One of the Pentagon‘s largest agencies failed to properly keep track of more than $800 million in construction projects, Politico reported Monday.
The internal audit, issued by leading accounting firm Ernst & Young, identified cases where the Defense Logistics Agency failed to produce sufficient documentation for millions of dollars in property and equipment. Across the board, its financial management is so weak that its leaders and oversight bodies have no reliable way to track the huge sums of taxpayer dollars it’s responsible for, the firm warned in its initial audit of the massive Pentagon purchasing agent.
The audit arrives just as President Donald Trump is proposing a boost to the $700 billion already assigned to the annual military budget, raising new questions about whether the Defense Department can responsibly manage such vast funds — let alone the additional billions that Trump plans to propose this month. The department has never undergone a full thorough audit despite a congressional mandate — in fact, the messy state of the Defense Logistics Agency’s books indicates to some lawmakers that one may never even be possible.
The $40 billion-a-year logistics agency is a test case in how unachievable that task may be. The DLA serves as kind of a Walmart of the military, with 25,000 employees who process roughly 100,000 orders a day on behalf of the Army, Navy, Air Force, Marine Corps, and a host of other federal agencies — for everything from poultry to pharmaceuticals, precious metals and aircraft parts.
But as the auditors found, the agency rarely possesses any solid evidence for where much of that money is going. That bodes ill for ever getting a handle on spending at the Defense Department as a whole, which has a combined $2.2 trillion in assets.
The Pentagon’s initial audit has already disclosed that the Army had 39 Black Hawk helicopters in its fleet that weren’t properly recorded into its system, David Norquist, the Pentagon’s top budget official testified last month to the House Armed Services Committee. The Air Force reportedly identified hundreds of structures and buildings “not in its real property system,” the comptroller added.
In one part of the audit, completed in mid-December, Ernst & Young discovered that misstatements in the agency’s books totaled at least $465 million for construction projects it financed for the Army Corps of Engineers and other agencies. For construction projects designated as still “in progress,” meanwhile, it didn’t have sufficient documentation — or any documentation at all — for another $384 million worth of spending.
The agency also failed to produce supporting evidence for many items that are documented in some form — including records for $100 million worth of assets in the computer systems that conduct the agency’s day-to-day business.
“The documentation, such as the evidence demonstrating that the asset was tested and accepted, is not retained or available,” it said.
The report, which covers the fiscal year ending Sept. 30, 2016, also found that $46 million in computer assets were “inappropriately recorded” as belonging to the Defense Logistics Agency. It also warned that the agency cannot reconcile balances from its general ledger with the Treasury Department.
“DLA is the first of its size and complexity in the Department of Defense to undergo an audit so we did not anticipate achieving a ‘clean’ audit opinion in the initial cycles,” explained DLA. “The key is to use auditor feedback to focus our remediation efforts and corrective action plans, and maximize the value from the audits. That’s what we’re doing now.”
The agency maintained it was not surprised by the audit’s conclusions, and vowed to overcome its many hurdles to ultimately get a full, clean audit. It is widely viewed as the only way to improve the management of such huge sums of taxpayer dollars.
“Beginning in 2018, our audits will occur annually, with reports issued Nov. 15,” Norquist told Congress last month.
That Pentagon-wide effort, which will require a veritable army of about 1,200 auditors across the department, will be very expensive — costing nearly $1 billion.
Norquist said it will cost an additional estimated $367 million to carry out the audits — including the expense of hiring independent accounting firms like Ernst & Young — and an additional $551 million to go back and fix broken accounting systems that are crucial to better financial management.
“It is important that the Congress and the American people have confidence in DoD’s management of every taxpayer dollar,” Norquist said.
But there is little evidence the logistics arm of the military will be able to account for what funds it has spent anytime soon.
“Ernst & Young could not obtain sufficient, competent evidential matter to support the reported amounts within the DLA financial statements,” the Pentagon’s inspector general, the internal watchdog that ordered the outside review, concluded in issuing the report to DLA.
The accounting firm itself went further, asserting that the gaping holes uncovered in bookkeeping procedures and oversight strongly suggest the existence of even more.
“We cannot determine the effect of the lack of sufficient appropriate audit evidence on DLA’s financial statements as a whole,” its report concludes.
“Each audit report will help DLA build a better financial reporting foundation and provide a stepping stone towards a clean audit opinion of our financial statements,” the agency maintains. “The findings also improve our internal controls, which helps to improve the quality of cost and logistics data used for decision-making.”
“The initial audit has provided us with a valuable independent view of our current financial operations,” Army Lt. Gen. Darrell Williams, the agency’s director, wrote in response to Ernst & Young’s findings. “We are committed to resolving the material weaknesses and strengthening internal controls around DLA’s operations.”