TrueValueMetrics ... Impact Accounting for the 21st Century

Peter Burgess COMMENTARY
Reuters did this reporting more than 10 years ago in 2013 ... but the problem of US government accounting and accountability goes back decades before that.

I am now an old man well past my 'sell by' date. Though I don't remember what happened a couple of hours ago, I remember issues that I wanted to see addressed from 50 years ago with considerable clarity and in some detail.

During the 1980s I was active in a Washington based group called the International Consortium on Government Financial Management (ICGFM). It had about 9 meetings a year with about 50 people attending and a bigger annual event that was considerably larger. The large meeting drew in participants who had government finanncial management jobs from around the world.

My personal takeaway from my interactions with the people who attended these meetings was that the United States had one of the weakest systems of government accounting and accountability on planet earth. But worse ... the US Government has a structure that would make it almost impossible to solve the myriad of problems needed to get management control of the resources and system.

I think the ICGFM stopped meeting around 1995. When it stopped meeting I was already spending most of my time doing consulting work overseas for a variety of organizations and governments ... and becoming less and less popular because of my somewhat strident criticism of the way government accounting was being modernised. To some extent I saw the problem as the blind leading the blind but everyone making out like bandits while delivering nothing of any value! The sort of management that I had learned to be effective in the corporate 'for profit' world was completely absent not only in the government organizations but in all the support structures and institutions.

Over time, I became more and more unpopular. It is quite gratifying to see this reporting by Reuters which confirms all my own observations from decades before.

But it is also very worrying, because though the government systems don't seem to be functioning for their primary purpose, they are likely to be perfect pathways for all sorts of dangerous international nefarious activity that any number of international adversaries will seek to exploit.

Peter Burgess

Q&A: What it will take to fix the Pentagon’s books

By Scot J. Paltrow

Reuters

The Defense Department typically receives roughly half of annual federal appropriations, but it’s never been audited. If that doesn’t change, trillions more taxpayer dollars are at risk of being lost to waste, mismanagement and fraud.

Question: Is the Pentagon required to be audited?

Answer: Yes. Congress passed a law in 1990 requiring all federal agencies to be audited annually. The law required the Defense Department to comply by 1996. The Pentagon missed that deadline and has remained in violation ever since. All other federal agencies are audited annually, and with rare exceptions, they pass.

Q: What’s preventing the Pentagon from being audited?

A: The Defense Department has had no working accounting system. In recent years, it has relied on at least 2,100 (estimates range up to 5,000) separate systems spread throughout the military services and other defense organizations, almost all developed independently over the years with little thought to sharing data or preparing accurate financial statements. In their annual financial reports to Congress, the Pentagon and the military services state that their figures are so unreliable that they cannot be audited.

Q: How much taxpayer money has the Defense Department spent that has never been audited since the 1996 deadline?

A: About $8.5 trillion.

Q: What are the consequences?

A: It is impossible for the Pentagon or any auditor to determine how much of the annual defense budget is spent as Congress directed and how much is diverted for other uses. The Government Accountability Office and the Defense Department inspector general say the lack of reliable accounting ledgers covers up unknown amounts of fraud and other improper expenditures. Dysfunctional accounting systems cause frequent pay errors to military personnel and make it hard to keep track of munitions and other supplies.

Q: What is happening now to improve the situation?

A: After the Pentagon for years continually extended its own deadline for becoming audit-ready, Congress in 2009 cracked down. It set a legal deadline of fiscal 2017 for the entire department to be ready for an audit. The Pentagon and military services have been pouring billions of dollars into building modern accounting systems to meet that deadline.

Q: Why is the effort faltering?

A: Many of the costly new systems don’t work. Several were canceled outright as failures after amounts exceeding $1 billion were spent on each. Others were finished but fall well short of performing intended tasks. Several crucial systems are far behind schedule, making it unlikely the deadline will be met.

Q: Are there consequences for failing to meet the 2017 deadline?

A: There are no legal consequences if the Defense Department isn’t audit-ready by 2017.

Q: Can the problem be fixed?

A: Defense analysts and former senior Pentagon officials say truly cleaning up the books can happen only if more outside pressure is placed on the Pentagon to make meaningful change.

Q: What, specifically, is needed to fix it?

A: Congress would have to pass laws that imposed sanctions on the Defense Department if it didn’t straighten out its books. Current and former defense officials and lawmakers say a comprehensive fix likely also would require explicit pressure from the president - and voters. Presidents have been reluctant to take on the Defense Department. President Barack Obama, like his predecessors, hasn’t spoken out on the issue. The most recent secretaries of defense have pressed for accounting reform, but their power over the individual military services is limited.

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