SEN. GRASSLEY: The Pentagon Can’t Count

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Mr. President, I come to the floor today to speak about Defense Department financial audits. My colleagues know that I’m as stubborn as a mule when it comes to my oversight work of the Pentagon’s accounting system, or lack of system. 


I sure wish I could stop sounding like a broken record when talking about the Pentagon’s financial track record. 


The fact is the Pentagon is pigheaded when it comes to accounting for taxpayer dollars. It keeps pouring billions of dollars into an antiquated accounting system that doesn’t work.   


Late last year, I read an article that appeared in a national security blog called War on the Rocks. It’s called: “The Pentagon Can’t Count: It’s Time to Reinvent the Audit.”  


It was written by Steve Blank, a business professor at Stanford University.  


As a former member of the Defense Business Board, the professor calls for a whole new approach to defense auditing. 


The Pentagon is spending one billion dollars a year, and these are his quotes, “to incrementally get better.” And still, according to him, clean opinions are nowhere in sight. 


He raises a legitimate question: Why is the Pentagon spending so much money for so little results?


Thinking outside the box was not in the Defense Business Board’s charter, but Professor Blank allowed himself the luxury, the luxury of thinking outside of the box. He dreamed about doing the impossible. He wrote:  


“What if we could invent the future? It dawned on me. If we tried to look over the horizon, we would discover that the department could audit faster, cheaper and more effectively by inventing future tools and techniques rather than repeating the past.”  


The professor envisions a “fifth generation of audit practices” to break the cycle of audit failures at the Department of Defense. I give the professor very high grades for creativity and his search for new solutions, but disagree with some of his thinking. 


However, when it comes to pinpointing the root cause for unending audit failures, the professor hits the nail on the head:  


DoD needs to lead the audit industry to create a 21st century integrated finance and accounting system, including a U.S. Standard General Ledger, that provide reliable and complete data.” 


Integrated systems and reliable data are the magic words. 


The experts – like the auditors, the financial managers, the Inspector General – have known this truth for thirty years or more. They dutifully report it, wringing their hands in frustration, and then rinse and repeat the cycle, from one year to the next year. 


Now see here, we have the mighty Pentagon that develops the most advanced weapons systems the world has ever known. Yet when it comes to deploying basic technology like an accounting system, it’s buffaloed … or is it? Maybe they want the system to work that way, so nobody knows what is going on and how the money is spent. 


After hundreds of billions have been poured into patching-up old audit systems, the Department of Defense still can’t perform the most elementary accounting task in the book. They don’t capture transactions as they occur and post them to the correct accounts. 


So, just go figure what’s wrong. 


Well, there once was a true sage consigned to an attic cubbyhole in the Pentagon, who claimed to know the answer. 


That person was agent Ernest Fitzgerald. We called him Ernie.  


Ernie was the Management Systems Deputy of the Air Force in the Comptroller’s office. He blew the whistle on the C-5A cost overrun and, of course, got fired when President Nixon didn’t like what he testified before the Congress of the United States. 


Some years after being restored to his post, and he was restored only by court order, he was detailed to my staff for several years to lead a joint review of internal controls over vendor payments.  


Ernie believed the Pentagon Barons lorded over their financial fiefdoms for one reason and one reason only: they did not want to see the status quo go away. Pretty simple, keeping the books in disarray gives the Department of Defense so called “flexibility” to hide overspending and other financial shenanigans. 


Once upon a time, a promising fix lent credence to Ernie Fitgerald’s theory.  


It was called the Defense Corporate Database/Warehouse system. It was at the threshold of success when it got torpedoed. It could have been a building block for a modern accounting system that might have delivered a victory to the American taxpayer.   


If the brass was truly committed to cleaning up the books, it would have happened long ago.  


The technology is there for the taking. 


To break out of the cycle of failures, we need to step back, hit the audit re-set button and chart a new course. 


As a first step, Secretary of Defense Austin should hold the Chief Financial Officer (CFO) accountable for failing to have accounting systems that meets statutory requirements. That’s as simple as Accounting 101 and Accountability 101 in my book. 


If Secretary Austin holds the CFO’s feet to the fire, just maybe we will finally see a course of correction.  


As a lifelong family farmer, I can tell you that hope springs eternal at the start of every planting season. After four decades working to weed out the fiscal mess at the Pentagon, it’s a tall order to be optimistic.  


I’m not going to give up. I’m not going to give up this fight.  


With the help of a team of auditors under the leadership of GAO’s General Counsel, Edda Emmanuelli Perez, and support from our allies, maybe together we can nudge the department in a new direction. 


Otherwise, expect more of the same: colossal waste on failed audits.  


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