ACTION ALERT: Crack Down on Pentagon Corruption

Heidi Hess / CREDO Action

Petition to the House of Representatives:
“Crack down on the revolving door between the Pentagon and major military contractors. Support amendments 208, 226, 394, 555 and 556 to the National Defense Authorization Act.”

(July 9, 2019) — Thanks to arcane Pentagon accounting rules and outright obstruction, we may never know the cost of waste at the Department of Defense (DOD). But we also should be asking: How much does a general cost?

An investigation by our friends at the Project On Government Oversight found more than 600 instances in which the top 20 Pentagon contractors hired former top military officers, senior government officials or members of Congress.¹ For massive corporate military contractors, hiring former senior officials to lobby their colleagues for more billion-dollar contracts is just part of the game. For the rest of us, it sounds a lot like corruption.

House Democrats are pushing to add new ethics rules to the National Defense Authorization Act, the mega-bill that sets Pentagon funding levels. A vote is expected any day now, so they need our help now.

The Senate blocked the Democratic House of Representatives’ signature ethics package, but now we have another chance. If Democratic representatives succeed in amending the NDAA, these new Pentagon ethics rules would almost certainly become law.

Military spending sucks up more than half of the federal budget ‒ even before you add in the blank-check war slush fund for ongoing overseas military actions or the unknown dark budget for covert programs. For decades, progressives fought for a Pentagon audit. When it happened, the auditors discovered so much opposition and accounting malpractice that they could not tell whether the DOD passed or failed.²

Ethics abuses and outright corruption fuel much of the outrageous spending. Senior officers, members of Congress and aides all jump to massive corporate weapons suppliers and then pitch their old friends to keep the dollars flowing. Junior officers are scared to blow the whistle and risk losing out on a future lucrative job of their own.

House Democrats are pushing for new rules that close major loopholes on the revolving door between the Pentagon and corporate contractors, force companies to report more lobbying contacts, expose a lobbyist database to public scrutiny, and impose new restrictions on working for foreign governments. Every ethics push like this puts a spotlight on the corruption riddling the Pentagon, so we need to speak out.

Right-wing politicians and Fox News breathlessly trumpet every small school funding mishap or health care conflict-of-interest, all while some of the most profitable companies in history rely on government contracts won by hiring former high-ranking officials. The NDAA is a $750 billion disaster that members of Congress should oppose outright, especially at a time when teachers are going on strike and too many rank-and-file service members live below the poverty line.³

At the very least, Congress should add new ethics rules to that massive authorization for spending. The revolving door between the Pentagon and the big corporate military contractors has to end.

Tell Congress: Crack down on Pentagon corruption. Click here to sign the petition.

Thank you for speaking out.

Heidi Hess is Co-Director for CREDO Action from Working Assets

References:

1. Mandy Smithberger, “Brass Parachutes: The Problem of the Pentagon Revolving Door,” Project On Government Oversight, November 2018.
2. Dave Lindorff, “Exclusive: The Pentagon’s Massive Accounting Fraud Exposed,” The Nation, Nov. 27, 2018.
3. Huzaifa Shahbaz, “$750 Billion NDAA Steamrolls Ahead,” National Priorities Project, June 28, 2019.

$750 Billion NDAA Steamrolls Ahead

Huzaifa Shahbaz / National Priorities Project

(June 28, 2019) — It’s that time of the year again when Congress reviews the National Defense Authorization Act (NDAA), which authorizes funding—and sets spending limits—for all operations maintained by the military. Once spending is authorized, an appropriation process takes place through multiple bills that provide funds for the Department of Defense and other departments that house military programs. 

This year, the limit is shaping up to be sky-high—even more than the current military budget, which even President Trump admitted is “crazy”… before proposing a whopping increase from $716 billion to $750 billion for Fiscal Year 2020.

And the Senate is going along for the ride, against the better advice of a coaliton including NPP. Senators voted 86-8 on Thursday afternoon to approve the full $750 billion bill, after the Senate Armed Services Committee (SASC) had approved the latest NDAA, with $75.9 billion allocated to Overseas Contingency Operations, the slush fund for our forever wars. The bill also approved $23.3 billion for national security programs within the Department of Energy, including for nuclear weapons. 

In total, the SASC’s version of the NDAA transfers $97.9 billion from the President’s budget proposal to what they have called “OCO Base” funding, created as a loophole comply with base defense caps. 

Now the Senate NDAA needs to be reconciled with the other side of Congress, which plans to bring the House version of the bill to the floor after July 4. The House Armed Services Committee (HASC) has already approved a version of the NDAA with $733 billion in military spending, which is $17 billion less than the Senate’s $750 billion budget—but still a major bump up from current military spending. 

It’s worth keeping in mind that the Senate has approved of the President’s level of Pentagon spending despite a substantive amount of evidence pointing to consistent corruption: the Department of Defense is the only agency that has failed to pass its first-ever audit due to a number of irregularities within their financial records.

Trade Offs with the War Slush Fund

Instead of allocating $97.9 billion for the Pentagon’s slush fund, Congress should have the willpower to invest in services that meet human needs for people in the United States. 

To get a better idea of what $97.9 billion can do for everyday Americans, I’ve used the National Priorities Project trade-offs tool to see how that money could better be spent.

Instead of spending this amount of money on forever wars, we could provide 41.3 million children and 27.5 million adults with low-income healthcare for one year. We can also afford 979,000 new jobs with supports created in high poverty communities, which could lift many out of the poverty line. It could solve the issue of continuous student debt in America by providing 2.78 million scholarships for university for four whole years.

Though these efforts will not be easy to attain, members of Congress should do everything in their power to lay the groundwork for substantive cuts to the military budget and to get rid of the Pentagon’s unpopular slush fund.

Brass Parachutes: The Problem of the Pentagon Revolving Door

Pentagon officials captured by the contractors they oversee is skewing our spending priorities and foreign policy

Mandy Smithberger / Project on Government Oversight

(November 5, 2018) — A POGO investigation found that from 2008 to the present over 380 high-ranking Department of Defense officials and military officers became lobbyists, board members, executives, or consultants for defense contractors within two years of leaving the Department.

Major Findings

• There were 645 instances of the top 20 defense contractors in fiscal year 2016 hiring former senior government officials, military officers, Members of Congress, and senior legislative staff as lobbyists, board members, or senior executives in 2018 (see chart below). Since some lobbyists work for multiple defense contractors, there are more instances than officials.¹
• Of those instances, nearly 90 percent became registered lobbyists, where the operational skill is influence-peddling.
• At least 380 high-ranking Department of Defense officials and military officers shifted into the private sector to become lobbyists, board members, executives, or consultants for defense contractors.
• Of the Department of Defense officials POGO tracked through the revolving door, a quarter of them (95) went to work at the Department of Defense’s top 5 contractors (Lockheed Martin, Boeing, Raytheon, General Dynamics, and Northrop Grumman).
• Military officers going through the revolving door included 25 Generals, 9 Admirals, 43 Lieutenant Generals, and 23 Vice Admirals.

Download the Report

The Pentagon’s Massive Accounting Fraud Exposed

How US military spending keeps rising even as the Pentagon flunks its audit.

Dave Lindorff / The Nation

(November 27 2018) — On November 15, Ernst & Young and other private firms that were hired to audit the Pentagon announced that they could not complete the job.

Congress had ordered an independent audit of the Department of Defense, the government’s largest discretionary cost center—the Pentagon receives 54 cents out of every dollar in federal appropriations—after the Pentagon failed for decades to audit itself. The firms concluded, however, that the DoD’s financial records were riddled with so many bookkeeping deficiencies, irregularities, and errors that a reliable audit was simply impossible.

Deputy Secretary of Defense Patrick Shanahan tried to put the best face on things, telling reporters, “We failed the audit, but we never expected to pass it.” Shanahan suggested that the DoD should get credit for attempting an audit, saying, “It was an audit on a $2.7 trillion organization, so the fact that we did the audit is substantial.”

The truth, though, is that the DoD was dragged kicking and screaming to this audit by bipartisan frustration in Congress, and the result, had this been a major corporation, likely would have been a crashed stock.

As Republican Senator Charles Grassley of Iowa, a frequent critic of the DoD’s financial practices, said on the Senate floor in September 2017, the Pentagon’s long-standing failure to conduct a proper audit reflects “twenty-six years of hard-core foot-dragging” on the part of the DoD, where “internal resistance to auditing the books runs deep.”

In 1990, Congress passed the Chief Financial Officers Act, which required all departments and agencies of the federal government to develop auditable accounting systems and submit to annual audits. Since then, every department and agency has come into compliance—except the Pentagon.

Now, a Nation investigation has uncovered an explanation for the Pentagon’s foot-dragging: For decades, the DoD’s leaders and accountants have been perpetrating a gigantic, unconstitutional accounting fraud, deliberately cooking the books to mislead the Congress and drive the DoD’s budgets ever higher, regardless of military necessity. DoD has literally been making up numbers in its annual financial reports to Congress—representing trillions of dollars’ worth of seemingly nonexistent transactions—knowing that Congress would rely on those misleading reports when deciding how much money to give the DoD the following year, according to government records and interviews with current and former DoD officials, congressional sources, and independent experts.

“If the DOD were being honest, they would go to Congress and say, ‘All these proposed budgets we’ve been presenting to you are a bunch of garbage,’ ” said Jack Armstrong, who spent more than five years in the Defense Department’s Office of Inspector General as a supervisory director of audits before retiring in 2011.

The fraud works like this. When the DoD submits its annual budget requests to Congress, it sends along the prior year’s financial reports, which contain fabricated numbers.

The fabricated numbers disguise the fact that the DoD does not always spend all of the money Congress allocates in a given year. However, instead of returning such unspent funds to the US Treasury, as the law requires, the Pentagon sometimes launders and shifts such moneys to other parts of the DoD’s budget.

Veteran Pentagon staffers say that this practice violates Article I Section 9 of the US Constitution, which stipulates that:

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.

Among the laundering tactics the Pentagon uses: So-called “one-year money”—funds that Congress intends to be spent in a single fiscal year—gets shifted into a pool of five-year money. This maneuver exploits the fact that federal law does not require the return of unspent “five-year money” during that five-year allocation period.

The phony numbers are referred to inside the Pentagon as “plugs,” as in plugging a hole, said current and former officials. “Nippering,” a reference to a sharp-nosed tool used to snip off bits of wire or metal, is Pentagon slang for shifting money from its congressionally authorized purpose to a different purpose.

Such nippering can be repeated multiple times “until the funds become virtually untraceable,” says one Pentagon-budgeting veteran who insisted on anonymity in order to keep his job as a lobbyist at the Pentagon.

The plugs can be staggering in size. In fiscal year 2015, for example, Congress appropriated $122 billion for the US Army. Yet DoD financial records for the Army’s 2015 budget included a whopping $6.5 trillion (yes, trillion) in plugs. Most of these plugs “lack[ed] supporting documentation,” in the bland phrasing of the department’s internal watchdog, the Office of Inspector General.

In other words, there were no ledger entries or receipts to back up how that $6.5 trillion supposedly was spent. Indeed, more than 16,000 records that might reveal either the source or the destination of some of that $6.5 trillion had been “removed,” the inspector general’s office reported.

In this way, the DoD propels US military spending higher year after year, even when the country is not fighting any major wars, says Franklin “Chuck” Spinney, a former Pentagon whistle-blower. Spinney’s revelations to Congress and the news media about wildly inflated Pentagon spending helped spark public outrage in the 1980s. “They’re making up the numbers and then just asking for more money each year,” Spinney told The Nation. The funds the Pentagon has been amassing over the years through its bogus bookkeeping maneuvers “could easily be as much as $100 billion,” Spinney estimated.

Indeed, Congress appropriated a record amount—$716 billion—for the DoD in the current fiscal year of 2019. That was up $24 billion from fiscal year 2018’s $692 billion, which itself was up $6 billion from fiscal year 2017’s $686 billion. Such largesse is what drives US military spending higher than the next ten highest-spending countries combined, added Spinney. Meanwhile, the closest thing to a full-scale war the United States is currently fighting is in Afghanistan, where approximately 15,000 US troops are deployed—only 2.8 percent as many as were in Vietnam at the height of that war.

The DoD’s accounting practices appear to be an intentional effort to avoid accountability, says Armstrong. “A lot of the plugs—not all, but a substantial portion—are used to force general-ledger receipts to agree with the general budget reports, so what’s in the budget reports is basically left up to people’s imagination,” Armstrong says, adding, “Did the DoD improperly spend funds from one appropriated purpose on another? Who can tell?”

“The United States government collects trillions of dollars each year for the purpose of funding essential functions, including national-security efforts at the Defense Department,” Senator Grassley told The Nation. “When unelected bureaucrats misuse, mismanage and misallocate taxpayer funds, it not only takes resources away from vital government functions, it weakens citizens’ faith and trust in their government.”

This Pentagon accounting fraud is déjà vu all over again for Spinney. Back in the 1980s, he and a handful of other reform-minded colleagues exposed how the DoD used a similar accounting trick to inflate Pentagon spending—and to accumulate money for “off-the-books” programs.

“DoD routinely over-estimated inflation rates for weapons systems,” Spinney recalled. “When actual inflation turned out to be lower than the estimates, they did not return the excess funds to the Treasury, as required by law, but slipped them into something called a ‘Merged Surplus Account,’” he said.

“In that way, the Pentagon was able to build up a slush fund of almost $50 billion” (about $120 billion in today’s money), Spinney added. He believes that similar tricks are being used today to fund secret programs, possibly including US Special Forces activity in Niger. That program appears to have been undertaken without Congress’s knowledge of its true nature, which only came to light when a Special Forces unit was ambushed there last year, resulting in the deaths of four US soldiers.

“Because of the plugs, there is no auditable way to track Pentagon funding and spending,” explains Asif Khan of the Government Accountability Office, the Congress’s watchdog on the federal bureaucracy. “It’s crucial in auditing to have a reliable financial record for prior years in order to audit the books for a current year,” notes Khan, the head of the National Security Asset Management unit at GAO. Plugs and other irregularities help explain why the Pentagon has long been at or near the top of the GAO’s list of “high risk” agencies prone to significant fraud, waste, and abuse, he adds.

The Nation submitted detailed written questions and requested interviews with senior officials in the Defense Department before publishing this article. Only public-affairs staff would speak on the record.

In an e-mailed response, Christopher Sherwood of the DoD’s Public Affairs office denied any accounting impropriety. Any transfer of funds between one budgetary account and another “requires a reprogramming action” by Congress, Sherwood wrote, adding that any such transfers amounting to more than 1 percent of the official DoD budget would require approval by “all four defense congressional committees.”

The scale and workings of the Pentagon’s accounting fraud began to be ferreted out last year by a dogged research team led by Mark Skidmore, a professor of economics specializing in state and local government finance at Michigan State University. Skidmore and two graduate students spent months poring over DoD financial statement reviews done by the department’s Office of Inspector General.

Digging deep into the OIG’s report on the Army’s 2015 financial statement, the researchers found some peculiar information. Appendix C, page 27, reported that Congress had appropriated $122 billion for the US Army that year. But the appendix also seems to report that the Army had received a cash deposit from the US Treasury of $794.8 billion. That sum was more than six times larger than Congress had appropriated—indeed, it was larger than the entire Pentagon budget for the year. The same appendix showed that the Army had accounts payable (accounting lingo for bills due) totaling $929.3 billion.

“I wondered how you could possibly get those kinds of adjustments out of a $122 billion budget,” Skidmore recalled. “I thought, initially, ‘This is absurd!’ And yet all the [Office of Inspector General] seemed to do was say, ‘Here are these plugs.’ Then, nothing. Even though this kind of thing should be a red flag, it just died. So we decided to look further into it.”

To make sure that fiscal year 2015 was not an anomaly, Skidmore and his graduate students expanded their inquiry, examining OIG reports on Pentagon financial records stretching back to 1998.

Time and again, they found that the amounts of money reported as having flowed into and out of the Defense Department were gargantuan, often dwarfing the amounts Congress had appropriated: $1.7 trillion in 1998, $2.3 trillion in 1999, $1.1 trillion in 2000, $1.1 trillion in 2007, $875 billion in 2010, and $1.7 trillion in 2012, plus amounts in the hundreds of billions in other years.

In all, at least a mind-boggling $21 trillion of Pentagon financial transactions between 1998 and 2015 could not be traced, documented, or explained, concluded Skidmore. To convey the vastness of that sum, $21 trillion is roughly five times more than the entire federal government spends in a year. It is greater than the US Gross National Product, the world’s largest at an estimated $18.8 trillion. And that $21 trillion includes only plugs that were disclosed in reports by the Office of Inspector General, which does not review all of the Pentagon’s spending.

To be clear, Skidmore, in a report coauthored with Catherine Austin Fitts, a former assistant secretary of the Department of Housing and Urban Development who complained about similar plugs in HUD financial statements, does not contend that all of this $21 trillion was secret or misused funding. And indeed, the plugs are found on both the positive and the negative sides of the ledger, thus potentially netting each other out.

But the Pentagon’s bookkeeping is so obtuse, Skidmore and Fitts added, that it is impossible to trace the actual sources and destinations of the $21 trillion. The disappearance of thousands of records adds further uncertainty. The upshot is that no one can know for sure how much of that $21 trillion was, or was not, being spent legitimately.

That may even apply to the Pentagon’s senior leadership. A good example of this was Donald Rumsfeld, the notorious micromanaging secretary of defense during the Bush/Cheney administration. On September 10, 2001 Rumsfeld called a dramatic press conference at the Pentagon to make a startling announcement. Referring to the huge military budget that was his official responsibility, he said, “According to some estimates we cannot track $2.3 trillion in transactions.”

This shocking news that an amount more than five times as large as the Pentagon’s FY 2001 budget of an estimated $313 billion was lost or even just “untrackable” was—at least for one 24-hour news cycle—a big national story, as was Secretary Rumsfeld’s comment that America’s adversary was not China or Russia, but rather was “closer to home: It’s the Pentagon bureaucracy.”

Equally stunning was Rumsfeld’s warning that the tracking down of those missing transactions “could be … a matter of life and death.” No Pentagon leader had ever before said such a thing, nor has anyone done so since then. But Rumsfeld’s exposé died quickly as, the following morning on September 11, four hijacked commercial jet planes plowed full speed into the two World Trade Center towers, the Pentagon, and a field in Pennsylvania. Since that time, there has been no follow-up and no effort made to find the missing money, either.

Recalling his decades inside the Pentagon, Spinney emphasized that the slippery bookkeeping and resulting fraudulent financial statements are not a result of lazy DoD accountants. “You can’t look at this as an aberration,” he said. “It’s business as usual. The goal is to paralyze Congress.”

That has certainly been the effect. As one congressional staffer with long experience investigating Pentagon budgets, speaking on background because of the need to continue working with DoD officials, told The Nation, “We don’t know how the Pentagon’s money is being spent. We know what the total appropriated funding is for each year, but we don’t know how much of that funding gets spent on the intended programs, what things actually cost, whether payments are going to the proper accounts. If this kind of stuff were happening in the private sector, people would be fired and prosecuted.”

DoD officials have long insisted that their accounting and financial practices are proper. For example, the Office of Inspector General has attempted to explain away the absurdly huge plugs in DoD’s financial statements as being a common, widely accepted accounting practice in the private sector.

When this reporter asked Bridget Serchak, at the time a press spokesperson for the inspector general’s office, about the Army’s $6.5 trillion in plugs for fiscal year 2015, she replied, “Adjustments are made to the Army General Fund financial statement data … for various reasons such as correcting errors, reclassifying amounts and reconciling balances between systems …. For example, there was a net unsupported adjustment of $99.8 billion made to the $0.2 billion balance reported for Accounts Receivable.”

There is a grain of truth in Serchak’s explanation, but only a grain.

As an expert in government budgeting, Skidmore confirmed that it is accepted practice to insert adjustments into budget reports to make both sides of a ledger agree. Such adjustments can be deployed in cases where receipts have been lost—in a fire, for example—or where funds were incorrectly classified as belonging to one division within a company rather than another. “But those kinds of adjustments should be the exception, not the rule, and should amount to only a small percentage of the overall budget,” Skidmore said.

For its part, the inspector general’s office has blamed the fake numbers found in many DoD financial statements on the Defense Finance and Accounting Service (DFAS), a huge DoD accounting operation based in Indianapolis, Indiana. In review after review, the inspector general’s office has charged that DFAS has been making up “unsupported” figures to plug into DoD’s financial statements, inventing ledger entries to back up those invented numbers, and sometimes even “removing” transaction records that could document such entries.

Nevertheless, the inspector general has never advocated punitive steps against DFAS officials—a failure that suggests DoD higher-ups tacitly approve of the deceptions.

Skidmore repeatedly requested explanations for these bookkeeping practices, he says, but the Pentagon response was stonewalling and concealment. Even the inspector general’s office, whose publicly available reports had been criticizing these practices for years, refused to answer the professor’s questions. Instead, that office began removing archived reports from its website. (Skidmore and his grad students, anticipating that possibility, had already downloaded the documents, which were eventually were restored to public access under different URLs.)

Nation inquiries have met with similar resistance. Case in point: A recent DoD OIG report on a US Navy financial statement for FY 2017. Although OIG audit reports in previous years were always made available online without restriction or censorship, this particular report suddenly appeared in heavily redacted form—not just the numbers it contained, but even its title!

Only bureaucratic sloppiness enabled one to see that the report concerned Navy finances: Censors missed some of the references to the Navy in the body of the report, as shown in the passages reproduced here.

A request to the Office of Inspector General to have the document uncensored was met with the response: “It was the Navy’s decision to censor it, and we can’t do anything about that.” At The Nation’s request, Senator Grassley’s office also asked the OIG to uncensor the report. Again, the OIG refused. A Freedom Of Information Act request by The Nation to obtain the uncensored document awaits a response.

The GAO’s Khan was not surprised by the failure of this year’s independent audit of the Pentagon. Success, he points out, would have required “a good-faith effort from DoD officials, but to date that has not been forthcoming.” He added, “As a result of partial audits that were done in 2016, the Army, Navy, Air Force, and Marines have over 1,000 findings from auditors about things requiring remediation. The partial audits of the 2017 budget were pretty much a repeat. So far, hardly anything has been fixed.”

Let that sink in for a moment: As things stand, no one knows for sure how the biggest single-line item in the US federal budget is actually being spent. What’s more, Congress as a whole has shown little interest in investigating this epic scandal. The absurdly huge plugs never even get asked about at Armed Services and Budget Committee hearings.

One interested party has taken action—but it is action that’s likely to perpetuate the fraud. The normally obscure Federal Accounting Standards Advisory Board sets the accounting standards for all federal agencies.

Earlier this year, the board proposed a new guideline saying that agencies that operate classified programs should be permitted to falsify figures in financial statements and shift the accounting of funds to conceal the agency’s classified operations. (No government agency operates more classified programs than the Department of Defense, which includes the National Security Agency.) The new guideline became effective on October 4, just in time for this year’s end-of-year financial statements.

So here’s the situation: We have a Pentagon budget that a former DOD internal-audit supervisor, Jack Armstrong, bluntly labels “garbage.” We have a Congress unable to evaluate each new fiscal year’s proposed Pentagon budget because it cannot know how much money was actually spent during prior years. And we have a Department of Defense that gives only lip service to fixing any of this. Why should it? The status quo has been generating ever-higher DoD budgets for decades, not to mention bigger profits for Boeing, Lockheed, and other military contractors.

The losers in this situation are everyone else. The Pentagon’s accounting fraud diverts many billions of dollars that could be devoted to other national needs: health care, education, job creation, climate action, infrastructure modernization, and more. Indeed, the Pentagon’s accounting fraud amounts to theft on a grand scale—theft not only from America’s taxpayers, but also from the nation’s well-being and its future.

As President Dwight D. Eisenhower, who retired from the military as a five-star general after leading Allied forces to victory in World War II, said in a 1953 speech, “Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed.”

What would Eisenhower say today about a Pentagon that deliberately misleads the people’s representatives in Congress in order to grab more money for itself while hunger, want, climate breakdown, and other ills increasingly afflict the nation?

Nation contributor Dave Lindorff also writes for Salon, London Review of Books, and Tarbell.org. Author of four books, he was a 1990s Hong Kong/China correspondent for Business Week.

Posted in accordance with Title 17, Section 107, US Code, for noncommercial, educational purposes