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Saturday, August 27, 2016

US Army makes improper accounting adjustments adding up to trillions of dollars

While one can imagine a corporation making accounting errors amounting to millions or in the case of very large corporations even a billion dollars, according to a Reuters report, the U.S. Army made improper accounting adjustments of trillions of dollars.

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The Defense Department's Inspector General, issued a report in June that claims the Army's finances are in such disarray that it made improper accounting adjustments of trillions of dollars to make it look as if the books were in balance. In a June report the Inspector General found that the Army made a whopping $2.8 trillion in incorrect adjustments in just one quarter alone in 2015. For the entire year there were $6.5 trillion in improper adjustments. The Army either lacked receipts and invoices for the adjustments or simply made them up.
The report pointed out that as a result, the financial statements for the year 2015 were "materially misstated" making the statements useless because "DoD and Army managers could not rely on the data in their accounting systems when making management and resource decisions". These severe accounting problems have been common in the Defense Department for decades. Yet, the issue does not seem to play any significant role in political campaigns and no one seems to be held responsible.
As a Reuters article notes this report confirms what Reuters wrote about in 2013 in a series that revealed who the DoD falsified its accounts on a large scale to balance its books. Neither the politicians nor the US general public are able to know how the DoD budget which is the largest piece of the annual budget is spent. The June report concentrated on the Army's General Fund, which is the larger of its two accounts at $282.6 billion in 2015. Given the accounts are in the billions one might wonder how the adjustments could be in the trillions: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.
Franklin Spinney, a retired analyst for the Pentagon said that nobody knows where the money goes. Spinney said that these errors go beyond balancing books since both main presidential candidates are in favor of increased defense spending even though this spending is not properly accounted for. In 2016 the DoD budget is $573 billion, more than half the total annual budget.
The US Congress has set Sept. 30 next year as the deadline for the Department of Defense to undergo an audit. The problems with the Army accounts may make it impossible to meet the deadline. Every other federal agency is audited annually. The issues in the Defense Department are not new. For years the inspector General who audits DoD books, has inserted a disclaimer to the annual reports pointing out that the accounting is so unreliable that "the basic financial statements may have undetected misstatements that are both material and pervasive".
A spokesperson for the Army sent an e-mail saying that it was committed to audit readiness and was taking steps to root out problems. The statement downplayed the improper adjustments claiming that the net value of improper changes was $62.4 billion and that the information was more accurate than the report asserts. According to a retired employee of the Defense Inspector General, Jack Armstrong, these improper adjustments were already being made in 2010 when he retired.
Armstrong pointed out that the Army issues two types of reports, a budget report and a financial one. The budget one is completed first. He believes that fudged numbers are inserted into the financial report to make the numbers in the two reports match. Some employees of the Defense Finance and Accounting Services (DFAS) have their own sardonic special lingo for what happens. They refer to the improper adjustments as "the grand plug." "Plug" is accounting jargon for the insertion of made-up numbers.
The Inspector General's report also put some of the blame on the DFAS for the results. This included more than 16,000 financial data files vanishing from the computer systems. There was also faulty computer programming which employees were unable to detect. The DFAS was studying the report but had no comment at present.
These problems are not new. For years federal budget watchdogs such as the Project on Government Oversight and at National Priorities have been calling for an audit of the DoD to shed some light on areas of wasteful spending. The whole system seems to be to keep the public in the dark while those who contract with the DoD continue to profit.


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