Scot J. Paltrow, “Special Report: The Pentagon’s doctored ledgers conceal epic waste,” Reuters, 18 November 2013

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. …

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 totaled $565.8 billion, more than the annual defense 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and other supplies; thus it continues to spend money on new supplies it doesn’t need and on storing others long out of date.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 defense. 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. …

No one can even agree on how many of these accounting and business systems are in use. The Pentagon itself puts the number at 2,200 spread throughout the military services and other defense agencies. A January 2012 report by a task force of the Defense Business Board, an advisory group of business leaders appointed by the secretary of defense, put the number at around 5,000.

“There are thousands and thousands of systems,” former Deputy Secretary of Defense Gordon England said in an interview. “I’m not sure anybody knows how many systems there are.”

In a May 2011 speech, then-Secretary of Defense Robert Gates described the Pentagon’s business operations as “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?’ ” …

Defense officials point out that most plugs represent pending transactions – like checks waiting to clear with a bank – and other legitimate maneuvers, many of which are eventually resolved. The dollar amounts, too, don’t necessarily represent actual money lost, but multiple accounting entries for money in and money out, often duplicated across several ledgers. That’s how, for example, a single DFAS office in Columbus, Ohio, made at least $1.59 trillion – yes, trillion – in errors, including $538 billion in plugs, in financial reports for the Air Force in 2009, according to a December 2011 Pentagon inspector general report. Those amounts far exceeded the Air Force’s total budget for that year.

Defense Secretary Chuck Hagel declined to comment for this article. In an August 2013 video message to the entire Defense Department, he said: “The Department of Defense is the only federal agency that has not produced audit-ready financial statements, which are required by law. That’s unacceptable.” …

“We have about $14 billion of inventory for lots of reasons, and probably half of that is excess to what we need,” Navy Vice Admiral Mark Harnitchek, the director of the DLA, said at an August 7, 2013, meeting with aviation industry executives, as reported on the agency’s web site.

And the DLA keeps buying more of what it already has too much of. A document the Pentagon supplied to Congress shows that as of September 30, 2012, the DLA and the military services 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. …

There are runway flares from the 1940s, and warheads for Sparrow missiles that the military hasn’t fielded since the 1990s. Most irksome, because they take up a lot of space, are rocket-launch systems that were retired in the 1980s. “It will be years before they’re gone,” says Pike, a logistics management specialist and planner at Letterkenny.

More than one-third of the weapons and munitions the Joint Munitions Command stores at Letterkenny and its other depots are obsolete, according to Stephen Abney, command spokesman. Keeping all those useless bullets, explosives, missiles, rifles, rocket launchers and other munitions costs tens of millions of dollars a year.

The munitions sit, year after year, because in the short term, “it’s cheaper for the military to store it than to get rid of it,” said Keith Byers, Letterkenny’s ammunition manager. “What’s counterproductive is that what you’re looking at is stocks that are going to be destroyed eventually anyway.” …

Over the past 10 years, the Defense Department has signed contracts for the provision of more than $3 trillion in goods and services. How much of that money is wasted in overpayments to contractors, or was never spent and never remitted to the Treasury, is a mystery. That’s because of a massive backlog of “closeouts” – audits meant to ensure that a contract was fulfilled and the money ended up in the right place.

The Defense Contract Management Agency handles audits of fixed-price contracts, which are relatively problem-free. It’s the Defense Contract Audit Agency that handles closeouts for department-wide contracts that pay the company or individual for expenses incurred. At the end of fiscal 2011, the agency’s backlog totaled 24,722 contracts worth $573.3 billion, according to DCAA figures. Some of them date as far back as 1996.

The individual military services close out their own contracts, and the backlogs have piled up there, too. The Army’s backlog was 450,000 contracts, the GAO said in a December 2012 report. The Navy and Air Force did not have estimates of their backlogs.

“This backlog represents hundreds of billions of dollars in unsettled costs,” the GAO report said. Timely closeouts also reduce the government’s financial risk by avoiding interest on late payments to contractors. …

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