Pentagon Must Put Up or Shut Up After Audit Failure

Delinquency is no joke, shames proud military tradition
December 20, 2018 Updated: December 23, 2018

“Duty, honor, country” is the motto of the U.S. Military Academy in West Point, New York. Contrast that with the Pentagon’s response to its first attempted audit after almost three decades of requests: “We failed the audit, but we never expected to pass it,” said Patrick Shanahan, the current deputy secretary of defense who will assume the title of acting defense secretary starting Jan. 1.

This nonchalant, arrogant dismissal of gross accounting errors and fraud is an embarrassment to American exceptionalism and the proud history of the U.S. armed forces.

Shanahan’s glib response indicates a condescension towards accountability and a tolerance for mediocrity that erodes the nobility of the five service branches. The audit only came after “years of hard-core foot-dragging” and “internal resistance,” according to Sen. Chuck Grassley (R-Iowa).

Fiscal Conservatives Arise

Those of us who respect and seek to conserve fundamental American values, as codified in the Declaration of Independence and U.S. Constitution, should be the first ones to call out the Department of Defense when it has strayed from its stated mission: “to deter war and ensure our nation’s security.” Funds allocated from oft-struggling taxpayers and a deficit-ridden federal government must go to that mission and nothing else.

Instead, the progressive magazine The Nation has been the one with the courage to confront the Pentagon and its “massive accounting fraud.” Dave Lindorff—aside from his posturing over climate change, medical care, and education—has written a historic and important article, exposing what he describes as “theft on a grand scale” that too few have been willing to face.

Out of sight, out of mind has for too long been the deference afforded to Pentagon accounting. As noted by Lindorff, the Pentagon is the only federal department that has resisted auditing compliance since the 1990 Chief Financial Officers Act. Even a sympathetic industry publication named Breaking Defense has said the latest attempt “failed miserably.” Paul McLeary writes there that “real questions remain over whether [the Pentagon] can fix itself.”

Yes, it can, but not without a hard look in the mirror and leadership from the Oval Office.

The mandated audit had an upfront cost of $413 million, which was—you guessed it—a 13 percent overrun from the original $367 million. However, even with the high price tag, the year-long investigation was a step in the right direction. With further audits to come each year, now comes the time for a major spring cleaning. The estimated $500 million for resolving accounting problems, although rewarding bad behavior, must happen if the Pentagon is to regain legitimacy with taxpayers.

At very least, the impenetrable bookkeeping, if it merits the name, compels spending restraint until the Pentagon can prove its house is in order and its spending consistent with the mission. The Defense Department’s budget for fiscal year 2019 is $717 billion, dwarfing all likely military competitors such as China. Calls for increased funding ring hollow when there is an enormous elephant in the room of inefficiency and opaqueness, including 2,000 reporting problems identified in the audit.

Perverse Incentives

When I was an undergraduate athlete, my rowing coach was known to spend hastily near the end of the financial year. His fear was that if he didn’t spend all the money assigned to him, he might lose it. The athletics department might also assign less money to the rowing program in the subsequent year.

On a grander scale, the congressional divvying process incentivizes the Pentagon to spend right away—or at least pretend to—and beyond what was necessary. That way the Pentagon signals its need for more the next year. Unfortunately, there appears to be little reward for saving money.

Stories of waste, therefore, are predictable. My favorite example is the U.S. Navy “green fleet,” which uses “biofuels” at 10 times the price of regular petroleum. There was also the buried 2016 internal report that identified $125 billion in administrative waste. That happens when you have more than 1 million people in back-office personnel alone.

The Pentagon has also achieved inflated spending with “fabricated numbers,” as described by Jack Armstrong. The man who worked five years in the Defense Department’s Office of Inspector General asserts the Pentagon doesn’t necessarily spend all the money allocated. Rather than return it, however, officials “plug” or “nip” the money. That means they transfer it on paper to appear spent or in accounts dedicated to long-term projects.

The magnitude and layers of these transfers, which conceal the true destination of funds, is mind-boggling. For many years, they have surpassed $1 trillion, including $1.7 trillion in 2012.

See Something, Say Nothing

The Pentagon’s accountability problems facilitate a counterproductive downward cycle. Given the enormous availability of funds, those overseeing the department face less resistance and fare better if they don’t raise objections. Gradually, that inevitably means a culture of yes-men looking the other way, rather than a meritocracy dedicated to performance, pride, and outcomes.

A lack of transparency can also erode the rule of law in unexpected ways. If the Pentagon diverts funds to secret programs, as it seemingly did with U.S. Special Forces in Niger, the department can skirt checks and balances at the cornerstone of a constitutional republic. Congress exerts its authority is by authorizing funds for specific purposes, but accounting gimmicks obscure whether money actually follows stipulations.

President Donald Trump has already acknowledged the need for spending cuts on discretionary programs—the largest of which is defense. As an entrepreneur, he understands that superior quality is not synonymous with a higher price. The Pentagon’s failed audit shows there is low-hanging fruit for achieving a higher-performing, better-targeted military with a lower burden on taxpayers.

Fergus Hodgson is the founder and executive editor of the Latin American intelligence publication Antigua Report. 

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.

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