The U.S. Army Lost Track of $6.5 Trillion
Cooked books and old problems
by MATTHEW GAULT
By congressional mandate, the Pentagon needs to be ready for an audit of its finances by Sept. 30, 2017. If what’s going on at the U.S. Army is any indication — and it is — then next fall’s audit will be a shit-show of broken promises, cooked books and bizarre accounting.
The Army made headlines in mid-August 2016 when a Defense Department Inspector General report landed with a heavy thud. The 75-page report detailed all the ways the Army screwed up its accounting of the Army General Fund in 2015.
According to the report, Army bookkeepers screwed up the budget to the tune of … $6.5 trillion dollars.
That’s $6.5 trillion in accounting mistakes for the year 2015 alone. That’s such a huge number that it doesn’t even make a lot of sense. The annual budget for the entire U.S. military in the past few years has been around half-a-trillion bucks.
How could the Army misplace, fudge, misappropriate or otherwise lose $6.5 trillion? It’s simple. Years of no oversight, bad accounting practices and crappy computer systems created this problem. And remember, this is just the Army and just its general fund.
This $6.5-trillion error is just the tip of the financial iceberg. It’s also business as usual for a military that’s consistently proved its both unwilling and fundamentally unable to maintain even the appearance of fiscal responsibility.
To understand this accounting mistake, it’s important to understand what it’s not. This trillion-dollar screw-up probably isn’t missing money, misappropriated funds or stolen taxpayer dollars. This is an accounting error caused by a combination of bad financial practices and computer errors. It is not a smoking gun proving the U.S. military is embezzling funds from the American public.
Let’s break down this complicated mess. The trillions in accounting errors are all journal vouchers. A journal voucher is a common accounting tool that helps financial institutions keep track of discrepancies in record-keeping. This is an oversimplification, but when money moves from one column to another, the journal voucher is a note that tells you why the cash moved.
Typically, journal vouchers come with a wealth of information including a detailed description of why the cash moved or was spent, including receipts and notes. But the Army didn’t have any of that for most of its journal vouchers and there’s a good reason — a computer accounting program automatically created most of the journal vouchers to help it make sense of the military’s messy books.
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One of the biggest reasons Pentagon books are so hard to audit is that they’re a mess of legacy systems that don’t communicate with each other. The various branches of the American military kept their books in their own way for decades, often with no system for reconciling them. The Navy’s record-keeping systems aren’t compatible with the Marines, for example.
Worse, the various accounting methods of different departments within each branch often aren’t compatible. That’s part of what felled the Army here. Way back in 1991, the Pentagon’s inspector general called out the Army for its bad accounting practices and the Army promised it could do better, because it was developing new accounting software to help bring all the old legacy systems together, get all its different departments on the same page and clean up its fiscal mess.
So the Army rolled out the General Fund Enterprise Business System, a web-based accounting platform designed to integrate or absorb all those messy legacy systems and get the Army on track for the coming 2017 audit.
But something bad happened when the Army’s financial wizards fed millions of bits of information into GFEBS — the computer system designed to save them automatically generated trillions of dollars in journal vouchers to account for a budget, assets and spending it couldn’t reconcile.
That’s right, the Army’s new accounting software created most of the $6.5 trillion in journal vouchers. You can’t blame it, though. It was only following its programming.
The problems started as Army financial auditors prepared to put the info from its old legacy systems into the new GFEBS. According to the I.G. report, Army financial experts filtered 1.3 million documents into the computer systems to help reconcile its books. During that process, for some reason, one of the computer systems removed 16,513 of the files.
“[Army accountants] did not document or support why the [legacy computer system] removed at least 16,513 of 1.3 million feeder file records,” the report stated. Those missing files are probably a large part of why the GFEBS auto generated thousands of vouchers to account for trillions of dollars in unaccounted-for cash.
It gets worse. When a computer system auto-generates journal vouchers, Army accountants are supposed to go through the ledgers and manually account for the discrepancy. Which makes sense.
But they didn’t. The Army General Fund had 142,355 journal vouchers. The computer software created 137,618 of those and the Army accountants claimed they could explain only 3,468 of them.
But the I.G. dug into those supported journal vouchers and discovered something unpleasant — despite Army claims to the contrary, accountants couldn’t explain most of the journal vouchers they claimed they could explain. The I.G. pulled out 194 journal vouchers at random that the Army insisted it could explain — and found that 170 lacked any documentation whatsoever.
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Digging into the I.G. report provides some more answers. If this account cooking is malfeasance meant to hide shady transactions, it makes the architect look like a moron. Most of the financial inconsistencies come down to bad software and poor accounting procedures.
“For example, [Army accountants] processed a correcting [journal voucher] adjustment totaling $74.1 billion because [the Army comptroller] configured GFEBS to record transactions to the wrong general ledger accounts without providing the detailed transaction level documentation,” the I.G. report stated.
Bad computer-programming is not necessarily fiduciary malpractice, but it certainly opens the door for it.
In another error, the Army accounts created $8.3 million in vouchers because the old computer system incorrectly recorded annual funding as quarterly funding. Another computer error created a $9.5-billion voucher because it mislabeled an Army asset.
That these problems appear to be innocent accounting errors based on bad data and old computer systems doesn’t excuse the Army or the rest of the military. This $6.4 accounting screw-up is symptomatic of a broken system. The military has been financially sloppy for so long that a full accounting of its books could take decades.
The truth is that the Pentagon has no idea where its money goes — and every effort to clean up its financial problems exposes just how hopeless the situation is. “This report shows how despite years of talk about auditability the Pentagon’s books are still largely a mess,” Mandy Smithberger, director of the Straus Military Reform Project at the Project On Government Oversight told War Is Boring.
“Financial management and accounting isn’t a priority,” she continued.
Smithberger is right. This is the same institution that can’t tell investigators what real estate it owns, routinely sneaks extra weapons into the budget and shovels cash into the never-ending money pit that is Afghanistan.
This $6.5 trillion is only the start. Remember, that’s just the Army’s General Fund and it’s only for one year. The coming audit in fall 2017 will, in all likelihood, reveal even greater fiduciary horrors.