News - Bill's Blog

Defense Department finances: don't do this at home

January 10, 2018

The U.S. Department of Defense (DoD) spends massive amounts of our money.  How massive, however, is hard for taxpayers to know, in light of DoD accounting and financial reporting issues. The DoD has been a central point of failure leading to a disclaimer (flunk) opinion from the GAO on Uncle Sam’s financial statements since the late 1990s.

Speaking of massive, the years ahead promise further excitement and sources of concern, particularly as DoD has undertaken a new massive, comprehensive internal financial audit.  DoD will be spending close to a billion dollars on this project this year alone, after spending billions of dollars in efforts stated to be aimed at moving toward a clean audit opinion from the GAO. A clean opinion that never arrives.

Below please find a collection of more than 20 recent articles, with links and selected text, designed to help interested citizens to get up to speed on the issues involved.  I will update this page week-by-week as the year progresses.


House Armed Services Committee

Defense Department Update on the Financial Improvement and Audit Remediation Plan

From January 10, 2018, testimony by DoD Comptroller David Norquist, includes “… The DoD anticipates having approximately 1,200 financial statement auditors assessing whether our books and records present a true and accurate picture of our financial condition and results of our operations in accordance with accounting standards. … it will take time to implement all the process and system changes necessary to pass the audit. It took the Department of Homeland Security, a relatively new and much smaller enterprise, about ten years to get to its first clean opinion. But we don’t have to wait for a clean opinion to see the benefits of the audit. … The cost of performing the audit will be $367 million in FY 2018. … The $181 million in audit contract costs is approximately 1/30th of 1% of DoD’s budget and, as a percentage of revenue, is equal to or less than what Fortune 100 companies … In addition, we anticipate spending about $551 million in FY 2018 fixing problems identified by the auditors. … The DoD consolidated audit will likely be one of the largest audits ever undertaken and comprises more than 24 stand-alone audits and an overarching consolidated audit. DoD is currently sustaining clean opinions for nine stand-alone audits. Audits will be conducted by the IPA firms with the DoD OIG performing the consolidated audit.”


The Washington Times

Audit work and fixes could cost Pentagon nearly $1 billion

From January 10, 2018, by Travis Tritten, includes “Rep. Mac Thornberry, R-Texas, the House Armed Services Committee chairman, said it is "likely that the result of the first audit will not be pretty." House Armed Services Committee members showed a mix of relieved frustration and satisfaction that the military has commenced a full financial audit. Rep. Walter Jones, R-N.C., said Wednesday that the Pentagon’s decision to finally embark on a full financial audit is some of the best news he has gotten during more than two decades in Congress.”


The National Interest

The unaffordable Pentagon audit

From December 25, 2017, by Tom Spoehr, includes “So seemingly only a heretic would question the need to audit the Department of Defense. But what if a Pentagon audit represents a pyrrhic victory—a quest where the results won’t justify the cost?”


Government Executive

Pentagon IG offers details of biggest audit ever

From January 8, 2018, by Charles Clark, includes “The acting watchdog for the Defense Department offered fresh details and guarded optimism on the likelihood of success in the record-size departmentwide audit the Pentagon has embarked upon. … Jack Armstrong, who spent three decades auditing for the Pentagon IG, noted the high price tag and the fact that the Government Accountability Office already has an important role in auditing Defense. “There will certainly be some informational value, but how much?” he told Government Executive. “There is a risk of higher political pressure on the DOD Inspector General, given the magnitude and cost of the effort. In turn, there could also be a risk that the DOD IG delivers not a disclaimer of opinion, but an adverse opinion.” An essay decrying “The Pentagon’s Unaffordable Audit” appeared in late December in the National Interest, written by retired Army Lt. Gen. Tom Spoehr, now a defense analyst at the conservative Heritage Foundation. “Financial audits are not the best tools for discovering inefficiencies, waste or fraud,” he wrote in praising the goal if not the Defense Department’s methods.  “For those purposes, there are far better methods such as zero-based budgeting, contract or waste audits, strong management and continuous process-improvement techniques. Indeed, the few U.S. companies that don’t have to undergo a financial audit usually avoid it, since it usually does not result in significant reductions in waste or fraud compared to the costs involved.”


Truth in Accounting

Unauditable?  A discussion about Pentagon bookkeeping with a former Pentagon auditor

From October 17, 2017, interview with Jack Armstrong, longtime auditor with the DoD Inspector General’s office, includes “Q: Do you think that there are some hidden incentives in place that are dissuading DOD from taking on these accounting issues? Does it help protect their budget? Yes, it does. In the world of Congressional appropriations there’s a thing called the “expired appropriation.” And once the appropriation hits that date funds can’t be obligated or spent. The caveat to this is when their accountants can find an old error, or a cost that was not recorded properly. In those cases, they can bill current expenses against the old expired appropriation act. They’ll go back years and say “hey, this charge from 2012 never went out, that means we can use the money now.” Essentially, the dysfunctional accounting status quo allows them to squeeze more money out of the system.”


Truth in Accounting

Auditing the Pentagon?

From September 15, 2016, by Larry Feltes, includes “… 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.”


Los Angeles Times

How not to audit the Pentagon

From April 10, 2016, op-ed by William Hartung, includes “In February the Center for International Policy released my report identifying 27 instances of outrageous military spending since President Obama took office. It totaled more than $33 billion of waste. The staggering persistence and profusion of such extravagance suggests that it's time to rethink exactly what it represents. Far from being a mere aberration in need of correction, this is a way of life for the Department of Defense. …One reason the Pentagon has been able to get away with all this is that it has proved strangely incapable of doing a simple audit of itself. The Department of Defense can't tell us how much equipment it has purchased, how often it has been overcharged, or even how many contractors it employs. Call it irony or call it symptomatic of the department's way of life, but an analysis by the Project on Government Oversight notes the Pentagon has so far spent roughly $6 billion on “fixing” the audit problem — with no solution in sight. If anything, the Defense Department's accounting practices have been getting worse. … The reason the waste continues isn't complicated: A lot of people are profiting.”


The American Conservative

The Pentagon has avoided audit for 27 years

From November 16, 2017, interview of U.S. Representative Michael Burgess by Michael Ostrolenk, includes “Quite simply, the Audit the Pentagon Act of 2017 is a bipartisan effort to hold the Pentagon accountable to the same standards to which we hold every other federal department. … The Pentagon must conform to the same level of accountability to which other public sector agencies are held when it comes to spending taxpayer dollars. There is no reason why the Department of Defense should remain the only federal agency to not receive an audit opinion. To be clear: This effort is not an attempt to take money away from our Armed Forces.”


U.S. Department of Defense

Officials announce first DoD-wide audit, call for budget certainty

From December 7, 2017, by Jim Garamone, includes “… ``Norquist said he received the DoD Office of Inspector General's notification that the financial statement audit begins this month. The audit is massive. It will examine every aspect of the department from personnel to real property to weapons to supplies to bases. About 1,200 auditors will fan out across the department to conduct it, Pentagon officials said.”


National Public Radio

Pentagon announces first-ever audit of the Department of Defense

From December 8, 2017, by Bill Chappell, includes “"The Defense Department is starting the first agency-wide financial audit in its history," the Pentagon's news service says, announcing that it's undertaking an immense task that has been sought, promised and delayed for years. Of the tally that is starting this week, chief Pentagon spokesperson Dana W. White said, "It demonstrates our commitment to fiscal responsibility and maximizing the value of every taxpayer dollar that is entrusted to us." "Beginning in 2018, our audits will occur annually, with reports issued Nov. 15," the Defense Department's comptroller, David L. Norquist, said. The Defense Department has famously never been audited … The Defense Department's lack of a financial reckoning hasn't hurt its funding.”


Going Concern

Ready or not, auditors descend on Department of Defense

From December 11, 2017, by Megan Lewczyk, includes “… The DoD has never actually been audited. It’s just been a big ol’ elephant in the room for decades. But, the grace period is over. Now we have to brace ourselves for the mess. Even I’ve witnessed what I would consider “fraud, waste, and abuse,” as the military likes to call it. I’m sure there’s a reason we’ve turned a blind eye to this quagmire for so long. Taxpayers might not want to know.”


Michigan State University

MSU scholars find $21 trillion in unauthorized government spending

From December 11, 2017, includes “Earlier this year, a Michigan State University economist, working with graduate students and a former government official, found $21 trillion in unauthorized spending in the departments of Defense and Housing and Urban Development for the years 1998-2015. The work of Mark Skidmore and his team, which included digging into government websites and repeated queries to U.S. agencies that went unanswered, coincided with the Office of Inspector General, at one point, disabling the links to all key documents showing the unsupported spending. (Luckily, the researchers downloaded and stored the documents.)”


American Digital News

“Follow the money” series 4

From December 28, 2017, includes “Earlier this year, a Michigan State University economist, working with graduate students and a former government official, found $21 trillion in unauthorized spending in the departments of Defense and Housing and Urban Development for the years 1998-2015. … In one example, Skidmore found a huge transfer from the Treasury Department to the Army that, again, was not authorized. Keep in mind, the Army has an approved budget of  a little more than $120 billion a year.  Skidmore says, “In this one report . . . there is an appendix table that indicates there was a transfer from Treasury to the Army of about $800 billion.  That’s almost a trillion dollars flowing in.  There is a note that says we had to do this in order to reconcile past years.”


Federal News Radio

DoD may have a long road ahead to audit readiness

From December 21, 2017, by Eric White, text intro includes “An assessment by the Pentagon’s inspector general has given another indication that DoD’s path to audit readiness is in serious trouble. The IG found serious deficiencies with the ways the Defense Finance and Accounting Service accumulates and reports transactions involving agencies outside the military services. Because of that, the IG said it appears “increasingly probable” that those agencies’ financial statements from prior years were misstated. The problems, in turn, will continue to call DoD’s overall financial statement into doubt until they’re fixed.”


The Advertiser-Tribune

Let’s hope defense audit is successful this time

From December 27, 2017, editorial, includes “… If history is any guide, the Defense Department will spend too much on an audit that covers up massive misspending, then will ignore the results. … Somehow, it persists, perhaps because Eisenhower left Congress out of his complex warning. … At least the audit — if performed comprehensively and honestly — may detail the extent of the problem. Let us hope it results in action. Every dollar wasted by the military is one less for more effective weapons — and better protection for those serving in uniform.”


The Orange County Register

Time to audit the Department of Defense

From December 28, 2017, editorial, includes “Now, the Pentagon is about to go through its first audit. And there’s good reason to believe that chief auditor and comptroller David Norquist is the right man for the job. With a background in House Appropriations and financials at the Department of Homeland Security, he was a good choice for President Trump to make. He says he sees the audit as a great opportunity, not a big bugaboo. He’s right.”


Federation of American Scientists

DoD: Cost of war post 9/11 exceeds $1.4 trillion

From October 29, 2017, includes “The Department of Defense has spent more than $1.46 trillion for direct war-related costs since September 11, 2001, according to the latest Pentagon tabulation of war costs obtained by Secrecy News. The 74-page DoD report provides extensive and detailed reporting on war-related appropriations and expenditures.”


Brown University

US spending on post-9/11 wars to reach $5.6 trillion by 2018

From November 7, 2017, includes “The U.S. wars in Iraq, Syria, Afghanistan and Pakistan, and the increased spending on homeland security and the departments of defense, state and veterans affairs since the 9/11 attacks have cost more than $4.3 trillion in current dollars through fiscal year 2017,” said Neta Crawford, Costs of War co-director and a professor of political science at Boston University. “Adding likely costs for fiscal year 2018 and estimated future obligations for veterans’ care, the costs of war total more than $5.6 trillion.” … This new report takes into account not only Department of Defense spending, but spending by the departments of state, veterans affairs and homeland security as well as the cost of interest paid to date on the money the U.S. has borrowed to pay for the wars.”



KPMG to provide Army financial audit services for fiscal 2018

From January 2, 2018, by Joanna Crews, includes “KPMG has received a $39.8 million contract modification from the Defense Finance and Accounting Service to help audit the U.S. Army‘s general and working capital fund financial statements. … KPMG will perform work in McLean, Virginia, and is scheduled to finish by Dec. 31, 2018. DFAS’ Contract Services Directorate is obligating the full modification amount at the time of award from the Army’s fiscal 2018 operations and maintenance funds.”


Going Concern

Let’s wildly speculate why PwC is shopping its government services practice

From December 8, 2017, by Caleb Newquist, includes “This Reuters story reports that PwC is looking to sell its government services, perhaps “to pursue the growing business of auditing government agencies.” The story says that Morgan Stanley is running the sale and private equity firms Veritas and Madison Dearborn Partners are two potential buyer … As for the work that PwC might be pursuing, there’s a new big fish … One of biggest audits in history, the audit of the U.S. Department of Defense, kicked off this month and is due at the end of the government’s 2018 fiscal year. According to Pentagon records, PWC, one of world’s largest auditing companies, has been contracted to provide “audit-readiness” services to the department.”



US Army audit claims ‘ineffective marketing programs’ have wasted millions in taxpayer dollars each year

From January 3, 2018, by Patrick Coffee, includes “…The audit launched in 2016 during a still-ongoing competitive review for the Army’s marketing account, which could concern up to $4 billion in spending over a period lasting as long as 10 years, according to Department of Defense estimates. … This development follows an earlier Adweek report in which Department of Defense sources claimed that the review had been “compromised” due to allegations of an improper relationship between executives at AMRG and McCann.”


Federation of American Scientists

Intelligence Oversight in the 113th Congress

From April 8, 2015, by Steven Aftergood, includes ““The CIA, NGA, NRO, and NSA conducted audits of their fiscal year 2014 financial statements,” but only the National Reconnaissance Office (NRO) completed the process successfully. The CIA, NGA, and NSA “received disclaimers of opinion,” meaning that their financial statements could not be validated by the auditors. “While the DIA and ODNI did not conduct an audit, both plan to do so in 2015,” the report said. … With seeming condescension, the report noted that “The Committee annually receives hundreds of phone calls, facsimiles, mail, and email communications from self-identified whistleblowers on matters they believe to be of urgent concern. Committee staff reviewed and investigated these communications.” If these investigations yielded any actionable findings, they are not mentioned in the report. … The new Senate Intelligence Committee report does not contain any note of critical self-examination or any suggestion that congressional oversight itself might have been complicit in the errors and excesses of intelligence agencies. Accordingly, the report does not address any potential changes that might be made to improve the intelligence oversight process.”


Loyola University Chicago Law Journal

The Statement and Account Clause as a National Security Freedom of Information Act

From Fall 2015 issue, by Lawrence Rosenthal, abstract includes “… a great deal of information about how public funds are spent remains secret, potentially insulating from ordinary processes of political accountability not only waste, inefficiency, and abuse, but also what the public may regard as unwarranted intrusions on its privacy. This Article offers a constitutional vehicle for greater transparency—the Constitution’s Statement and Account Clause, which provides that “a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.” … But, the prerogative of the political branches to keep secrets is not unlimited; perhaps it is the only provision of the Constitution of this character, but the Statement and Account Clause unambiguously rejects secrecy as a governmental entitlement when it comes to the disclosure of information material to an overall assessment of the manner in which the intelligence community spends public funds. … If we take the clause seriously, the current regime cannot stand.”


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