Army Fudges Its Accounts by Trillions as US Contractors Hunger for War with Russia
August 21, 2016
Scot J. Paltrow / Reuters & Jason Ditz / AntiWar.com & Lee Fang / The Intercept
The United States Army's finances are so jumbled it had to make trillions of dollars of improper accounting adjustments to create an illusion that its books are balanced. In 2015, the Army the Army lacked receipts or invoices for $6.5 trillion in spending. Still, if there's one thing military contractors agree on, it's that the US military budget is never big enough. Now it's Russia's turn to be the excuse, and contractors couldn't be happier.
US Army Fudged Its Accounts by Trillions of Dollars, Auditor Finds
Scot J. Paltrow / Reuters
NEW YORK (August 19, 2016) -- The United States Army's finances are so jumbled it had to make trillions of dollars of improper accounting adjustments to create an illusion that its books are balanced.
The Defense Department's Inspector General, in a June report, said the Army made $2.8 trillion in wrongful adjustments to accounting entries in one quarter alone in 2015, and $6.5 trillion for the year. Yet the Army lacked receipts and invoices to support those numbers or simply made them up.
As a result, the Army's financial statements for 2015 were "materially misstated," the report concluded. The "forced" adjustments rendered the statements useless because "DoD and Army managers could not rely on the data in their accounting systems when making management and resource decisions."
Disclosure of the Army's manipulation of numbers is the latest example of the severe accounting problems plaguing the Defense Department for decades.
The report affirms a 2013 Reuters series revealing how the Defense Department falsified accounting on a large scale as it scrambled to close its books. As a result, there has been no way to know how the Defense Department -- far and away the biggest chunk of Congress' annual budget -- spends the public's money.
The new report focused on the Army's General Fund, the bigger of its two main accounts, with assets of $282.6 billion in 2015. The Army lost or didn't keep required data, and much of the data it had was inaccurate, the IG said.
"Where is the money going? Nobody knows," said Franklin Spinney, a retired military analyst for the Pentagon and critic of Defense Department planning.
The significance of the accounting problem goes beyond mere concern for balancing books, Spinney said. Both presidential candidates have called for increasing defense spending amid current global tension.
An accurate accounting could reveal deeper problems in how the Defense Department spends its money. Its 2016 budget is $573 billion, more than half of the annual budget appropriated by Congress.
The Army account's errors will likely carry consequences for the entire Defense Department.
Congress set a September 30, 2017 deadline for the department to be prepared to undergo an audit. The Army accounting problems raise doubts about whether it can meet the deadline -- a black mark for Defense, as every other federal agency undergoes an audit annually.
For years, the Inspector General -- the Defense Department's official auditor -- has inserted a disclaimer on all military annual reports. The accounting is so unreliable that "the basic financial statements may have undetected misstatements that are both material and pervasive."
In an e-mailed statement, a spokesman said the Army "remains committed to asserting audit readiness" by the deadline and is taking steps to root out the problems.
The spokesman downplayed the significance of the improper changes, which he said net out to $62.4 billion. "Though there is a high number of adjustments, we believe the financial statement information is more accurate than implied in this report," he said.
"THE GRAND PLUG"
Jack Armstrong, a former Defense Inspector General official in charge of auditing the Army General Fund, said the same type of unjustified changes to Army financial statements already were being made when he retired in 2010.
The Army issues two types of reports -- a budget report and a financial one. The budget one was completed first. Armstrong said he believes fudged numbers were inserted into the financial report to make the numbers match.
"They don't know what the heck the balances should be," Armstrong said.
Some employees of the Defense Finance and Accounting Services (DFAS), which handles a wide range of Defense Department accounting services, referred sardonically to preparation of the Army's year-end statements as "the grand plug," Armstrong said. "Plug" is accounting jargon for inserting made-up numbers.
At first glance adjustments totaling trillions may seem impossible. The amounts dwarf the Defense Department's entire budget. Making changes to one account also require making changes to multiple levels of sub-accounts, however.
That created a domino effect where, essentially, falsifications kept falling down the line. In many instances this daisy-chain was repeated multiple times for the same accounting item.
The IG report also blamed DFAS, saying it too made unjustified changes to numbers. For example, two DFAS computer systems showed different values of supplies for missiles and ammunition, the report noted -- but rather than solving the disparity, DFAS personnel inserted a false "correction" to make the numbers match.
DFAS also could not make accurate year-end Army financial statements because more than 16,000 financial data files had vanished from its computer system. Faulty computer programming and employees' inability to detect the flaw were at fault, the IG said.
DFAS is studying the report "and has no comment at this time," a spokesman said.
US Military Contractors See Hostility
Toward Russia as 'Historic' Business Opportunity
Jason Ditz / AntiWar.com
(August 19, 2016) -- If there is one thing that all US military contractors can agree on, at any time, under any circumstances, it's that the US military budget, even when it is at record highs, isn't nearly big enough. Over the last decade and a half, this centered on ever-escalating US occupations abroad against Islamist factions.
Now it's Russia's turn to be the excuse, and contractors couldn't be happier, with many openly talking about the new acrimony toward Russia as an "historic opportunity," one which could see even more out-of-control spending, and record profits for arms makers.
While active military personnel predict "imminent" Russian invasions of Eastern Europe, keen to get bigger budgets and more deployments into Europe, their retired counterparts, now board members of key arms makers and lobbyists for the contractor industry in general, are looking to really cash in on that.
Most of the major arms makers are looking to up their exports to Europe, and fear-mongering about Russia is a great chance to sell those arms to NATO members. The real money, though, will always be at home, as the US dramatically outspends any other nation on military.
With the arms makers salivating over the money that could be made on the matter, Congressional leaders are pushing a bill [See footnote -- EAW] that aims to make US hostility toward Russia a permanent fact through legislation, desperate to ensure that future governments, who don't see the wisdom of throwing endless money at an unthinkable war, don't get in the way of the money's flow.
* A new bill called the STAND for Ukraine Act aims to make temporary measures imposed during Ukraine’s regime change permanent, thereby hamstring all future governments -- most pointedly, a potential soft-on-Russia Donald Trump presidency -- from ever attempting a diplomatic rapprochement with Russia.
US Defense Contractors Tell Investors
Russian Threat Is Great for Business
Lee Fang / The Intercept
(August 19 2016) -- The escalating anti-Russian rhetoric in the US presidential campaign comes in the midst of a major push by military contractors to position Moscow as a potent enemy that must be countered with a drastic increase in military spending by NATO countries.
Weapon makers have told investors that they are relying on tensions with Russia to fuel new business in the wake of Russian's annexation of Crimea and modest increases in its military budget.
In particular, the arms industry -- both directly and through its arsenal of hired-gun, think-tank experts and lobbyists – is actively pressuring NATO member nations to hike defense spending in line with the NATO goal for member states to spend at least 2 percent of gross domestic product on defense.
Retired Army Gen. Richard Cody, a vice president at L-3 Communications, the seventh largest US defense contractor, explained to shareholders in December that the industry was faced with a historic opportunity.
Following the end of the Cold War, Cody said, peace had "pretty much broken out all over the world," with Russia in decline and NATO nations celebrating. "The Wall came down," he said, and "all defense budgets went south."
Now, Cody argued, Russia "is resurgent" around the world, putting pressure on US allies. "Nations that belong to NATO are supposed to spend 2 percent of their GDP on defense," he said, according to a transcript of his remarks. "We know that uptick is coming and so we postured ourselves for it."
Speaking to investors at a conference hosted by Credit Suisse in June, Stuart Bradie, the chief executive of KBR, a military contractor, discussed "opportunities in Europe," highlighting the increase in defense spending by NATO countries in response to "what's happening with Russia and the Ukraine."
The National Defense Industrial Association, a lobby group for the industry, has called on Congress to make it easier for US contractors to sell arms abroad to allies in response to the threat from Russia. Recent articles in National Defense, NDIA's magazine, discuss the need for NATO allies to boost maritime military spending, spending on Arctic systems, and missile defense, to counter Russia.
Many experts are unconvinced that Russia poses a direct military threat. The Soviet Union's military once stood at over 4 million soldiers, but today Russia has less than 1 million. NATO's combined military budget vastly outranks Russia's -- with the US alone outspending Russia on its military by $609 billion to less than $85 billion.
And yet, the Aerospace Industries Association, a lobby group for Lockheed Martin, Textron, Raytheon, and other defense contractors, argued in February that the Pentagon is not spending enough to counter "Russian aggression on NATO's doorstep."
Think tanks with major funding from defense contractors, including the Lexington Institute and the Atlantic Council, have similarly demanded higher defense spending to counter Russia.
Stephen Hadley, the former National Security Advisor to President George W. Bush now serving on the board of Raytheon, a firm competing for major NATO military contracts, has argued forcefully for hiking defense budgets and providing lethal aid to Ukraine. Hadley said in a speech last summer that the US must "raise the cost for what Russia is doing in Ukraine," adding that "even President Putin is sensitive to body bags."
The business press has noticed the development. The Washington Business Journal noted that "if anyone is benefiting from the unease between Russia and the rest of the world, it would have to be Bethesda-based Lockheed Martin Corp," noting that the firm won a major contract from Poland, which is revamping its military in response to Russia.
Roman Schweizer, an analyst for the defense industry with Guggenheim Securities, predicted last year that US arms sales would continue to rise, particularly because "eastern NATO countries will increase procurements in the wake of continued Russian activity in Ukraine."
At the Defence Security Exposition International, an arms dealer conference held in London last fall, contractors were quick to use Russia and rising defense budgets to hawk their products. "The tank threat is . . . much, much more closer to you today because Putin is doing something" in eastern Ukraine, a shoulder-fired-rocket touting representative from Saab told Defense One.
"Companies like Lockheed Martin and Boeing have pledged to increase the share of exports in their overall revenues, and they have been seeking major deals in East and Central Europe since the 1990s, when NATO expansion began," said William Hartung, director of the Arms & Security Project at the Center for International Policy.
Hartung noted that as some nations ramp up spending, US firms will be "knocking at the door, looking to sell everything from fighter planes to missile defense systems."
"Russian saber-rattling has additional benefits for weapons makers because it has become a standard part of the argument for higher Pentagon spending -- even though the Pentagon already has more than enough money to address any actual threat to the United States," he said.
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