Hypocrisy is defined as the practice of professing standards, beliefs and values contrary to one’s real character or actual behavior. A prime example of hypocrisy in the federal government is the way the Department of Defense (DoD) deals with financial accounting. Basically put, DoD holds the private companies with which it contracts to accounting and reporting standards that it cannot meet. Jews call this chutzpah.
Take one recent example. Back in 2010, then-Secretary of Defense Robert Gates announced a series of efficiency measures intended to save $100 billion from the defense budget by 2016. According to a just published study by the Government Accountability Office (GAO), the Pentagon can’t tell us how much progress it has made on the Gates initiative or how much money it has actually saved. The GAO report declared that DoD “lacks a systematic basis for evaluating whether its various initiatives have improved the efficiency or effectiveness of its programs or activities.”
This is just the tip of the iceberg. DoD doesn’t have validated financial statements. Four years ago, Congress ordered the Pentagon to get its act together and make itself auditable. Of course, it gave the Pentagon seven years to do so. A number of DoD component organizations are already warning that they don’t believe they will be ready for 2017.
Every two years at the start of a new Congress, GAO calls attention to agencies and program areas that are high risk due to their vulnerabilities to fraud, waste, abuse, and mismanagement, or are most in need of transformation. This “high risk” includes six areas involving the Department of Defense: approach to business transformation, business systems modernization, support infrastructure management, financial management, supply chain management and weapons system acquisition. In its most recent assessment of DoD’s financial management, GAO found, among many deficiencies “internal control weaknesses in DoD’s procedures for maintaining accountability for billions of dollars in funds and other resources. For example, the Army and DFAS [Defense Finance and Accounting Services] could not readily identify the full population of payroll accounts associated with the Army’s $46 billion active duty military payroll because of deficiencies in existing procedures and nonintegrated personnel and payroll systems.” That’s $46 billion with a B!
A recent Reuters’ investigative report on DoD accounting practices concluded 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.”
DoD’s accounting trials and tribulations would be just so much additional grist for the mills of the small government crowd and taxpayer advocacy groups were it not for the fact that while the Pentagon cannot account for its own performance or the way it spends money, it demands that industry do so. Companies are required to provide detailed cost and pricing data on every item they use on a defense contract. Recently, some Pentagon acquisition officials have even started to demand this information for commercial items, even though the contract does not require this level of detail. DoD’s unique accounting system is a major barrier to entry into the defense marketplace for commercial companies which are used to the generally accepted accounting practices that are recognized worldwide. The Pentagon reported to be withholding a portion of progress payments from a number of companies based on allegations of bookkeeping issues related to their application of the Earned Value Management System.
Industry has always been held to strict financial auditing standards made even more robust by Sarbanes-Oxley. Company officials are personally held responsible and subject to severe penalties for irregularities. Just imagine if government officials had to sign their names to their departments’ financial statements and risk going to jail if there were significant irregularities.
DoD has no clue as to how much its unique accounting standards and ever-increasing demand for information, audits and reviews costs. I am not aware of any senior defense acquisition official ever even asking the question. Those that can’t do, shouldn’t preach to others. The Pentagon also should be embarrassed for its hypocrisy.
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