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Chaotic accounting systems have caused the military to lose track of more than a million chemical-protection suits -- and that's just the beginning. Why does the country continue to tolerate such disgraceful financial incompetence?
Sep 17, 2002 | Not long before the congressional recess began this August, when D.C. temperatures -- and sometimes tempers -- can rise to unbearable heights, two members of the House Government Reform Committee sent a brief but pointed letter to Defense Secretary Donald Rumsfeld.
"Revelations about corporate misdeeds and accounting irregularities at companies such as Enron and WorldCom are causing enormous public concerns," began Democratic Reps. Henry Waxman of California and Jan Schakowsky of Illinois. "We in government have an obligation to ensure that the government's accounts are honest and the taxpayers' money is not squandered."
At first glance, one might think: wrong address. Rumsfeld is the Pentagon's top warrior, not the White House budget director. But over the past several months, government auditors have been slamming Rumsfeld's agency for its dismal bookkeeping, repeating what by now has become a mantra of modern military spending: The Defense Department lacks "fundamental controls and management oversight" in the way it handles its money.
Since January, the General Accounting Office has released more than a dozen reports depicting the Pentagon as another Enron. They show an operation that fails to keep track of chemical-warfare protection suits and other critical materiel; frequently engages in improper, sometimes illegal, accounting; systematically overpays on contracts; and ignores personnel who run amok with government charge cards to enrich themselves.
In their letter, Waxman and Schakowsky called on the Pentagon's top bureaucrat to "take immediate and decisive action to address the problems of financial mismanagement" throughout the military, a job that would mean putting the government's biggest financial mess in order. Schakowsky later explained in an interview that the letter was primarily a reaction to the charge cards, a case of outright fraud, but its language was broad because the problem far overshadowed the instance at hand.
Over the past several decades -- going back perhaps as far as World War II -- the Pentagon's accounting system has evolved into a bookkeeping knot so rife with contradictions that it is virtually impossible to untangle. Recently, Rumsfeld noted that Pentagon accountants were unable to track an estimated $2.3 trillion in financial transactions for a single year's audit. According to one government study, the Defense Department on average does not know what happens to roughly 30 percent of what it spends.
The breakdown these numbers represent may be even larger than it seems -- if that can be imagined. They raise the question, How can the government truly calculate the amount of money it cannot track? The answer, according to numerous defense-spending analysts, is that it simply can't. At best, such figures are hazy assessments, uncertain clues to a problem so awesome in scale and complexity that it exists beyond the bounds of measurability.
"What is most disturbing to me is that, in program after program, [the Pentagon's] management procedures are so garbled that the General Accounting Office cannot even estimate -- cannot even estimate -- the level of inefficiency," Sen. Robert Byrd, D-W.Va., said in an address to the Senate last June. "This is a critical knowledge gap when one considers the fact that the Defense Department accounts for about 15 percent of the entire federal budget, and roughly half of all discretionary spending."
It is also a critical knowledge gap when one considers that this autumn, Congress is sure to add approximately $48 billion to the defense budget, bringing the Pentagon's total funding for 2003 to roughly $400 billion, roughly 6 percent more than the average yearly Cold War military spending.
In the peculiar political climate that the Sept. 11 attacks have brought to Washington, pouring more money into an institution bereft of accountability and riddled with financial leaks may have some political value. "Questioning spending, questioning the prosecution of the war on terrorism, has been viewed as politically dangerous in every way," Schakowsky said. But, she pointed out, these are also "times that require us to be especially careful and transparent and judicious about how we spend every dollar."
Retired vice admiral Jack Shanahan, a longtime advocate of military reform, told Salon that in his estimation the Pentagon was easily hemorrhaging $48 billion a year, if not more, in "loose change" -- money lost to waste, fraud and inefficient bookkeeping. (Secretary Rumsfeld's estimates are more conservative, at about $18 billion.) Byrd has framed the problem differently: "If the Department of Defense does not know what it has in terms of assets and liabilities, how on earth can it know what it needs?"
With Washington's worldwide campaign against al-Qaida underway, and possible military engagement with Iraq on the immediate horizon, the need for keeping the Pentagon's books straight is arguably as vital as it has ever been. And yet, the military is still mired in more than 1,100 different financial management systems, hundreds of thousands of accounts, and a 40-year-old, error-prone system that processes the majority of its transactions.
Gregory D. Kutz, the director of financial management and assurance at GAO, says that the Defense Department's bookkeeping is in such shambles that its own comptroller is unable to access 80 percent of the "financial data needed to support the day-to-day management decision making." The department has never passed a financial audit -- which some scholars argue it is mandated to do not only by statutory law but also by the Constitution. In essence, the Pentagon makes Enron, WorldCom and Global Crossing look like small-time operators.
