Special Report: The Pentagon's Doctored Ledgers Conceal Epic Waste

By Scot J. Paltrow/Reuters

A review of multiple reports from oversight agencies in recent years shows that the Pentagon also has systematically ignored warnings about its accounting practices. “These types of adjustments, made without supporting documentation … can mask much larger problems in the original accounting data,” the Government Accountability Office, the investigative arm of Congress, said in a December 2011 report.

Plugs also are symptomatic of one very large problem: the Pentagon’s chronic failure to keep track of its money - how much it has, how much it pays out and how much is wasted or stolen.

This is the second instalment in a series in which Reuters delves into the Defense Department’s inability to account for itself. The first article examined how the Pentagon’s record-keeping dysfunction results in widespread pay errors that inflict financial hardship on soldiers and sap morale. This account is based on interviews with scores of current and former Defense Department officials, as well as Reuters analyses of Pentagon logistics practices, bookkeeping methods, court cases and reports by federal agencies.

As the use of plugs indicates, pay errors are only a small part of the sums that annually disappear into the vast bureaucracy that manages more than half of all annual government outlays approved by Congress. The Defense Department’s 2012 budget totalled $565.8 billion, more than the annual defence budgets of the 10 next largest military spenders combined, including Russia and China. How much of that money is spent as intended is impossible to determine.

In its investigation, Reuters has found that the Pentagon is largely incapable of keeping track of its vast stores of weapons, ammunition and other supplies; thus it continues to spend money on new supplies it doesn’t need and on storing others long out of date. It has amassed a backlog of more than half a trillion dollars in unaudited contracts with outside vendors; how much of that money paid for actual goods and services delivered isn’t known. And it repeatedly falls prey to fraud and theft that can go undiscovered for years, often eventually detected by external law enforcement agencies.

The consequences aren’t only financial; bad bookkeeping can affect the nation’s defence. In one example of many, the Army lost track of $5.8 billion of supplies between 2003 and 2011 as it shuffled equipment between reserve and regular units. Affected units “may experience equipment shortages that could hinder their ability to train soldiers and respond to emergencies,” the Pentagon inspector general said in a September 2012 report.

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.

Congress in 2009 passed a law requiring that the Defense Department be audit-ready by 2017. Then-Defense Secretary Leon Panetta in 2011 tightened the screws when ordered that the department make a key part of its books audit-ready in 2014.

Reuters has found that the Pentagon probably won’t meet its deadlines. (See related article [ID:nL2N0J00PX].) The main reason is rooted in the Pentagon’s continuing reliance on a tangle of thousands of disparate, obsolete, largely incompatible accounting and business-management systems. Many of these systems were built in the 1970s and use outmoded computer languages such as COBOL on old mainframes. They use antiquated file systems that make it difficult or impossible to search for data. Much of their data is corrupted and erroneous.


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