Despite being the taxpayers’ greatest investment — more than $700 billion a year — the Department of Defense has remained an organizational black box throughout its history. It’s repelled generations of official inquiries, the latest being an audit three decades in the making, mainly by scrambling its accounting into such a mess that it may never be untangled.
Ahead of misappropriation, fraud, theft, overruns, contracting corruption and other abuses that are almost certainly still going on, the Pentagon’s first problem is its books. It’s the world’s largest producer of wrong numbers, an ingenious bureaucratic defense system that hides all the other rats’ nests underneath. Meet the Gordian knot of legend, brought to life in modern America.
At the tail end of last year, the Department of Defense finally completed an audit. At a cost of $400 million, some 1,200 auditors charged into the jungle of military finance, but returned in defeat. They were unable to pass the Pentagon or flunk it. They could only offer no opinion, explaining the military’s empire of hundreds of acronymic accounting silos was too illogical to penetrate.
The audit is the last piece in one of the great ass-covering projects ever undertaken, also known as the effort to give the United States government a clean bill of financial health. Twenty-nine years ago, in 1990, Congress ordered all government agencies to begin producing audited financial statements. Others complied. Defense refused from the jump.
It took a Herculean legislative effort lasting 20 years to move the Pentagon off its intransigent starting position. In 2011, it finally agreed to be ready by 2017, which turned into 2018, when the Department of Defense finally complied with part of the law ordering “timely performance reports.”
Last November 15th, when the whiffed audit was announced, Deputy Secretary of Defense Patrick Shanahan said it was nothing to worry about, because “we never expected to pass it.” Asked by a reporter why taxpayers should keep giving the Pentagon roughly $700 billion a year if it can’t even “get their house in order and count ships right or buildings right,” Shanahan quipped, “We count ships right.”
This was an inside joke. The joke was, the Pentagon isn’t so hot at counting buildings. Just a few years ago, in fact, it admitted to losing track of “478 structures,” in addition to 39 Black Hawk helicopters (whose fully loaded versions list for about $21 million a pop).
That didn’t mean 478 buildings disappeared. But they did vanish from the government’s ledgers at some point. The Pentagon bureaucracy is designed to spend money quickly and deploy troops and material to the field quickly, but it has no reliable method of recording transactions. It designs stealth drones and silent-running submarines, but still hasn’t progressed to bar codes when it comes to tracking inventory. Some of its accounting programs are using the ancient computing language COBOL, which was cutting-edge in 1959.
If and when the defense review is ever completed, we’re likely to find a pile of Enrons, with the military’s losses and liabilities hidden in Enron-like special-purpose vehicles, assets systematically overvalued, monies Congress approved for X feloniously diverted to Program Y, contractors paid twice, parts bought twice, repairs done unnecessarily and at great expense, and so on.
Enron at its core was an accounting maze that systematically hid losses and overstated gains in order to keep investor money flowing in. The Pentagon is an exponentially larger financial bureaucracy whose mark is the taxpayer. Of course, less overtly a criminal scheme, the military still churns out Enron-size losses regularly, and this is only possible because its accounting is a long-tolerated fraud.
We’ve seen glimpses already. The infamous F-35 Joint Strike fighter program is now projected to cost the taxpayers $1.5 trillion, roughly what we spent on the entire Iraq War. Overruns and fraud from that program alone are currently expected to cost taxpayers about 100 times what was spent on Obama’s much-ballyhooed Solyndra solar-energy deal.
Meanwhile, the Defense Department a few years ago found about $125 billion in administrative waste, a wart that by itself was just under twice the size of that $74 billion Enron bankruptcy. Inspectors found “at least” $6 billion to $8 billion in waste in the Iraq campaign, and said $15 billion of waste found in the Afghan theater was probably “only a portion” of the total lost.
Even the military’s top-line budget number is an Enron-esque accounting trick. Congress in 2011 passed the Budget Control Act, which caps the defense budget at roughly 54 percent of discretionary spending. Almost immediately, it began using so-called Overseas Contingency Operations (OCO), a giant second checking account that can be raised without limit.
Therefore, for this year, the Pentagon has secured $617 billion in “base” budget money, which puts it in technical compliance with the Budget Control law. But it also receives $69 billion in OCO money, sometimes described as “war funding,” a euphemistic term for an open slush fund. (Non-defense spending also exceeds caps, but typically for real emergencies like hurricane relief.) Add in the VA ($83 billion), Homeland Security ($46 billion), the National Nuclear Security Administration ($21.9 billion) and roughly $19 billion more in OCO funds for anti-ISIS operations that go to State and DHS, and the actual defense outlay is north of $855 billion, and that’s just what we know about (other programs, like the CIA’s drones, are part of the secret “black budget”).
In a supreme irony, the auditors’ search for boondoggles has itself become a boondoggle. In the early Nineties and 2000s, the Defense Department spent billions hiring private firms in preparation for last year. In many cases, those new outside accountants simply repeated recommendations that had already been raised and ignored by past government auditors like the Defense inspector general.
After last year’s debacle, the services are now spending even more on outside advice to prepare for the next expected flop. The Air Force alone just awarded Deloitte up to $800 million to help the service with future “audit preparation.” The Navy countered with a $980 million audit-readiness contract spread across four companies (Deloitte, Booz Allen Hamilton, Accenture and KPMG).
Taxpayers, in other words, are paying gargantuan sums to private accounting firms to write reports about how previous recommendations were ignored. (...)
For instance, part of what inspired original investigations into defense finances were infamous stories in the 1980s and early Nineties about the military charging $640 for toilet seats, $436 for hammers, etc. A chief crusader was a young Iowa Sen. Chuck Grassley, who was so determined to hear such tales from famed military whistle-blower Franklin C. “Chuck” Spinney — one of the first military analysts to go public with accusations of waste and procurement fraud — that early in 1983 Grassley drove to the Pentagon in an orange Chevette to see him.
The DoD refused to let Grassley see Spinney. Grassley got him to testify on the Hill six weeks later.
“The following Monday, his photo was on the cover of Time magazine,” Grassley recalls. The March 1983 cover asked, are billions being wasted?
It seemed like a breakthrough. Spinney’s tales of waste became symbols that aroused the imagination of both the left and the right, who each saw in them their own vision of government run amok.
But 35 years later, Chuck Grassley, now 85, is still sending letters to the Pentagon about overpriced parts, only this time with more zeros added. The Iowan last year asked why we were spending more than $10,000 apiece for 3D printed airborne toilet-seat covers, or $56,000 on 25 reheatable drinking cups at a brisk $1,280 each (apparently an upgrade to earlier iterations of $693 coffee cups, whose handles broke too easily). The DoD has since claimed to have fixed these problems.
Asked if he was frustrated that it’s the same stories decades later, Grassley says, “Absolutely.” He pauses. “And a long time after I leave the Senate, it’ll likely still be the same problem.”
Three decades into the effort to pry open the Pentagon’s books, it’s not clear if we’ve been going somewhere, or we’ve just been spending billions to get nowhere, in one of the most expensive jokes any nation has played on itself. “When everything’s always a mystery,” says Grassley, “nothing ever has to be solved.”
[ed. This is how Rome died (History.com). See also: Pentagon tells Congress of projects that could be hit to pay for wall (Reuters). Laugh. Or cry.]
Ahead of misappropriation, fraud, theft, overruns, contracting corruption and other abuses that are almost certainly still going on, the Pentagon’s first problem is its books. It’s the world’s largest producer of wrong numbers, an ingenious bureaucratic defense system that hides all the other rats’ nests underneath. Meet the Gordian knot of legend, brought to life in modern America.
At the tail end of last year, the Department of Defense finally completed an audit. At a cost of $400 million, some 1,200 auditors charged into the jungle of military finance, but returned in defeat. They were unable to pass the Pentagon or flunk it. They could only offer no opinion, explaining the military’s empire of hundreds of acronymic accounting silos was too illogical to penetrate.

It took a Herculean legislative effort lasting 20 years to move the Pentagon off its intransigent starting position. In 2011, it finally agreed to be ready by 2017, which turned into 2018, when the Department of Defense finally complied with part of the law ordering “timely performance reports.”
Last November 15th, when the whiffed audit was announced, Deputy Secretary of Defense Patrick Shanahan said it was nothing to worry about, because “we never expected to pass it.” Asked by a reporter why taxpayers should keep giving the Pentagon roughly $700 billion a year if it can’t even “get their house in order and count ships right or buildings right,” Shanahan quipped, “We count ships right.”
This was an inside joke. The joke was, the Pentagon isn’t so hot at counting buildings. Just a few years ago, in fact, it admitted to losing track of “478 structures,” in addition to 39 Black Hawk helicopters (whose fully loaded versions list for about $21 million a pop).
That didn’t mean 478 buildings disappeared. But they did vanish from the government’s ledgers at some point. The Pentagon bureaucracy is designed to spend money quickly and deploy troops and material to the field quickly, but it has no reliable method of recording transactions. It designs stealth drones and silent-running submarines, but still hasn’t progressed to bar codes when it comes to tracking inventory. Some of its accounting programs are using the ancient computing language COBOL, which was cutting-edge in 1959.
If and when the defense review is ever completed, we’re likely to find a pile of Enrons, with the military’s losses and liabilities hidden in Enron-like special-purpose vehicles, assets systematically overvalued, monies Congress approved for X feloniously diverted to Program Y, contractors paid twice, parts bought twice, repairs done unnecessarily and at great expense, and so on.
Enron at its core was an accounting maze that systematically hid losses and overstated gains in order to keep investor money flowing in. The Pentagon is an exponentially larger financial bureaucracy whose mark is the taxpayer. Of course, less overtly a criminal scheme, the military still churns out Enron-size losses regularly, and this is only possible because its accounting is a long-tolerated fraud.
We’ve seen glimpses already. The infamous F-35 Joint Strike fighter program is now projected to cost the taxpayers $1.5 trillion, roughly what we spent on the entire Iraq War. Overruns and fraud from that program alone are currently expected to cost taxpayers about 100 times what was spent on Obama’s much-ballyhooed Solyndra solar-energy deal.
Meanwhile, the Defense Department a few years ago found about $125 billion in administrative waste, a wart that by itself was just under twice the size of that $74 billion Enron bankruptcy. Inspectors found “at least” $6 billion to $8 billion in waste in the Iraq campaign, and said $15 billion of waste found in the Afghan theater was probably “only a portion” of the total lost.
Even the military’s top-line budget number is an Enron-esque accounting trick. Congress in 2011 passed the Budget Control Act, which caps the defense budget at roughly 54 percent of discretionary spending. Almost immediately, it began using so-called Overseas Contingency Operations (OCO), a giant second checking account that can be raised without limit.
Therefore, for this year, the Pentagon has secured $617 billion in “base” budget money, which puts it in technical compliance with the Budget Control law. But it also receives $69 billion in OCO money, sometimes described as “war funding,” a euphemistic term for an open slush fund. (Non-defense spending also exceeds caps, but typically for real emergencies like hurricane relief.) Add in the VA ($83 billion), Homeland Security ($46 billion), the National Nuclear Security Administration ($21.9 billion) and roughly $19 billion more in OCO funds for anti-ISIS operations that go to State and DHS, and the actual defense outlay is north of $855 billion, and that’s just what we know about (other programs, like the CIA’s drones, are part of the secret “black budget”).
In a supreme irony, the auditors’ search for boondoggles has itself become a boondoggle. In the early Nineties and 2000s, the Defense Department spent billions hiring private firms in preparation for last year. In many cases, those new outside accountants simply repeated recommendations that had already been raised and ignored by past government auditors like the Defense inspector general.
After last year’s debacle, the services are now spending even more on outside advice to prepare for the next expected flop. The Air Force alone just awarded Deloitte up to $800 million to help the service with future “audit preparation.” The Navy countered with a $980 million audit-readiness contract spread across four companies (Deloitte, Booz Allen Hamilton, Accenture and KPMG).
Taxpayers, in other words, are paying gargantuan sums to private accounting firms to write reports about how previous recommendations were ignored. (...)
For instance, part of what inspired original investigations into defense finances were infamous stories in the 1980s and early Nineties about the military charging $640 for toilet seats, $436 for hammers, etc. A chief crusader was a young Iowa Sen. Chuck Grassley, who was so determined to hear such tales from famed military whistle-blower Franklin C. “Chuck” Spinney — one of the first military analysts to go public with accusations of waste and procurement fraud — that early in 1983 Grassley drove to the Pentagon in an orange Chevette to see him.
The DoD refused to let Grassley see Spinney. Grassley got him to testify on the Hill six weeks later.
“The following Monday, his photo was on the cover of Time magazine,” Grassley recalls. The March 1983 cover asked, are billions being wasted?
It seemed like a breakthrough. Spinney’s tales of waste became symbols that aroused the imagination of both the left and the right, who each saw in them their own vision of government run amok.
But 35 years later, Chuck Grassley, now 85, is still sending letters to the Pentagon about overpriced parts, only this time with more zeros added. The Iowan last year asked why we were spending more than $10,000 apiece for 3D printed airborne toilet-seat covers, or $56,000 on 25 reheatable drinking cups at a brisk $1,280 each (apparently an upgrade to earlier iterations of $693 coffee cups, whose handles broke too easily). The DoD has since claimed to have fixed these problems.
Asked if he was frustrated that it’s the same stories decades later, Grassley says, “Absolutely.” He pauses. “And a long time after I leave the Senate, it’ll likely still be the same problem.”
Three decades into the effort to pry open the Pentagon’s books, it’s not clear if we’ve been going somewhere, or we’ve just been spending billions to get nowhere, in one of the most expensive jokes any nation has played on itself. “When everything’s always a mystery,” says Grassley, “nothing ever has to be solved.”
by Matt Taibbi, Rolling Stone | Read more:
Image: Victor Juhasz[ed. This is how Rome died (History.com). See also: Pentagon tells Congress of projects that could be hit to pay for wall (Reuters). Laugh. Or cry.]