Government fails fiscal-fitness test: annual audits mandated by Congress of federal agencies and Cabinet departments reveal that trillions of dollars of taxpayers' money is `missing' or `unaccounted for.'

0 Comments | Insight on the News, May 20, 2002 | by Kelly Patricia O'Meara

If America learned anything from the Enron mess it is how easily the books can be cooked. After spending weeks reviewing the audits of federal departments and agencies, INSIGHT is convinced the U.S. government doesn't cook its books--your government is honest enough to admit that it just doesn't know where the money went.

The point of the annual audit reports is to inform Congress and the American people how, where and why their hard-earned tax dollars were spent during the previous year. The audits are a barometer that tells Congress whether a particular agency or department is fiscally responsible and whether it should be entrusted with additional funds.

But this is an age of euphemism, so the money being provided to the government by taxpayers is called everything but money, becoming assets and transactions in vague imitation of business. The government also has its own terms for missing money, including "unsupported entries," "material-control weakness," "adjusted records," "unmatched disbursements," "abnormal balances" and "unreconciled differences."

While INSIGHT consistently has reported money problems plaguing the government--and in particular the Department of Defense (DoD)--this year DoD has been the recipient not only of its annual budgeted appropriations but of additional tens of billions of dollars to fight the war on terrorism. It therefore seems appropriate to take a look at how the federal defense establishment is handling your money.

According to U.S. Comptroller General David Walker, "To date, none of the military services or major DoD components have passed the test of an independent financial audit." Walker continues, "DOD faces financial-management problems that are pervasive, complex, long-standing and deeply rooted in virtually all business operations throughout the department."

In a report to the DoD comptroller, Undersecretary of Defense Dov Zakheim, acting Assistant Inspector General for Auditing David Steensma wrote: "We reported that DOD processed $1.1 trillion in unsupported accounting entries to DOD Component financial data used to prepare departmental reports and DOD financial statements for FY2000. For FY2001 we did not attempt to quantify amounts of unsupported accounting entries; however, we did confirm that DOD continued to enter material amounts of unsupported accounting entries to the financial data."

What this gibberish means is that the DoD still cannot account for at least $1.1 trillion from fiscal 2000 under former president Bill Clinton, and the assistant inspector general of DOD wouldn't even touch the unsupported money expenditures for fiscal 2001 because "material amounts" still couldn't be accounted for properly in the year George W. Bush came to power. The trillion-dollar question is how much is "material amounts"? Because the auditor would not "quantify" the amount, some fear it's worse than the previous year's unaccounted for $1.1 trillion.

Of course the Department of the Army, headed by former Enron executive Thomas White, had an excuse. In a shocking appeal to sentiment it says it didn't publish a "stand-alone" financial statement for 2001 because of "the loss of financial-management personnel sustained during the Sept. 11 terrorist attack."

So where is that missing $1.1 trillion? Traditionally the top dogs at the Pentagon haven't liked the word "missing." The rationale at DoD has been that just because the money can't be accounted for doesn't mean it is lost, stolen or strayed. According to Susan Hansen, a spokeswoman for DoD: "These are unsupported entries. When the auditors go to audit the books and they look at the balance sheet for the year, someone has entered in an adjustment because they made an error somewhere."

You see, continues Hansen: "They don't carry the transaction across; there's no way they can track it to where the adjustment first came from. These are called `unsupported' adjustments. In auditing you have to follow the trail from the first time that the entry first enters the system to the time it leaves it. In the Defense Department it means that if you bought a piece of equipment and it moved from the Army to the Navy to the Air Force over the course of years, you have to be sure that piece of equipment and its dollar value is the same piece of equipment."

Hansen concludes that the problem is with "the way the Defense Department's records systems were set up ... They weren't set up to do this kind of commercial bookkeeping. So what people have done is added up all of these adjustments, entries or auditor's notes on the side of the audits and have come up with these huge amounts. And somehow along the way, in the course of conversations, it has been referred to as `missing' money. It's not missing. It just cannot be supported with our current systems in a standard bookkeeping system."

Voila! It's the accounting systems that don't account for the vanished money that are responsible for the inability of anyone at DoD to find $1.1 trillion that's, well, missing.