The Pentagon's $1 Trillion Problem
- From: Jack Linthicum <jacklinthicum@xxxxxxxxxxxxx>
- Date: Wed, 30 Apr 2008 06:34:35 -0700 (PDT)
What almost anyone ever connected to the military has believed for
years, the Pentagon has no idea where its billions of dollars in
outlays really go and no way of finding out.
Anyone out there fluent in Cobol?
"In 1990, Congress enacted legislation requiring all federal agencies
to pass independent audits. Every year, the Defense inspector general
dispatched dozens of auditors to the military's financial and
accounting centers. Every year, they reported back that the job
couldn't be done. Defense Department records were in such disarray and
were so lacking in documentation that any attempt would be futile. In
2000, the inspector general told Congress that his auditors stopped
counting after finding $2.3 trillion in unsupported entries made to
force financial data to agree."
The Pentagon's $1 Trillion Problem
by Scot Paltrow May 2008 Issue
The Defense Department has spent billions to fix its antiquated
financial systems. So why does the Pentagon still have no idea where
its money goes?
Waste Deep in the Big Muddy
Reformers have repeatedly lost the battle to modernize the U.S.
military's financial systems.
On a winter afternoon in Indianapolis, Jessica Hilligoss, a young
Defense Department worker, types long strings of numbers and letters
into a computer, helping the United States armed forces transfer the
billions of dollars it draws each week from the Federal Reserve to
contractors, vendors, and military and civilian personnel.
Her job is to review invoices for everything from construction
projects to lawnmowing, and to approve payment. Within a few days,
another computer system—behind locked doors in the building's basement—
deposits the money in the recipients' bank accounts.
The size of nearly 28 football fields, with a facade of alternating
red stucco and white cement tiles, the three-story operations center
is the federal government's third-largest office building, after the
Pentagon and the Ronald Reagan Building, and the place where a big
chunk of the Iraq war's soaring price is paid. The center doles out
more than $104 billion annually, making it Defense's largest
disburser.
Theoretically, when Hilligoss authorizes a payment, the department
should be able to instantly track where the money goes and which
program it was spent on, in order to make sure the right amounts are
paid to the right recipients at the right times. But it doesn't work
that way.
Since 2004, the Pentagon has spent roughly $16 billion annually to
maintain and modernize the military's business systems, but most are
as unreliable as ever—even as the surge in defense spending is
creating more room for error. The basic defense budget for 2007 was
$439.3 billion, up 48 percent from 2001, excluding the vast additional
sums appropriated for the wars in Iraq and Afghanistan. According to
federal regulators and current and former Pentagon officials, the
accounting process is so obsolete and error prone that it's virtually
impossible to tell where much of this money ends up. While the
department's brass has made a few patchwork improvements, billions are
still unaccounted for. The problem is so deeply rooted that, 18 years
after Congress required major federal agencies to be audited, the
Pentagon still can't be. (Read a chronology of efforts to modernize
the military's financial systems.)
http://www.portfolio.com/news-markets/national-news/portfolio/2008/04/14/Past-Spending-Woes-at-Pentagon
For the first three quarters of 2007, $1.1 trillion in Army accounting
entries hadn't been properly reviewed and substantiated, according to
the Department of Defense's inspector general. In 2006, $258.2 billion
of recorded withdrawals and payments from the Army's main account were
unsupported. It's as if the Army had submitted multibillion-dollar
expense reports without any receipts.
Preoccupied with protecting their turf, the Army, Navy, Air Force, and
Marines continue to maintain separate, increasingly outdated systems
that can't talk to each other, trace disbursements, or detect
overbilling by contractors. At the Indianapolis facility, as at the
Defense Department's four other main U.S. centers for financial
operations, accounting programs under the same roof can't share
information without extensive jury-rigging, as though contracts,
payments, and accounting had nothing to do with one another.
"In the Defense Department, what you have now are material
weaknesses that are in every single area, in every part of the
department, so deep and so wide you do not really have any way of
figuring out where money is being spent," says Linda Bilmes, a federal
budget expert at Harvard's Kennedy School of Government.
Every year, the Pentagon tries to justify its budget request to
Congress by submitting three years of financial data: "actual"
performance for the past fiscal year plus projections for the current
year and the next. But because of the lack of reliable accounting,
these totals are largely fictional. That, in turn, raises major
questions about whether the government will be able to meet
skyrocketing commitments for future spending on ships, planes, and
high-tech ground weapons, especially given the expected growth in
spending on Social Security and Medicare, and the impact of tax cuts.
According to David Walker, who recently left his post as head of the
Government Accountability Office, the failure of the Pentagon's
outdated and incompatible systems to keep tabs on expenditures—even as
the wars in Iraq and Afghanistan eat up an ever-bigger chunk of the
federal budget—puts several Defense Department agencies high on the
G.A.O.'s list of federal programs that are mismanaged and prone to
fraud, waste, and abuse.
John Evans, a retired Pentagon official who oversaw more than half of
the defense budget, says that all this just encourages the military
branches to conceal spending. "If you want to know how much one of the
services is paying, you have to ask them," he says. "They say, 'Why do
you want to know?'" When Evans did a formal review to see if spending
was on track, he says "it was like a C.S.I. crime drama to find out
where the services spent money and where they squirreled it away."
To enter the Indianapolis center is to pass through a time warp, to a
place where the most critical software programs date from the dawn of
the computer age. They run on old-style I.B.M. mainframes and rely on
Cobol, the ancient Sumerian of computer languages. "This was a bunch
of systems patched together," says Greg Bitz, a former director of the
center. "I never went home at night without worrying about one of them
crashing." Bitz predicts a crisis as older programmers retire. "Try to
find somebody today who knows Cobol," he says.
Hilligoss and other clerks sit in long rows of identical cubicles and
enter endless sequences of numbers and letters by hand. The strings
signify contract terms, identifying information, due dates, and
accounting and appropriations codes. Even if the workers input all the
information accurately, they can't prevent mistakes and
miscommunications down the line. Indeed, the moment they authorize
payment, triggering the transfer of money, any ability to reliably
trace it disappears.
Since the scandal in 1985, which revealed that the Navy paid Lockheed
$640 each for airplane toilet seats, Congress, military leaders, and
regulators have agreed that the Defense Department's internal
accounting system is in shambles. What's startling is the scope of the
problem and the government's seeming inability to fix it. Over the
past two decades, the Pentagon has repeatedly tried to design new
computer systems to replace the antiquated ones. Even today, new
incompatible financial systems continue to proliferate within the
services, contrary to directives from the secretary of Defense's
office.
In a September 10, 2001, speech, Secretary of Defense Donald Rumsfeld
pressed for a top-to-bottom overhaul of Pentagon financial systems,
which he later estimated would save the department as much as $25
billion a year. "It is not, in the end, about business practices, nor
is the goal to improve figures on the bottom line. It's really about
the security of the United States of America," Rumsfeld said, arguing
that waste, mismanagement, and overspending on bureaucracy were taking
resources away from weapons and troops.
The next day's terrorist attacks diverted his attention. Although
the Pentagon took some initiative, including paying I.B.M. $250
million to help streamline business processes, it wasn't until 2005
that the Defense Department launched another major financial reform,
and that one was just as problematic as its predecessors. Since 9/11,
weaknesses in Pentagon financial systems have become more glaring as
defense spending has climbed to record highs, with a request for
$481.4 billion pending for 2008. In addition, the White House pushed
through emergency defense appropriations—supplemental funds that don't
undergo the usual congressional review—totaling $287.2 billion in 2006
and 2007.
The Indianapolis center and other back offices are supposed to comply
with a congressional mandate to track how much of each year's
emergency appropriations are spent on the Bush administration's
declared global war on terrorism. But a former senior official from
the Indianapolis center, who requested anonymity, says that its
outmoded systems can't be tweaked to produce such data. Instead, it's
done offline by workers combing through computer data and pulling out
what they think should be attributed to the war on terrorism. Their
guesswork, the source says, is probably way off.
The dysfunction stems in part from the traditional independence of the
military branches. Over several decades, they have cobbled together
separate processes for identical functions, resulting in the
uncontrolled growth of more than 4,000 accounting, financial, and
inventory systems. Their names form an acronym soup: CAPS, Stanfins,
IAPS, Somards, Samms, Mocas, HQARS, Stars. The department's primary
system for handling weapons contracts and payments dates from 1958; a
costly attempt to replace it was abandoned in 2002 as a failure. The
Army's notoriously inaccurate main accounting system was created in
1966.
In 1990, Congress enacted legislation requiring all federal agencies
to pass independent audits. Every year, the Defense inspector general
dispatched dozens of auditors to the military's financial and
accounting centers. Every year, they reported back that the job
couldn't be done. Defense Department records were in such disarray and
were so lacking in documentation that any attempt would be futile. In
2000, the inspector general told Congress that his auditors stopped
counting after finding $2.3 trillion in unsupported entries made to
force financial data to agree.
In 2002, Congress relented. Until the Pentagon can get its records in
order, no comprehensive audit is required. Instead, the department
writes each year to the inspector general certifying that "material
amounts" in its financial reports can't be substantiated.
That it can't be audited "goes to the heart of the department's
credibility," says Dov Zakheim, who was Defense Department chief
financial officer and comptroller under Rumsfeld. "Nobody would trust
even a half-million-dollar enterprise if its books weren't clean."
The Pentagon has repeatedly assured Congress that it is working toward
an audit. Yet the projected date continues to slip further away. In
1995, Pentagon officials testified that it could be audited by 2000.
In 2006, an audit wasn't envisioned until 2016.
Without an audit, anecdotal evidence suggests, contractor fraud is
likely to go undetected for years. Two South Carolina sisters who
supplied small parts to the military bilked it of more than $20
million by charging wildly inflated shipping costs for low-priced
items, like $998,798 for shipping two 19-cent washers to an Army base
in Texas. The scheme lasted six years before they were caught in 2006.
Since 2005, the Pentagon has been carrying out what it says is the
most comprehensive reform ever. Undersecretary of Defense Tina Jonas,
who is now the comptroller and chief financial officer, is heading up
an elaborate effort—once again—to develop compatible systems to share
information seamlessly. A 2007 department report foresees the Pentagon
becoming "as nimble, adaptive, flexible, and accountable as any
organization in the world."
Unfortunately, flawed planning and internal resistance have hampered
the current reform effort. Far from being nimble, the bureaucracy set
up by Jonas and her staff seems nearly as convoluted as the financial
systems that it's supposed to streamline. Beginning at the top, there
is the Defense Business Systems Management Committee, which oversees a
committee of principal staff assistants, and under that, the Business
Transformation Agency, which is made up of eight separate
directorates.
Early initiatives have done little to inspire confidence. For example,
the Army is introducing an overall accounting system for its general
fund that is expected to be fully operational in 2011. "By all the
measures one can usually rely on to predict success, this one is doing
fine," the Army's acting undersecretary, Nelson Ford, said in a
November interview. Just weeks later, though, the Defense inspector
general found that the new system was "at high risk for incurring
schedule delays, exceeding planned costs, and not meeting program
objectives."
Overburdened by wars in Iraq and Afghanistan, the individual services
remain reluctant to commit staff members and money to Jonas' financial-
reform effort. The Navy stymied Jonas' plan to create a single Defense
Department system for military pay. While the Army is already
converting to this common pay process, Navy Secretary Donald Winter
says the new system doesn't meet his service's particular needs. The
Navy will eventually adopt it, he says, but only after it has been
thoroughly tested and debugged. At the same time, the Army and the
Defense Logistics Agency—a separate branch of the Pentagon—are each
going ahead with costly new systems for tracking billions of dollars'
worth of supplies and replacement parts from purchase to their
ultimate delivery to military units, even though government auditors
say neither one yields reliable data. Together, the two systems cost
about $2 billion.
Jonas says that her approach is working and that eight small Pentagon
branches, like the Army Corps of Engineers, have now passed audits. "I
think we're making good progress," she says.
Nevertheless, the four military services still can't be audited, and
Jonas declines to predict when the entire Defense Department will
finally pass an audit. "We don't know what we don't know," she says.
http://www.portfolio.com/news-markets/national-news/portfolio/2008/04/14/Pentagons-Accounting-Mess
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