When will DOD be auditable?

The GAO has been reporting for several years that the books of our military cannot be audited. Three public accounting firms tried to audit the Budgetary Schedules of all three military services for 2015. Not one could express an opinion because of a lack of sufficient evidence to support the amounts presented. They identified material weaknesses in internal control and collectively issued a total of over 700 findings and recommendations. These weaknesses included, among other things, the military services’ inability to reasonably assure that the Budgetary Schedules reflected all of the relevant financial transactions that occurred and that documentation was available to support such transactions. 

Today's DOD Accounting

Yesterday I wrote about the fact that DOD's books can't be audited. Well, according to McClatchy certain departments of DOD can be. Howsomever, the results of the audit are highly questionable. Here are McClatchy's conclusions:

– Outside audits by a certified public accounting firm of the Defense Finance and Accounting Service’s books turned out to be shoddy, according to the Pentagon’s own accountants, although that same CPA firm had endorsed the agency’s previous fiscal records for years.

– In reaction to the skeptical evaluations, Pentagon officials pressured their accountants to suppress their findings, then backdated documents in what appears to have been an effort to conceal the critiques.

– The Defense Department’s Office of the Inspector General, which was brought in to watchdog the audit, not only helped squelch the critical work but also allowed the outside firm to be paid despite the serious questions about the quality of its work.

I guess one can still conclude that DOD's books cannot be audited.

What it means to be non-auditable

Thomson Reuters is an English company but they have the most detailed report on the accounting woes of our Department of Defense that I have seen.  It "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and other supplies; thus it continues to spend money on new supplies it doesn't need and on storing others long out of date.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." Yet, we give carte blanche to DOD in how it spends our money.

Can it be managed responsibly?  Robert Gates seems to doubt it when in 2011 he said that DOD is "an amalgam of fiefdoms without centralized mechanisms to allocate resources, track expenditures, and measure results. ... My staff and I learned that it was nearly impossible to get accurate information and answers to questions such as ‘How much money did you spend' and ‘How many people do you have?' "

Reuters has grouped the blunders into five categories:
TOO MUCH STUFF

Here's a comment from Navy Vice Admiral Mark Harnitchek, the director of the Defense Logistics Agency,"We have about $14 billion of inventory for lots of reasons, and probably half of that is excess to what we need."  Yet, they keep buying; as of September 30, 2012, they had $733 million worth of supplies and equipment on order that was already stocked in excess amounts on warehouse shelves. That figure was up 21% from $609 million a year earlier. The Defense Department defines "excess inventory" as anything more than a three-year supply.

OLD AND DANGEROUS

Supply depots have runway flares from the 1940s. More than one-third of the weapons and munitions the Joint Munitions Command stores at depots is obsolete.

COSTLY REPAIRS
The report rattles off  a number of computer systems that didn't do the job, costing us billions of dollars.

CONTRACT HITS

The Defense Contract Audit Agency is charged with making sure that a contract was fulfilled and the money ended up in the right place. They have a 'small' backlog of over 20,000 contracts to audit; some go back to 1996. Did we get what we paid for? Who knows?

PLUGGING ALONG
This refers to cases where DOD's numbers don't match Treasury's. DOD makes up the numbers and calls them "reconciling amounts". This amounted to $9.22 billion in 2012.

DOD needs better financial staff

It seems that just about every month the GAO has at least one negative report on DOD.  Perhaps, one should expect this as the agency cannot get itself together to conduct a reasonable audit.

The latest report concerns 'improper payments', which is "any payment that should not have been made or that was made in an incorrect amount (including overpayments and underpayments) under statutory,contractual, administrative, or other legally applicable requirements".  Guess how much that number was in 2011 - $1.1 billion.  It's true that in the DOD world that is chicken feed. But, as Senator Dirksen is alleged to have said, " A billion here, a billion there, and pretty soon you're talking real money."

The issue of improper payments is so endemic to the government that two laws have been passed: the Improper Payments Information Act of 2002 (IPIA) and the Improper Payments Elimination and Recovery Act of 2010 (IPERA). Yet, GAO found that DOD's improper payment estimates reported in its fiscal year 2011 Agency Financial Report were neither reliable nor statistically valid because of long-standing and pervasive financial management weaknesses and significant deficiencies in the department's procedures to estimate improper payments.

More wasting of our money by the Pentagon

We know that there are severe management problems in the Pentagon.  Heck, they can't even audit their books and won't be able to until maybe 2017. Now, McClatchy has another example of waste by the military.  This one concerns the Stryker vehicle.

The military just kept buying replacement parts and never using them.  For example, it bought 9,179 small replacement gears called pinions as a temporary fix for a Stryker suspension problem that surfaced between 2007 and 2009. The Army fixed the problem in 2010, but kept buying pinions.  It turns out they needed only 15 of the gears. The 9,164 extra pinions are worth $572,000.

Similar 'decisions' resulted in an inventory of nearly $900 million worth of Stryker replacement parts with much of the gear becoming outdated even as the military continued to order more equipment.

Read more here: http://www.mcclatchydc.com/2013/03/31/187297/dod-inspector-general-finds-900.html#storylink=cpy

 

A previous IG report indicated that this is not the first problem with the military's attempt at inventory control of the Strykers.  That report said that $335.9 million was being wasted as excess inventory.

Read more here: http://www.mcclatchydc.com/2013/03/31/187297/dod-inspector-general-finds-900.html#storylink=cpy

Read more here: http://www.mcclatchydc.com/2013/03/31/187297/dod-inspector-general-finds-900.html#storylink=cpy

Dina Rasor Does It Again

In a blistering article in Truthout Dina Rasor and Charles Smith really lower the boom on some in the military who look more to their future nonmilitary employment than to their jobs as our fiscal stewards.  This time the subject is KBR, a unit of Halliburton.

In the early 2000s KBR won a major logistics contract (LOGCAP) for the wars in Iraq and Afghanistan.  After the contract had been going for awhile, the government decided to audit the costs that had been incurred to date.  Guess what?  The government auditors said they could not vouch for the accuracy of the audit because KBR accounting systems sucked: KBR's data was not auditable. (Sound familiar?  DOD, itself, is unauditable.)  However, the auditors were able to conclude that $1.2 billion in KBR costs were unsupported by documentation and, therefore, should not be recognized by the Army when determining how much or even whether KBR should eligible for a bonus, known as award fees.  Also, another small amount - $250,000,000 - was padded into the dining costs.

Since KBR hoped to be able to renew this contract at some point, they realized that something had to be done about this unauditability and other matters.  The something they did was not to repair them but to get the military to change its mind about the deficiencies.  How could they do this?  Simple.  Hire an ex-Army man who had influence with the Army people responsible for the contract.

KBR found their man in retired Lt. Gen. Paul Cerjan. He made the problem go away.  He got the nasty people - those who wanted to do their job - to go away.   The deficiencies were redefined or ignored so that they didn't count as negatives for KBR.  Mr. Cerjan certainly earned his pay. KBR has billed more than $50 billion under this contract and it's still in effect.

How Not to Audit

The Defense Contract Audit Agency (DCAA) appeared before the Senate Committee and Homeland Security and Governmental Affairs last week. DCAA has been the subject of reprimands from GAO for its mishandling of audits as reported by whistleblowers within DCAA.

It looks as though there are two basic operational problems. The primary goal of the audit is to finish it as quickly as possible, rather than assay the quality and reliability of the financial statements. since DCAA is part of DOD, whose efforts are being audited, there is not the level of independence needed for a real audit.

Even the IG for DCAA was criticized by the Senators for revealing the name of the whistleblower to those complained about and for sitting on the complaint for three months.

Will any changes be made? Administration after administration has been mouthing threats to cut staff and make DCAA more effective. Results to date - nada.

One More Level of Oversight

The problem is that it’s another fox guarding the fox who is guarding the chicken coop. The Department of Defense, in its superior wisdom, has contracted with Serco, a British-American company, to perform DOD’s oversight function of contractors in Iraq. Serco is responsible for "analyzing performance contractors' costs," "working with the Army to measure contractor performance" and "recommending process improvements."

How this will affect GAO’s auditing is a question, as everything between the government and the contractors (Fluor, KBR and DynCorp) goes between Serco and the GAO. When GAO decides to audit one of the contractors, Serco gets the documents from the contractor, summarizes them and then gives them to the GAO. The GAO has previously said that such a situation creates the “potential for conflicts of interest". I’m sure that Serco will be a good overseer of our money.

Spend More, Audit Less

As we are all well aware, our defense budget has grown dramatically in the past several years. In fact, it's just about doubled since 2000. Despite this meteoric growth, the audit staff of the Pentagon's Inspector General has remained more or less constant. The question becomes whether we are maintaining the proper oversight over our defense spending. As you would expect, the auditors say no; they need more people.

A simple increase in the budget does not necessarily mean you need more people to audit these activities, but if you've been reading my outpourings for a while, you're aware that we are not watching our money as well as we should. If you have only read about Stuart Bowen's work as Inspector General for Iraq, you know we're talking billions in waste and corruption related solely to our efforts in Iraq. And DOD's purview is much wider than Iraq. How much have we blown?

Here's some of the $5 billion

A few weeks ago I wrote about Lawrence Korb's contentions that the Defense Department wastes $5 billion annually. Well, the latest GAO reports show some places where that money is being wasted:

• DOD or any of its agencies cannot pass an independent audit. (Read that again.)
• Intellectual property rights are not obtained for many projects. This is especially harmful and costly for multi-year projects, some of which can last for decades. Not having the IP rights means it becomes very difficult and costly to make changes.
• Work began on the F-22A, the Air Force's next generation fighter, in 1986. Since then, "the Air Force has added new requirements, more than doubled the length of the acquisition schedule, cut purchase quantities by more than 75% and increased total acquisition unit costs by more than 100%".
• The GAO has been pointing out problems in DOD's supply chain management since 1990. DOD still does not have an effective plan for managing the supply chain. As a result, supplying our troops properly is at risk, plus our money is not being spent wisely.
• GAO employees were able to buy body armor, guided missile mounts, radar test sets, antennae and other sensitive military equipment at liquidation sales. Note that the GAO employees posed as private citizens. Some of these items are currently being bought new by the military; GAO was able to buy them at a fraction of the cost.
• DOD has received $430 billion for the global war on terror. They have trouble recording costs and matching costs to appropriations. As a result, planning for future needs is a real problem.