Magazine article Insight on the News

Rumsfeld Inherits Financial Mess

Magazine article Insight on the News

Rumsfeld Inherits Financial Mess

Article excerpt

The Defense Department cannot account for $1.1 trillion that seems to have vanished within the tangled system of financial accounting put in place by private contractors.

Every year trillions of dollars are unaccounted for by federal agencies, and every year these same agencies are called before congressional oversight committees to explain this mismanagement of taxpayers' funds.

Year after year the bureaucratic met culpas are longer on process and shorter on substance, leaving overseers with little or no information that is useful to correct the gross mismanagement. lake, for instance, the financial mess at the Department of Defense (DOD).

In May, DOD Deputy Inspector General Robert Lieberman reported to Congress that "the extensive DOD efforts to compile and audit the FY [fiscal year] 2000 financial statements for the department as a whole and for the 10 subsidiary reporting entities like the Army, Navy and Air Force General Funds, could not overcome the impediments caused by poor systems and unreliable documentation of transactions and assets."

Without ever using the word "money" a practice common among inspectors general (IGs), the deputy IG at the Pentagon read an eight-page summary of DOD fiduciary failures. He admitted that $4.4 trillion in adjustments to the Pentagon's books had to be cooked to compile the required financial statements and that $1.1 trillion of that amount could not be supported by reliable information. In other words, at the end of the last full year on Bill Clinton's watch, more than $1 trillion was simply gone and no one can be sure of when, where or to whom the money went.

For most Americans, an official admission that $1.1 trillion in taxpayers' money cannot be accounted for is incomprehensible. To put it in perspective, consider that this missing sum would buy the following:

* nearly 14 million accounting degrees from any four-year state college, estimating the cost at $20,000 per year;

* 36 million automobiles at an estimated cost of $30,000 each; and

* about 8 million single-family houses costing $140,000 per home. Also, consider this:

* Assuming the average working life is 30 years, the average annual income is $34,000 and the average federal tax on that income is $6,830, nearly 5.5 million Americans will work their entire lives to pay $1.1 trillion in taxes.

* In fiscal 1999, 124,227,000 Americans paid a total of more than $855 billion in individual income taxes, which means that the next year the Pentagon misplaced, lost or otherwise cannot account for all the money the IRS collected in fiscal 1999 from individual, estate, gift, corporate and excise taxes.

The General Accounting Office (GAO), which is the investigative arm of Congress, wrote in its January 2001 report, DOD Major Management Challenges and Program Risks, that the Pentagon "continues to confront pervasive and complex financial-management problems ... and has been on our list of high-risk areas vulnerable to waste, fraud, abuse and mismanagement since 1995. To date, no major part of the department's operations has passed the test of an independent financial audit because of pervasive weaknesses in the department's financial-management systems, operations and controls."

Specifically, the GAO found that the DOD had "(1) an inability to reconcile an estimated $7 billion difference between its available fund balances and the Treasury's balance; (2) there were frequent adjustments of recorded payments between appropriation accounts -- with nearly $1 of every $3 in fiscal year 1999 contract payments representing an adjustment; and (3) there are incorrect or unsupported obligations."

What this means to the average American is that the Pentagon checking-account balance doesn't match the bank (Treasury) balance. One out of every three dollars entered in the ledger had to be adjusted to get the account in balance -- with the Pentagon owing huge sums for which it cannot account. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.