Organization for Financial Management


After years of working in the financial management structure, I was prompted by this monograph to review how certain elements of the Defense Department are organized and how the structure affects management. Students of organizational theory and behavior can find a plethora of potential subject areas if they were to examine the federal government. This is not to ignore the many fine Presidential commissions such as the Hoover Commission. Implementation of the latter's recommendations are with us today and will likely remain. However, an entity as large as the federal government is too dynamic not to warrant periodic review. One of the latest groups at the time of writing-the Presidential Advisory Council on Executive Organization or the Ash Commission, headed by Mr. Roy L. Ash, President of Litton Industries in 1972—again recognized the need for reassessment and restructuring. A Presidential commission more closely identified with the Armed Forces was President Nixon's Blue Ribbon Defense Panel chaired by Mr. Gilbert W. Fitzhugh, Board Chairman of the Metropolitan Life Insurance Company. This panel made over one hundred recommendations relating to the Defense Department's organization and functioning in 1970.

The Army has also made in-house studies which have resulted in improved organization. For example, in 1970, based on the findings of an ad hoc committee on Army financial management, the Assistant Vice Chief of Staff was designated the Director of Army Programs. The change was instituted to improve the programing [sic] and budgeting procedures and provide a more integrated, systems approach. Many citizens and even individuals within the government do not appreciate the awesome size of the government. The Defense Department, with an annual $70 billion budget for the last several years, ranks far ahead of the largest companies in Fortune's "Directory of the 500 Largest Industrial Corporations." The Army would place about fourth on the list based on its operation and maintenance appropriation alone, ignoring all the other appropriations such as the funds for the procurement of equipment and missiles or for military construction. The amount spent for Southeast Asia in the


1969 fiscal year would rank about fourteenth. These rankings were based on a comparison with the total sales of the various companies on Fortune's list. A total-asset comparison would be even more one-sided in favor of the government. Am organization this large is worthy of review. Some of the structure has been explained in discussions of the various functions such as budgeting and accounting; however, the focal point in this chapter is the organization per se.

Basic Design

The basic framework for financial management as well as for most facets of national security is depicted in Chart 11. Detail is omitted in some cases when focus on financial management is not sharp. It can be seen immediately that the framework is multi-layered and there are many off-shoots or spurs. Contrast this chart with Chart 12 which shows the influence network in which the Department of Army operates. Together the two charts depict a frenetic atmosphere where there is much co-ordination required, and backtracking and retracing of actions abounds.

Organizations usually evolve without central planning or control and often are not as efficient as if they were redesigned at each stage of development of the activity itself. This is especially true of the government as new responsibilities are added and new requirements are absorbed. This is manifested by legislation that established the Transportation Department. Responsibilities were fragmented and so diverse that a major realignment was required. As expected, power groups prevailed and not all agencies having responsibilities in the transportation area relinquished their functions. Thus it can be seen that even when the need for realignment is identified, attainment of a more efficacious system is difficult.

The Defense Department organization reflects the needs of tactical command and administrative control. For example, the unified commands are most useful when organizing for combat or maintaining a deterrent force where representation from two or more forces is necessary such as in the Pacific Command. This tactical solution creates nightmares for the administrators. Each service has separate logistical and administrative systems which do not interface with the other services easily. The handling of the exchange of assets and the problems of mutual support create numerous hassles and increase the administrative overhead. The traumatic experiences reflected in Chapter IV bear witness to this. The Defense Department situation is not unlike any textbook con-



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flict between staff and line officials. There is no way to avoid the inevitable conflict and dichotomy of needs, but there must be emphasis on minimizing the differences.

The multi-layers of organization and the dual requirements for structuring combine with the influence of special groups to provide a formidable environment for management. The Army is not unique in having to wrestle with numerous special interest and power groups. Industry often has this problem. What does make the Army different is its place in American society and its role as public servant. . This limits the action the Army can use in countering pressure groups and magnifies the numbers of laws and regulations designed to keep the armed forces impartial.

Management of a War

With the foregoing as a background, it would be appropriate to discuss the organization's impact on Vietnam. Before the buildup and the transition to Military Assistance Service Funded, the management of the war followed the normal channels of the Military Assistance Advisory Group. The assistance group in Vietnam submitted requirements through the Pacific Command because it was an advisory element and all services were represented. As depicted in Chart 12, the Army was responsible for supporting its own element and providing the necessary resources. These requirements were merged at the Department of Army after traveling the separate channels of communication. Designation of the assistance group as Military Assistance Command, Vietnam, and the activation of large field commands such as the U.S. Army, Vietnam, the 1st Logistical Command, and the III Marine Amphibious Force changed the complexion of the structure. The joint channel of command was emphasized although the Army element was involved with sending information and requests through the U.S. Army, Pacific. Actually, the latter was more of a figurehead because of the nature of the U.S. involvement. Thus, requirements were not always anticipated at the Department of Army and often the password was react instead of act. The Executive Department played a more direct role in establishing requirements and providing policy, thus further subjugating the Army's prerogatives. What had been an orderly dual track flow of information soon became a one-track with emphasis on flow from top to bottom.

Perhaps one shortcoming to the emphasis on the joint channel of command was the supporting comptroller organization. Because in the Military Assistance Command, Vietnam, the comptroller was not a general officer, his role as a financial manager was diminished


and his influence on the staff reduced. Many problems were passed to the U.S. Army, Vietnam, for resolution when they could have been handled in the Military Assistance Command, Vietnam, which perhaps could have forced all the services to an agreement. Lack of a strong financial organization at the bottom further forced impetus to originate at the top echelons of the defense hierarchy.

The peacetime procedure was bureaucratic enough but operated because there was time to make the system work. The exigencies of a combat environment, especially one directed from the highest levels of government, left little or no time for making the system work. Emphasis was rightly on making the correct move from a tactical standpoint with financial management being a tangential issue. The stress affected the American economy from a macro point of view, and perhaps finances were de-emphasized too much. At any rate, the military organization pushed aside financial considerations, and the tactical and logistical planners and operators assumed full direction of the daily operation.

Thus as anticipated, the Army's raison d'etre became the consumer of all its attention and the administrative resources languished. The Army needs a financial management structure to help conserve limited national resources and to effectively utilize those assets made available. The requirement for the structure during a time of combat involves national priorities and an ordering of objectives. It has been advocated that less money and manpower would have been consumed had financial management been a more integral part of the decision process. The type of war and the stages of escalation mitigated against financial management. The stress was on a quick military victory at any price. Not many people saw such a long-term, escalatory involvement. Also, the rest of the Army was not at war. Many installations and activities of the Army were needed as a deterrent against aggression from other areas and for the normal housekeeping activities of a large armed force. Thus, we had two systems operating simultaneously, each competing for resources and attention.

Within the Department of the Army there is overlap and often a fine delineation of duties. The Comptroller of the Army has the responsibility for budgeting but must rely on the program managers. There is designed into the system a balance of power and a need for co-ordinated effort. For example, the Department of Army prepares the plans and programs which consume many of the Army operation and maintenance dollars which the comptroller has worked so strenuously to obtain through the budget process. The costs of this type of organization are often expensive, especially during a time


of crisis. Some of the problems are: overlapping responsibilities; organizational conflict; excessive time required to process actions; failure to act when responsibilities are unclear; and duplication of effort.

Even within the financial channels there are numerous layers, and our research has shown some overlap. Chart 13 highlights the financial channel from the Department of Army to Congress. The reader of the chart must not forget that there are financial staffs at all levels of the Army, and that some are filled with personnel lacking the proper training and experience. The chart shows only the financial channels and ignores all the other organizational elements which are a strong influence on the process. Each block represents within itself a myriad of responsibilities and a separate organizational entity. Granted that some elements are larger than others, each does add to the bureaucratic process and at times inhibits fast action. Within Congress there is much organization and the numerous committees which have a say on the budget consume reams of paper for printing concerning the Army operation and maintenance appropriations alone. Perhaps it is time again to re-examine and possibly streamline our financial management process.

New Horizons for Financial Management

The computer opens new frontiers for financial management and makes available vast amounts of organized data in a decision-making format. There are numerous systems being designed and proliferated which will in time make decision-making easier.

Until the marvels of the electronic age are assimilated, improvements must be made. Increased centralization and the elimination of intermediate financial managers would increase the rate at which information moves. The danger is too large of an organization at the central point. This can be contained with proper planning and the use of systems analysis techniques during the organizational design phase.

Consolidation and reduction at the top levels is also possible. As mentioned earlier, organizations often grow unchecked and without purposeful planning. Thus, it is no indictment of anyone when a suggestion is made to periodically review an organization. A thorough management analysis of the Comptroller of the Army organization would probably identify areas for improvement and reorganization. The interface between the various levels depicted in Chart 13 warrants examination. There may be unnecessary

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overlap and the repeating of requirements or functions that are similar in scope and content.

Within the Department of Army staff there is overlap and the need to reassess responsibilities. The relationship between the Comptroller of the Army and the other major staff elements needs to be studied. Also, the interface among the other staff elements warrants re-evaluation in the area of financial management responsibilities. The "Report of the Special Review Panel on Department of the Organization" released in 1971 is a good starting point. While the Special Review Panel analyzed the Department of the Army staff and selected major commands, the review proposed in 1972 would focus on the financial management organization.

In organizing for a war, especially the limited type such as Vietnam, our organizational design requires rethinking. We tried to manage from within a peacetime financial organization. Perhaps what was needed and may be suitable for future conflicts is a special purpose organization. In academic jargon "matrix management" is in vogue. Matrix management is the administrative equivalent of the tactical task force. A separate activity would be established at the Department of the Army to administer the financial aspects of the war much as the Centralized Financial Management Agency handles the accounting mission. The special activity would have a counterpart activity in the theater or outside the theater, such as the centralized agency. All intermediate commands would be eliminated to expedite information flow and to avoid the pyramiding of manpower requirements. At the Department of the Army, each interested staff section would be tasked to provide subject area specialists to assist the financial managers. The activity would be a well-rounded and balanced team whose sole mission would be to effectively manage asset acquisitions and utilization. The normal staffs would be unaffected and permitted to conduct their normal operations with minimum interference. Streamlining above the Department of Army staff would also be necessary to increase reaction time and flexibility. Matrix management has been effective in industry as an addition to the normal organization when designed with a limited life for a specific purpose.

Along with special purpose organizations comes the need for supporting table of organization and equipment-type accounting units which can be deployed. The Army had available accounting table of organization and equipment units which could have been used in place of the Centralized Financial Management Agency. When the agency was established, it was an organization using a table of distribution and allowances and staffed mainly with civil-


ians. If the Army had an accounting table of organization and equipment unit available for early activation and deployment, accounting could commence sooner and at less cost using military personnel. Our doctrine on the use of accounting units needs rethinking.

What I have said in this chapter should not be taken as an indictment of the financial management system or its managers. If this monograph is to serve the future, it should serve as a guide to our past and should illuminate the need for change. An organization as large and dynamic as the Army requires re-evaluation. While our experiences are current, the situation should be examined.

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