The Pentagon's doctored ledgers conceal epic waste

t_co

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Extremely detailed, well-researched, and highly relevant article on logistics and administration (easily the most underappreciated areas of military science). Though it's long, I recommend any DFIer with a serious interest in business/finance or military administration read this.

@W.G. Ewald - how accurate is this report? Are the budgetary systems in the DoD really as broken as Reuters suggests?

Also, @Ray, @Kunal Biswas, and @Decklander how do the IA/IAF/IN handle the task of keeping their books straight? Are they audited?

http://www.reuters.com/article/2013/11/18/us-usa-pentagon-waste-specialreport-idUSBRE9AH0LQ20131118

(Reuters) - Linda Woodford spent the last 15 years of her career inserting phony numbers in the U.S. Department of Defense's accounts.

Every month until she retired in 2011, she says, the day came when the Navy would start dumping numbers on the Cleveland, Ohio, office of the Defense Finance and Accounting Service, the Pentagon's main accounting agency. Using the data they received, Woodford and her fellow DFAS accountants there set about preparing monthly reports to square the Navy's books with the U.S. Treasury's - a balancing-the-checkbook maneuver required of all the military services and other Pentagon agencies.

And every month, they encountered the same problem. Numbers were missing. Numbers were clearly wrong. Numbers came with no explanation of how the money had been spent or which congressional appropriation it came from. "A lot of times there were issues of numbers being inaccurate," Woodford says. "We didn't have the detail "¦ for a lot of it."

The data flooded in just two days before deadline. As the clock ticked down, Woodford says, staff were able to resolve a lot of the false entries through hurried calls and emails to Navy personnel, but many mystery numbers remained. For those, Woodford and her colleagues were told by superiors to take "unsubstantiated change actions" - in other words, enter false numbers, commonly called "plugs," to make the Navy's totals match the Treasury's.

Jeff Yokel, who spent 17 years in senior positions in DFAS's Cleveland office before retiring in 2009, says supervisors were required to approve every "plug" - thousands a month. "If the amounts didn't balance, Treasury would hit it back to you," he says.

After the monthly reports were sent to the Treasury, the accountants continued to seek accurate information to correct the entries. In some instances, they succeeded. In others, they didn't, and the unresolved numbers stood on the books.

....

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.

.....

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.

.....

The main reason is rooted in the Pentagon's continuing reliance on a tangle of thousands of disparate, obsolete, largely incompatible accounting and business-management systems. Many of these systems were built in the 1970s and use outmoded computer languages such as COBOL on old mainframes. They use antiquated file systems that make it difficult or impossible to search for data. Much of their data is corrupted and erroneous.

.....

"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.

Consider the "vehicular control arm," part of the front suspension on the military's ubiquitous High Mobility Multipurpose Vehicles, or Humvees. As of November 2008, the DLA had 15,000 of the parts in stock, equal to a 14-year supply, according to an April 2013 Pentagon inspector general's report.

And yet, from 2010 through 2012, the agency bought 7,437 more of them - at prices considerably higher than it paid for the thousands sitting on its shelves. The DLA was making the new purchases as demand plunged by nearly half with the winding down of the Iraq and Afghanistan wars. The inspector general's report said the DLA's buyers hadn't checked current inventory when they signed a contract to acquire more.

......

The DLA also has run into resistance among warehouse supervisors who for years have been in charge of a handful of warehouse aisles and jealously husband their inventory. "I believe that the biggest challenge is helping item managers identify things we have in our warehouses that they can just let go of," Budden said in an interview published in an undated in-house DLA magazine.

......

Media reports of Defense Department waste tend to focus on outrageous line items: $604 toilet seats for the Navy, $7,600 coffee makers for the Air Force. These headline-grabbing outliers amount to little next to the billions the Pentagon has spent on repeated efforts to fix its bookkeeping, with little to show for it.

The Air Force's Expeditionary Combat Support System was intended to provide for the first time a single system to oversee transportation, supplies, maintenance and acquisitions, replacing scores of costly legacy systems. Work got under way in 2005. Delays and costs mounted. In late 2012, the Air Force conducted a test run. The data that poured out was mostly gibberish. The Air Force killed the project.

The system "has cost $1.03 billion "¦ and has not yielded any significant military capability," the Air Force said in a November 2012 announcement.

Fixing the system would cost an additional $1.1 billion, it said, and even then, it would do only about a quarter of the tasks originally intended, and not until 2020.

The Air Force blamed the failure on the main contractor, Virginia-based Computer Sciences Corp, saying the company was unable to handle the job.

.....

In May this year, Ralph Mariano, who worked as a civilian Navy employee for 38 years, pleaded guilty in federal court in Rhode Island to charges of conspiracy and theft of government funds related to a kickback scheme that cost the Navy $18 million from 1996 to 2011. Mariano was sentenced November 1 to 10 years in prison and fined $18 million.

Mariano admitted that as an engineer at the Naval Undersea Warfare Center in Newport, Rhode Island, he added money to contracts held by Advanced Solutions for Tomorrow. The Georgia-based company then paid kickbacks to Mariano and others, including friends and relatives.

Mariano was charged more than five years after the allegations against him first emerged in a 2006 civil whistleblower lawsuit in federal court in Georgia that had been kept under seal. Court documents suggest one reason why the conspiracy went undetected for so long: The Navy not only gave Mariano authority to award money to contractors; it also put him in charge of confirming that the contractors did the work. The Navy never audited any of the contracts until after Mariano was arrested, a Navy spokeswoman confirmed.
 
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Ray

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In India, there are audits and all transaction is based through a board.

Now, if everything is flawed and corrupt, then there is little to say.

Life is a gamble.

and the Chinese are the best at gambling and so you would not better than anyone, that nothing is life is perfect and their is no guaranteed win - there is just the gamble hedging on luck!
 

W.G.Ewald

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@W.G. Ewald - how accurate is this report? Are the budgetary systems in the DoD really as broken as Reuters suggests?
I get a check from DFAS every month. I would be foolish to criticize them.

But government waste, especially in the military, is a big problem, and for all the expose's that have been done, it continues.
 

t_co

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I get a check from DFAS every month. I would be foolish to criticize them.

But government waste, especially in the military, is a big problem, and for all the expose's that have been done, it continues.
I'll say here that the Chinese military is no better than the Pentagon when it comes to waste, either. I have literally watched officers from the General Logistics Department order way more equipment (specifically, radar-absorbing paint) than they need in order to fulfill an EOQ and hence get kickbacks.
 

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