Report: Audit Shows Pentagon Agency Lost Track of Hundreds of Millions of Dollars

Report: Audit Shows Pentagon Agency Lost Track of Hundreds of Millions of Dollars

Can you imagine what would happen to us if we couldn’t account for any money, especially an amount close to a billion dollars? Well, a Politico investigation has found that an internal audit in the Pentagon’s Defense Logistics Agency found that they lost track of hundreds of millions of dollars.

The Defense Department has a total of $2.2 trillion in assets.

Politico reported:

Ernst & Young found that the Defense Logistics Agency failed to properly document more than $800 million in construction projects, just one of a series of examples where it lacks a paper trail for millions of dollars in property and equipment. Across the board, its financial management is so weak that its leaders and oversight bodies have no reliable way to track the huge sums it’s responsible for, the firm warned in its initial audit of the massive Pentagon purchasing agent.

The audit raises new questions about whether the Defense Department can responsibly manage its $700 billion annual budget — let alone the additional billions that Trump plans to propose this month. The department has never undergone a full audit despite a congressional mandate — and to some lawmakers, the messy state of the Defense Logistics Agency’s books indicates one may never even be possible.

“If you can’t follow the money, you aren’t going to be able to do an audit,” said Sen. Chuck Grassley, an Iowa Republican and senior member of the Budget and Finance committees, who has pushed successive administrations to clean up the Pentagon’s notoriously wasteful and disorganized accounting system.

$800 million! How do you lose track of $800 million?!

Politico described the DLA “as the Walmart of the military.” The agency has 25,000 employees and they receive around “100,000 orders a day on behalf of the Army, Navy, Air Force, Marine Corps and a host of other federal agencies.” These orders range “from poultry to pharmaceuticals, precious metals and aircraft parts.”

The auditors cannot find where all the money is going though:

In one part of the audit, completed in mid-December, Ernst & Young found that misstatements in the agency’s books totaled at least $465 million for construction projects it financed for the Army Corps of Engineers and other agencies. For construction projects designated as still “in progress,” meanwhile, it didn’t have sufficient documentation — or any documentation at all — for another $384 million worth of spending.

The agency also couldn’t produce supporting evidence for many items that are documented in some form — including records for $100 million worth of assets in the computer systems that conduct the agency’s day-to-day business.

“The documentation, such as the evidence demonstrating that the asset was tested and accepted, is not retained or available,” it said.

At the end of the fiscal year in September 2016, the auditors “found that $46 million in computer assets were ‘inappropriately recorded’ as belonging” to the agency.

I worked in procurement in Chevron’s IT department for about four years and I remember the hassle we received if we couldn’t produce documentation for every penny spent. We couldn’t process payments unless the invoice had a signature and this went for even the smallest of payments.

Unfortunately, the mess in the Pentagon will probably not have a resolution any time soon. The auditors “could not obtain sufficient, competent evidential matter to support the reported amounts within the DLA financial statements.” They also discovered “gaping holes” in the agency’s bookkeeping and believe that there’s more.

The DLA said it’s not surprised by the outcome due to the agency’s “size and complexity” and promised to use the results “to focus our remediation efforts and corrective action plans, and maximize the value from the audits.”

NOW they’re going to be responsible? Good Lord.

Pentagon top budget official David Norquist said that the Pentagon will do annual audits, but it won’t be cheap:

That Pentagon-wide effort, which will require an army of about 1,200 auditors across the department, will also be expensive — to the tune of nearly $1 billion.

Norquist said it will cost an estimated $367 million to carry out the audits — including the cost of hiring independent accounting firms like Ernst & Young — and an additional $551 million to go back and fix broken accounting systems that are crucial to better financial management.

Unfortunately for the Pentagon, this isn’t the first time they’ve gotten in trouble with their budget. In December 2016, I blogged about a Washington Post report that found the Pentagon hid $125 billion in wasteful spending because officials feared Congress would use the evidence “to slash the budget.” WaPo reported:

The report, issued in January 2015, identified “a clear path” for the Defense Department to save $125 billion over five years. The plan would not have required layoffs of civil servants or reductions in military personnel. Instead, it would have streamlined the bureaucracy through attrition and early retirements, curtailed high-priced contractors and made better use of information technology.

The study was produced last year by the Defense Business Board, a federal advisory panel of corporate executives, and consultants from McKinsey and Company. Based on reams of personnel and cost data, their report revealed for the first time that the Pentagon was spending almost a quarter of its $580 billion budget on overhead and core business operations such as accounting, human resources, logistics and property management.

The Pentagon paid 1,014,000 contractors, civilians, and uniformed personnel for desk jobs at the Pentagon to support only 1.3 million troops on active duty, which is “the fewest since 1940.”

The Defense Business Board wanted to help the Pentagon save $125 billion to help troops and weapons, especially “to rebuild the nation’s aging nuclear arsenal, or the operating expenses for 50 Army brigades.”

Despite the good that could come out of the study, those in charge buried it:

But some Pentagon leaders said they fretted that by spotlighting so much waste, the study would undermine their repeated public assertions that years of budget austerity had left the armed forces starved of funds. Instead of providing more money, they said, they worried Congress and the White House might decide to cut deeper.

So the plan was killed. The Pentagon imposed secrecy restrictions on the data making up the study, which ensured no one could replicate the findings. A 77-page summary report that had been made public was removed from a Pentagon website.

In August 2016, I blogged that the Pentagon had not audited $6.5 trillion it spent on wars and equipment due to horrible bookkeeping practices. The Defense Finance and Accounting Service “did not document or support why the Defense Departmental Reporting system-Budgetary (DDRS-B), a budgetary reporting system, removed at least 16,513 of 1.3 million records during third quarter FY 2015.”

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