Aug. 19, 2016, "US Army fudged its accounts by trillions of dollars, auditor finds," Reuters, Scot J. Paltrow, New York
"The United States Army's finances are so jumbled it had to make
trillions of dollars of improper accounting adjustments to create an
illusion that its books are balanced.
The Defense Department's Inspector General, in a June report, said
the Army made $2.8 trillion in wrongful adjustments to accounting
entries in one quarter alone in 2015, and $6.5 trillion for the year.
Yet the Army lacked receipts and invoices to support those numbers or
simply made them up.
As
a result, the Army's financial statements for 2015 were "materially
misstated," the report concluded. The "forced" adjustments rendered the
statements useless because "DoD and Army managers could not rely on the
data in their accounting systems when making management and resource
decisions." Disclosure of the Army's manipulation of numbers is the latest
example of the severe accounting problems plaguing the Defense
Department for decades.
The report affirms a 2013 Reuters series revealing how the Defense
Department falsified accounting on a large scale as it scrambled to
close its books. As a result, there has been no way to know how the
Defense Department - far and away the biggest chunk of Congress' annual
budget - spends the public's money.
The new report focused on the Army's General Fund, the bigger of its
two main accounts, with assets of $282.6 billion in 2015. The Army lost
or didn't keep required data, and much of the data it had was
inaccurate, the IG said.
"Where is the money going? Nobody knows," said Franklin Spinney, a
retired military analyst for the Pentagon and critic of Defense
Department planning.
The significance of the accounting problem goes beyond mere concern
for balancing books, Spinney said. Both presidential candidates have
called for increasing defense spending amid current global tension.
An accurate accounting could reveal deeper problems in how the
Defense Department spends its money. Its 2016 budget is $573 billion,
more than half of the annual budget appropriated by Congress. The Army account's errors will likely carry consequences for the entire Defense Department.
Congress set a September 30, 2017 deadline for the department to be
prepared to undergo an audit. The Army accounting problems raise doubts
about whether it can meet the deadline - a black mark for Defense, as
every other federal agency undergoes an audit annually.
For years, the Inspector General - the Defense Department's official
auditor - has inserted a disclaimer on all military annual reports. The
accounting is so unreliable that "the basic financial statements may
have undetected misstatements that are both material and pervasive."
In an e-mailed statement, a spokesman said the Army "remains
committed to asserting audit readiness" by the deadline and is taking
steps to root out the problems.
The spokesman downplayed the significance of the improper changes,
which he said net out to $62.4 billion. "Though there is a high number
of adjustments, we believe the financial statement information is more
accurate than implied in this report," he said.
Jack Armstrong, a former Defense Inspector General official in charge
of auditing the Army General Fund, said the same type of unjustified
changes to Army financial statements already were being made when he
retired in 2010.
The Army issues two types of reports - a budget report and a
financial one. The budget one was completed first. Armstrong said he
believes fudged numbers were inserted into the financial report to make
the numbers match.
"They don't know what the heck the balances should be," Armstrong said.
Some employees of the Defense Finance and Accounting Services (DFAS),
which handles a wide range of Defense Department accounting services,
referred sardonically to preparation of the Army's year-end statements
as "the grand plug," Armstrong said. "Plug" is accounting jargon for
inserting made-up numbers.
At first glance adjustments totaling trillions may seem impossible.
The amounts dwarf the Defense Department's entire budget.
Making changes
to one account also require making changes to multiple levels of
sub-accounts, however. That created a domino effect where, essentially,
falsifications kept falling down the line. In many instances this
daisy-chain was repeated multiple times for the same accounting item.
The IG report also blamed DFAS, saying it too made unjustified
changes to numbers. For example, two DFAS computer systems showed
different values of supplies for missiles and ammunition, the report
noted - but rather than solving the disparity, DFAS personnel inserted a
false "correction" to make the numbers match.
DFAS also could not make accurate year-end Army financial statements
because more than 16,000 financial data files had vanished from its
computer system. Faulty computer programming and employees' inability to
detect the flaw were at fault, the IG said.
DFAS is studying the report "and has no comment at this time," a spokesman said."
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