The Pentagon can’t, and won’t, meet audit deadlines

"We cannot track $2.3 trillion in transactions." - Donald Rumsfeld

Former Defense Secretary Donald Rumsfeld     (AP Photo/Dennis Cook, File)

Former Defense Secretary Donald Rumsfeld (AP Photo/Dennis Cook, File)

The Pentagon has spent billions of dollars on efforts to make itself audit-ready in time for not one, but two deadlines – one in 2014, the other in 2017.

It won’t meet the first and probably won’t meet the second.

The deadlines represent efforts inside and outside of the Pentagon toward meeting a goal that has eluded it since the mid-1990s, when all government departments were first required by law to submit to annual audits. The Defense Department, alone among all federal agencies, has so far failed to meet that requirement – leaving trillions of dollars in cumulative annual defense budgets unaudited.

Amid fierce national debate over ballooning national debt, Congress in 2009 passed a law to prod the Pentagon, setting a 2017 deadline for audit-readiness. Two years later, then-Secretary of Defense Leon Panetta added to the pressure, ordering that a significant portion of the Pentagon’s books – its annual report on the status of all appropriations – be audit-ready by 2014.

That report, the Statement of Budgetary Resources, is, in essence, the Pentagon’s checkbook, showing the amount of money from congressional appropriations spent or committed to being spent, and the amount remaining for new spending. Without it, there is no way to budget accurately or ensure accountability.

Tina Jonas, Defense Department comptroller from 2004 through 2008 and now president of UnitedHealthcare Military & Veterans, says that when she was drafting budgets, the lack of reliable financial statements made it impossible for her to know how much money the Pentagon had and how much it needed. “I didn’t want to ask Congress for money that we didn’t need,” she says.

A senior Pentagon official confirmed that the 2014 deadline won’t be met. The Pentagon discreetly acknowledged the same in an unremarkable passage on page 5 of section II of the November 2012 “Financial Improvement and Audit Readiness (FIAR) Plan Status Report” from Defense Department Comptroller Robert Hale’s office: “The scope of first year audits of the SBR (Statement of Budgetary Resources) in FY 2015 will be limited to audits of schedules containing only current year appropriation activity.” (Panetta’s order requires that the SBR be audit-ready in 2014 so that a first audit can be conducted in 2015.)

That means the audit will ignore the hundreds of billions of dollars in unspent appropriations from previous years, as when, for example, Congress approves a multiyear weapons contract. The reason, Pentagon officials said, is that huge amounts of essential data have been lost in the Pentagon’s accounting systems, or were never recorded in the first place. The comptroller’s office said that out of $992 billion in appropriations, about $220 billion won’t be examined, using estimates based on 2012 numbers.

“This is a tactical change that refines the scope of the audit,” said Jennifer Elzea, a spokeswoman for the secretary of defense. “It does not change the goal, which is to improve the strength of our business processes and the quality of our financial information.”

Comptroller Hale said through a spokesman this month: “I expect most DoD budget statements will be ready for audit. It is possible that, because of budget turmoil and other problems, a few may not be ready.”

Lack of trustworthy data also makes the 2017 legally mandated deadline a long shot. Absent reliable accounting systems in the military services and other defense agencies, it will remain impossible to trace specific accounting entries to the “transaction level” to determine what the money paid for and whether the goods or services were delivered. Rivalries among the military services and Defense Department offices that want to keep their own systems also stand in the way. So does the services’ inability to figure out a way to value assets like ships, planes and weaponry.

For these reasons, says Gordon Adams, an American University professor of U.S. foreign policy and a specialist on defense issues, “we’ll get to 2017, and if past is prologue, the Defense Department will just move the goal posts again.”

For decades, fighting and winning the Cold War dominated Congress’s permissive approach to annual Pentagon appropriations. Then Congress passed the Chief Financial Officers Act of 1992, requiring annual audits of all federal departments, did lawmakers begin to pressure the Pentagon to manage its purse like any other government department. The law mandated that the Pentagon by audit-ready by 1996.

But year after year, top defense officials would appear before the House and Senate armed services committees to be scolded for missing their deadlines, and then they would set new ones. The next year, and the next, the scene was re-enacted. Congress and the White House stood back as more than half a trillion taxpayer dollars a year went unaudited.

Just weeks into his new job as secretary of defense under President George W. Bush, Donald Rumsfeld stated the problem: “Our financial systems are decades old. According to some estimates, we cannot track $2.3 trillion in transactions.” The importance of the issue, he said in a speech at the Pentagon, was not “about business practices, nor is the goal to improve figures on the bottom line. It’s really about the security of the United States of America. And let there be no mistake, it is a matter of life and death.”

That was Sept. 10, 2001. The next day, al Qaeda hijacked commercial airliners and flew them into the World Trade Center and the Pentagon. It would be nearly a decade before Pentagon accounting drew the attention of Congress.

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