Six-point-five trillion. That’s “trillion,” with a “T.” That is the dollar amount for wrongful accounting adjustments made by the Army in 2015 according to a June report by the Pentagon’s inspector general. The adjustments, according to the report, have left the Army’s financial statements useless for informing future spending decisions. As Reuters explained in its write-up on the inspector general’s report, this problem is not new either:
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.
Questions about the Army’s auditability come on the heels of Government Accountability Office criticism that led to the rescinding of the U.S. Marine Corps “clean audit” last year. Moreover, the problem is not limited to the military services. Last year, Bryan Bender of Politico reported that the Defense Logistics Agency has failed to adopt modern business practices for inventory and accounting. And the inspector general report that fingered the Army’s financials found that the organization that provides a variety of accounting to services at the Pentagon, Defense Financial and Accounting Services, also made what Reuters called “unjustified changes” to its books when it could not account for a discrepancy in munitions supplies in two different computer systems.
Advocates for more responsible defense spending often point to an audit of the Department of Defense as a key step in ridding the Pentagon of waste. But with the inability of the military services and various defense-wide agencies to do proper bookkeeping, is an audit even possible? And if it is, will the audit produce the salutary effects advocates claim? Given the complexity of defense programs, even when properly accounted for, there will rarely be a line-item for $435 hammers.
Public administration scholars William Stanbury and Fred Thompson addressed this bookkeeping problem two decades ago in a survey of academic literature on government waste. In developing a taxonomy of different types of waste, the authors used the U.S. Navy’s failure to utilize proper accounting software as an example of “x-inefficiency.” Also known as “technical inefficiency,” the authors define x-inefficiency as a failure to use the best available technology—with technology defined broadly as both equipment and practices.
While the authors cite authors cite both ignorance and the unintended consequences of legislation—in the case of the Navy’s outdated accounting practices, the Anti-Deficiency Act—lack of market competition is often the culprit. The authors agree with Harvey Liebenstein, who coined the term x-inefficiency and argued that competitive pressure was the best way to deal with mismanagement. Seeing as the legislative mandate to be “audit ready” has obviously not provided the Pentagon’s various managers with the incentive to properly keep its books, perhaps a healthy competition for resources and missions will provide defense organizations the motivation they currently lack.