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ON POINT II: Transition to the New Campaign

The United States Army in Operation IRAQI FREEDOM May 2003-January 2005

Part IV

Sustaining the Campaign

Chapter 12
Logistics and Combat Service Support Operations


Financial Management

Operations in Iraq placed unusual and complex demands on the financial management system, another key component within the Army’s larger CSS system. The extensive use of local, regional, and US-based contractors during OIF added enormous requirements to contracting and disbursing offices. More importantly, the massive economic reconstruction, government, and advisory efforts created unprecedented demands on financial assets in Iraq. The Army’s doctrine divides financial management into two major parts—finance operations, which includes the disbursement of currency to Soldiers and units; and resource management, which includes the advising, policy making, and monitoring processes to track financial operations of a military command.111

Focusing financial assets where they could best be used was not always easy in OIF. Major General David Petraeus, who commanded the 101st ABN in 2003 and then returned to Iraq in 2004 as the commander of Multi-National Security Transition Command–Iraq (MNSTC-I), learned that “money is ammunition” in these types of full-spectrum operations.112 He recalled firing over 110 M39 Army Tactical Missile System missiles, each of which cost $550,000, during the drive to Baghdad between March and April 2003. But in northern Iraq, the 101st ABN was initially unable to spend cash that it captured from the Iraqis or to initiate contracts for small, $10,000 projects without an excessive amount of paperwork and prior approval. Army doctrine and federal law simply did not provide mechanisms for commanders to quickly spend money on other than direct operational needs of their own units.113

After Soldiers in the 3d ID found $700 million (as well as large amounts of Canadian dollars and British pounds) in an abandoned Saddam palace, the cash was taken to Kuwait for counting and storage. As chapter 9 of this study described, Colonel Michael Toner, the CJTF–7 Resource Management Officer (CJ8), was struggling to provide unit commanders with a mechanism to fund small to medium projects in their areas to rebuild parts of the decrepit Iraqi infrastructure. The $700 million in cash was almost manna from heaven. While not taking sole credit for the idea, Toner and the CJTF-7 staff approached the CPA about using the captured cash. CPA had not yet gotten its funding plans or mechanisms in place, and CJTF-7 units were finding a large number of basic needs among the Iraqi population that could be addressed with relatively small funds.114 In late May, during a visit by CPA Chief L. Paul Bremer to northern Iraq, Petraeus also broached the concept of using the captured funds.

Both Petraeus and Toner credit Bremer for breaking this financial logjam with the decision to spend the captured funds in Iraq, and with the creation of the Commander’s Emergency Response Program (CERP). Together these two decisions gave US division and brigade commanders the financial “ammunition” they needed to conduct operations.115 The CERP gave division commanders authority to fund local projects and to supervise those projects without going through the normal peacetime federal funding regulations. When the program began in early June, division commanders were given a $2,500 limit. The program was so successful the CPA expanded in steps so that by December 2003 the limit was $500,000 for division commanders and up to $200,000 for brigade commanders.116

These small projects satisfied immediate needs faced by Coalition units while the CPA focused on national-level priorities. Between May 2003 and January 2004 division and brigade commanders spent just over $126 million under the CERP to conduct small projects in support of operations in their AORs.117 In 2004 and 2005 Congress then provided appropriated funds to the CERP on a regular basis—$140 million for OIF and $40 million for OEF in FY 2004; and $320 million for FY 2005.118 CJTF-7 CJ8 personnel also drew on Iraqi funds later in 2004, once the government began to manage its own budget under the Development Fund for Iraq (DFI) program overseen by the CPA and later by the American Embassy. Colonel Toner recalls ordering and then picking up pallet loads of cash throughout the year, at $160 million per trip.119

Toner and his CJ8 were very concerned about accountability given the huge scope of the program and its decentralized execution. The CJ8 staff began with only 7 people and grew to 22 by December 2003. They oversaw the program while finance units and unit resource management officers administered the funds in the countryside. The Iraqi economy operated strictly on cash, so the potential for loss and theft was very high and records keeping had to be done manually. They needed three separate systems to track the program—one for captured Iraqi cash, one for US appropriated funds provided by Congress, and one for the DFI funds provided by the Iraqi Government.120 US Marine Corps units as well as the British and Polish commanders used the CERP in their division and national sectors. In fact, Toner gives the Polish “budgeteers” of Multi-National Division–Central-South (MND-CS) credit for having the best records keeping system in all of the Coalition.121

The CJTF-7 CJ8 staff used the principles found in the Federal Acquisition Regulations (FAR) to create a two-person system that would satisfy the audits sure to follow. The first person, the field ordering officer (FOO), received training from the few warranted contracting agents in theater and was able to initiate projects and negotiate prices with local Iraqi contractors. Those contracts were then submitted to the local or regional finance unit for review. The second person, the Paying Agent, received training by the local finance unit, drew the actual funds, and paid the contractors when the work was completed. This two-person system lessened the possibility of fraud and met the intent of the far more complex FAR system. By late fall 2003 more contracting officers had arrived in theater to support both the CPA and CJTF-7, so projects costing more than $100,000 had to be managed by a warranted contracting officer.122

No one in CJTF-7 anticipated this requirement or its scope and importance. Toner credits the flexibility of resource management staff officers for the success in creating funding processes that were almost entirely unprecedented: “Overall, on the comptroller side, a lot of us are too focused on garrison. . . . Our job is to do what the commanders need and find a way to support them. We saw some of that, like I said, with CERP. I had several times where people said, ‘No. We can’t do that,’ but we figured out how to do that.”123 Thus, the CERP became one of the most important “weapons” for CJTF-7 units and commanders in OIF.

On the tactical level, finance Soldiers made the programs like CERP work. Major Jeffery Madison’s experience as executive officer for the 8th Finance Battalion, attached to the 1st AD, illustrated the role of unit-level finance personnel during OIF. He and six other members of his team were in the first two segments of 1st AD’s advance parties to land in Kuwait in April 2003. His Soldiers disbursed nearly $200 million in cash—US and Iraqi—during their 15-month tour of duty in Iraq. They were responsible for the one-time stipends paid to Iraqi civil servants by the Office of Reconstruction and Humanitarian Assistance (ORHA) and CPA programs. The Finance Branch Soldiers also oversaw the Brigade Commander’s Discretionary Fund program, and then the CERP.

The 8th Finance Battalion also found itself dusting off the long-forgotten manual on cash payment procedures as they set up systems to pay the Iraqis in the Iraqi Army and ICDC units in their area. By far the largest share of the 8th Finance Battalion’s energy was spent on contract support to commanders, paying for real estate purchases and leases, and securing commercial vendor support for the division’s logistical needs.124 As of 10 April 2004, when 1st AD turned over control of the Baghdad area to the 1st CAV, the division had initiated $65 million of CERP projects. The division’s commanders had spent roughly $45.5 million by that date to complete 3,713 of 3,994 planned projects, with the balance of funds and projects still underway and turned over to their replacements for completion.125

Financial management sometimes proved to be troublesome for commands at the highest levels in OIF during this period. As discussed in chapter 11, Major General Paul Eaton’s ability to construct barracks for the New Iraqi Army was severely restricted in February and March 2003 while the CPA, DOD, and Congress worked out procedures to spend the huge amounts of money authorized in the FY 2004 supplemental spending bill. Perhaps more damaging was that funds in the CERP dwindled to near zero between late 2003 and spring 2004 as the CPA revised the funding sources and approval processes of the program. The efficient and effective use of reconstruction funds in Iraq, a country that lacked a modern banking system and required almost all transactions to be carried out in cash, became a major focus for the DOD and State Department, as well as the US Congress.

Providing pay and allowances to Soldiers mobilized for OIF proved to be a challenge for the DOD and Department of the Army (DA), causing at times great concern and hardship on the part of some members of the Army National Guard and the Army Reserve. The DA used multiple systems to deliver pay and allowances to Soldiers in the three components of the Army. The Army system is part of the massive Defense Finance and Accounting Service (DFAS), which provides pay and other compensation to all of the Services. In FY 2005 DFAS paid 6 million military members, civilian employees, and retirees; processed 14.2 million contractor invoices; made 7.3 million travel payments; disbursed $532 billion; and managed $70.2 billion in military pay funds.126 When National Guard and Reserve Soldiers mobilize for Active Duty, Soldiers’ records pass between multiple state and federal systems generating the potential for problems. Entire units were mobilized for OIF and individual Soldiers were mobilized as augmentees. Each method required its own pay and benefit processes, further complicating the situation.

The Army began receiving complaints soon after 11 September 2001, and they increased significantly as the subsequent mobilization of the National Guard and the Army Reserve began in earnest. Once on Active Duty, National Guard and Reserve Soldiers earn up to 50 different types of pay and allowances that vary based on rank and length of service, family status, specialized skills, and duty location. Getting each Soldier’s status confirmed and their benefits accurately started in a timely manner was complex. Many Soldiers reported multiple problems with their Active Duty pay and allowances once mobilized and long delays in getting them resolved. Congress directed the GAO to examine the problem and it conducted two studies, one focused on the Army National Guard and one on the Army Reserve.

The GAO completed the National Guard study first in March 2003. The study found that almost 95 percent of National Guard Soldiers experienced at least one pay problem. Most were easily and quickly fixed with routine processes. Many problems, however, required multiple attempts to fix and took as long as a year. The GAO concluded:

One of the primary causes for these pay problems is rooted in the complex, cumbersome processes used to pay soldiers from their initial mobilization through active duty deployment to demobilization. While not designed as such, these pay operations have evolved over time to the point that few, if any, in the department [of the Army] fully understand their breadth, scope, and inherent weaknesses.127

In March 2004 the Army created a special ombudsman office within its finance center in Indianapolis to respond to the rising tide of complaints from Army National Guard Soldiers. That office included 21 military and contract specialists who addressed each pay issue.128

By April 2004 the Army reported that it had mobilized almost 96,000 Army Reserve Soldiers since September 2001. Many of these Soldiers were mobilized in small units. Indeed, some 2,800 units had fewer than 10 Soldiers in them. The GAO’s Army Reserve pay study found exactly the same problems it found in its November 2003 report about the National Guard:

The processes and automated systems relied on to provide active duty pays, allowances, and tax benefits to mobilized Army Reserve soldiers are so error-prone, cumbersome, and complex that neither DOD nor, more importantly, Army Reserve soldiers themselves, could be reasonably assured of timely and accurate payments. Weaknesses in these areas resulted in pay problems, including overpayments, and to a lesser extent, late and underpayments, of soldiers’ active duty pays and allowances.129

DFAS responded with a combination of temporary steps and with plans for an overhaul of the entire military pay system, which would require Congressional action as well. In testimony to Congress in July 2004, Patrick Shine, Director of Military and Civilian Pay Services at DFAS, stated, “Within the last 6 months, we have collectively made great strides in improving processes and procedures within the finance community.”130 Shine told Congress that DFAS was preparing to install a temporary pay system called Forward Compatible Payroll to resolve many of the problems caused by the existing system.

Shine also pointed out that a 1996 study called for a single integrated personnel and payroll system to replace the 70 different systems then in use by each of the Services. Known as the Defense Integrated Military Human Resources System (DIMHRS), the initial proposal to begin fielding it was disapproved by DOD in 2001. In 2003, however, Northrop Grumman was awarded the contract to develop the system for fielding in 2006, later delayed to 2008.131 The demands of OEF and OIF required the unprecedented use of Reserve and Guard units and Soldiers making the Total Army concept a reality. In the same way, OEF and OIF had thus served as the catalyst for long sought after changes in the military pay system.

Chapter 12. Logistics and Combat Service Support Operations

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