Friday, August 12, 2016
U.S. Army fudged its accounts by trillions of dollars, auditor finds
Fri Aug 19, 2016 | 5:34 PM EDT U.S. Army fudged its accounts by trillions of dollars, auditor finds U.S. army soldiers are seen marching in the St. Patrick's Day Parade in New York, March 16, 2013. REUTERS/Carlo Allegri U.S. army soldiers are seen marching in the St. Patrick's Day Parade in New York, March 16, 2013. Reuters/Carlo Allegri U.S. Army fudged its accounts by trillions of By Scot J. Paltrow | NEW YORK (Reuters) - 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. "THE GRAND PLUG" 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. (Edited by Ronnie Greene.) ================ The Pentagon failed to account for $6.5 trillion in its financial statement, a recently-recovered Inspector General’s report on the 2015 fiscal year said. It reveals the audit of the Department of Defense was “materially misstated.” The army failed to provide “accurate, complete, timely and well-supported” documents that could have explained the use of trillions of dollars in quarterly and yearend adjustments. The US military made $2.8 trillion in wrongful adjustments in one quarter alone in 2015, and $6.5 trillion for the year, but could not provide anything that would detail what it spent the money on. There were a total of 64,321 journal voucher (JV) adjustments made in the third quarter and 142,355 by the yearend, but only 7,083 of them were supported with detailed documentation of transactions. The IG has also found that 16,513 of 1.3 million records were “removed” from the Pentagon’s budget system during the third quarter of the 2015 fiscal year. “Without support for why these records were removed, we could not determine whether the records continued valid transactions,” the IG said, adding that the Defense Finance and Accounting Service Indianapolis (DFAS Indianapolis) could not explain why the files were removed. At the same time, data that Army General Funds (AGF) cited in its financial reports in both the third quarter and yearend “were unreliable and lacked an adequate audit trail,” which are necessary to confirm “accuracy, completeness and timeliness” of transactions, the Department of Defense Inspector General found. The IG obtained computer-processed data, which the report said only supported the conclusions, even though investigators could not “attest to the reliability” of the files they obtained from the Army. DFAS Indianapolis said that misstated adjustment occurred because they “decided to use system-generated adjustments rather than manual” when preparing AGF’s financial statements. “The unsupported JV adjustments occurred because OASA(FM&C) and DFAS Indianapolis did not prioritize correcting the system deficiencies that caused errors resulting in JV adjustments,” the IG said, adding that “sufficient guidance for supporting system-generated adjustments” was not provided either. However, the military has reportedly downplayed the severity of the findings. “Though there is a high number of adjustments, we believe the financial statement information is more accurate than implied in this report,” an army spokesman told Reuters, stressing the Pentagon’s eagerness to root out problems. In 2015, Army General Funds reported assets of $282.6 billion and $42.7 billion in liabilities as well as budgetary resources of $ 219.5 billion. Earlier this year, Congress set a September 30, 2017 deadline for the DoD to obtain a full financial statement, but there is a risk that “the Army will not achieve audit readiness.” The findings by the DOD’s IG were released back on July 26, but at the time, the report failed to attract attention to the Pentagon’s fudged accounting. However, the Pentagon – the single largest US government bureaucracy - has been accused of delaying its financial accounting multiple times. A former Defense Inspector General official in charge of auditing the Army General Fund, Jack Armstrong, told Reuters that the same type of unjustified changes to Army financial statements, as the IG’s report revealed, were already being made when he retired in 2010. “They don’t know what the heck the balances should be,” Armstrong said.