DLA Finance efforts keep lights on during federal government shutdown

WASHINGTON, DC, UNITED STATES

12.03.2013

Story by Amanda Neumann 

Defense Logistics Agency   

WASHINGTON - During the 16-day federal government shutdown in October, federal agencies across the nation reduced workloads, furloughed employees and stopped operations altogether. But not the Defense Logistics Agency.

“Ninety-eight percent of the agency’s budget is resourced through the Defense Working Capital Fund, a financing model in which the agency's operating expenses are funded by money made through customer purchases,” DLA Human Resources Director Brad Bunn wrote in an Oct. 1 message to the workforce. “We can therefore continue to operate as long as cash balances are available to pay our daily expenses.”

While the lapse in appropriations did not immediately affect the majority of operations at the agency, in order to continue its mission, DLA leaders had to know where they stood financially, said Tony Poleo, DLA’s chief financial officer.

“The first thing we realized is that we were operating in the blind because [the Department of the] Treasury was furloughed, so we had to lean on our systems for information that we don’t normally do,” he said. “We quickly decided that we needed to understand where we were on a daily basis as far as our cash flow. So we put a basic methodology together: how much on a daily basis was coming in and how much was going out? We built a daily cash flow analysis, not unlike what small businesses do all the time to make sure they can meet payroll and basic expenses as they wait for customers to pay their bills.”

The top priority? Figuring out if the agency could make initial October payroll for its 27,000 employees, Poleo said.

“We went into October in a pretty strong cash position, so we had a lot of cash in our checkbook,” he said. “Although we didn’t get a bank statement [from Treasury] at the end of September, we were pretty confident on where we ended up and used that as a starting point. The first thing we looked at was the size of DLA’s payroll because priority one was enabling the mission. Without people here to conduct the mission, that wasn’t going to happen. So our first priority was to think about the folks.”

Complicating matters was the fact that the agency shares its cash resources with two other agencies, the Defense Finance and Accounting Service and the Defense Information Systems Agency, Poleo said.

“Complicating our situation is the fact that DFAS and DISA are also in our checkbook,” he said. “Between DFAS, DISA and DLA, you’re looking at $15 million a day in payroll. It’s not something we couldn’t manage, but it just added to the complexity because it wasn’t just DLA’s decision-making. By working with them, we made a pretty good estimate about what it would take to meet the first payroll in October and then what it would take to meet a second payroll in October, not knowing at that point how long this situation was going to last. However, we were pretty confident we could meet the first payroll without taking extraordinary actions.”

With the Oct. 17 debt ceiling deadline in mind, Poleo and his DLA Finance team started to prepare for a long-term financial crisis.

“For me, the key date in all this was Oct. 17, because that’s the day we were supposedly going to hit the debt ceiling,” he said. “It became very apparent early in October that the [continuing resolution] itself was really going to be a secondary issue. So we started looking at what it would take to make sure we could get through Oct. 17. When we looked at it that way, we said ok, to protect our workforce, we’re going to have to take some extraordinary actions here, primarily with our vendors.”

Further tightening the agency’s financial belt was the fact that during the shutdown, DLA could only bill other working capital fund customers. Even though the military services had the authority to order from the agency as long as they were appropriated, DLA couldn’t bill them, Poleo said.

“We knew we were going to have reduced collections coming in so we put together a logic that said we’re going to immediately minimize all discretionary costs,” he said. “And we wanted to get aggressive on billing the customers that we could bill, even though it was a smaller subset than normal. Then we had to look at what we needed to do as far as paying our vendors. We took that very seriously because one, we have a commitment with our vendors, we need their support, and two, they expect us to pay them on a timely basis so they can continue to support us.”

By sizing up vendors and missions, Poleo and the finance team came up with a strategy to pay different vendors at different times.

“We put a pretty straightforward strategy into place that said, we are going to continue to pay our small businesses and AbilityOne providers,” he said. “The rationale was that these are the folks that we need support from and they tend to have their own cash flow problems because they’re small businesses. So we wanted to stay on time with them so we didn’t create second or third-order effects.”

Any vendor in direct support of Afghanistan also received special consideration, Poleo said.

“As far as large businesses, we did not want to impair any support of Afghanistan,” he said. “So we went out to our supply chains and identified a list of vendors that were in direct support, every day, of Afghanistan. Some of them work on an arrangement where they use our funding to cash flow their support to us, almost in real-time. So we made an exception for about two dozen large vendors and basically kept paying them on time per the terms of the contract.”

For the remainder of the large vendors, Poleo and his finance team coordinated consistent messaging to go out through the agency’s supply chains, detailing a delay in payments.

“[For those,] we said we’re consciously going to delay their payments,” he said. “We knew we would incur interest. And once we got current, we would pay them anything that the contract calls for. We weren’t about changing contract terms. But we reached out to the vendors to explain the situation, our strategy and the fact that we still needed them, and that we didn’t think this was going to be too long but we had to do it. The initial estimate I put out to them was for 21 days. But at about 12 days, we actually restarted paying large vendors once we had a better feel about where we stood.”

With the signing of the continuing resolution by President Barack Obama on Oct. 17, DLA could finally construct a plan of repayment to all vendors, Poleo said.

“After the CR was signed, we immediately put a plan together, again looking at our daily cash flow analysis, to lay out how we could begin to get current with our vendors,” he said. “And on or about Oct. 28, we became current with all our vendors. Also, we relaxed our cost guidance some and went from an emergency footing back to our previous guidance, but we still watch what we spend at all times because we’re still not out of the woods.”

For Poleo, the government shutdown proved to be quite a challenge for the agency and the Department of Defense.

“The challenge for us was that this was an unprecedented situation,” he said. “In 1995, the rest of the government stayed down longer but DoD was only down for three days, then we got an appropriation. So really, this length of a shutdown for DoD, and particularly us, was really uncharted territory.”

Poleo credits the support of the workforce and senior leadership for helping to weather the uncertainty.

“Fortunately, we never had to get to the point of furloughs,” he said. “It was a great team effort and it took the total agency to get us through this, to reach out to vendors and customers. I think we came up with a pretty solid strategy but the workforce has to make the strategy work or it’s just words on paper. And I’ve never seen the agency so quickly get behind a strategy. You could tell everybody understood we were trading their paycheck for all these other things. Mr. Bunn and I tried to push out very timely information as soon as we knew it was fact but not push out ‘weather forecasts.’ Accurate information is what keeps people calm. So really, I couldn’t be more pleased with the whole agency.”

With the next CR deadline right lurking around the corner on Jan. 15 and a debt ceiling deadline of Feb.7, Poleo said he is optimistic that if the situation occurs again, the agency will be ready.

“My goal right now is to get us back to as strong of a cash position as possible, because there is potential for another shutdown in January,” he said. “I’m paid to be looking forward and planning ahead; that’s my job. So, in case this happens again in January, we can pull all the same triggers and revert to our October plan.

• Date Taken: 12.03.2013
• Date Posted: 12.05.2013 14:41
• Story ID: 117788
• Location: WASHINGTON, DC, US