Reuters (8/19/16) had one of the few media reports on the Pentagon’s mammoth accounting errors.
In 2014, the New York Times (10/12/14) ran a major investigative piece by reporter James Risen about several billion dollars gone missing, part of a shipment of pallets of $12 billion–$14 billion in C-notes that had been flown from the Federal Reserve into Iraq over a period of a year and a half in an effort to kickstart the Iraqi economy following the 2003 US invasion. Risen reported that about $1.5 billion of the cash, somehow stolen, had been discovered in a bunker in Lebanon by a special inspector general appointed to investigate corruption in the US occupation of Iraq. The article got front-page play.
Earlier that same year, the Washington Post (4/7/14) ran a story reporting the US State Department inspector general’s finding that during Hillary Clinton’s years as secretary, the State Department had lost records for or misreported some $6 billion in government contracts. (State claimed the money was not lost, just not accounted for.)
These stories are basic Journalism 101, the kind of bread-and-butter reporting on government that one expects from a major news organization. So how to explain that neither of these prestigious and influential newspapers—or practically any of the corporate media in the US, for that matter—bothered to mention it when the Pentagon’s inspector general this year issued a report blasting the US Army for misreporting $6.5 trillion (that’s not a typo; it’s trillion with a T) as its spending total for the 2015 fiscal year.
Now, clearly that number cannot be correct, since the entire Pentagon budget for 2015 was a little over $600 billion, or less than 10 percent of what the Army was saying it had spent.
Even if this were just an outrageous accounting error, it would certainly seem to merit a news article. But the IG’s office did not see it as a laughing matter. The 63-page report, released July 26 at the direction of Principal Deputy Inspector General Glenn A. Fine (the last IG left office in January and hasn’t been replaced), concludes:
The Office of the Assistant Secretary of the Army (Financial Management & Comptroller) (OASA[FM&C]) and the Defense Finance and Accounting Service Indianapolis (DFAS Indianapolis) did not adequately support $6.5 trillion in year-end JV adjustments made to AGF data during FY 2015 financial statement compilation. The unsupported JV adjustments occurred because OASA(FM&C) and DFAS Indianapolis did not prioritize correcting the system deficiencies that caused errors resulting in JV adjustments, and did not provide sufficient guidance for supporting system‑generated adjustments.
In addition, DFAS Indianapolis did not document or support why the Defense Departmental Reporting System‑Budgetary (DDRS-B), a budgetary reporting system, removed at least 16,513 of 1.3 million records during third quarter FY 2015. This occurred because DFAS Indianapolis did not have detailed documentation describing the DDRS-B import process or have accurate or complete system reports.
As a result, the data used to prepare the FY 2015 AGF third quarter and year-end financial statements were unreliable and lacked an adequate audit trail. Furthermore, DoD and Army managers could not rely on the data in their accounting systems when making management and resource decisions.
There’s a lot of jargon and a lot of use of DOD acronyms in there, but the key point that makes this story newsworthy is the last sentence (as well as the alarming bit about 16,500 missing records). If the Army is making up numbers—and that’s exactly what “unsupported adjustments” means to an accountant—then nobody, not a reporter, not a congressional oversight committee, not even an inspector general, can tell what allocated funds are actually being spent on, where the money really went, whether programs are cost-effective, or even whether funds were misused or stolen. And we’re talking about the single biggest department in the US government, which accounts for more than one-half of all discretionary federal spending each year.
When I called the Pentagon’s public affairs office for a response to the IG’s report, it was a week in coming. Finally Bridget Serchak, chief of public affairs for the DOD Office of Inspector General, emailed me this:
For clarification, these numbers reflect changes made in Fiscal Year 2015…. These adjustments do not adjust the budget amount for the Army. The dollar amounts are possible because adjustments are made to the Army General Fund financial statement data throughout the compilation process for various reasons such as correcting errors, reclassifying amounts and reconciling balances between systems. The general ledger data that posts to a financial statement line can be adjusted for more than the actual reported value of the line. For example, there was a net unsupported adjustment of $99.8 billion made to the $0.2 billion balance reported for Accounts Receivable.
Remember, this is just a report on the Army’s budget. It turns out that the same kind of indecipherable, fantastical and unauditable accounting is being done by the Navy, the Air Force and the Marines.
One news outfit that did report on this scandal is Reuters. Journalist Scot J. Paltrow first reported on the DOD’s doctored ledgers and inscrutable accounting in 2013 in a series of stories that culminated in an article published on November 18, 2013, headlined “Special Report: The Pentagon’s Doctored Ledgers Conceal Epic Waste.”
Paltrow also wrote a report on the latest IG’s report, published by Reuters on August 19, headlined “US Army Fudged Its Cccounts by Trillions of Dollars, Auditor Finds.”
Where the rest of the media took no notice of the Pentagon IG’s scathing report, preferring to focus instead on the report of another IG over at the State Department who had investigated Democratic presidential candidate and former Secretary of State Hillary Clinton’s improper and illegal use of a private server in her home to handle her official State Department business, Paltrow homed in on the reason this is a big story. He went to a major Defense Department critic to explain:
“Where is the money going? Nobody knows,” said Franklin Spinney, a retired military analyst for the Pentagon and critic of Defense Department planning.
The significance of the accounting problem goes beyond mere concern for balancing books, Spinney said. Both presidential candidates have called for increasing defense spending amid current global tension.
An accurate accounting could reveal deeper problems in how the Defense Department spends its money. Its 2016 budget is $573 billion, more than half of the annual budget appropriated by Congress.
The thing is, the Pentagon has been at this dodgy game for decades. In 1996, Congress passed a law requiring all federal agencies to comply with federal accounting standards, to produce budgets that are auditable and to submit an audit each year. At this point, two decades later, the Pentagon has yet to comply with that law, and therefore cannot be audited.
It is the only federal agency that is not complying or, the IG’s report suggests, even trying to comply.
One would think that would be newsworthy, but apparently for the major newsrooms of the US, not so much.
Edward Herman, noted media critic and co-author with Noam Chomsky of the book Manufacturing Consent, says the media love to report on Pentagon waste—things like the epic cost overruns on the F-35 boondoggle that still can’t fly in combat or a $600 toilet seat. That kind of story, he says “is something the media and public grasp easily.” Such reporting, he argues, “shows the Pentagon makes mistakes but not that it is massively looting the public coffers.” It also “shows that the media is on the alert in protecting the public interest.”
Herman says, “Repeated failure to report on a refusal by the Pentagon to allow an audit represents a major media failure, and one that is almost surely very costly to the general public.” He adds:
The failure to take up this important story reflects, at a deeper level, the power of the Pentagon and the unwillingness of the media or politicians to challenge it. Only power and the derived conflicts of interest can explain this remarkable ability of the Pentagon to avoid a legally required audit.
Requests for comment from the New York Times and the Washington Post about their non-coverage of this $6.5-trillion Pentagon scandal went unanswered as of press time.
Dave Lindorff is the author of Killing Time (Common Courage Press, 2003), an investigative book about the Mumia Abu-Jamal case. He is a founding member of ThisCantBeHappening!, an independent online alternative newspaper.
The money flows like blood
If the United States is going to continue to make mistakes like this, they are going to need the hemp and cannabis industry to bail them out
They or we?
i am amazed & yet not surprised @ all!
most of us jump when the CRA comes knocking,some don’t
That is easily 5 or 6 times more money than it would take to end poverty in the US through CBA’s or community bank accounts. Then too the CBA money would never be spent. It would only generate interest that would end the poverty – so it would not cost a penny.
Your leaders at work…
“Where is the money going? Nobody knows,” said Franklin Spinney, a retired military analyst for the Pentagon and critic of Defense Department planning.”
Mr. Spinney is wrong – and his alarmist comment is irresponsible. Here’s why:
At a Senate hearing in May 2014, then DOD Comptroller Robert Hale pointed out that over 2009-2013, DOD averaged less than 3 cents worth of Anti-Deficiency Act (ADA) violations for every $100 worth of obligations. (An ADA violation occurs when an obligation is made without being backed up by approved obligation authority in budgets authorized and approved in law by Congress.) That suggests – contrary to Mr. Spinney’s assertion and the theme of Mr. Lindorff’s reporting – that the DOD is doing quite a good job of managing its money.
Mr. Spinney (who should know bettter) and Mr. Lindorff are deliberately ignoring the fact that the Congress approves the DOD’s budget every year in the annual authorization and appropriation process – a process that involves careful Congressional scrutiny of proposed DOD obligations all the way down to the program level, and often below.
Given their concerns about DOD spending, Messrs Spinney and Lindorff should be focusing their ire on how the Congress oversees and approves the annual DOD budget – not DOD accounting practices. The DOD is not a private-sector business, so no one should be surprised that it has struggled to produce private-sector style financial statements (balance sheets and income statements) as if it were. The CFO Act of 1990, which demands such private-sector-style financial statements from all federal government agencies, is a well-meaning but deeply flawed piece of legislation that, for the last 25 years, has been responsible for no end of pointless (and very expensive) accounting busy work across the entire federal government that will never be of any use to anybody. It should be repealed.
For FAIR readers interested in understanding more on this widely misunderstood subject – and why Messrs. Spinney and Lindorff concerns are fundamentally misguided – see the review of DOD financial accounting practices in the July 2009 issue of the Defense Acquisition Review Journal at: http://www.dau.mil/pubscats/pubscats/arj51/hanks.pdf
Perhaps, in the interests of disclosure, you’d like to acknowledge whether you are that Christopher Hanks whose livelihood comes from the Institute For Defense Analysis, a corporation underwritten by the DoD, and with a big stake in the outcome of any investigation.
Maybe also eliminate any misapprehension of the difference in scope and intent between the ‘Anti Deficiency Act’, which the DoD trots out from time to time, and the 1996 Federal Financial Management and Improvement Act, which the Pentagon has failed to comply with for twenty years, come October.
Maybe relate the effect such noncompliance has on the feasibility of an actual audit of defense spending.
I’ve been retired since 2009 and, although I’m still an adjunct member of the IDA research staff, I have not worked on any IDA projects since then. I wrote and published the 2009 paper (linked in my first comment in this thread) after I retired.
( I learned a lot about DOD financial management during my 30+ years of work as a defense analyst and I wanted to publish what I think I’ve learned for the benefit of future researchers. Before I retired, it was difficult to the point of impossibility to obtain DOD support for the kind of research I’ve done and published since then. DOD leaders are reluctant to push back against any form of Congressional and GAO “guidance” – even when that guidance is poorly conceived and designed. That’s why I had to be retired before doing and publishing my research on this topic.)
Since the DOD receives all of its funding from Congressionally approved budgets, the “scope” of the Anti-Deficiency Act, in fact, covers all DOD obligations (spending) – so not sure why you seem to be concerned about its “scope.”
The FFMIA is addressed in the 2009 paper linked in my first post in this thread. I would encourage you to read it.. The paper explains why the CFO Act and subsequent related laws, including the FFMIA, while certainly well-meaning, are, nevertheless, misguided.
There are those who suggest that the Pentagon lost trillions largely go to black programs. Really big black programs, Black programs that the average person would reject any notion of. There are of course accounting errors, but that is not what I am talking about.
Feb 7, 2007 – Special flights brought in tonnes of banknotes which disappeared into the war zone. … An armed guard poses beside pallets of $100 bills in Baghdad. Almost $12bn in … Billions of dollars of their money, yeah I understand. Funny this report said it happened in 2007. Guess who was really President? B
9/10/2001 Rumsfeld says 2.3 Trillion misplaced then 09/11 do you want another one?
Of course its a typo you idiots! Is your financial orientation so pitiful that you thought this was a real figure? The financially illiterate, YOU, shouldn’t be around a computer to sensationalize non-stories like this. Maybe find a more suitable line of work where thinking is minimized. Oh…wait,… you’re already a “journalist”, so…..
Actually, you financial wizard, you ‘maximal thinker’, you, that figure is emphatically not a typo.
Actually, that figure is quoted directly from a report issued by the Department of Defense Principle Deputy Inspector General Glenn Fine.
Further, that sum was confirmed as accurate by the Chief of Public Affairs for the Department of Defense Office of the Inspector General.
Talk about financial illiteracy, that $6.5 trillion is an approximation of “unsupported adjustments”, not line item mistakes.
Your critique is clueless, revealing much more about your financial acumen (and reading comprehension) than on the author’s
Boys, boys … we are making the classic double error of not reading the original document and then arguing over reports of reports and reports of reports of reports. The offending amounts are on page 3 of the linked pdf: http://www.dodig.mil/pubs/documents/DODIG-2016-113.pdf and here is what it says:
“FINDING: The Office of the Assistant Secretary of the Army (Financial Management & Comptroller) (OASA[FM&C]) and the Defense Finance and Accounting Service Indianapolis (DFAS Indianapolis) did not adequately support $2.8 trillion in third quarter journal voucher (JV) adjustments and $6.5 trillion in yearend JV adjustments made to AGF data during FY 2015 financial statement compilation.”
Have a nice day …
What pray tell is a “journal voucher?” “A written authorization prepared for every financial transaction, or for every transaction that meets defined requirements.
A journal voucher is an integral part of the audit trail, and carries (1) a serial number, (2) transaction date, (3) transaction amount, (4) ledger account(s) affected, (5) reference(s) to documentary evidence (such as invoices or receipts) supporting the entry, (6) brief description of the transaction, and the (7) signature(s) or initials of one or more authorized signatories. A journal is, in effect, a collection of financial data culled from journal vouchers.” http://www.businessdictionary.com/definition/journal-voucher.html Indicating that the Pentagon did not exactly “lose” X trillions, it merely cannot adequately justify their disbursement. The report indicates that some 16,000 records were “removed,” which could indicate something extremely sinister, or just bland bureaucratic bungling — or both.
Several of you are wondering how numbers in the trillions could arise when the Army’s annual budget (and spending) is on the order of (only) $125 billion or so.
Part of the answer is due to the DOD’s use of revolving-fund financing for many of its support activities. Under revolving-fund financing, big-money support activities such supply, depot-level maintenance, transportation, fuels, etc charge their “customers” (operating units who receive appropriated Operations & Maintenance dollars) for goods and services provided. The customers “pay” with O&M obligations which serve to replenish obligation authority in the revolving funds. This means that the same annual appropriated O&M dollar can be involved in VERY large numbers of transactions each year – each one generating the kind of “journal voucher” George is talking about. This leads to double-counting (with a vengeance) when looking at all journal entries and the dollars involved.
Corporations in the business world that do intra-company buying and selling between and among different operating units produce “consolidated financial statements” in which all the similar double counting has been removed using “eliminating entries” as defined under GAAP. Such consolidated statements matter to investors and creditors who need to know whether the corporation as a whole is making money or not.
The DOD is not a corporation trying to make money for investors or creditors, however, so all the efforts to produce consolidated financial statements blessed by auditors (which is where large numbers of the documentation problems discussed in the IG report arise) are, in fact, a complete waste of time, financial management manpower, and money in the Department. Even if an auditor-blessed consolidated private-sector-style financial statement for the DOD were eventually to be produced, it would change NOTHING in how the DOD is funded or managed.
Like I said – it’s all busy work – with the added fun of producing entertaining but grotesquely misleading news reports – like the one we’re all talking about.
Yes, what difference does it make?
So what if the DoD’s deliberately chaotic “controls” have been for 25 years running been the prime reason GAO cannot provide any assurance on the financial condition and operations of the United State Government?
Who cares if the Appropriations Clause (that’s in the Constitution, Chris) requires Congress ensure that a “regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time”?
And big effing deal if the Comptroller General of the US, who obviously knows much less about the significance of keeping track of government accounts than Chris Hanks, just testified, obviously speaking about the DoD: “To operate as effectively and efficiently as possible
and to make difficult decisions to address the federal government’s fiscal
challenges, Congress, the administration, and federal managers must
have ready access to reliable, useful, and timely financial and
performance information—both for individual federal entities and for the
federal government as a whole. Reliable financial information would also
be helpful as you face the difficult budget choices needed to deal with our
long-term fiscal outlook. Also, without reliable, useful, and timely financial
information, the government cannot adequately ensure accountability
over spending and its assets, accurately measure and control costs,
manage for results, or make timely and fully informed decisions about
allocating limited resources.”
And so few ADA violations….wow. I’m impressed. When was the last time, say, the AGF’s “records” agreed with Treasury’s? Not 2015. They were off by 3/4 of a trillion dollars. But the real ruse with the “anti-deficiency act” red herring? The real “deficiency” lies in the pyramid-scheme of DoD “procurements”–that is, commitments for moronic weapons systems to their good buddies at Boeing, Lockheed et al that are designed to exceed “estimates” at initial “appropriations” by hundreds of billions and dozens of years.
In the end, however, I’d have to concede you are correct–“Even if an auditor-blessed consolidated private-sector-style financial statement for the DOD were eventually to be produced, it would change NOTHING in how the DOD is funded or managed.” Of course, that will never happen–but, if it ever did, by that time, the “republic” will be so deep under the iron boot that our owners won’t have any problem be open about how corrupt they are.
“Too many people still believe that an unmodified opinion on an entity’s financial statements means that it is operating in an economical, efficient and effective manner, and in compliance with all major laws and regulations. Such is not the case–and the auditor’s report should make that clear.”
That’s a statement recently made by none other than David Walker, former head of GAO – see:
http://www.govexec.com/excellence/promising-practices/2016/02/transforming-federal-financial-reporting-and-auditing/126063/?oref=govexec_today_pm_nl ]
As the activist head of the GAO from 1998 to 2008, David Walker was one of the most persistent and vocal critics of DOD’s “failure” to achieve CFO-Act compliance. Now he admits (finally) that achieving CFO compliance has nothing to do with making the DOD (or any executive branch agency) more economical, efficient, or effective, and he is calling for new approaches.
The current Comptroller (who is not an accountant, by the way – none of them have been) is saying the things you quote because he (like all his predecessors) must accede to the POLITICAL reality that the Department has no choice but to PUBLICLY agree with the longstanding party line re CFO-Act compliance when testifying.
Finally, you make a good point when you bring up the Appropriations Clause in the Constitution. You need to know, however, that the CFO Act (and the Federal Accounting Standards Advisory Board, which sets the rules for accounting and auditing in the federal govt) has deliberately and consciously EXCLUDED the Social Security and Medicare programs from having to be reported in the standard, CFO-Act financial statements (balance sheet and income statements) – and the Congress (and GAO) continue to be quite happy about that. See: http://files.fasab.gov/pdffiles/insprograms_7_marren.pdf
You can guess why.
Congress (and the GAO) are the problem here, Mr. Goodland, not the DOD.
One final note: your concerns about the DOD acquisition process for new weapon systems are shared by many (Frank Spinney included) and in many cases are justified. When I said that nothing will change, one of the things I meant is that all the work and efforts to produce private-sector-style balance sheets and income statements able to win unqualified opinions from financial-statement auditors have done nothing and will do nothing to change how the DOD acquisition process works (as the last 20 years of CFO-Act work and effort has shown).
I have to correct myself. The Comptroller General Mr. Goodland quoted is Eugene Dodaro, current head of the GAO. Mr. Goodland was not quoting the Comptroller of DOD, as I implied in my response (although DOD Comptrollers have made similar statements when testifying – for the reason I gave).
That said, Mr. Dodaro is not a CPA, although he does hold a bachelor’s degree in accounting.
Mr. Dodaro’s statement is not surprising given the central role the GAO played in promoting the passage of the CFO Act in 1990. Mr. Dodaro is a 40+ year veteran of the GAO and played a key role at GAO in promoting the passage of the 1994 Govt Management Reform Act, which expanded the CFO Act requirement for private-sector-style financial statements across the entire federal government.
Mr. Dodaro’s statement IS surprising given that he made it AFTER David Walker said what he said last February.
Thank you for you clarifications. What at first seemed implausible now seems completely understandable. I’m talking about the trillions out of a billions budget. I appreciate you taking the time to interject your knowledge and experience. Quite informative. Thanks again.
Thank you, FAIR, for all the great reporting you do, though it is damned depressing. Please keep after the NYT and Post!
the nyt and wapo have no reply because some of that money made it to them.
This is only that is show up. I am sure there are lot o Trillions Dollars that still theft but not showed up.
So where is the money going?
Nothing that we see.
The last major federal infrastructure improvement within our nation was the Interstate and National Defense Highway System constructed mainly in the 1960’s
We do not have high speed internet coast to coast.
We do not have high speed rail coast to coast connecting city to city.
We do not have improved farm to market highways.
Our air traffic control uses antique computers.
We do not track ships at sea by satellite.
Where is the money going? Is it spent on specialized manufacturing, secret technology?