Monday, November 18, 2013

Reuters Investigation Sheds Light on the Pentagon's "Epic Waste"

I highly recommend reading the Reuters investigation into the Pentagon's finances, "Unaccountable: The High Cost of Bad Bookkeeping." The second installation in the series, "Behind the Pentagon’s doctored ledgers, a running tally of epic waste," came out today. It looks at how the Pentagon has been falsifying records for the past two decades because of mismanagement, corruption, and overextension.

I want to highlight a few passages that caught my eye, but you should read the full piece.

The eye-catching lede:
Chambersburg, Pennsylvania - Linda Woodford spent the last 15 years of her career inserting phony numbers in the U.S. Department of Defense’s accounts. Every month until she retired in 2011, she says, the day came when the Navy would start dumping numbers on the Cleveland, Ohio, office of the Defense Finance and Accounting Service, the Pentagon’s main accounting agency. Using the data they received, Woodford and her fellow DFAS accountants there set about preparing monthly reports to square the Navy’s books with the U.S. Treasury’s - a balancing-the-checkbook maneuver required of all the military services and other Pentagon agencies.
The Pentagon's open flouting of the law:
Because of its persistent inability to tally its accounts, the Pentagon is the only federal agency that has not complied with a law that requires annual audits of all government departments. That means that the $8.5 trillion in taxpayer money doled out by Congress to the Pentagon since 1996, the first year it was supposed to be audited, has never been accounted for. That sum exceeds the value of China’s economic output last year.
In its annual report of department-wide finances for 2012, the Pentagon reported $9.22 billion in “reconciling amounts” to make its own numbers match the Treasury’s, up from $7.41 billion a year earlier. It said that $585.6 million of the 2012 figure was attributable to missing records. The remaining $8 billion-plus represented what Pentagon officials say are legitimate discrepancies. However, a source with knowledge of the Pentagon's accounting processes said that because the report and others like it aren’t audited, they may conceal large amounts of additional plugs and other accounting problems.

The secretary of defense’s office and the heads of the military and DFAS have for years knowingly signed off on false entries. “I don't think they're lying and cheating and stealing necessarily, but it's not the right thing to do,” Pentagon Comptroller Robert Hale said in an interview. “We've got to fix the processes so we don’t have to do that.”
Double standards:
Congress has been much more lenient on the Defense Department than on publicly traded corporations. The Sarbanes-Oxley Act of 2002, a response to the Enron Corp and other turn-of-the-century accounting scandals, imposes criminal penalties on corporate managers who certify false financial reports. “The concept of Sarbanes-Oxley is completely foreign” to the Pentagon, says Mike Young, a former Air Force logistics officer who for years has been a consultant on, and written about, Defense Department logistics.
Waste in trying to control waste:
The Air Force’s Defense Enterprise Accounting and Management System was supposed to take over the Air Force’s basic accounting functions in 2010. To date, $466 million has been spent on DEAMS, with a projected total cost of $1.77 billion to build and operate it, an Air Force spokeswoman said. The system lacks “critical functional capabilities,” and its “data lacks validity and reliability,” according to a September 2012 Defense Department inspector general report.

It now isn’t expected to be fully operational until 2017.
Lack of oversight:
Spotty monitoring of contracts is one reason Pentagon personnel and contractors are able to siphon off taxpayer dollars through fraud and theft - amounting to billions of dollars in losses, according to numerous GAO reports. In many cases, Reuters found, the perpetrators were caught only after outside law-enforcement agencies stumbled onto them, or outsiders brought them to the attention of prosecutors.

In May this year, Ralph Mariano, who worked as a civilian Navy employee for 38 years, pleaded guilty in federal court in Rhode Island to charges of conspiracy and theft of government funds related to a kickback scheme that cost the Navy $18 million from 1996 to 2011. Mariano was sentenced Nov. 1 to 10 years in prison and fined $18 million.
Mariano admitted that as an engineer at the Naval Undersea Warfare Center in Newport, Rhode Island, he added money to contracts held by Advanced Solutions for Tomorrow. The Georgia-based company then paid kickbacks to Mariano and others, including friends and relatives.

Mariano was charged more than five years after the allegations against him first emerged in a 2006 civil whistleblower lawsuit in federal court in Georgia that had been kept under seal. Court documents suggest one reason why the conspiracy went undetected for so long: The Navy not only gave Mariano authority to award money to contractors; it also put him in charge of confirming that the contractors did the work. The Navy never audited any of the contracts until after Mariano was arrested, a Navy spokeswoman confirmed.
Congress in 2009 passed a law requiring that the Defense Department be audit-ready by 2017. In 2011, Leon Panetta sought to raise the standard to audit-readiness by 2014. The Pentagon, as Reuters explains, is not on track to make its deadlines. 

While Republicans go on and on about the minimal waste and fraud in safety net programs like SNAP or Social Security Disability Insurance, they, of course, ignore the "epic" waste and fraud in the Pentagon. Unfortunately, though, both parties share the blame in letting the Pentagon go unaudited as it amasses ever larger budgets passed by strong bipartisan majorities.

Do you know how the Republicans have a stereotype of the government as full of bloated federal bureaucracies that suck up taxpayer money and grow larger and larger with no accountability? Yeah, that's the Pentagon, but I don't expect to see them acknowledge that any time soon.

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