Opportunities of Using Nonappropriated Funds for more Efficiency

The U.S. Department of Defense (DoD) provides a range of support services to military personnel and their families. While some of these services are funded by congressional appropriations, many others are covered by non-appropriated funds. However, as current defense planning calls for both troop and budget reductions, DoD is seeking synergies to improve support services in order to maintain these services at current levels.

In 2012, a DoD working group identified 15 areas where the NAF could improve, two of which were analyzed by RAND: accounting and personnel compensation. RAND costed the recommendations, detailed potential problems, and determined how best to manage organizational change given potential resistance to the recommendations from staff and management.

RAND performed a cost-benefit analysis, evaluated similar business consolidations in the Department of Defense, and reviewed the literature on change management.

NAF Options

Departments perform NAF accounting functions using a variety of systems and processes that are not interoperable or standardized. The working group identified three concepts of action (COAs) to strengthen the NAF’s accounting capability:

COA 1: Modernize Structure: departments would retain their separate accounting systems and the systems that record departmental and POS transactions in the general ledger, but would adopt the same standardized general ledger (SGL) and move to a cost center structure to improve reporting consistency.

COA 2: Common systems: Departments would opt for standard GLS, cost center structure, basic accounting and entry systems, but maintain separate databases. This option would improve reporting, reduce staff training time, and make greater use of web-based systems to reduce hardware costs and ensure real-time data access.

COA 3: Consolidated Service Center: This option would standardize all accounting, including the LMS, cost center structures, and major financial and accounting information systems. Services would select a single core financial services provider, but without any change in staffing or program ownership.

Major findings

• The U.S. Department of Defense (DoD) working group examined options for consolidating administrative functions with non-congressionally appropriated funds. RAND focused on two areas: accounting and personnel benefits.
• Each military unit performs NAF accounting functions independently. Of the three options developed, the most impactful would be for military authorities to agree on uniform requirements for all accounting functions.
• Most of the recommendations related to personnel compensation procedures focus on improving inter-service cooperation. Few of these recommendations would result in significant budget savings, but other benefits could be achieved.

Business Case

Analysis of the costs of implementing COA 2 or 3 separately, as shown in the table below, indicates significant potential savings. However, they can also be applied sequentially. In this case, the savings per COA would be significantly less because the approximately $100 million in Army personnel savings would be used to replace an obsolete accounting system.

The analysis took into account the costs of developing, implementing, and maintaining the new system, the estimated annual personnel cost savings, and the net savings over the ten years after implementation.

Another management

Change management is complex. Employees are locked into the status quo and may feel that moving to a more integrated system means a loss of autonomy. The MoD needs a well-planned communication campaign to explain the reasons for the change and give all staff the opportunity to participate and voice their concerns. This is essential as the services upgrade existing technology, an investment that will not be easily recouped if a common system is chosen.

Leading the change will require leadership from OSD and the NAF Accounting Task Force (created to implement the Task Force’s recommendations) to secure senior management support, technical and financial resources, develop a detailed plan, and implement the fundamental changes.

More information on the project

One of the resources included in the report is a review of best practices in change management. Although RAND only analyzed two of the 15 areas for improvement identified by the Task Force, the principles of change management can be applied to recommendations from all sectors.

Benefits to NAF staff

Currently, departments administer most employee benefits independently and use different vendors with different contracts. As a result, program implementation, enrollment and eligibility practices, and the benefits employees receive vary.

The Task Force’s recommendations, too numerous to list here, are intended to reduce inaccurate benefit determinations, maximize purchasing power, and harmonize NAF benefits across departments. These include the development of benefit summary forms, integration of payroll systems, and consolidation and standardization of benefits across all units.

Business Vision

The study team divided the recommendations into three categories: cooperation and standardization, implementation and coordination, and IT and systems cooperation. The feasibility study was based on staffing and outsourcing costs (but not hardware and software costs, as it is too early to determine needs).

Unfortunately, few of the recommendations directly reduce personnel costs, but there may be other benefits. First, improved interdepartmental communication can improve the portability of staff benefits. Second, savings can also be realized if each department continues to harmonize benefits management and increase synergies in recruitment.

Change management

To implement the Task Force’s recommendations, successful implementation will require a number of steps. It is important to ensure that change is necessary to gain support and facilitate the design of the plan, as there is no urgent need for overall efficiency across departments. Increasing the similarity of systems can facilitate cross-departmental collaboration and potentially reduce liabilities and system errors that waste staff time.

Developing a change plan, perhaps using industry standards to evaluate different departments and create milestones, is valuable and can help NAF benefit system employees promote the benefits offered.

Change management requires leadership from the distribution network operator to ensure senior management support and commitment, as well as an awareness campaign to engage relevant stakeholders and interested parties. RAND also recommends the creation of a working group to review the recommendations of the task force and plan their implementation to maximize the benefits for all.