An agency of the U.S Department of Defense, the Defense Finance and Accounting Service (DFAS) is responsible for administering finance and accounting services for the military and other members of Defense. The agency provides services primarily for (military) service men and women, or “warfighters”—including processing military, civilian, retiree, travel and contract/vendor pay, and managing military health care and benefits. DFAS also provides accounting for the Department itself (e.g., of appropriations).
The Defense Finance and Accounting Service (DFAS) was created by the Secretary of Defense in 1991 in an effort to streamline, cut costs and improve quality in Department of Defense finance and accounting operations through consolidation and standardization of procedures. In May 1994, after several false starts, the DoD announced that the DFAS would begin consolidating its finance and accounting infrastructure in fiscal year 1995, and was successful in consolidating more than 300 installation-level finance and accounting offices into 26, and reducing a workforce of 27,000 to 16,000 personnel.
The agency is customer-financed (working capital fund agency financed by reimbursement of operating costs from its governmental customers—mostly the military service departments) rather than funded through direct Senate appropriations.
Base Closure and Realignment Commission (BRAC) reorganizations, especially those done in 2005, have had a dramatic effect on the DFAS, eliminating the majority of small sites in a major consolidation effort. See Controversy Section.
The world’s largest finance and accounting operation, the Defense Finance and Accounting Service (DFAS) supports the OUSD(C)—the principal adviser to the Secretary of Defense for budgetary and fiscal matters. The agency is responsible for coordination and collaboration with all civilian defense agencies, the military services and “combatant commands that provide warfighting capabilities for America's defense.”
The agency is responsible for all DoD payment operations, maintains the records of all those compensated for military service, and administers services such as wage garnishment—often as a means of paying child support.
In FY 2011, the DFAS processed 171.7 million pay transactions pertaining to 6.6 million individuals and accounts. It made 7.7 million travel payments, paid 11.8 million commercial invoices, maintained 264.1 million general ledger accounts, managed $559.4 billion in military retirement and health benefits funds, made $608 billion in disbursements to pay recipients, managed $30.7 billion in foreign military sales (reimbursed by foreign governments), and accounted for 1,165 active DoD appropriations.
External Analysis of DFAS Operations
DFAS in the News/Additional Articles/Info
No Security Clearance May Equal No Job (FedSmith)
The case of the missing Bush documents: Records covering the president's crucial missing months in the Texas Air National Guard were "accidentally" destroyed. But he could still clear his name if he chose to. (by James C. Moore, Salon)
Defense Says Bye Bye to EDI (by Bob Brewin, Government Executive)
From the Web Site of the Defense Finance and Accounting Service
The Defense Finance and Accounting Service (DFAS) spent nearly $182 million on 382 contractor transactions between FY 2002 and FY 2012, according to USASpending.gov. The top five types of services paid for by the agency were management and support ($125,157,686), accounting ($21,503,833), gas ($12,906,704), electric power generation ($6,507,117), and management accounting support ($5,344,024).
The top five contractors who were the recipients of the greatest amount of spending by the agency were:
1. Bearingpoint, Inc. $59,856,358
2. Deloitte LLP $39,621,170
3. K Force Inc. $26,832,864
4. IBM Corporation $24,347,476
5. WGL Holdings Inc. $9,500,000
Scammers Attack Military Personnel Via Bogus Emails
The Defense Finance and Accounting Service (DFAS) sent out warnings in 2012 about email scams targeting military members, retirees and civilian employees.
One email scam tried to lure veterans into sharing income tax information, with the promise of receiving additional refunds from the Internal Revenue Service.
The scammers used “spoofed” DFAS email addresses to make recipients think the communications were legitimate.
To counteract the threat, DFAS developed pages on its website to highlight the official email policy, examples of scam emails (including one from the “Us Army Marriage Department” and another from the “Us Army Vacation office”) and contact information for law enforcement agencies.
DFAS Warns Service Members of Scam Emails (Cyber War Zone)
Pentagon Warns Against Bogus E-Mails (by Joe Davidson, Washington Post)
Firing Employees with Credit Problems
Rarely in the news, the DFAS garnered headlines in March 2010 when a union official complained about workers getting fired for failing credit checks.
Labor representative Troy Marshall drew attention to security clearance rules that had resulted in 20 terminations, with another 47 pending at the time. He said the rules were unfair because the employees didn’t handle classified information and were struggling to pay off debts, such as credit card and hospital bills, during the recession.
After hearing the news, local Congressman Dennis Kucinich (D-Ohio) blasted the DFAS for the firings. “This thing is nonsense because you can’t punish people for having bad credit,” Kucinich said. “DFAS is being very tough on their humble employees while at the same time the people on Wall Street who committed financial misdeeds […] are getting bonuses.”
The DFAS decided a week later to suspend the policy while it reviewed the terminations.
Workers Who Help Process Obama's Paycheck Face Termination (by Dalia Fahmy, ABC News)
DFAS Workers Who Were Slated To Lose Jobs Because of Credit Problems Get a Reprieve (by Sabrina Eaton, The Plain Dealer)
Some DFAS Workers To Be Paid While Credit-Related Firings Are Weighed (by Sabrina Eaton, The Plain Dealer)
67 Defense Finance Workers To Lose Jobs Over Personal Debt; Dennis Kucinich, Steve Latourette Object (by Pat Galbincea, The Plain Dealer)
Fudge And Kucinich Defend Terminated DFAS Workers (by James W. Wade III, Call & Post)
DFAS Drops Lockheed
The DFAS decided in April 2009 to not renew a contract with Lockheed Martin to process pay for military retirees, citing problems with the defense company’s past work.
Lockheed had been accused of delaying payments to veterans, mishandling their cases, and charging the government too much for the work.
The DFAS planned to give the work to government employees in Cleveland, a move that was projected to save the Defense Department $20 million over 10 years.
A few months later, a report from the Pentagon’s inspector general called for Lockheed to reimburse the DFAS more than $700,000 for doing a lousy job in processing pay and annuities for military retirees.
Defense Finance and Accounting Service Should Get Refund from Contractor, Report Says (by Sabrina Eaton, The Plain Dealer)
Defense Finance and Accounting Service Dropping Contractor, Will Do Work Itself (by Martha Mueller Neff, The Plain Dealer)
DFAS Misses Deadline on V.A. Retro Pay Program
The DFAS spent three years trying and failing to get a program created to issue back pay to injured veterans up to date.
The VA Retro Pay program was launched in 2006, and two years later, the DFAS missed a self-imposed deadline to complete the work for some 133,000 disabled retirees. By 2009, it still hadn’t finished, leaving 39,000 veterans out in the cold.
Payments ranged from hundreds to thousands of dollars for recipients with disabilities who served in the military for 20 or more years.
VA Retro Pay: A Vow To Improve After Botched Deadline (by Tom Philpott, Veterans Today)
Military Update: DFAS: Error Left Thousands of Military Retirees Out of Retro Pay (by Tom Philpott, Stars and Stripes)
DFAS Reports Trillions Missing at the Pentagon
Jim Minnery, an accountant with the DFAS, spent most of the last decade trying to figure out how the Department of Defense lost sight of $2.3 trillion in taxpayer dollars.
Minnery first discovered things weren’t right in the late 1990s, and by 2009, he and DFAS still could not locate where the money went. His investigating got him into trouble with supervisors, resulting in harassment and being reassigned.
A former Marine turned whistleblower, Minnery checked records across the country, while his bosses expressed little care for the problem, he said.
“The director looked at me and said, ‘Why do you care about this stuff?’ It took me aback, you know? My supervisor asking me why I care about doing a good job,” Minnery told CBS Evening News in 2009.
He accused defense officials of covering up the mess: “That’s where the corruption comes in. They have to cover up the fact that they can’t do the job.”
Department of Defense's Unending Nightmare: Pass an Audit by 2017? (by Dina Rasor, Truthout)
The War on Waste (by Aleen Sirgany, CBS Evening News)
Civilian Employees Charged for Serving
Some federal civilian employees who also served in the Reserves and National Guard may have been wrongly charged leave while performing annual training or serving on active duty. The Butterbaugh decision (as well as some related cases) could restore leave for affected persons. The decision and administrative claims procedures are detailed in the link below.
Butterbaugh v. Department of Justice (Opinion, U.S. Federal Court of Appeals)
Delayed Reimbursement for National Guard and Reservists
“WASHINGTON - Some National Guard and Reservists mobilized for the War on Terror (search) have waited months, even years, to get reimbursed for their travel and meal expenses, they say, costing thousands of dollars in out-of-pocket costs and forcing many to be delinquent in paying other bills on time…”
Guardsmen, Reservists Foot Own War Expenses (by Kelley Beaucar Vlahos, Fox News)
An investigative report by the DoD Inspector General (IG) on the public-private competition for the DFAS military retired and annuitant pay functions revealed that a contract with a potential 10-year value of $346 million was awarded to a contractor rather than the lower in-house bid because of a $31.8 million error—an error first made by another contractor hired by the DFAS to conduct the competition.
DoD IG Blows Whistle on yet Another Defense Contracting Scandal (American Federation of Government Employees Press Release)
The Base Closure and Realignment Commission (BRAC) is a U.S. federal effort aimed at streamlining and cost-cutting in armed forces operations and administration. More than 350 installations have been closed in five BRAC rounds (1989, 1991, 1993, 1995 and 2005). BRAC has completely restructured the DFAS, integrating smaller sites into major centers. The most recent cuts in 2005 have reduced U.S. sites to Cleveland, Columbus, Indianapolis, Limestone (Maine), Rome (New York), and a liaison office at Fort Belvoir (Virginia). Charleston, Dayton, Lawton-Fort Sill, Lexington, Norfolk, Omaha, Oakland, Orlando, Pearl Harbor, St. Louis, San Antonio, San Bernardino, San Diego, and Seaside have all been closed down.
1,000 jobs saved (by Stephen Koff, Michael Sangiacomo and Emily Hamlin, Cleveland Plain Dealer)
More Controls over Contractor Debt
The Department of Defense’s inspector general called for changes at the Defense Finance and Accounting Service (DFAS) in 2011 after finding the agency did not properly collect debts owed by defense contractors.
The DFAS allowed delinquent companies to avoid paying as much as $209 million owed the government, according to a bipartisan group of lawmakers who also called for reforms after the reading the report (“Defense Finance and Accounting Service Needs More Effective Controls Over Managing Contractor Debt”).
The inspector general (IG) found that DFAS management lacked “controls for recording contractor identification information and did not have effective controls for tracking contractor debts.”
It was recommend that DFAS improve management controls to ensure completeness and accuracy of data concerning contractor data. Specifically, the IG said the agency should revise procedures to require the recording of valid tax identification numbers and codes.
DFAS Needs More Effective Controls Over Managing DoD Contractor Debt (Department of Defense, Inspector General) (pdf)
Pentagon Faulted for Not Collecting Contractor Debts (by Charles S. Clark, Government Executive)
“Transformation is a principal theme of the September 30, 2001, Quadrennial Defense Review (QDR) Report (pdf) and is at the heart of the new strategic approach embraced by the Department of Defense. The QDR notes that among the areas needing transformation: ‘DoD’s financial systems are decades old and not well interconnected, and accounting and auditing processes would struggle to meet the standards of generally accepted accounting principles.’ As a follow-up to the QDR, the FY 2003-2007 Defense Planning Guidance (DPG) continues developing the theme of transformation. In particular, the DPG tasked the Defense Agencies to prepare Transformation Roadmaps by June 2002 for review by the Secretary of Defense. In response, DFAS established a Transformation Working Group to develop an initial strategy for DFAS transformation. The strategy provides a foundation upon which to build a financial services operation that addresses existing financial management deficiencies by enhancing and streamlining government processes, consolidating operations, and leveraging to the greatest extent possible private sector expertise and innovation. The roadmap was a first step in defining the challenges and the general approach DFAS will pursue in the transformation process, it was not meant to describe the DFAS vision for transformation in full or to detail an implementation approach and transformation schedule. Before proceeding to the next phase of transformation planning and broader involvement by DFAS personnel in transformation activities, an understanding of our strategic approach to transformation is essential. This Transformation Strategy (or roadmap) describes our approach…”
On DoD consolidations and reform, including early NFAS:
GAO sees reductions in Pentagon mispayments (by Chris Hellman, Weekly Defense Monitor)
Teresa “Terri” McKay has served as director of the Defense Finance and Accounting Service (DFAS) in the Department of Defense since September 15, 2008. In this capacity, she oversees the Pentagon’s day-to-day accounting and finance activities, including processing military, civilian, retiree, travel and contract/vendor pay, and managing military health care and benefits.
Zack E. Gaddy is a graduate of Old Dominion University and has a master's degree from Boston University. He is a certified public accountant and a certified government financial manager.