Guest post by Lt. Colonel Larry Feltes, a retired financial management officer in the U.S. Air Force. He holds both MBA (University of Utah) and MPA (Auburn University) degrees.
“The art of the statesman is to steer a course on the stream of time… man can neither create nor direct the stream of time… he can only travel upon it and steer with more or less skill and experience; he can suffer shipwreck and go aground and also arrive in safe harbors.”--Otto von Bismarck
What do we know about the United States defense budget?
It is big. At $600 billion, the FY 2017 defense budget makes up 55% of the federal government discretionary budget. This is an understatement of the true costs of national security because the costs of the CIA, Homeland Security, the VA, Energy, and others bring the total cost to about $1 trillion dollars. This accounting trick alone violates the accounting principles of conservatism, materiality, and full disclosure. Even on its own, the U.S. defense budget is larger than the defense budgets of the next seven to ten nations combined.
It is complex. The U.S. Department of Defense (DOD) operates in every time zone and every climate, often in secrecy, with more than 450,000 overseas employees. It operates in more than 5,000 different locations on 30 million acres of land, with over 5.1 million employees, active and retired, on land, in the air, in space and cyberspace, and on the sea. Moreover, DOD has been at war for the last 15 years. These numbers and facts taken together argue against the DOD ever receiving a clean audit opinion.
By comparison, Wal-Mart has a budget of $227 billion dollars and about 1.3 million people and does receive clean audit opinions. In the private sector, the sine quo non of financial management credibility and integrity is a clean or favorable audit opinion. This is not the case in the management of and preparation for violence. The absolutely essential condition is one of winning. This is unlikely to change.
Notwithstanding its 54,000 “financial/accounting” workforce and approximately $10 billion recently spent on financial systems, the DOD is a financial management morass. War and the preparation for war are indeed, messy businesses.
It has been 26 years since passage of the Chief Financial Officer Act that was supposed to usher in a new era in financial management and accountability. But to date, the DOD is the only federal agency that has failed to receive a clean audit opinion. This despite the fact that successive Secretaries of Defense have supposedly made this a top management priority, and have spent billions on upgrading about 300 out-of-date and incompatible accounting systems.
More recently, the Defense Authorization Act of 2010 mandated that the DOD have audit ready statements in four major areas of reporting by 2017:
--A review of the curricula at the Naval Academy, West Point, and the Air Force Academy reveals that these elite institutions do not offer accounting or finance majors. You can find majors in areas like psychology, Chinese, and management, but no focused majors in accounting or finance.
--Congressional micromanagement of DOD programs involving failure to close unnecessary military bases, shipyards, and weapon system production lines. I also suspect the last thing Congress wants is for DOD to completely and unabashedly open its financial kimono. This is unlikely to change.
--Diversion or reprogramming of funds appropriated for DOD financial management improvement to other perceived “higher priority” needs such as ongoing war efforts (i.e., “the exigencies of war required…”). This is unlikely to change.
--The failure of Congress to pass Defense Appropriation Acts in time for the beginning of a fiscal year. This complicates good planning and execution of the defense budget. This has been a problem for years.
--Congress is more interested in defending defense spending in their states and districts than oversight of that spending. I also suspect the last thing Congress wants is for DOD to fully reveal itself. This is unlikely to change.
--The requirement for secrecy -- a double-edged sword -- mitigates against full disclosure. This is unlikely to change.
--The continuing drip, drip, drip of seemingly endless media reports of waste in defense spending. The buzz around the Pentagon is that 20% of defense spending is wasted.
--A recent report revealed that the U.S. Army made $6.5 trillion dollars in accounting errors in FY 2015 alone. In FY 2014 the Pentagon spent $504,816 dollars on Viagra, most going to retirees. Other examples abound.
--The sheer size and complexity of the most technologically and culturally difficult organization in the free world. This is unlikely to change.
Twice-Secretary of Defense Donald Rumsfeld hit the nail on the head:
“…the topic today is an adversary that poses a threat, a serious threat to the security of the United State of America. This adversary is one of the world’s last bastions of central planning. It governs by dictating five year plans. From a single capital, it attempts to impose its demands across time zones, continents, oceans and beyond. With brutal consistency, it stifles free thought and crushes new ideas. It disrupts the defense of the United States and places the lives of men and women in uniform at risk. Perhaps this adversary sounds like the Soviet Union, but that enemy is gone: our foes are more subtle and implacable today. You may think I’m describing one of the last decrepit dictators of the world. But that day, too, is almost past, and they cannot match the strength and size of this adversary. The adversary’s closer to home. It’s the Pentagon bureaucracy. Not the people, but the systems. Not the men and women in uniform, but the uniformity of thought and action that we too often impose on them.”
Sadly, this too is unlikely to change.
When I proposed working on this article, the folks at Truth in Accounting asked me to try to project when the Department of Defense would be both “audit-ready” and “audit-clean.” Sadly, I do not foresee the year in the near, short, or long-term when the Department of Defense will be audit-ready or receive a clean audit opinion.
We all know what happened to Enron.
Lt. Colonel Larry Feltes, USAF, Retired
Chicago, Illinois