A Michigan State professor tried to review the Dept. of Defense’s budget. You won’t believe what happened next.

Dec 4, 2019 at 1:00 am
Show me the money: The world’s largest bureaucracy, the Department of Defense, won’t yield its secrets — audit or not.
Show me the money: The world’s largest bureaucracy, the Department of Defense, won’t yield its secrets — audit or not. Tom Carlson

For the longest time, the Department of Defense's books were a riddle wrapped in an enigma trapped in the head of a yeti encased in amber and locked in a safe nestled deep in the Mariana Trench.

While every other federal government agency undergoes regular audits to verify the taxpayers got what they paid for, the DOD is the cheese that stood alone — until suddenly two years ago, out of the blue and seemingly for no reason, it relented.

Last November, the Defense Department "completed" its very first audit, which is to say eventually the auditors left and went home. You might imagine them throwing their hands in the air and shaking their heads as they walked away.

The audit will remain an ongoing question as the military promises to streamline outdated processes and systems, which will help reconcile human errors and provide for cleaner, more transparent books. For now they failed, tomorrow they promise better, yadda yadda yadda. Within the next 10 years they even promise to get things completely squared away.

This is all fine and good, but there are some people still concerned about the proverbial dead body in the icebox downstairs. Mark Skidmore is one such person.

In 2017, the Michigan State economics professor teamed with a former government official and two grad students and pored over budget reports going back to 1998 to identify more than $21 trillion in "Unsupported Journal Voucher Adjustments." These are essentially uncorroborated ledger entries, like corporate travel reimbursement forms absent the receipts.

What is this money? Where is it going or coming from? Why can't the numbers be verified? Do they not add up? Is the destination sketchy? Is there a mouse in the cupboard? And how'd the numbers get so large? Skidmore went through the alphabet.

"I've contacted the OMB, the GAO, the OIG," he says — referring to the Office of Management and Budget, the Government Accountability Office, and the Office of Inspector General. "None of them can answer any of my questions."

It's hard to tell what these irreconcilable numbers are because there's so little information about them. Plus they account for many multiples of what's been allocated congressionally. These aren't small enough to be fudge numbers; they account for nearly 10 times the Defense Department's $2.3 trillion in assets.

Any adjustment, or "plug," as they're known (as in "plug the hole") can contain multiple debits or credits of different sizes going back and forth. One such voucher adjustment from 2015 appears to have the Treasury paying $800 billion to the Army, whose budget for that year was $120 billion.

"In the appendix it says we had to make this adjustment to account for the past years... [but] the Treasury is authorized to transfer the right amount in the right year as authorized by Congress," he says. "There might be other appropriations from other funds, but it should've gotten the $120 billion every year. So why would you in a single year have to have $800 billion flowing in from Treasury? That's one of those questions for which I've never received a satisfactory answer."

Four days after Skidmore discussed his findings in an interview on USAWatchdog.com, the Defense Department announced they would be doing an audit. While there had been increasing pressure on the Defense Department, after resisting for 17 years the timing is peculiar to say the least — particularly when you start examining the dense mystery Skidmore uncovered, which, like a black hole, is only knowable by its dark inscrutability.

Skidmore came upon these accounting sinkholes listening to a talk by Catherine Austin Fitts, a former assistant secretary of Housing and Urban Development, in which she discussed a $6.5 trillion adjustment by the Department of the Army (including the aforementioned Treasury disbursement). At first he thought he'd heard her wrong and it was $6.5 billion. Nope, trillion.

So Skidmore teamed with Fitts to dig through the relevant reports and sort out what they could. It's thin gruel, by design. The Inspector General's report concerning the $6.5 trillion plug noted that more than 16,000 records that could reveal the source or destination of those funds were "removed."

That's the most frustrating part of the story. It's not even clear what we're not looking at. Skidmore tried to narrow his request to the Office of the Inspector General in hopes of getting something useful back. He understood they couldn't explain $21 trillion in transactions that had happened over 17 years. So Skidmore focused on 170 transactions that made up a $2.1 trillion adjustment within the $6.5 trillion adjustment from 2015.

"It's just 170 transactions. So I asked, 'Will you please post an addendum or attach a sheet that just lists those transactions with the explanation why they were unsupported or [what they were] presumably for?' That way I can determine if they're legitimate or if there is a red flag or [if] they're just fake numbers," Skidmore says. "And they won't. I would say can't, but I think they just won't."

Like the pallets of millions in $100 bills sent to Iraq in the aughts that "mysteriously" disappeared, there seems an odd indifference to transparency, oversight, or accountability for large sums of taxpayer monies, despite the fact they vanished into the bureaucracy with barely a trace — like wild animals into the brush.

Indeed, over the course of Skidmore's investigation, links to the relevant reports started disappearing from the Inspector General's website. They claimed it was just a website redesign. (Skidmore's team had already grabbed and saved all the relevant data.)

Now even the nature of what's revealed has changed. "The other reports were never redacted. They were vague and unclear and you couldn't see what was going on, but at least they were unredacted," Skidmore says. "The newest one was fully redacted."

An equally ominous note was struck last fall before the audit was completed. Skidmore noticed a guidance on accounting practices from FASAB (Federal Accounting Standards Advisory Board) about potentially classified programs being identified by the budget numbers. Rather than just redact that part of the report, FASAB recommended the DOD cook the books for public consumption, allowing them to hide such programs wherever they like.

"FASAB was recommending that the government be able to restate balances and move expenditures that were in entity A to some other part [of the budget]," Skidmore says, noting the change occurred six weeks before the audit's completion.

It's the Bush administration's notorious Downing Street memo applied to accounting: "fix the evidence to the case." Accountability? Trust us!

"We have now institutionalized non-transparency," he says. "We have a set of books for the public, and we have a real set of books for the select group of people who have the authority to determine if something is a national security issue. They also have the authority to move spending around. It could be a little amount moved around, or it could be huge amounts. How do you know?"

Jack Armstrong, a supervisory director of audits for the Defense Department's Office of the Inspector General for five years, told The Nation in a story last year, "If the DOD were being honest, they would go to Congress and say, 'All these proposed budgets we've been presenting to you are a bunch of garbage.'"

‘We have now institutionalized non-transparency.’

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Nobody we spoke with was willing or able to offer much more of an explanation. Some of the causes noted in the November audit include compatibility issues of different legacy computer systems, which required human input to bridge, creating opportunity for human error. There were also notable cases of simple failure to properly log equipment.

Speaking at the House Armed Services Committee's hearing on the audit in May, Pentagon Comptroller David Norquist and his chiefs noted that the Navy had discovered $73 million of inventory not in the system. The Air Force found $53 million in motors marked as "unusable" to be in fine working condition, and Jacksonville's base somehow discovered $280 million in inventory not listed in their system. That adds up to an astounding $400 million.

But you'd need to find 16,000 more situations just like those to cover that one $6.5 trillion plug from 2015. It's hardly the only one Skidmore found. There were more than 41 plugs notated in OIG reports, totaling at least $21 trillion. That's without counting the annual Defense Department plugs Skidmore found from 2001 to 2016 of unspecified size.

Many plugs were by individual services, such as one made by the Air Force for $1.4 and $1.6 trillion in 2009 and 2012 respectively, or the Army, which had plugs every year from 2002 to 2012 totaling $4.55 trillion. To put that in perspective, the entire defense budget for those 11 years only amounts to $6.5 trillion.

Even Fitts' Housing and Urban Development department was found to have used four plugs in the 17 years they surveyed, including a $278.5 billion plug in 2015. The fiscal year 2015 budget for Housing and Urban Development was just $48.3 billion.

So what the hell's going on here? Are we expected to believe a bevy of human errors and inventory errors could account for two-thirds of the entire Defense budget? And how does HUD go from needing a $1.9 billion plug in 2014, their first in 15 years, to needing one that's six multiples of their budget the following year?

It's not even the first time the illegitimate use of plugs has been publicized. A 2013 Reuters story quoted multiple people from the Defense Finance and Accounting Service (DFAS) saying they'd inserted phony numbers into Defense ledgers every day for decades. Absent any detail "for a lot of it," they were instructed to square their books with the Treasury, with or without documentation. Ed Yokel, who worked in the Cleveland DFAS office for 17 years, told Reuters that DFAS supervisors were required to approve thousands of plugs a month.

"It makes me worried we aren't accurately tabulating costs, and costs are being understated," says Travis Sharp, a research fellow at the Center for Strategic and Budgetary Assessments. "It's obscuring thoughtful consideration of the cost-benefit trade-offs."

Should we be concerned that the government entity receiving half of all the United States' discretionary income can't balance its books and has ledger discrepancies larger than its entire budget the last 17 years? Isn't giving their inaccurate, borderline deceptive accounting a pass enabling and essentially indemnifying the potential for large-scale fraud and malfeasance?

click to enlarge Rep. Elissa Slotkin worked at the Dept. of Defense. “It’s not an unpatriotic thing to say we’re going to cut waste at the Pentagon, and Lord knows there is fat to cut,” she says.
Rep. Elissa Slotkin worked at the Dept. of Defense. “It’s not an unpatriotic thing to say we’re going to cut waste at the Pentagon, and Lord knows there is fat to cut,” she says.

U.S. Rep. Elissa Slotkin (D-Mich.) has worked at the CIA, the NSC, and in different Defense Department policy positions. She's seen some of the accounts-swapping shenanigans that can go on at the end of the fiscal year, a practice known as "MIPRing," or a "Military Interdepartmental Purchase Request" — a method for transferring congressionally authorized funds across U.S. military organizations, which can avoid them being zeroed out at year-end. Some plug monies are surely a part of such three-card-monte budget games.

"I definitely saw all sorts of games to preserve funds," Slotkin says. "But while there is absolutely gamesmanship that goes on, particularly at the end of the fiscal year, some of that behavior was presented by the complete inability of Congress to pass a proper budget for the Defense Department."

She adds, "When you're dealing with something as big as the Pentagon making major investments in new weapon systems and munitions, you can't prepare in the best way if you're constantly living off of one-year budgets."

In many ways, these same issues have now bled into the military's off-budget slush fund, the Overseas Contingency Operations account. Increasingly, regular base expenditures that would typically be budgeted are being paid through the OCO. Slotkin suggests that's especially true because of the way yearly congressional continuing resolutions freeze branch and base budgets in place regardless of changing circumstances and needs on the ground.

"Many of these costs are thrown in the OCO account," Slotkin says. "It's just used as a slush fund when it should be in a proper base budget and then negotiated with Congress, which is just not happening."

From the Defense Department moving funds without Congressional approval to make them available for President Donald Trump's wall, to the fast-and-loose games of the OCO account (the Trump Administration's recent budget actually proposed a second off-book OCO slush fund just for bases), to Skidmore's inscrutable black-box accounting ledger plugs, there's increasingly ominous oversight questions about the United States Defense Department.

But again, this is nothing new. Indeed, George W. Bush's Defense Secretary Donald Rumsfeld held a press conference on September 10, 2001, to warn of a frightening new enemy — and not from overseas.

"The adversary's closer to home," Rumsfeld warned. "It's the Pentagon bureaucracy. In fact, it could be said it's a matter of life and death." He noted some estimates suggested the military "cannot track $2.3 trillion in transactions." His crusade was quickly forgotten in the events of the next 24 hours.

In the intervening years, President Barack Obama's Defense chiefs launched efficiency and modernization drives in 2010 and 2013 without achieving appreciable results. More attempts to replace old military computer systems or increase their interoperability have been tried over the years than can reasonably be mentioned.

Examples include the Defense Integrated Military Human Resources System and the Air Force's Expeditionary Combat Support System, each ditched after seven years and over a billion dollars without providing any additional functionality. The Air Force's Defense Enterprise Accounting and Management System, first begun in 2003, finally launched last year after overruns more than doubled costs to over $2.3 billion.

It became even harder to trust the Defense Department's commitment to efficiency and transparency when The Washington Post revealed in December 2016 that the DOD had buried a January 2015 report that saw a clear path to $125 billion in savings mostly through attrition and early retirements and curtailing the widespread use of contractors.

‘It’s not an unpatriotic thing to say we’re going to cut waste at the Pentagon, and Lord knows there is fat to cut.’

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The report focused on the growth in overhead, noting over a million support personnel backed an active-duty force of 1.3 million troops, our nation's fewest since 1940. It found the average administrator's job cost the government more than $200,000 in salary and benefits, and that the average contractor for the Army, Navy, or Air Force made around $180,000. Between the three forces, the DOD employed more than half a million contractors.

The consulting firm McKinsey & Company, which helped to create the report, found the DOD was spending $134 billion on business operations, double what it had estimated. More than 450,000 of those million employees worked in logistics or supply-chain jobs (more than work for Kroger, our nation's third-largest employer), and about 84,000 worked in human resources. Just the Pentagon's purchasing bureaucracy alone accounted for more than 200,000 employees, enough to place it among the country's 30 largest employers.

Pentagon officials allegedly feared a report highlighting its bloated management structure might encourage deeper cuts and undermine their continued rhetoric that years of austerity had undermined our armed forces' fighting integrity. So the report, already in final draft form, was never completed, and would have never been disclosed were it not for the Post.

It doesn't paint the prettiest picture for the nearly three-quarters of a trillion dollars American taxpayers deposit in the Defense Department coffers annually. Republicans have long agitated for a balanced-budget amendment, but that sounds like a joke when the largest part of the budget can fail its audit and is otherwise unaccountable.

Sure, there's now an annual audit, and it's a great show, but if you can move the money around however you see fit, is that really transparency? What prevents the military from cleaning their desk by throwing everything in a bottomless, un-audit-able closet, calling it classified, and shredding the documentation? Maybe someday they'll let us read the OIG report.

"Without any supporting documentation, we are all left with having to decide whether or not we 'trust' that government authorities are sharing accurate information," Skidmore says. "At some level, we all must operate with some degree of underlying faith, but in this context there is reason to doubt. We have consistently argued that in order to determine what these transactions were presumably for, one would need access to the underlying data. And yet the OIG has refused to provide any additional information, even with a FOIA request."

For her part, Rep. Slotkin believes in oversight and transparency. In fact, she thinks it's a solemn part of her duty. "The most patriotic thing I can do for the Defense Department — where my husband works — is [to] make sure the resources are being spent where they need to be to make sure we have the best military today and in the future and that it not be wasted," she says.

"It's not an unpatriotic thing to say we're going to cut waste at the Pentagon, and Lord knows there is fat to cut."

It's just a lot harder to find that fat when the DOD can turn off the lights and (at least publicly) misclassify or under-report spending. It's enough to make you wonder if the audit, whose announcement came so closely upon Skidmore's revelation, wasn't just Renault at the end of Casablanca telling his men to "round up the usual suspects."

We may never know. Until someone finally gets to the bottom of all those "Unsupported Adjustments," it's just more shadows and mirrors from the same people that brought you fraudulent stories like the Gulf of Tonkin and Saddam Hussein's Weapons of Mass Destruction.

Updated 9:37 a.m. on Saturday, Dec. 7: An earlier version of this article incorrectly referred to "MIPRing" as "nippering."

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