The Defense Department inspector general is calling into question an Army Materiel Command implementation of a $1.1 billion enterprise resource planning effort known as the Logistics Modernization Program.

LMP is an installation of SAP software by Computer Sciences Corp. (NYSE:CSC), which began work in December 1999. The inspector general says in a report dated Nov. 2 that the system doesn't record financial data at the transaction level, meaning that the Army Working Capital Fund cannot receive an unqualified audit opinion.

Defense Department accounting is notoriously messy, with auditors unable to reconcile DoD or military service financial statements. The department says it can have clean books by 2017, provided that auditing guidelines are modified.

Because the service will have to spend additional money on top of the $1.1 billion it already spent on LMP through fiscal 2009 to be able to capture transactional data, report author Mary Ugone, deputy inspector general for auditing, recommended that the Army suspend further deployment of LMP. It's a recommendation that the Pentagon comptroller and the deputy chief management officer disagreed with and CSC announced on Nov. 3 the third and final phase of LMP implementation.

Ugone also recommended that the Pentagon conduct an analysis of alternatives to determine whether it might be more cost-effective to cancel LMP and look at alternative solutions in order "to obtain DoD compliance with the U.S. Government Standards General Ledger requirements." That's also a recommendation that the comptroller and deputy chief management officer disagreed with.

However, Pentagon officials did say they will ponder the future direction of LMP and issue an acquisition decision memorandum. A September meeting of the DoD investment review board also required the Army to come up with an overall Army ERP strategy by this December, the report states.

LMP should have been designed to capture transactional data, but Army and DoD officials failed to monitor the project closely enough, the report states. The report says that the office of the comptroller and the Business Transformation Agency are responsible for ensuring that new ERP systems are compliant with federal financial management requirements.

BTA officials, however, told auditors that they relied on Army self-assessments, while the comptroller delegated requirements oversight to the Defense Finance and Accounting Service. DFAS officials told auditors that they worked to define LMP requirements, but never checked to see they were implemented.

At no point was LMP subject to an independent assessment to check that LMP complied with financial management requirements, the report states.

Further, the investment review board allowed the Army to deploy LMP without first determining that it complied with financial management standards, the report says.

LMP will be subject to a review by the Office of Management and Budget as part of an evaluation of federal financial management system projects, the report adds.

For more:
- download the report, D-2011-015 (.pdf)

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