The Pentagon, which previously warned that reliable military spending figures could not be produced until 2017, has discovered that financial ledgers are in worse shape than expected and it may need to spend a billion dollars more to make DOD's financial accounting credible, according to defense officials and congressional sources.
Experts say the Pentagon's accounting has never been reliable. A lengthy effort by the military services to implement new financial systems at a cost so far of more than $6 billion has itself been plagued by overruns and delays, senior defense officials say. The Government Accountability Office said in a report last month that although the services can now fully track incoming appropriations, they still cannot demonstrate their funds are being spent as they should.
The issue of poor bookkeeping has taken on particular political salience as lawmakers more closely scrutinize the $671 billion annual military budget for waste, fraud and abuse amid soaring federal deficits. Secretary of Defense Leon Panetta, responding in part to bipartisan pressures, announced Tuesday that DOD does not intend to wait six more years -- as agreed in 2009 -- to put in place long-awaited accounting reforms that advocates say will increase efficiencies and reduce mismanagement.
"The ability to audit our books ought to be something we do on a faster track, and we will," Panetta said in a speech at the Woodrow Wilson Center in Washington. Government officials said Panetta will today announce a new deadline of 2014, but that the details of how the new target date is to be met will not be known for another 60 days.
Panetta's order will almost surely stoke new tensions with the military services, which by many accounts ignored accounting requirements for years and are only now moving unsteadily to fix their books, arguing that many accounting rules are inappropriate for warfighters. Some top service officials have said that even the 2017 deadline was too soon.
Rep. Mike Conaway (R-Texas), who chairs a House Armed Services Committee panel examining DOD's financial management, said that Panetta's pledge to meet an earlier deadline would be helpful in forcing others in the department to make "hard choices" about devoting time and resources to audit compliance.
"Forcing this deadline," Conaway said, "will cause the system to police itself."
But the new deadline will also increase expenditures, sources say. Above the $6 billion already committed, Pentagon officials say they were already budgeting $300 million a year for new accounting systems and other preparations for 2017. Several said that meeting the earlier deadline could cause that spending to rise beyond a billion dollars over the next three years.
An essential fix
The debate is not an abstraction; senior defense officials and experts on Capitol Hill say that until the military's books are fixed, the Pentagon -- responsible for more than 43 percent of all discretionary spending-- will remain unable to determine what its operations and weapons systems really cost; will be unaware of how many spare parts it has or needs and will be stymied in attempts to find savings from duplication and inefficiencies.
Panetta is not the first defense secretary to express frustration over the department's attempts to modernize byzantine accounting systems, which still consists partly of hand-written ledger entries that independent experts contend are frequently fictional.
Then-Defense Secretary Robert Gates last May memorably described the Pentagon's efforts to account for its expenditures as a "semi-feudal system" -- "an amalgam of fiefdoms without centralized mechanisms to allocate resources, track expenditures and measure results." Gates said that in nearly five years at the department's helm it was "nearly impossible to get accurate information and answers to questions such as 'how much did you spend' and 'how many people do you have.' "
A report to Congress by the Pentagon comptroller that same month documented remaining obstacles to DOD compliance with accounting requirements set by law for all federal agencies in 1994. Eleven internal deadlines for partial compliance by the military services - mid-points on the road to 2017 -- had slipped over the previous year, the report said, while only three were accelerated. And more such deadlines have slipped since then.
The comptroller, undersecretary Robert Hale, told the House Armed Services committee in July that "we don't really fully understand, in the Department of Defense, what you have to do to pass an audit for military service, because we've never done it." He said in testimony last month that significant progress has been made, but that "once we, you know, jump into the pool, we discover there are things we didn't know that were - we didn't expect to have to fix."
Trial and error
A trial audit last year of $4 billion in war spending by the Marine Corps ended badly. Although the corps' leadership asserted that it was fully prepared, the Pentagon's inspector general declared the audit results unreliable because nearly $2 billion in expenditures could not be authenticated and much of the rest were misreported.
The GAO separately complained in a report last month that the audit had demonstrated that Corps officials were often empowered both to authorize and approve expenses, a violation of federal guidelines that they said creates a high risk of errors and fraud. It said the Corps was not doing enough to repair the deficiencies.
Sen. Claire McCaskill (D-Mo.), surveying the results at a Senate hearing, said the result was that Congress was misinformed by the Corps "about how funds were really, actually spent." The Defense Department's response, on behalf of the Corps, was that these problems are shared by all the services and efforts are being made to fix them.
Two other military service assertions of audit readiness last year -- one by the Navy regarding its civilian pay records and another by the Air Force involving its military equipment -- also proved unwarranted. The GAO reported last month that neither could find key financial documents and that stocks of many weapons parts -- including satellites and some non-nuclear components of ICBMs - were
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