The U.S. military may have under its command the most highly resourced and disciplined armed force in history, but the same cannot be said of its accountants. Faced with the specter of severe spending cuts--at least by Defense Department standards--the Pentagon has vowed to identify savings by reforming its book-keeping system. The objective, according to an article in this week’s DefenseNews, is “to make DoD auditable by 2017.”
The overhaul is part of a kabuki dance the Defense Department regularly performs with politicians around its scandalously opaque ledgers. The same military machine that can zap a suspected terrorist with the tug of a joystick and deploy a carrier battle group anywhere in the world within days has no idea how much stuff it has or what it’s worth. There are no hard appraisals of how old its weaponry is, how many third-party contractors it employs, or how many buildings it owns or rents. If the Pentagon were a private corporation, it would be the largest as well as the most poorly run, at least from an auditor’s perspective; shareholders would demand an extraordinary general meeting and its board of directors would be voted out for abrogating its fiduciary trust. [Read more about national security, terrorism and the military.]
The Pentagon was first obliged to submit an annual balance sheet in 1991 and it has received failing grades ever since. According to its own Inspector General, the military has from 1991 to 2009 lost track of an estimated $1 trillion in taxpayer funds. In 2002, its comptroller and chief financial officer found that eight of its nine financial statements were not reliable and issued a disclaimer of opinion on them. In 2008, all but two financial statements were so dodgy as to warrant the same. In October 2009, the Pentagon’s IG found serious inadequacies in its bookkeeping standards, including a financial management system that occludes “accurate, reliable and timely data.” In 2010, impelled by the worst economic crisis in eighty years, the Senate Finance Committee issued a report that slammed the Pentagon’s “total lack of fiscal accountability” for “leaving huge sums of the taxpayers’ money vulnerable to fraud and outright theft.”
In a recent status report to Congress, Pentagon Comptroller Robert Hale acknowledged that his agency’s books were riddled with holes but he assured lawmakers there was no cause for alarm. American tax dollars, he wrote, “are being managed responsibly."
I’m sure Mr. Hale believes that. I would too, if government bean-counters could accurately report how much money has been spent wooing warlords in Afghanistan or digging wells in Djibouti, to say nothing of cost-plus tenders to provide security for American bases abroad or the value of merchandise bound for their commissaries that ended up in black-market kiosks. Of course, when U.S. Army captains are reduced to paymasters in remote places, handing out saran-wrapped blocks of $100 bills for the purchasing of hearts and minds, a lot can slip between the cracks. [See photos of U.S. troops in Afghanistan.]
To be fair to the green-eyeshade brigade, it would be a lot easier to account for the military’s assets if it had a capital budget, a means by which planners can measure the value of future investments in plant, machinery, and research and development. Without such a resource, according to David Berteau, a senior adviser at the Center for Strategic and International Studies, budget planners cannot quantify inventories and depreciate replacement costs. And because federal funding is appropriated every year, there is little incentive to prioritize, which is something the Pentagon badly needs to do after a decade of steep budget increases.
“A balance sheet is worthless unless you know the value of your assets,” Berteau told me. “As it is, we’re all guessing what our requirements and needs are. At the core of this is a bigger question: what kind of budget do we need for the type of wars we’ll be fighting in the future?” [See cartoons about Afghanistan.]
Unfortunately, the imperatives of prudent budgeting conflicts with the political demands on lawmakers. Having to allocate for long-term replacement costs crowds out funds available for the production of new weaponry, a lucrative source of jobs for constituents back home. Viewed from Capitol Hill, there is little to gain from a budget process that imposes discipline as well as clarity, which means Americans will continue to fund the world’s largest, most lethal armed force without knowing how much it really costs or what they’re getting from their investment.