Adonis Diaries

Archive for December 2nd, 2016

Pentagon’s bad bookkeeping?

Where the $8.5 Trillion (8.5 thousand billion) vanished?

LETTERKENNY ARMY DEPOT, Chambersburg, Pennsylvania –

Linda Woodford spent the last 15 years of her career inserting phony numbers in the U.S. Department of Defense’s accounts.

Every month until she retired in 2011, she says, the day came when the Navy would start dumping numbers on the Cleveland, Ohio, office of the Defense Finance and Accounting Service, the Pentagon’s main accounting agency.

Using the data they received, Woodford and her fellow DFAS accountants there set about preparing monthly reports to square the Navy’s books with the U.S. Treasury’s – a balancing-the-checkbook maneuver required of all the military services and other Pentagon agencies.

And every month, they encountered the same problem. Numbers were missing. Numbers were clearly wrong. Numbers came with no explanation of how the money had been spent or which congressional appropriation it came from. “A lot of times there were issues of numbers being inaccurate,” Woodford says. “We didn’t have the detail … for a lot of it.”

The data flooded in just two days before deadline.

As the clock ticked down, Woodford says, staff were able to resolve a lot of the false entries through hurried calls and emails to Navy personnel, but many mystery numbers remained. For those, Woodford and her colleagues were told by superiors to take “unsubstantiated change actions” – in other words, enter false numbers, commonly called “plugs,” to make the Navy’s totals match the Treasury’s.

Jeff Yokel, who spent 17 years in senior positions in DFAS’s Cleveland office before retiring in 2009, says supervisors were required to approve every “plug” – thousands a month. “If the amounts didn’t balance, Treasury would hit it back to you,” he says.

After the monthly reports were sent to Treasury, the accountants continued to seek accurate information to correct the entries. In some instances, they succeeded. In others, they didn’t, and the unresolved numbers stood on the books.

At the DFAS offices that handle accounting for the Army, Navy, Air Force and other defense agencies, fudging the accounts with false entries is standard operating procedure, Reuters has found.

And plugging isn’t confined to DFAS (pronounced DEE-fass). Former military service officials say record-keeping at the operational level throughout the services is rife with made-up numbers to cover lost or missing information.

A review of multiple reports from oversight agencies in recent years shows that the Pentagon also has systematically ignored warnings about its accounting practices. “These types of adjustments, made without supporting documentation … can mask much larger problems in the original accounting data,” the Government Accountability Office, the investigative arm of Congress, said in a December 2011 report.

Plugs also are symptomatic of one very large problem: the Pentagon’s chronic failure to keep track of its money – how much it has, how much it pays out and how much is wasted or stolen.

This is the second installment in a series in which Reuters delves into the Defense Department’s inability to account for itself.

The first article examined how the Pentagon’s record-keeping dysfunction results in widespread pay errors that inflict financial hardship on soldiers and sap morale.

This account is based on interviews with scores of current and former Defense Department officials, as well as Reuters analyses of Pentagon logistics practices, bookkeeping methods, court cases and reports by federal agencies.

As the use of plugs indicates, pay errors are only a small part of the sums that annually disappear into the vast bureaucracy that manages more than half of all annual government outlays approved by Congress.

The Defense Department’s 2012 budget totaled $565.8 billion, more than the annual defense budgets of the 10 next largest military spenders combined, including Russia and China. How much of that money is spent as intended is impossible to determine.

In its investigation, Reuters has found that the Pentagon is largely incapable of keeping track of its vast stores of weapons, ammunition and other supplies; thus it continues to spend money on new supplies it doesn’t need and on storing others long out of date. It has amassed a backlog of more than half a trillion dollars in unaudited contracts with outside vendors; how much of that money paid for actual goods and services delivered isn’t known.

And it repeatedly falls prey to fraud and theft that can go undiscovered for years, often eventually detected by external law enforcement agencies.

The consequences aren’t only financial; bad bookkeeping can affect the nation’s defense.

In one example of many, the Army lost track of $5.8 billion of supplies between 2003 and 2011 as it shuffled equipment between reserve and regular units. Affected units “may experience equipment shortages that could hinder their ability to train soldiers and respond to emergencies,” the Pentagon inspector general said in a September 2012 report.

AT SEA: Since 2000, the Navy has spent more than $1 billion to upgrade its record-keeping, but it still lacks the ability to account for ships, submarines and other physical assets. REUTERS/HO NEW

Because of its persistent inability to tally its accounts, the Pentagon is the only federal agency that has not complied with a law that requires annual audits of all government departments.

That means that the $8.5 trillion in taxpayer money doled out by Congress to the Pentagon since 1996, the first year it was supposed to be audited, has never been accounted for. That sum exceeds the value of China’s economic output last year.

Congress in 2009 passed a law requiring that the Defense Department be audit-ready by 2017. Then-Defense Secretary Leon Panetta in 2011 tightened the screws when he ordered that the department make a key part of its books audit-ready in 2014.

Reuters has found that the Pentagon probably won’t meet its deadlines. The main reason is rooted in the Pentagon’s continuing reliance on a tangle of thousands of disparate, obsolete, largely incompatible accounting and business-management systems.

Many of these systems were built in the 1970s and use outmoded computer languages such as COBOL on old mainframes.

They use antiquated file systems that make it difficult or impossible to search for data. Much of their data is corrupted and erroneous.

“It’s like if every electrical socket in the Pentagon had a different shape and voltage,” says a former defense official who until recently led efforts to modernize defense accounting.

“AMALGAM OF FIEFDOMS”

No one can even agree on how many of these accounting and business systems are in use. The Pentagon itself puts the number at 2,200 spread throughout the military services and other defense agencies. A January 2012 report by a task force of the Defense Business Board, an advisory group of business leaders appointed by the secretary of defense, put the number at around 5,000.

“There are thousands and thousands of systems,” former Deputy Secretary of Defense Gordon England said in an interview. “I’m not sure anybody knows how many systems there are.”

In a May 2011 speech, then-Secretary of Defense Robert Gates described the Pentagon’s business operations as “an amalgam of fiefdoms without centralized mechanisms to allocate resources, track expenditures, and measure results. … My staff and I learned that it was nearly impossible to get accurate information and answers to questions such as ‘How much money did you spend’ and ‘How many people do you have?’ ”

The Pentagon has spent tens of billions of dollars to upgrade to new, more efficient technology in order to become audit-ready. But many of these new systems have failed, either unable to perform all the jobs they were meant to do or scrapped altogether – only adding to the waste they were meant to stop.

Mired in a mess largely of its own making, the Pentagon is left to make do with old technology and plugs – lots of them. In the Cleveland DFAS office where Woodford worked, for example, “unsupported adjustments” to “make balances agree” totaled $1.03 billion in 2010 alone, according to a December 2011 GAO report.

In its annual report of department-wide finances for 2012, the Pentagon reported $9.22 billion in “reconciling amounts” to make its own numbers match the Treasury’s, up from $7.41 billion a year earlier.

It said that $585.6 million of the 2012 figure was attributable to missing records. The remaining $8 billion-plus represented what Pentagon officials say are legitimate discrepancies. However, a source with knowledge of the Pentagon’s accounting processes said that because the report and others like it aren’t audited, they may conceal large amounts of additional plugs and other accounting problems.

The secretary of defense’s office and the heads of the military and DFAS have for years knowingly signed off on false entries. “I don’t think they’re lying and cheating and stealing necessarily, but it’s not the right thing to do,” Pentagon Comptroller Robert Hale said in an interview. “We’ve got to fix the processes so we don’t have to do that.”

Congress has been much more lenient on the Defense Department than on publicly traded corporations. The Sarbanes-Oxley Act of 2002, a response to the Enron Corp and other turn-of-the-century accounting scandals, imposes criminal penalties on corporate managers who certify false financial reports. “The concept of Sarbanes-Oxley is completely foreign” to the Pentagon, says Mike Young, a former Air Force logistics officer who for years has been a consultant on, and written about, Defense Department logistics.

Defense officials point out that most plugs represent pending transactions – like checks waiting to clear with a bank – and other legitimate maneuvers, many of which are eventually resolved.

The dollar amounts, too, don’t necessarily represent actual money lost, but multiple accounting entries for money in and money out, often duplicated across several ledgers. That’s how, for example, a single DFAS office in Columbus, Ohio, made at least $1.59 trillion – yes, trillion – in errors, including $538 billion in plugs, in financial reports for the Air Force in 2009, according to a December 2011 Pentagon inspector general report. Those amounts far exceeded the Air Force’s total budget for that year.

Defense Secretary Chuck Hagel declined to comment for this article.

In an August 2013 video message to the entire Defense Department, he said: “The Department of Defense is the only federal agency that has not produced audit-ready financial statements, which are required by law. That’s unacceptable.”

DFAS Director Teresa McKay declined to be interviewed for this article.

In an email response to questions from Reuters, a Treasury spokesman said: “The Department of Defense is continuing to take steps to strengthen its financial reporting. … We’re supportive of those efforts and will continue to work with DOD as they make additional progress.” While the Treasury knowingly accepts false entries, it rejects accounts containing blank spaces for unknown numbers and totals that don’t match its own.

Senators Tom Coburn, an Oklahoma Republican, and Joe Manchin, a West Virginia Democrat, introduced legislation earlier this year that would penalize the Pentagon if it isn’t audit-ready by 2017. Under the proposed Audit the Pentagon Act of 2013, failure to meet the deadline will result in restrictions on funding for new acquisition programs, prohibit purchases of any information-technology systems that would take more than three years to install, and transfer all DFAS functions to the Treasury.

“The Pentagon can’t manage what it can’t measure, and Congress can’t effectively perform its constitutional oversight role if it doesn’t know how the Pentagon is spending taxpayer dollars,” Coburn said in an email response to questions. “Until the Pentagon produces a viable financial audit, it won’t be able to effectively prioritize its spending, and it will continue to violate the Constitution and put our national security at risk.”

TOO MUCH STUFF

The practical impact of the Pentagon’s accounting dysfunction is evident at the Defense Logistics Agency, which buys, stores and ships much of the Defense Department’s supplies – everything from airplane parts to zippers for uniforms.

It has way too much stuff.

“We have about $14 billion of inventory for lots of reasons, and probably half of that is excess to what we need,” Navy Vice Admiral Mark Harnitchek, the director of the DLA, said at an August 7, 2013, meeting with aviation industry executives, as reported on the agency’s web site.

And the DLA keeps buying more of what it already has too much of. A document the Pentagon supplied to Congress shows that as of Sept. 30, 2012, the DLA and the military services had $733 million worth of supplies and equipment on order that was already stocked in excess amounts on warehouse shelves. That figure was up 21% from $609 million a year earlier. The Defense Department defines “excess inventory” as anything more than a three-year supply.

Consider the “vehicular control arm,” part of the front suspension on the military’s ubiquitous High Mobility Multipurpose Vehicles, or Humvees. As of November 2008, the DLA had 15,000 of the parts in stock, equal to a 14-year supply, according to an April 2013 Pentagon inspector general’s report.

And yet, from 2010 through 2012, the agency bought 7,437 more of them – at prices considerably higher than it paid for the thousands sitting on its shelves. The DLA was making the new purchases as demand plunged by nearly half with the winding down of the Iraq and Afghanistan wars. The inspector general’s report said the DLA’s buyers hadn’t checked current inventory when they signed a contract to acquire more.

Just outside Harrisburg, Pennsylvania, the DLA operates its Eastern Distribution Center, the Defense Department’s biggest storage facility. In one of its warehouses, millions of small replacement parts for military equipment and other supplies are stored in hundreds of thousands of breadbox-size bins, stacked floor to ceiling on metal shelves in the 1.7 million-square-foot building.

Sonya Gish, director of the DLA’s process and planning directorate, works at the complex. She says no system tracks whether newly received items are put in the correct bins, and she confirmed that because of the vast quantities of material stored, comprehensive inventories are impossible. The DLA makes do with intermittent sampling to see if items are missing or stored in the wrong place. Gish also says the distribution center does not attempt to track or estimate losses from employee theft.

The Pentagon in 2004 ordered the entire Defense Department to adopt a modern labeling system that would allow all the military branches to see quickly and accurately what supplies are on hand at the DLA and each of the services. To date, the DLA has ignored the directive to use the system. William Budden, deputy director of distribution, said in an interview that the cost would have exceeded the potential benefits, and that the DLA’s existing systems are adequate.

A “Clean Out the Attic” program to jettison obsolete inventory is making progress, DLA Director Harnitchek said in an interview. But the effort is hindered because the lack of reliable information on what’s in storage makes it hard to figure out what can be thrown out.

The DLA also has run into resistance among warehouse supervisors who for years have been in charge of a handful of warehouse aisles and jealously husband their inventory. “I believe that the biggest challenge is helping item managers identify things we have in our warehouses that they can just let go of,” Budden said in an interview published in an undated in-house DLA magazine.

OLD AND DANGEROUS

A few miles away, amid the gently rolling hills of south central Pennsylvania, a series of 14 explosions interrupt the stillness of a spring afternoon, shooting fountains of dirt more than 100 feet into the air.

Staff at the Letterkenny Army Depot – one of 8 Army Joint Munitions Command depots in the United States – are disposing of 480 pounds of C4 plastic explosive manufactured in 1979 and at risk of becoming dangerously unstable.

BOMBS AWAY: Staff at the Letterkenny Army Depot detonate three-decade-old explosives that were at risk of becoming dangerously unstable in storage. REUTERS/GARY CAMERON

If Woody Pike could have his way, the soldiers would be destroying a lot more of the old, unused munitions stored in scores of turf-covered concrete “igloos” ranged across the Letterkenny compound.

There are runway flares from the 1940s, and warheads for Sparrow missiles that the military hasn’t fielded since the 1990s. Most irksome, because they take up a lot of space, are rocket-launch systems that were retired in the 1980s. “It will be years before they’re gone,” says Pike, a logistics management specialist and planner at Letterkenny.

More than one-third of the weapons and munitions the Joint Munitions Command stores at Letterkenny and its other depots are obsolete, according to Stephen Abney, command spokesman. Keeping all those useless bullets, explosives, missiles, rifles, rocket launchers and other munitions costs tens of millions of dollars a year.

The munitions sit, year after year, because in the short term, “it’s cheaper for the military to store it than to get rid of it,” said Keith Byers, Letterkenny’s ammunition manager. “What’s counterproductive is that what you’re looking at is stocks that are going to be destroyed eventually anyway.”

Also, an Army spokesman said, the Pentagon requires the Army to store munitions reserves free of charge for the other military services, which thus have no incentive to pay for destroying useless stock.

To access ammunition and other inventory still in use, depot staff often must move old explosives, much of which is stored in flimsy, thin-slatted crates. “Continuing to store unneeded ammunition creates potential safety, security and environmental concerns,” Brigadier General Gustave Perna said in a 2012 military logistics newsletter, when he was in charge of the Joint Munitions Command. The cost and danger of storing old munitions “frustrates me as a taxpayer,” he said. Perna declined requests for an interview.

LANDSCAPING: Scores of storage bunkers dot the rolling hills of the Letterkenny Army Depot. GOOGLE EARTH

Sometimes the danger leads to action, as when the C4 was detonated. And the depot recently received funding to destroy 15,000 recoilless rifles last used during World War II, Pike says.

Yet, on the day of the C4 blasts, piles of Phoenix air-to-air missiles – used on Navy F-14 fighter jets that last flew for the U.S. in 2006 – had just been offloaded from rail cars and were waiting to be put into storage.

In 2010, as part of the Defense Department’s modernization effort, the Joint Munitions Command scrapped a computer system that kept track of inventory and automatically generated required shipping documents. It was replaced with one that Pike says doesn’t do either.

His staff now must guess how much inventory and space Letterkenny has. The Army built at additional cost a second system to create shipping documents and an interface between the two systems. “We’re having problems with the interface,” Pike says.

COSTLY REPAIRS

Media reports of Defense Department waste tend to focus on outrageous line items: $604 toilet seats for the Navy, $7,600 coffee makers for the Air Force. These headline-grabbing outliers amount to little next to the billions the Pentagon has spent on repeated efforts to fix its bookkeeping, with little to show for it.

The Air Force’s Expeditionary Combat Support System was intended to provide for the first time a single system to oversee transportation, supplies, maintenance and acquisitions, replacing scores of costly legacy systems. Work got under way in 2005. Delays and costs mounted.

In late 2012, the Air Force conducted a test run. The data that poured out was mostly gibberish. The Air Force killed the project.

LETHAL INVENTORY: Missile warheads like these are among the thousands of munitions that sit in Letterkenny igloos year after year because it is cheaper in the short term to store them than to destroy them. REUTERS/GARY CAMERON

The system “has cost $1.03 billion … and has not yielded any significant military capability,” the Air Force said in a November 2012 announcement.

Fixing the system would cost an additional $1.1 billion, it said, and even then, it would do only about a quarter of the tasks originally intended, and not until 2020.

The Air Force blamed the failure on the main contractor, Virginia-based Computer Sciences Corp, saying the company was unable to handle the job.

Computer Sciences spokesman Marcel Goldstein said that the company provided the Air Force with important “capabilities,” and that “the progress we made, jointly with the Air Force, and the software we have delivered could be the foundation for the next effort to develop and deploy a logistics system for the Air Force.”

David Scott Norton, an expert in accounting systems who worked for CSC on the Air Force contract, said the project employed too many people, making coordination and efficiency impossible. “There were probably thousands of people, both Air Force and contractors, on it,” he says. High turnover among both Air Force and contractor staff hurt, too, he says; many of the people who worked on it weren’t the people who had conceived and designed it.

More than $1 billion was wasted when the Pentagon in 2010 ditched the Defense Integrated Military Human Resources System, launched in 2003 as a single, department-wide pay and personnel system that would eliminate pay errors. Interagency squabbles and demands for thousands of changes eventually sank it.

The Air Force’s Defense Enterprise Accounting and Management System was supposed to take over the Air Force’s basic accounting functions in 2010. To date, $466 million has been spent on DEAMS, with a projected total cost of $1.77 billion to build and operate it, an Air Force spokeswoman said. The system lacks “critical functional capabilities,” and its “data lacks validity and reliability,” according to a September 2012 Defense Department inspector general report.

It now isn’t expected to be fully operational until 2017.

The Army’s General Fund Enterprise Business System is often held up as an example of rare success. Up and running in 2012, GFEBS is now used in Army posts all over the world to handle basic accounting functions.

Some things it does well, but the inspector general said in March last year that the system didn’t provide department management with required information and may not resolve “longstanding weaknesses” in the Army’s financial management, “despite costing the Army $630.4 million as of October 2011.”

In 2000, the Navy began work on four separate projects to handle finances, supplies, maintenance of equipment and contracting. Instead, the systems took on overlapping duties that each performed in different ways, using different formats for the same data. Five years later, the GAO said: “These efforts were failures. … $1 billion was largely wasted.”

The Navy started again in 2004 with the Navy Enterprise Resources Planning project to handle all Navy accounting – at first. The Navy later decided on a system design that would cover only about half of the service’s budget because a single, service-wide system would be too difficult and time-consuming, according to former Navy personnel who worked on the project. Accounting for property and other physical assets was dropped, too.

Now in use, the Navy ERP relies on data fed to it from 44 old systems it was meant to replace. “Navy officials spent $870 million … and still did not correct” the system’s inability to account for $416 billion in equipment, the Pentagon inspector general said in a July 2013 report.

The Navy declined to comment.

Even an effort to coordinate all these projects ended in failure. In 2006, Deputy Secretary of Defense Gordon England established the Business Transformation Agency to force the military branches and other agencies to upgrade their business operations, adhere to common standards and make the department audit-ready.

Three years later, the Center for Strategic and International Studies said that while the Defense Department was spending “in excess of $10 billion per year on business systems modernization and maintenance, (o)verall the result is close to business as usual.”

Defense Secretary Gates shut it down in 2011 – after the Pentagon had spent $700 million on it. England declined to comment on the episode.

Former BTA officials blamed the failure on their lack of authority to enforce their decisions and resistance from the individual services.

CONTRACT HITS

Over the past 10 years, the Defense Department has signed contracts for the provision of more than $3 trillion in goods and services. How much of that money is wasted in overpayments to contractors, or was never spent and never remitted to the Treasury, is a mystery. That’s because of a massive backlog of “closeouts” – audits meant to ensure that a contract was fulfilled and the money ended up in the right place.

The Defense Contract Management Agency handles audits of fixed-price contracts, which are relatively problem-free. It’s the Defense Contract Audit Agency that handles closeouts for department-wide contracts that pay the company or individual for expenses incurred. At the end of fiscal 2011, the agency’s backlog totaled 24,722 contracts worth $573.3 billion, according to DCAA figures. Some of them date as far back as 1996.

The individual military services close out their own contracts, and the backlogs have piled up there, too. The Army’s backlog was 450,000 contracts, the GAO said in a December 2012 report.

TICK-TOCK: Secretary of Defense Chuck Hagel has said the Pentagon’s inability to be audited “is unacceptable” and is overseeing efforts to meet audit-readiness deadlines. REUTERS/YURI GRIPAS

The Navy and Air Force did not have estimates of their backlogs.

“This backlog represents hundreds of billions of dollars in unsettled costs,” the GAO report said. Timely closeouts also reduce the government’s financial risk by avoiding interest on late payments to contractors.

To trim its backlog, the DCAA last year raised to $250 million from $15 million the threshold value at which a contract is automatically audited. DCAA says that by concentrating its auditors on the biggest contracts, it will recoup the largest sums of money, and that it will conduct selective audits of smaller contracts, based on perceived risk and other factors. Still, hundreds of thousands of contracts that would eventually have been audited now won’t be.

“Having billions of dollars of open, unaudited contracts stretching back to the 1990s is clearly unacceptable, and places taxpayer dollars at risk of misuse and mismanagement,” Senator Thomas Carper, a Delaware Democrat and chairman of the Homeland Security and Governmental Affairs Committee, said in an email response to questions. “We must make sure that the Department of Defense is actively assessing risks and making sure that contractors who fall underneath the threshold remain accountable for their work.”

Spotty monitoring of contracts is one reason Pentagon personnel and contractors are able to siphon off taxpayer dollars through fraud and theft – amounting to billions of dollars in losses, according to numerous GAO reports. In many cases, Reuters found, the perpetrators were caught only after outside law-enforcement agencies stumbled onto them, or outsiders brought them to the attention of prosecutors.

In May this year, Ralph Mariano, who worked as a civilian Navy employee for 38 years, pleaded guilty in federal court in Rhode Island to charges of conspiracy and theft of government funds related to a kickback scheme that cost the Navy $18 million from 1996 to 2011. Mariano was sentenced Nov. 1 to 10 years in prison and fined $18 million.

Mariano admitted that as an engineer at the Naval Undersea Warfare Center in Newport, Rhode Island, he added money to contracts held by Advanced Solutions for Tomorrow. The Georgia-based company then paid kickbacks to Mariano and others, including friends and relatives.

Mariano was charged more than five years after the allegations against him first emerged in a 2006 civil whistleblower lawsuit in federal court in Georgia that had been kept under seal. Court documents suggest one reason why the conspiracy went undetected for so long: The Navy not only gave Mariano authority to award money to contractors; it also put him in charge of confirming that the contractors did the work. The Navy never audited any of the contracts until after Mariano was arrested, a Navy spokeswoman confirmed.

On the opposite side of the country, federal prosecutors in San Diego, California, in 2009 accused Gary Alexander, a Navy civilian employee, of arranging with subcontractors to have them bill the Defense Department for services never performed and then pay him kickbacks from money the subcontractors received. Alexander masterminded the scheme while he was head of the Air Surveillance and Reconnaissance Branch of the Navy’s Space and Naval Warfare Systems Center, based in San Diego.

Alexander in 2010 pleaded guilty to defrauding the Navy and filing false tax returns. He was sentenced to 75 months in prison and was required to pay restitution and forfeitures totaling more than $500,000.

Robert Ciaffa, a federal prosecutor assigned to the case, said the bills were easily padded because DFAS didn’t require detailed invoices. The case came to light, he said, only after “a woman friend” of one of Alexander’s associates went to prosecutors in 2008 with information about the fraud.

A Navy spokeswoman said that Navy Secretary Ray Mabus has taken steps to avert such fraud, including creating a contract review board, requiring closer oversight of employees who manage contracts and establishing antifraud units within Navy contracting services.

Ciaffa said the Alexander case prompted his office in 2009 to set up a toll-free fraud tip line that has so far have yielded at least six cases. One led to guilty pleas in March 2012 by four civilian employees of the North Island Naval Air Station, near San Diego, after they were accused of receiving $1 million in kickbacks from contractors.

PLUGGING ALONG

In its 2007 audit-readiness plan, the Defense Department called on DFAS to eliminate plugs by June 2008. That hasn’t happened.

In its financial report for 2012, the Army said each month it “adjusts its Fund Balance With Treasury to agree with the U.S. Treasury accounts.” In its 2012 annual report, the Defense Logistics Agency said it does the same. “On a monthly basis, DLA’s (Fund Balance With Treasury) is adjusted to agree with the U.S. Treasury accounts.”

The Navy, in a footnote in its 2012 financial report, “acknowledges that it has a material internal control weakness in that it does not reconcile its” numbers with the Treasury’s. The footnote said the Navy inserts inaccurate numbers in its monthly reports so that they agree with the Treasury’s. It said it is working with DFAS to try to eliminate the problems.

The Treasury says it requires the monthly reports from Pentagon agencies to ensure that it is “providing accurate financial information to Congress and the general public.” The reports verify that the military is using money for its intended purposes; spending money on things other than what it was appropriated for is, with rare exceptions, a violation of the Antideficiency Act, which forbids anyone but Congress to appropriate money. The law carries penalties for individuals involved in violating it.

Because of the lack of accurate accounting, a 2012 GAO report said, “the Department of the Navy is at increased risk of Antideficiency Act violations.”

Without a functioning, unified bookkeeping system, the Pentagon’s accountants have no option but to continue taking that risk.

Woodford, the former accountant in DFAS’s Cleveland office, says that in the frenzy to complete the Navy’s monthly financial reports to the Treasury, much of the blame rested with the “old antiquated systems” the Pentagon used. A common reason for inserting plugs was that “you knew what the numbers were, but you didn’t have the supporting documents.”

Mariano was charged more than five years after the allegations against him first emerged in a 2006 civil whistleblower lawsuit in federal court in Georgia that had been kept under seal. Court documents suggest one reason why the conspiracy went undetected for so long: The Navy not only gave Mariano authority to award money to contractors; it also put him in charge of confirming that the contractors did the work. The Navy never audited any of the contracts until after Mariano was arrested, a Navy spokeswoman confirmed.

On the opposite side of the country, federal prosecutors in San Diego, California, in 2009 accused Gary Alexander, a Navy civilian employee, of arranging with subcontractors to have them bill the Defense Department for services never performed and then pay him kickbacks from money the subcontractors received. Alexander masterminded the scheme while he was head of the Air Surveillance and Reconnaissance Branch of the Navy’s Space and Naval Warfare Systems Center, based in San Diego.

Alexander in 2010 pleaded guilty to defrauding the Navy and filing false tax returns. He was sentenced to 75 months in prison and was required to pay restitution and forfeitures totaling more than $500,000.

Robert Ciaffa, a federal prosecutor assigned to the case, said the bills were easily padded because DFAS didn’t require detailed invoices. The case came to light, he said, only after “a woman friend” of one of Alexander’s associates went to prosecutors in 2008 with information about the fraud.

A Navy spokeswoman said that Navy Secretary Ray Mabus has taken steps to avert such fraud, including creating a contract review board, requiring closer oversight of employees who manage contracts and establishing antifraud units within Navy contracting services.

Ciaffa said the Alexander case prompted his office in 2009 to set up a toll-free fraud tip line that has so far have yielded at least six cases. One led to guilty pleas in March 2012 by four civilian employees of the North Island Naval Air Station, near San Diego, after they were accused of receiving $1 million in kickbacks from contractors.

PLUGGING ALONG

In its 2007 audit-readiness plan, the Defense Department called on DFAS to eliminate plugs by June 2008. That hasn’t happened.

In its financial report for 2012, the Army said each month it “adjusts its Fund Balance With Treasury to agree with the U.S. Treasury accounts.” In its 2012 annual report, the Defense Logistics Agency said it does the same. “On a monthly basis, DLA’s (Fund Balance With Treasury) is adjusted to agree with the U.S. Treasury accounts.”

The Navy, in a footnote in its 2012 financial report, “acknowledges that it has a material internal control weakness in that it does not reconcile its” numbers with the Treasury’s. The footnote said the Navy inserts inaccurate numbers in its monthly reports so that they agree with the Treasury’s. It said it is working with DFAS to try to eliminate the problems.

The Treasury says it requires the monthly reports from Pentagon agencies to ensure that it is “providing accurate financial information to Congress and the general public.” The reports verify that the military is using money for its intended purposes; spending money on things other than what it was appropriated for is, with rare exceptions, a violation of the Antideficiency Act, which forbids anyone but Congress to appropriate money. The law carries penalties for individuals involved in violating it.

Because of the lack of accurate accounting, a 2012 GAO report said, “the Department of the Navy is at increased risk of Antideficiency Act violations.”

Without a functioning, unified bookkeeping system, the Pentagon’s accountants have no option but to continue taking that risk.

Woodford, the former accountant in DFAS’s Cleveland office, says that in the frenzy to complete the Navy’s monthly financial reports to the Treasury, much of the blame rested with the “old antiquated systems” the Pentagon used. A common reason for inserting plugs was that “you knew what the numbers were, but you didn’t have the supporting documents.”

The Navy data, pouring in through dozens of jury-rigged pipelines into similarly disparate systems, required many “manual workarounds” – typing data from one system into another, which only added to the potential for errors.

“They do so much manual work, it’s just ridiculous,” says Toni Medley, who retired five years ago after 30 years doing an assortment of jobs at the same DFAS office. It’s tedious work, she says, and the people doing it “make a lot of mistakes.”

The Navy declined to comment.

Yokel, the retired official at the DFAS Cleveland office, worked as a consultant on the Navy Enterprise Resource Planning project, the new accounting system that fell short of expectations. He says that in recent years, the new system has managed to reduce the number of plugs, though they still can add up to a lot in dollar terms. And nearly half the Navy’s budget isn’t covered by the system.

The Pentagon has spent billions of dollars on efforts to make itself audit-ready in time for not one, but two deadlines – one in 2014, the other in 2017.

It won’t meet the first and probably won’t meet the second.

PRESSURE TACTICS: While serving as secretary of defense, Leon Panetta imposed a 2014 deadline on the Pentagon to make a major portion of its accounts audit-ready. REUTERS/POOL

The deadlines represent efforts inside and outside of the Pentagon toward meeting a goal that has eluded it since the mid-1990s, when all government departments were first required by law to submit to annual audits. The Defense Department, alone among all federal agencies, has so far failed to meet that requirement – leaving trillions of dollars in cumulative annual defense budgets unaudited.

Amid fierce national debate over ballooning national debt, Congress in 2009 passed a law to prod the Pentagon, setting a 2017 deadline for audit-readiness. Two years later, then-Secretary of Defense Leon Panetta added to the pressure, ordering that a significant portion of the Pentagon’s books – its annual report on the status of all appropriations – be audit-ready by 2014.

That report, the Statement of Budgetary Resources, is, in essence, the Pentagon’s checkbook, showing the amount of money from congressional appropriations spent or committed to being spent, and the amount remaining for new spending. Without it, there is no way to budget accurately or ensure accountability.

Tina Jonas, Defense Department comptroller from 2004 through 2008 and now president of UnitedHealthcare Military & Veterans, says that when she was drafting budgets, the lack of reliable financial statements made it impossible for her to know how much money the Pentagon had and how much it needed. “I didn’t want to ask Congress for money that we didn’t need,” she says.

A senior Pentagon official confirmed that the 2014 deadline won’t be met. The Pentagon discreetly acknowledged the same in an unremarkable passage on page 5 of section II of the November 2012 “Financial Improvement and Audit Readiness (FIAR) Plan Status Report” from Defense Department Comptroller Robert Hale’s office: “The scope of first year audits of the SBR (Statement of Budgetary Resources) in FY 2015 will be limited to audits of schedules containing only current year appropriation activity.” (Panetta’s order requires that the SBR be audit-ready in 2014 so that a first audit can be conducted in 2015.)

That means the audit will ignore the hundreds of billions of dollars in unspent appropriations from previous years, as when, for example, Congress approves a multiyear weapons contract. The reason, Pentagon officials said, is that huge amounts of essential data have been lost in the Pentagon’s accounting systems, or were never recorded in the first place. The comptroller’s office said that out of $992 billion in appropriations, about $220 billion won’t be examined, using estimates based on 2012 numbers.

“This is a tactical change that refines the scope of the audit,” said Jennifer Elzea, a spokeswoman for the secretary of defense. “It does not change the goal, which is to improve the strength of our business processes and the quality of our financial information.”

Comptroller Hale said through a spokesman this month: “I expect most DoD budget statements will be ready for audit. It is possible that, because of budget turmoil and other problems, a few may not be ready.”

Lack of trustworthy data also makes the 2017 legally mandated deadline a long shot. Absent reliable accounting systems in the military services and other defense agencies, it will remain impossible to trace specific accounting entries to the “transaction level” to determine what the money paid for and whether the goods or services were delivered. Rivalries among the military services and Defense Department offices that want to keep their own systems also stand in the way. So does the services’ inability to figure out a way to value assets like ships, planes and weaponry.

For these reasons, says Gordon Adams, an American University professor of U.S. foreign policy and a specialist on defense issues, “we’ll get to 2017, and if past is prologue, the Defense Department will just move the goal posts again.”

ALTERED STATES: “We cannot track $2.3 trillion in transactions,” then-Secretary of Defense Donald Rumsfeld said in 2001. The next day, al Qaeda attacked the U.S., and priorities changed. REUTERS/JONATHAN ERNST

For decades, fighting and winning the Cold War dominated Congress’s permissive approach to annual Pentagon appropriations. Then Congress passed the Chief Financial Officers Act of 1992, requiring annual audits of all federal departments, did lawmakers begin to pressure the Pentagon to manage its purse like any other government department. The law mandated that the Pentagon by audit-ready by 1996.

But year after year, top defense officials would appear before the House and Senate armed services committees to be scolded for missing their deadlines, and then they would set new ones. The next year, and the next, the scene was re-enacted. Congress and the White House stood back as more than half a trillion taxpayer dollars a year went unaudited.

Just weeks into his new job as secretary of defense under President George W. Bush, Donald Rumsfeld stated the problem: “Our financial systems are decades old. According to some estimates, we cannot track $2.3 trillion in transactions.” The importance of the issue, he said in a speech at the Pentagon, was not “about business practices, nor is the goal to improve figures on the bottom line. It’s really about the security of the United States of America. And let there be no mistake, it is a matter of life and death.”

That was Sept. 10, 2001. The next day, al Qaeda hijacked commercial airliners and flew them into the World Trade Center and the Pentagon. It would be nearly a decade before Pentagon accounting drew the attention of Congress.

(Edited by John Blanton)

Andrew Bossone shared this link

$8.5 trillion (yes, trillion) to the US military is unaccounted for as the Pentagon falsified its ledgers

Behind the Pentagon’s doctored ledgers, a running tally of epic waste
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Human Vs. Robot:

Bricklaying Robot Can Place 1,000 Bricks an Hour

Building houses of brick is almost as old as human civilization itself, and over the millennia, we’ve perfected the art. The fastest bricklayers can mortar and place over 700 bricks an hour. Pretty fast.

But a new robot can lay bricks even faster.

Mark Pivac, inventor of the bricklaying robot, Hadrian, told PerthNow that his bot can place 1,000 bricks an hour, enough to erect the walls of a house in two days of round-the-clock worka task that, on average, takes a human crew four to six weeks of hard labor.

The robot works a little like a 3D printer, similarly taking its cues from a digital 3D model of the structure it’s building.

Instead of extruding plastic or sintering metal, it cuts bricks to size, mortars them, and precisely lays each in place using a grasper at the end of a 28 meter telescopic boom.

Hadrian took 10 years and A$7 million to develop.

Perhaps unsurprisingly, however, Hadrian isn’t alone. We found another bricklaying robot, SAM by Construction Robotics, is also hard at work building walls of brick.

Patsy Z shared this link  via Singularity Hub

 

Sisi and His 40 Thieves

Why Corruption Lingers in Cairo

EasyBib

On December 9, 2014, at the headquarters of one of Egypt’s most powerful anti-corruption bodies, the Administrative Control Authority (ACA), Prime Minister Ibrahim Mehleb gathered state officials to inaugurate Egypt’s newly drafted four-year national strategy for combating corruption. The timing was auspicious; it was International Anti-Corruption Day.

The officials met in a large, white room filled with sky-blue chairs. Minister of Interior Mohammed Ibrahim (since sacked) was there, along with ACA Chairman Muhammad Amr Heiba (now replaced and made an advisor to President Abdel Fattah al Sisi), Advisor to the Minister of Justice Azzat Khamis, and Khalid Saeed, chairman of the technical secretariat of a body now known as the National Coordinating Committee for Combating Corruption.

Sunlight streamed in from the windows onto the white walls. Mehleb boasted about Sisi’s success in moving Egypt up 20 places on Transparency International’s latest annual Global Corruption Perception Index—from 114th place to 94th out of more than 170 countries.

Apparently, it is a family affair. One of Sisi’s sons, Mustafa, is an officer at the ACA and part of the graft clean-up crew. In April, he claimed to have helped the security service Amn el-Dawla bring a case against 7 government contractors and officials who were accused of paying and soliciting a total of $170,000 in bribes  within the Red Sea governorate’s Executive Agency for Drinking and Sewage Water.

But our year-long investigation, based on leaked documents and insider accounts, reveals a slew of corrupt practices and an abject failure to curb corruption by these very groups who claim to be combating it.

For starters, Egyptian officials hid at least $9.4 billion of state funds in thousands of unaudited accounts in Egypt’s Central Bank, as well as in state-owned commercial banks, and spent it by the end of the 2012–13 fiscal year.

Known as “special funds,” many of these accounts are operated by bodies such as the Ministry of Interior and the ACA.

Since Egypt’s military overthrew former President Mohamed Morsi in 2013 and took power just as that fiscal year ended, it is possible that a portion of Gulf aid that had flowed into the country was stowed into army-operated special fund accounts.

Earlier this year, the Mekameleen channel in Istanbul broadcast a series of leaked audio recordings of Sisi and his Chief of Staff Ahmed Kamel apparently discussing the movement of $30 billion of Gulf aid into accounts operated by the army. Other leaked conversations between Kamel, Sisi, and various Gulf dignitaries reveal plans for Gulf aid to be transferred to various army figures through bank accounts operated by the Tamarod activist movement, which helped spearhead protests against Morsi in June 2013.

These special funds accounts also appear to be linked to Mubarak’s ACA Chairman, General Mohamed Farid al Tohamy, a man considered by many to be Sisi’s mentor. (The two first crossed paths when al Tohamy was director of Egypt’s Military Intelligence and Reconnaissance Unit.)

During the 2010–11 fiscal year, these special funds accounts held almost $900 million, some of which was used by the ACA, though it is not clear how much. That was also the year Hosni Mubarak was deposed. Soon after, then-President Morsi removed al Tohamy from the ACA following public allegations by a subordinate investigator that al Tohamy had sabotaged incriminating evidence to protect members of the Mubarak regime.

Al Tohamy was criminally indicted on charges such as hiding evidence that implicated businessmen connected to the top generals of the Supreme Council of the Armed Forces (SCAF) who had sold illegally subsidized fuel and used the ACA budget funds to purchase gifts for then SCAF chief, Field Marshall Mohamed Hussein Tantawi.

But when Sisi took power, the case mysteriously vanished and he appointed al Tohamy (recently retired) to lead the military-affiliated Egyptian General Intelligence Directorate, or Mukhabarat, which reports directly to the Office of the President.

The reason why graft is still so pervasive, despite the large number of government agencies designated to fight it, is that these agencies are accountable to no one. Right now, Egypt’s anti-corruption strategy tasks the bodies represented at December’s gathering, along with a host of others including the Mukhabarat, with implementing a series of benchmarks, a process that began last year and is set to finish by 2018.

These benchmarks include outwardly well-intentioned measures such as “establishing special courts to address issues of corruption throughout 2015–16,” “passing a new civil society law,” and “creating an official means for an exchange of information between civil society, the bureaucratic corps, and anti-corruption bodies” (albeit in a way that does not “harm national security.”)

Progress was to be measured by several performance indicators.

Most common among these are “reports” to be drafted, vaguely, “with the knowledge” of the National Coordinating Committee for Combating Corruption. It is not clear what body will draft the reports or whether the task will fall under the purview of the National Coordinating Committee, which is the primary body tasked to implement and monitor this new anti-corruption strategy.

The National Coordinating Committee’s members include representatives from a number of questionable bodies, such as unreformed ministries and Egyptian anti-corruption groups such as the ACA, Anti-Money Laundering Unit, Public Prosecutor, Ministry of Interior, Mukhabarat intelligence service, and Ministry of Justice. Many of these bodies have either been implicated in acts of corruption, or are being actively investigated by the Central Auditing Organisation (CAO), a state auditing and anti-corruption body chaired by Hisham Genena, and are thus, among the players most interested in sabotaging the anti-corruption committee.

(The Interior Ministry is also infamous for a litany of human rights abuses, including the Raba’a al-Adawiya massacre of Muslim Brotherhood supporters following Egypt’s anti-Islamist military putsch, which Egypt’s Mukhabarat under al Tohamy have also been alleged to have helped plan and organize.) It is possible that these corrupt groups have begun turning the National Coordinating Committee into a place of backroom deals.

There are signs of potential mission creep: Egypt’s intelligence and security forces could well play an expanded role in corruption.

As a result, since both the CAO and ACA are represented on the National Coordinating Committee, the CAO’s investigations have put it at loggerheads with a number of other bodies. In particular, over the last year, Genena has flung a lot of mud at the Interior Ministry, publically accusing members of siphoning state funds into private bank accounts. He has also pointed a finger at individual members of the Public Prosecution and ACA of being involved in purchases of state land at undervalued rates, and of actively working to sabotage his anti-corruption cases by stalling those that the CAO sends to the courts. Genena has also targeted prominent members of the judiciary.

These judges include the newly-appointed Minister of Justice Ahmed Zind and his associates who have called for Genena’s blood—they have filed a case for him to be impeached for “insulting” members of the judiciary. The case is being reviewed by the Office of the Public Prosecutor, which is close to the police, army, and the judiciary headed by Zind. It seems increasingly likely that the judiciary will block any prosecutorial efforts brought forth by Genena.

It may seem that Genena is a lone fish in alligator-infested waters, but he is shielded, in part, by his unbridled support for Sisi and Egypt’s current military regime. In one media appearance, Genena claimed that Sisi had personally given him the green light to root out corruption in state institutions including the Interior Ministry. He has often claimed that both Egypt’s military and Office of the Presidency are free of corruption, and have not held anything back from his audit squad.

Genena’s loyalty has, so far, paid off. Last month, a prominent television host was sentenced to six months in jail for charges including insulting Genena on air and accusing him of being a member of the now illegal Muslim Brotherhood. Then in November last year, Genena submitted a memo to both Mehleb and Sisi accusing the police of burgling a room his auditors had used during an investigation of the Interior Ministry. The police were said to have stolen investigative records and notebooks. And yet, Genena now works with them on the National Coordinating Committee for Combating Corruption.

Sisi’s and the military’s support of Genena is only one sign of potential mission creep: that Egypt’s intelligence and security forces could well play an expanded role in corruption.

After all, a similar scenario played out in Algeria. Before the country’s bloody civil war in the 1990s, its intelligence services, the Département du Renseignement et de la Sécurité (DRS), largely focused on security and counter-terrorism matters. Afterward, it was accorded power to investigate internal corruption in state institutions, including ministries and state-owned enterprises, and became intimately entangled with the web of Algeria’s key décideurs, the core power-brokers and decision-makers in le pouvoir.

Since the civil war, the DRS has been led by KGB-trained military intelligence Chief Lieutenant General Mohammed “Toufik” Medienne who is now believed to be engaged in a power struggle with President Abdelaziz Bouteflika. Medienne has since had an eye on almost all state operations, often using and leaking evidence to blackmail, publicly humiliate, or eliminate political rivals—much as Egypt’s media, some with close military ties, may already have done. “State institutions are the most powerful and dangerous opposition to Sisi,” wrote Al-Maqal newspaper in a column this month by Ibrahim Eissa, another high-profile media personality widely-known for his close association with the armed forces.

The details of the recently released 32-page anti-corruption strategy itself are hopelessly confounding. It doesn’t even specify or delimit the role or influence that each member of the National Coordinating Committee for Combating Corruption can have.

The final six pages, which set forth those anti-corruption benchmarks that Egypt’s police and intelligence services would have a role overseeing, and the timeframe for which they are to be implemented, are conspicuously absent from the truncated 20-page English and 23-page French translations that the committee circulated. These versions include creating an “amended” pay structure for bureaucrats, passing whistle blower protections and freedom of information laws, and amending bids and tenders laws.

Even though Egypt’s national anti-corruption strategy does attempt to create space for civil society, the media, and other actors to take part in monitoring corruption and the implementation of the strategy’s benchmarks, these watchdogs have been largely co-opted or stripped of their ability to operate freely.

The drafters must have excluded these benchmarks to avoid accountability. Even though Egypt’s national anti-corruption strategy does attempt to create space for civil society, the media, and other actors to take part in monitoring corruption and the implementation of the strategy’s benchmarks, these watchdogs have been largely co-opted or stripped of their ability to operate freely. For example, a draft law, leaked in November 2014, seeks to criminalize the dissemination of any information related to the army, which it considers “by nature as secrets related to national security.” Even though the law has yet to pass, it has already had a chilling effect. The leaked conversations between Sisi and Chief of Staff Kamel from earlier this year went essentially unreported by the local Egyptian press.

Even though few dared to report on the leaks, the police began a media crack down, targeting the very journalists who had shown restraint in reporting on the army. Instead, these writers published stories about the Ministry of Interior. Over the last few months, police summoned a number of journalists from the private daily Al-Masry Al-Youm and the pro-regime daily Al-Dostour, and referred them to the State Security Prosecution after each paper published reports about allegations of corruption within the Interior Ministry.

Ironically enough, Dostour claimed that the Ministry of Interior itself had recommended the journalist who heads the paper’s crime page, which ran the controversial corruption story. Nobody was kept in custody, however, and this month the Ministry said it had dropped its legal charges against Al-Masry Al-Youm as part of its “efforts to strengthen its relationship with the different parties in the nation and different media outlets.”

Another draft law, released shortly after Sisi rose to the high office, would give the government power to shut down, freeze assets, block funding, confiscate property, and reject the governing boards of any non-governmental organizations, stripping them of any ability to enforce the benchmarks Egypt has set up for itself in its anti-corruption strategy.

Much like during Mubarak’s rule, Sisi has learned how to consolidate his power. But his is a different consolidation strategy: In the midst of intense rivalry between the Armed Forces and Ministry of Interior, Mubarak favored the police due to his fear of a potential military coup, often using them to spy on and limit the powers of the army.

To a degree, Mubarak sought to reign in the influence of entrenched military figures, much as Algeria’s Bouteflika sought to accomplish in late 2013 with his rival, Medienne (by reportedly prying from the DRS its anti-corruption and military counter-intelligence units and handing them to a perceived loyalist he appointed to Algeria’s Ministry of Defence). Sisi has, however, tilted more toward the army and military intelligence and has reigned in the non-military security services.

Sisi’s actions recall the story of Ali Baba, and how he tricked 40 thieves out of their gold, by learning the password to their treasure caves, “Open Sesame!” In this case, that key word is “anti-corruption@

Continued corruption in Egypt at the highest levels

A year-long investigation in Egypt, based on leaked documents and insider accounts, reveals a slew of corrupt practices and an abject failure to curb graft among the very government bodies that claim to be combating it.
foreignaffairs.com

 

 

 


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