incredibly bloated staff” from each of the services to keep him informed of the numbers and availability of troops. “It is an incredibly inefficient, wasteful way of doing business,” he says.

This has been a known problem for more than two decades. It’s incredibly wasteful. And yet Congress can’t be bothered to care.

When the U.S. invaded Iraq in 2003, retired four-star general Peter Schoomaker heeded a call from Defense Secretary Donald Rumsfeld to return to active duty – as Army chief of staff, the highest military rank in the Army.

Schoomaker returned to work, but he didn’t get paid. DFAS had – correctly – stopped Schoomaker’s monthly retirement checks when he resumed active duty. But its computers weren’t able to restart pay for a soldier returning from retirement.

It took months for Schoomaker to start receiving his pay, and even more to get reimbursed for the months he had been stiffed.

In the meantime, soon after Schoomaker’s return to active duty, a computer-generated letter arrived at his home, addressed to his wife and offering condolences on the general’s death. DFAS’s computers were programmed to assume that when a retiree was taken off the rolls, that person had died.

The letter didn’t cause any undue alarm at the Schoomaker home; the general was living there at the time. He did notice that the letter spelled his name three different ways.

“If the Chief of Staff of the Army is treated that way,” Schoomaker says, “you can imagine how a private is treated.”

Naturally, it’s all Dick Cheney’s fault.

The agency was born in the push to realize savings in defense spending after the Cold War. To that end, then-Defense Secretary Dick Cheney in 1991 approved a plan to create DFAS by consolidating into one entity some of the overlapping pay and accounting functions that had been performed separately by each of the military services.

But the consolidation wasn’t complete. While the newly created DFAS would handle payroll duties across all branches of the military, personnel responsibilities would remain with each of the services. That decision haunts the Pentagon to this day.

Information handled by the personnel departments of the military branches plays a big part in determining how much a soldier is paid. This information includes promotions, discharges, assignment changes, marriages and divorces.

Congress has made it even more complicated in recent decades by establishing a multitude of pay levels. There is basic pay, plus “entitlements” for everything from serving in a combat zone to housing allowances to re-enlistment bonuses. An individual’s pay can change several times in a day.

I’m not sure what Reuters is talking about here; those entitlements in bonuses existed when I served from 1988-1992.  Hell, they existed when my father served from 1962-1983.

Regardless, it gets better. Or, should I say, worse:

DFAS, for its part, inherited a pay operation that even at the time was an antique – a 20-year-old Air Force system that DFAS renamed the Defense Joint Military Pay System, or DJMS. It ran, and still runs, on Cobol, a computer language that dates to 1959. Most of the Cobol code the Pentagon uses for payroll and accounting was written in the 1960s, according to 2006 congressional testimony by Zack Gaddy, director of DFAS from May 2004 to September 2008.

Wallace, the Army assistant deputy chief of staff, says the system has “seven million lines of Cobol code that hasn’t been updated” in more than a dozen years, and significant parts of the code have been “corrupted.” The older it gets, the harder it is to maintain. As DFAS itself said: “As time passes, the pool of Cobol expertise dwindles.”

Further, the system is nearly impossible to update because the documentation for it – explaining how it was built, what was in it, and how it works – disappeared long ago, according to Kevin McGraw. He retired recently after working 30 years in DFAS’s Cleveland office, most of that time responsible for maintaining the part of DJMS that handles Navy pay. “It’s hard to make a change to a program if you don’t know what’s in there,” McGraw says.

Most of the personnel systems that each of the military services operates are just as old and obsolete. Typically, within each branch, different systems handle different categories of active-duty soldiers, while still others handle Reserve and National Guard personnel. Most of these systems can’t talk to each other. And each has its own pipeline into DFAS, with its own way of translating data into a form that DFAS can use in its separate systems for active-duty and for Reserve and Guard personnel.

So, quite literally, the Pentagon’s payroll system is based on technology that predates the personal computer. Steve Wozniak was 7 when Cobol debuted. Steve Jobs was still in diapers.

But, again, while the problem is growing, it’s not a new revelation.

In 1996, Defense Secretary William Perry and his staff were sufficiently alarmed to ask the Defense Science Board – a group of corporate executives and senior military personnel that advises the Pentagon on technology – to study the problem and offer ideas for fixes.

The board was unsparing in its criticism. The pay system was “obsolete,” it said in its report. It concluded that dysfunctions of the system “damage the morale and welfare of the Service members and their families.”

The board’s recommendation: Scrap the current system. The Pentagon should emulate big corporations and implement a “single, all-Service and all-component, fully integrated personnel and pay system, with common core software.”

Thus was born the Defense Integrated Military Human Resources System, or DIMHRS (pronounced DIME-ers). Under the plan, the Defense Department would buy a commercial, off-the-shelf personnel system and install it with minimal modifications. It chose a product from PeopleSoft, the big human-resources and managerial software maker, since acquired by Oracle Corp.

Under this system, when a soldier’s status changed, his or her pay and benefits would be updated with a few keystrokes. Soldiers would be able to change certain information – applying for additional pay after getting married, for example. And DIMHRS would combine the separate systems for active-duty and Reserve personnel.

The Pentagon told Congress in 1997 that the new system would cost $577 million. That was cheap, given the savings that would result from eliminating 88 pay and personnel systems, the secretary of defense’s office said at the time. It would be phased in quickly, beginning with the Army in 2004.

Soon after development got under way, delays began to mount, and costs began to rise. Staff in the individual services insisted on changes to accommodate their particular needs. They wanted DIMHRS to be grafted on top of existing systems. Months stretched into years. The services were insisting on “15,000 requirements, and they were adding requirements when I left in 2009,” says Nelson Ford, former undersecretary of the Army. “I concluded that DIMHRS was not going to work.”

Tina Jonas, the Pentagon’s chief financial officer from 2004 to 2008, and other officials overseeing the project say it wasn’t a priority among top brass, who left implementation to lower-level managers, rarely checking in on progress.

In early 2009, the system was still undergoing testing. Deputy Secretary of Defense Gordon England, about to leave office as the new Obama administration was settling in, wanted to make a final decision on whether to continue spending money to impose DIMHRS on a reluctant bureaucracy, or kill it.

At a meeting Jan. 14, 2009, England gathered together the secretaries of the Army, Navy and Air Force and their top-ranking generals and admirals, along with DIMHRS personnel, to discuss the issue. The consensus, according to participants, was that the only way to make it work would be to pull a four-star general from the wars in Iraq and Afghanistan to manage what they saw as a bookkeeping project.

England pulled the plug. After more than a decade of development and more than $1 billion of taxpayer money spent, DIMHRS was dead. England and the military leaders agreed to let each of the military services pick from the remains of the project to update their own, separate systems.

So, a dozen years and a billion dollars and they couldn’t figure out a payroll system? Why?

England, now president of defense consulting firm E6 Partners, says he has come to believe that DIMHRS was doomed from the start: “The payroll systems in DOD are hugely complex.”

Maybe DoD should buy a copy of QuickBooks.