Where Have All the Missiles Gone?

by , June 01, 2011

Where have all the soldiers gone?
Long time passing

Where have all the soldiers gone?

Long time ago

Where have all the soldiers gone?

Gone to graveyards every one

When will they ever learn?

When will they ever learn?

- Pete Seeger

Most Americans think the federal government better reduce its $14 trillion debt or else collapse. But to make a dent in the debt, Washington has to divert large chunks of tax revenues from government services. Government agencies will have to fight for scraps. The leftovers will go to programs like food stamps for hungry kids.

One government service, however, towers above the fray. National defense consumes more public resources than any other federal program. Every year Congress and the president hand the Department of Defense (DOD) and a couple of other agencies more than a trillion dollars for military, defense, homeland security, spying, and related activities “to keep the nation safe,” as explained by President Obama’s National Commission on Fiscal Responsibility and Reform. Yet the Pentagon and its affiliates are shielded from the budgetary ax being waved at every other federal agency and program. True to form, on May 25, the House of Representatives, by a four-fifths majority, authorized $690 billion for DoD alone in 2012.

The DOD, however, is getting more than just immunity from any serious appropriations cuts. Despite claiming to be in the grip of an unprecedented national debt crisis, the Washington establishment is planning to give the Pentagon several trillions of dollars over the next six years and not require it to account for a single penny.

The Pantomime Defense Cuts

The competing budget proposals getting any consideration by lawmakers pay lip service to “cutting” defense spending. But they do nothing of the sort. All of the savings plans maintain a massive defense budget for the foreseeable future. For the next several years, as much as a quarter of all annual appropriations will continue to flow from Treasury to Defense, undiminished and unimpeded.

It is a fantasy that the national debt can be brought under control without radical down-sizing of defense spending. But the defense cuts in proposed budget plans are either piddling or make-believe. Early on, Secretary of Defense Robert Gates’ highly publicized five-year plan called for $78 billion in DOD budget cuts. If it were real, the “cuts” would amount to no more than 1.5 percent of projected growth. But, as even the corporate media admitted, Gates’ “cuts” were not real. They were hypothetical “reductions” from hypothetical increases.

The anachronistically titled “Moment of Truth” report issued in December 2010 by the Bowles-Simpson panel (aka the National Commission) has also significantly influenced the budget debate. The commission boasted saving $1 trillion in defense costs over an eight-year period. Once again, the “savings” were mostly fictional. “Moment of Truth” reflected the difference between Obama’s eight-year plan and the commission’s lower number. As Obama’s numbers derived from Gates’ flawed assumptions, the commission’s projections overstate “savings” by the same amount. Bowles-Simpson in fact proposed $6.1 trillion for defense and security spending and had the gall to call that a “cap.” The “cap” had a howitzer-sized hole in the top. If money is needed for an actual military conflict, the Pentagon could tap the Treasury for what Bush/Cheney called “supplementals”—special appropriations simply excluded from defense budgets. The commission rechristened this as “overseas contingency operations” (OCO) spending—that is, Afghanistan and Iraq, the two longest “operations” in U.S. history. It said:

Discretionary spending constraints must not ignore spending for the conflicts in Iraq and Afghanistan and other future conflicts. At the same time, budget rules should not determine war policy…. Spending for OCO would not count against the general security spending cap….

A round up of Washington’s aversion to defense-spending cuts would not be complete without the “People’s Budget” from the congressional Progressive Caucus. The “People’s Budget” makes all the right noise. It taxes rich people, protects “entitlement” programs, ends OCO spending and current OC “operations,” and specifies cuts and reductions in military programs, overseas bases, and so on. What it does not do is significantly pull back on defense/security growth or come close to erasing its bloated spending. The “progressive” “People’s Budget” envisions DOD appropriations alone to come to about $526.6 billion by 2016 (2.8 percent of projected GDP) and to about $585 billion by 2021 (2.4 percent of GDP)—numbers that exceed the Bowles-Simpson recommendations. If they are anywhere, “progressives” on military budgets apparently are not in Congress.

Defense spending is responsible for America’s financial condition. Logically, it is the first place to look for “waste, fraud, and abuse” and plain old throwing money away. There is a colossal variance between legitimate defense and security objectives and the resources appropriated for them. Is al-Qaeda, America’s only official enemy, or indeed all of “militant Islam,” truly a $1-trillion-a-year threat to the “homeland?” Al-Qaeda spends at most $300 million a year on terror—probably much less. In other words, the enemy’s terrorism budget is 0.003 percent of what the U.S. pays to secure the realm. For every $300 the enemy spends for its undeniably sinful purposes, the U.S. spends $1 million putatively in response. “Asymmetrical” does not begin to describe the economics of this warfare. In any case, at a trillion or so dollars a year, the defense/security cluster mostly exists for its own sake, not for defense or security or to fight al-Qaeda.

Demonstrating its grip on Washington, the military’s lead role in increasing America’s debt barely rates any mention. If the process were rational, that circumstance would be front and center in the debt-reduction debates. Instead, it is largely ignored.

The Black Hole

The deepest, ugliest problem is not the amount of American wealth that defense/security gulps down its maws every year. It is that nobody—the Pentagon included—has the foggiest idea where the money goes.

The Pentagon may be shaped like a star, but it behaves like a black hole. For decades, trillions of American taxpayer dollars taken for defense have vanished. The money goes in, but information on what was done with it never comes out.

The reason is no mystery. The DOD does not have anything that resembles a coherent set of books and records of account. It lacks what almost every mom-and-pop store or bait-and-tackle shop in the country has—an accounting system.

Although it is equivalent to the largest corporation on Earth, the DOD does not have a functional accounting department. It cannot prepare financial statements. It is incapable of balancing its books. In fact, it does not have “books,” in the sense of a system to summarize its economic activity in assets and liabilities, income and expenses, cash flows, and so on. Its accounting “records” are the equivalent of an aircraft-carrier-sized shoebox of receipts.

This is not some new development or a hiccup from the Bush-Obama era of bellum Americanum. It has been going on for decades. The DOD has had to admit every year for at least the last 20 years that it cannot create financial statements that bear any connection to reality. In its 2010 financial report, for example, the Defense Department’s chief financial officer admitted (18): “DOD financial management suffers from enterprise-wide problems with systems and processes, and the lack of auditable financial statements is one manifestation of these problems.” His predecessors have made the same annual admission since at least since 1991, when Congress passed the Chief Financial Officers Act. That law requires the major federal agencies to produce annual financial statements that comply with generally accepted accounting principles. The Pentagon has never come close. Thus, the DOD’s Inspector General’s Office, responsible for trying to audit the department, reported this year, as is has time and again in years past:

Prior audits have identified, and DOD has acknowledged … long-standing material internal control weaknesses…. These pervasive material weaknesses may affect the reliability of certain information contained in the Basic Financial Statements. Therefore, we are unable to express, and do not express, any opinion on the Basic Financial Statements.

In CPA-speak, this is called a “disclaimer,” meaning that the accountants cannot trust the information they were given to examine the financial statements.

The DOD’s financial-record disaster has become so overwhelming that DOD auditors essentially have given up. In a report released in September 2010, Sen. Charles Grassley’s staff detailed the demoralization among Inspector General auditors faced with the futile task of auditing guess-work-based financial statements supported by nonexistent books and records. According to Grassley’s report, “the quality of Defense Department data presented to auditors should probably be rated as poor to nonexistent. The consequences are predictable. Auditors consistently report ‘no audit trail’ found. … [That] means that critical supporting documentation and data are missing. Vital records are not available for audit. Money has been paid out—but for what?” In short, DOD’s statements aren’t just wrong: they are so full of holes that auditors do not have the information necessary to determine just how distant from reality they truly are.

A Constitutional Scandal Ignored

Given its dominant size, the Pentagon’s unintelligible financial data necessarily destroys any effort to compile and report accurate financial information for the United States government generally. As a result, the Government Accountability Office (GAO) has been unable to audit the consolidated financial statements of the United States since it first tried to do so in 1997. Each year, the GAO has been forced to issue the same sort of “disclaimer” that DOD auditors issue—that “material weaknesses in internal control and in selected accounting and financial reporting practices have prevented GAO from expressing an opinion on the [United States government’s consolidated financial statements].” The GAO most recently explained the recurring fiasco in a December 2010 press release, stating that it “cannot render an opinion on the 2010 consolidated financial statements of the federal government, because of widespread material internal control weaknesses, significant uncertainties, and other limitations…. The main obstacles to a GAO opinion were: (1) serious financial management problems at the Department of Defense (DOD) that made its financial statements unauditable….”

The DOD’s financial opacity effectively has precluded the United States government from complying with the Constitution. Article 1, section 9, clause 7, states 

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

The DOD’s books-and-records disorder has effectively precluded any “regular Statement and Account of Receipts and Expenditures of all public Money.” Moreover, the Constitution’s adopters clearly intended for Congress to ensure a regular statement of account “from time to time” in order to exercise its “power of the purse.” While one can argue that “from time to time” does not mean annually, the phrase most certainly does not mean “never.” Clause 7 does not empower Congress to appropriate money from the Treasury if it is in chronic breach of its duty to provide regular and periodic statements of account. When it comes to the DOD, however, the Constitution frequently is avoided rather than obeyed. So it is here. Congressional appropriations are routine, notwithstanding that, due to the DOD’s dysfunctionality, a “regular” (i.e., accurate) financial statement of the government hasn’t been made in decades.

The United States’ chronic disregard of the “receipts and expenditures” clause is, or should be, a national scandal. In a dissenting opinion in a 1974 case, Justice Douglas described the significance of this constitutional command to American democracy. “From the history of the clause it is apparent that the Framers inserted it in the Constitution to give the public knowledge of the way public funds are expended…. The public cannot intelligently know how to exercise the franchise unless it has a basic knowledge concerning at least the generality of the accounts under every head of government.” Yet it appears to have gone largely unnoticed that the government follows a de facto policy to deny the public a regular statement of receipts and expenditures but to tax and spend in direct violation of the Constitution.

Same As It Ever Was

Despite current inattention, the DOD’s financial chaos is no secret. Nor has it been free from criticism, including occasional aggressive attacks from establishment insiders. For years, Grassley and several other Washington regulars with solid pro-military credentials have loudly berated the DOD’s accounting muddle—including Defense Secretary Donald H. Rumsfeld, who presided over the services’ greatest growth and bloodletting in the post-World-War-II period. On Sept. 10, 2001, Rumsfeld told a Pentagon press conference his department could not account for transactions amounting to 40 percent of the comparatively small $5.6 trillion in gross U.S. government debt. “We are, as they say, tangled in our anchor chain,” Rumsfeld said. “Our financial systems are decades old. According to some estimates, we cannot track $2.3 trillion in transactions. We cannot share information from floor to floor in this building because it is stored on dozens of technological systems that are inaccessible or incompatible.”

Rumsfeld’s astounding admission was not the whole truth. A few months earlier, the DOD’s deputy inspector general had testified in Congress that, to get the DOD’s numbers to balance, the accountants had to book $7.6 trillion in “adjusting journal entries” for the 1999 financial statements, $2.7 trillion of which had no support. An “adjusting journal entry” often is just a plug to get numbers at balance or add up. In other words, in one year alone, the DOD basically had to guess about the disposition of a sum of money larger than the national debt.

More recently, Oklahoma Republican Sen. Tom Coburn, seldom mistaken for a military-bashing left-winger, laid out the Pentagon’s chronic “problems” in a letter to Obama’s Bowles-Simpson commission:

[T]he Pentagon doesn’t know how it spends its money. In a strict financial accountability sense, it doesn’t even know if the money is spent. This incomprehensible condition has been documented in hundreds of reports over three decades from both the Government Accountability Office (GAO) and the Department’s own Inspector General (DOD IG). In a depressing and little-noticed report, the Pentagon Inspector General reported the following in its “Summary of DOD Office of the Inspector General Audits of Financial Management”…

  • DOD frequently enters “unsupported” amounts in its books and uses those imaginary figures to make the books balance…

  • DOD managers do not know how much money is in their accounts at the Treasury, nor when they spend more than Congress appropriates to them…

  • DOD does not know who owes it money, nor how much….

  • DOD’s “Internal Controls,” intended to track the money, are inoperative. Thus, DOD cost reports and financial statements are inaccurate, but the size, even the vector, of the errors cannot be identified because the data cannot be verified.

Coburn then posed the $64 trillion question: “If we have a system that does not accurately know what its spending history is, and does not know what it is now how can we make a competent, honest estimate of future costs? No failed system can be fixed if it cannot be accurately measured.”

Notwithstanding Coburn’s “incomprehensible” but undeniable facts, the Bowles-Simpson group essentially recommended business as usual, giving the Pentagon unlimited access to the Treasury without imposing any accountability on it.

The DOD has responded to this and other criticism by investing much time and money maintaining an appearance of endless “reform.” Since at least 1986, DOD has proffered one “reform” plan after another to straighten out its record-keeping anarchy. Every plan has failed. As soon as one plan fizzles out, the Pentagon concocts a new one. The end goal of these Phoenix-like reforms has been to create auditable financial statements by some future date. Like Zeno’s arrow, however, the reforms are forever in “process” with no discernible progress. And then there is the money that has been spent on the numerous “reforms” themselves. Nobody knows what has happened to that either. In a 2004 piece in CFO Magazine, Kris Frieswick reported that, not only had every reform program eventually faded away with little or nothing to show, but also “no accurate accounting exists of what was accomplished or how much was spent on the initiative.”

There has been no improvement in recent years. After the failure of a 5-year-old reform effort in 2005, the Pentagon came up with an ostensibly new and improved program it called Financial Improvement and Audit Readiness (FIAR). After another five years, and at least $5.8 billion more in investment, the DOD had achieved only 10 percent of FIAR’s objectives, leaving it far behind schedule and above cost. Once again, in 2010, the DOD tried to resuscitate “reform,” adopting a Revised FIAR to succeed the original. It also promised to meet a new, congressionally imposed deadline to produce audited financial statements by 2017. No one believes that will happen, or has any reason to. The GAO reported in September 2010:

The revised FIAR strategy is still in the early stages of implementation, and DOD has a long way and many long-standing challenges to overcome, particularly in regard to active and sustained leadership and oversight, before its military components and the department are fully auditable, and financial management is no longer considered high risk.

It is not cynical to predict a FIAR 3 sometime in 2015. It is realistic.

After the Money’s Gone

From the beginning, defense/security’s excuse consistently has been that it is just too damned big to collect, organize, and review all the information necessary to create financial statements. Imposing the requirement on it is unfair. In its 2010 financial report (19-20), the DOD even subtly threatened that requiring it to produce financial statements is a distraction that could interfere with “mission requirements:” “The Department’s enormous size and geographical dispersion substantially complicate the Department’s financial improvement efforts…. Because of DOD’s size and mission requirements, it is not feasible to deploy a vast number of accountants to manually reconcile our books.”

It is probably true that, somewhere along the way after World War II, the DOD became too large, diverse, and complex to produce an accurate accounting of all that money appropriated for it. It is out of control and has been for decades. It is the preeminent market for “waste, fraud, and abuse.” In comparison with the opportunity for plunder created by the Pentagon’s systemic derangement, the routine frauds of a Halliburton or the mysterious disappearance of $12 billion cash delivered on palettes in the Iraqi desert look like petty theft.

That the DOD and its affiliates are “too big to possibly get it right” cannot justify violating a constitutional requirement critical to maintaining a genuine republic. The Framers could not have imagined anything approaching the gargantuan American military state of the 20th and 21st centuries. But they were attuned to the risk of an overbearing government, one that, like the monarchies of Europe, held power over its “subjects,” unrestrained by law and accountability. By imposing the requirement of a regular statement of account of “all the public money” as a condition of Congress’ power of appropriation, the Framers did more than promote government “transparency” and an informed citizenry. They created a bulwark against unruly government growth.

As things currently stand, no matter which debt-reduction proposal prevails, the Congress and the executive will be giving the DOD at least $5 trillion through 2017, knowing that, under law, the DOD will have not have to account for it.

Having failed to give Eisenhower’s famous admonition anything more than lip service, we are now way beyond the mere specter of a “military-industrial complex.” The ideological and economic interests in control of the organizations “keeping America safe” have become the foundation of modern American governance.

The situation cannot stand. The real solution is obvious: Defense should immediately be put on a starvation diet.

Read more by Peter Casey