The Department of Defense Audit, Representative Ocasio-Cortez, and the Four Pinocchios

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On December 20, Secretary of Defense James Mattis submitted his resignation to President Donald J. Trump. At the same time, the White House stated intention to withdraw all U.S. troops from Syria and half of those in Afghanistan. The developments were met with concern by GOP legislators and Show Biz celebrities.

Mattis may have policy disagreements with the President, but the General’s departure could also have had something to do with a much-overlooked incident that transpired not too long ago. In early December, newly-elected Representative Alexandria Ocasio-Cortez (D-NY) alleged in a tweet that $21 trillion is missing from Department of Defense (DOD) accounts, a sum that could have helped fund 66 percent of Medicare for All.

The self-described democratic socialist got the “$21 trillion” figure from a report by investigative journalist Dave Lindorff; he based his work on the findings of economist Mark Skidmore and other independent sources.

While admitting the DOD has a conflicted financial history, the Washington Post reacted to Ocasio-Cortez as if she had made a claim on the order of one of President Trump’s wilder tweets. For her two-sentence “mistake,” she was awarded “Four Pinnochios.”

Released in November, the DOD’s Agency Financial Report Fiscal Year 2018 (AFR) deserves special attention. Why? Because the 220-page AFR deals with the first time in history that the 81-year-old Pentagon sort of made an audit.

Whatever its connection with staffing changes in the Trump White House may have been, one would have thought that allegations about official mishandling of huge amounts of money would get at least as much attention as the cases of Stormy Daniels and Michael Cohen. Aside from a few press reports and blog posts like this one, it hasn’t.

The Chief Financial Officers Act of 1990 required “major” federal executive agencies to file audits. Congress has passed related legislation under Presidents Bill Clinton, George W. Bush, and Barack H. Obama. However, the DOD never submitted an audit.

Last year, Congress funded a Pentagon audit. The AFR claims financial reports from over 20 separate Pentagon units were submitted to the DOD’s Office of Inspector General (OIG) so an “overarching consolidated audit” could be completed by Ernst and Young.

What the AFR declares is nothing less than astonishing.

In his cover letter, Secretary Mattis wrote,

As expected, the audit resulted in a Disclaimer of Opinion and multiple material weaknesses… While we acknowledge the progress accomplished this year, we recognize that opportunities for continued improvement exist and we embrace the challenges we must overcome.

David Norquist, DOD Chief Financial Officer, observed this will be done with a “Department-wide database tool for use in capturing, prioritizing, and assigning responsibility for auditor findings and related corrective action plans.”

In other words, the Pentagon flunked the audit.

Buried inside the AFR, the 16 pages of OIG comments about the Ernst and Young study explained why an audit could not be completed.

According to the commentary, General Mattis and Comptroller Norquist notified the OIG on September 27, 2017, that all financial statements were ready. However, “DOD management” did not submit material to auditors until November 14, 2018. Since the AFR was released the following day, “ability to complete a thorough review” was limited.

For an example of a typical financial statement submitted by DOD branch agencies, see here.

At a press conference after the AFR’s release, Deputy Defense Secretary Patrick Shanahan told reporters, “[w]e never thought we were going to pass an audit, right? Everyone was betting against us that we wouldn’t even do the audit.”

Shanahan is slated to become acting defense secretary.

To openly admit your agency failed an audit and argue why it should not have passed takes extreme nerve. In the new normal, there is extravagant waste for “national defense” and powerful interest groups. Meanwhile, austerity for “entitlement programs” and the rest of us.

For over a generation, the mainstream press hasn’t stopped harping on infinitely lesser problems at social-service and regulatory agencies. For anyone born and raised in the United States, clichés like “welfare queen” and “not in my backyard” are second nature.

It is vital to understand a few things, each of which deserve fuller explanation:

  • Adorned with extraneous and contradictory data, the AFR is not an audit.
  • Pentagon “audits” and “financial statements” are not evidence of waste but of fraud.
  • In effect, it’s legal for federal executive agencies to evade financial transparency.

As the AFR itself says about financial information auditors receive to calculate DOD audits, they’re full of “undetected misstatements that are both material and pervasive.”

The discourse of waste implies bureaucrats haven’t done their job of allocating funds for “efficient” killing machines. A good example is a speech given by Secretary of Defense Donald Rumsfeld at the Pentagon on September 10, 2001.

Admittedly, it’s hard to tell what’s going on, but if we dispel comforting notions about waste, we must conclude that DOD budgets are intentionally “a joke”—the term used by Jack Armstrong, formerly an OIG auditor, to describe them:

  • Budgets submitted with imaginary numbers; and…
  • expenditures made beyond what Congress approves; and/or…
  • appropriations sequestered in secret accounts; and…
  • budgets in subsequent years with more strange numbers to justify past “cost overruns.”

Secretive Pentagon book-keeping practices are justified in terms of national security. The Federal Accounting Standards Advisory Board proposed new guidelines in October for how agencies doing classified work can falsify financial reports to Congress.

Arguably, this violates Article I Section 9 of the U.S. Constitution, which states:

No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.

Getting back to the AFR, it makes another admission we should keep in mind:

This report is intended solely for the information and use of Congress; the OMB; the Government Accountability Office; the Under Secretary of Defense (Comptroller)/Chief Financial Officer; DoD management; and the DoD Office of Inspector General. This report is not intended for, nor shall it be used [by] any other audience.

Anthony B. Newkirk is an associate professor of history at Philander Smith College in Little Rock, Arkansas. He has written for CounterPunchForeign Policy in FocusGlobal ResearchThe Hill, and the Arkansas Historical Quarterly.

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