Pentagon's messy books defy auditors

A giant operation with unwieldy, incompatible accounting systems means much gets lost

When Perry Jefferies was serving in Iraq, the computers showed that his 4th Infantry Division troops had access to drinking water, a place to shower and working wheels on their vehicles.

As the first sergeant came to understand when scrounging for water, towing immobilized tanks and driving to other posts or to Kuwait to pick up needed parts, the Pentagon's bookkeeping doesn't always match reality.

Jefferies saw the real-life results of what for years has been a visible "accounting" problem in Washington -- the Pentagon's inability to keep accurate track of transactions and assets.

A labyrinth of arcane and incompatible accounting systems has in recent years led the department to pay the wrong amounts to troops, civilian workers and contractors; to lose track of its equipment, even hard-to-misplace planes and tanks; and to improperly document trillions of dollars in transactions that leave tax dollars vulnerable to abuse, according to government reports.

A long-elusive "clean audit" sought by the Department of Defense -- for years pegged for 2007 -- is nowhere on the horizon. The agency's books are such a mess that its accountants have stopped wasting money trying to audit them.

"We don't know how badly managed it is," said Winslow T. Wheeler, director of a military reform project at the Center for Defense Information, an independent monitor of the military. "It's not that DOD flunks audits, it's that DOD's books cannot be audited. DOD aspires for the position where it flunks an audit. If this were a public company, it would have gone belly up before World War II."

The accounting problems would cost taxpayers $13 billion in 2005, Gregory D. Kutz, a managing director for the investigative arm of Congress, the Government Accountability Office, told lawmakers last summer.

"That's $35 million a day," he added for emphasis.

Clogged stovepipe

At the heart of the problem is what government accountants like to call the agency's "stovepiped" setup, a tangle of 4,150 different business operations. (Until 2004, the department said it had 2,200 varied systems, but last year it reported finding an additional 1,900.) It has 713 different human resources systems, for example.

The business systems haven't been easy to integrate for a number of reasons, not the least of which is the sheer volume and complexity of the operation. For example, the Defense Department has at least 5.2 million inventory items, compared with 11,000 at Wal-Mart or 50,000 at Home Depot stores, said Thomas B. Modly, deputy undersecretary of defense for financial management.

"There's probably nothing like it in the world," said Jeffrey Steinhoff, managing director for financial management and assurance at the GAO. "It's not a mom-and-pop store."

Jim Minnery, an accountant in Ohio who works for the Defense Finance and Accounting Service, said few people understand the enormousness of the task.

A central problem is that the Pentagon didn't document what its assets were worth before Congress decided in the early 1990s to get serious about federal spending accountability, he said.

"The Pentagon wasn't in the business of making money, so they never needed an income statement," Minnery said. "They expensed their assets like planes and buildings and such. They dished money out, and they never kept track of what they owned."

When forced to put together a financial statement, the agency had to try to assign a value to everything, new and used, on its bases and inside its offices, storage rooms and arsenals.

"That's one of the main reasons I don't believe they'll ever have a clean [audit]," said Minnery, whose complaints about missing money in 2002 earned him a label as a whistle-blower.