20 August 2015

The Pentagon Doesn’t Know What it Spent 8.5 Trillion Dollars on & How the Pentagon’s payroll quagmire traps America’s soldiers & Behind the Pentagon’s doctored ledgers, a running tally of epic waste & Why the Pentagon’s many campaigns to clean up its accounts are failing 8JUN15&2JUL,18NOV,23DEZ13

ANYONE who claims they support our troops (NOT to be confused with the military policies of our politicians) should read this. All the presidential candidates rant and rage against government waste, fraud and abuse. The problem is most of them, and this includes ALL of the republican candidates, attack government programs that support poor, working class and middle class Americans, basically the 99%, and ignore the waste, fraud and abuse by the Pentagon, the US military industrial complex. This will not change during this presidential election campaign, but that doesn't mean we shouldn't be aware of the problem and shouldn't let our elected officials and all the presidential candidates know we are aware of this and expect something to be done about it. Remember, DEMOCRACY IS NOT A SPECTATOR SPORT, and we have a responsibility to our nation to be active participants in our government if we want thing to get better. This from Antimedia followed by the full investigative report from +Reuters .....

The Pentagon Doesn’t Know What it Spent 8.5 Trillion Dollars on

Claire Bernish
June 8, 2015
(ANTIMEDIA) When government is completely dysfunctional and seems not to serve the people’s interests, we have to wonder where our tax dollars are going. Thanks to a Reuters investigation by Scot Paltrow, we have an answer—or, rather, a non-answer. Apparently, the Pentagon has made use of $8.5 trillion of our tax money handed over by Congress since 1996—but don’t ask what was done with the money. The Department of Defense doesn’t have a clue.
Audits of all federal agencies were mandated by law beginning in 1996, but the Pentagon is unique in never having complied. In almost 20 years, the Pentagon has never accounted for trillions it spent, in part because “plugging”—fudging the numbers—is standard operating procedure.
According to the investigation, employees of the Defense Finance and Accounting Service, the Pentagon’s primary accounting agency, were routinely told by superiors to take “unsubstantiated change actions.” These plugs—which amounted to falsifying the books—were used to bring the military’s figures in line with the Treasury’s when discrepancies couldn’t be traced and accounted for. According to DFAS employee, Linda Woodford, “A lot of times there were issues of numbers being inaccurate. We didn’t have the detail . . . for a lot of it.” This so-called plugging isn’t unique to DFAS—when it comes to resolving lost or missing information, it’s just business as usual in every branch of the service.
When it was announced that the military’s budget would be cut by $52 billion in 2014, Secretary of Defense Chuck Hagel had a fit, telling a defense conference: “[The cuts are] too deep, too steep, and too abrupt. This is an irresponsible way to govern and it forces the department into a very bad set of choices.” This is quite befuddling to the rest of us, as the $581 billion budget that year was more than the total of the next 10 biggest spenders combined—including Russia, China, and even Saudi Arabia (whose military budget made up 10.7% of their total GDP).  In fact, the US budget was a full one-third of the entire amount spent on defense worldwide. If the DoD is this concerned about losing money to budget cuts, perhaps it should consider tackling its own systemic irresponsibility and discern what, precisely, $8.5 trillion in taxpayer funds has already paid for.
Many of the problems occurred in simple bookkeeping errors rather than actual financial losses. This was the case of one Columbus, Ohio DFAS office whose duplicate entries across multiple ledgers led to errors in financial reports for the Air Force in 2009, totaling $1.59 trillion—trillion—including $538 billion for plugs, which amounts to roughly 8 times what was allotted for the entire Air Force budget that year.
But the errors and manipulated numbers, though obviously problems in their own right, simply compound the issue for a Defense Department that seemingly has no control over its excessive spending habits.
The Defense Logistics Agency is responsible for supplying just about everything imaginable for the DoD. As Paltrow puts it, “everything from airplane parts to zippers for uniforms.” Speaking in a meeting with aviation industry executives in 2013, DLA director and Navy Vice Admiral Mark Harnitchek explained, “We have about $14 billion in inventory for lots of reasons, and probably half of that is excess to what we need.” But it keeps buying more—often adding to inventory of which there is already a surplus.
In one example, the DLA had stockpiled 15,000 Humvee front suspensions as of 2008, which is the equivalent of a 14 year supply. Yet somehow between 2010-2012, defying both logic and prudence entirely, the agency purchased 7,437 more of those same parts—at significantly higher cost than those already gathering dust on warehouse shelves—at a time when demand had been cut in half.
As of September 2012, the DLA and military had already ordered $733 million in duplicates of existing supernumerary supplies, which was a 21% increase from the $609 million it spent on the same asinine duplication the previous year. All this stuff makes a comprehensive inventory impossible, and a worker in the DLA’s largest warehouse explained there is no system for verifying  that items are stored correctly or even to track or estimate how much is lost to employee theft.
These examples only touch on the enormity of the Pentagon’s mystical record-keeping, poor decision-making, and insanely wasteful spending problems. Taken in another context, they represent an acute criticism of priorities.
As of 2013, there were 45.3 million people, including 14.7 million children, living in poverty in the US—14.5% of the population, which is the largest number in the 52 years such statistics have been kept. But instead of focusing sharp criticism on the causes for such an outrageous number, politicians target “wasteful” spending by food stamp recipients by passing into law prohibitions for purchasing items like steak. But if members of Congress find a steak wasteful, what about 22,437 superfluous Humvee front ends?

Hey, government: you’re doing it wrong.

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  1. How the Pentagon’s payroll quagmire traps America’s soldiers

    FRIENDLY FIRE: U.S. Army combat medic Shawn Aiken dresses for a hospital visit in El Paso, Texas. Wounded in battle, he was later shortchanged on his pay by the Pentagon. REUTERS/Ivan Pierre Aguirre
    FRIENDLY FIRE: U.S. Army combat medic Shawn Aiken dresses for a hospital visit in El Paso, Texas. Wounded in battle, he was later shortchanged on his pay by the Pentagon. REUTERS/Ivan Pierre Aguirre

    Part 1: Hobbled by old, incompatible computer systems, the Defense Department’s payroll bureaucracy inflicts punishing errors on America’s warriors
    EL PASO, Texas - As Christmas 2011 approached, U.S. Army medic Shawn Aiken was once again locked in desperate battle with a formidable foe. Not insurgents in Iraq, or Taliban fighters in Afghanistan - enemies he had already encountered with distinguished bravery.
    This time, he was up against the U.S. Defense Department.
    Aiken, then 30 years old, was in his second month of physical and psychological reconstruction at Fort Bliss in El Paso, Texas, after two tours of combat duty had left him shattered. His war-related afflictions included traumatic brain injury, severe post-traumatic stress disorder (PTSD), abnormal eye movements due to nerve damage, chronic pain, and a hip injury.
    But the problem that loomed largest that holiday season was different. Aiken had no money. The Defense Department was withholding big chunks of his pay. It had started that October, when he received $2,337.56, instead of his normal monthly take-home pay of about $3,300. He quickly raised the issue with staff. It only got worse. For all of December, his pay came to $117.99.
    All Aiken knew was that the Defense Department was taking back money it claimed he owed. Beyond that, "they couldn't even tell me what the debts were from," he says.
    At the time, Aiken was living off base with his fiancee, Monica, and her toddler daughter, while sharing custody of his two children with his ex-wife. As their money dwindled, the couple began hitting church-run food pantries. Aiken took out an Army Emergency Relief Loan to cover expenses of their December move into a new apartment. At Christmas, Operation Santa Claus provided the family with presents - one for each child, per the charity's rules.
    Eventually, they began pawning their possessions - jewelry, games, an iPhone, and even the medic bag Aiken used when saving lives in Afghanistan. The couple was desperate from "just not knowing where food's going to come from," he says. "They just hit one button and they take your whole paycheck away. And then you have to fight to get the money back."
    Aiken's injuries made that fight more difficult. He limped from office to office to press his case to an unyielding bureaucracy. With short-term and long-term memory loss, he struggled to keep appointments and remember key dates and events. His PTSD symptoms alienated some staff. "He would have an outburst … (and) they would treat him as if he was like a bad soldier," says Monica. "They weren't compassionate."
    They were also wrong. The money the military took back from Aiken resulted from accounting and other errors, and it should have been his to keep. Further, even after Aiken complained, the Defense Department didn't return the bulk of the money to Aiken until after Reuters inquired about his case.
    The Pentagon agency that identified the overpayments, clawed them back and resisted Aiken's pleas for explanation and redress is the Defense Finance and Accounting Service, or DFAS (pronounced "DEE-fass"). This agency, with headquarters in Indianapolis, Indiana, has roughly 12,000 employees and, after cuts under the federal sequester, a $1.36 billion budget. It is responsible for accurately paying America's 2.7 million active-duty and Reserve soldiers, sailors, airmen and Marines.
    It often fails at that task, a Reuters investigation finds.
    A review of individuals' military pay records, government reports and other documents, along with interviews with dozens of current and former soldiers and other military personnel, confirms Aiken's case is hardly isolated. Pay errors in the military are widespread. And as Aiken and many other soldiers have found, once mistakes are detected, getting them corrected - or just explained - can test even the most persistent soldiers (see related story).
    "Too often, a soldier who has a problem with his or her pay can wait days, weeks or even months to get things sorted out," Democratic Senator Thomas Carper of Delaware, chairman of the Homeland Security and Governmental Affairs Committee, wrote in an email. "This is simply unacceptable."

    Video The saga of a shortchanged wounded warrior

    Reuters found multiple examples of pay mistakes affecting active-duty personnel and discharged soldiers. Some are erroneously shortchanged on pay. Others are mistakenly overpaid and then see their earnings drastically cut as DFAS recoups the money, or, like Aiken, they are forced to pay money that was rightfully theirs.
    Precise totals on the extent and cost of these mistakes are impossible to come by, and for the very reason the errors plague the military in the first place: the Defense Department's jury-rigged network of mostly incompatible computer systems for payroll and accounting, many of them decades old, long obsolete, and unable to communicate with each other. The DFAS accounting system still uses a half-century-old computer language that is largely unable to communicate with the equally outmoded personnel management systems employed by each of the military services.
    Source: April 2012 GAO report
    Source: April 2012 GAO report
    In a December 2012 report on Army pay, the Government Accountability Office said DFAS and the Army have no way to ensure correct pay for soldiers and no way to track errors. These deficiencies, it said, "increase the risk that the nearly $47 billion in reported fiscal year 2011 Army active duty military payroll includes Army servicemembers who received pay to which they were not entitled and others who did not receive the full pay they were due."
    In a written response to the report, Robert Hale, the Defense Department's comptroller, said, "I agree that we need to strive to improve payroll accuracy," but added that the GAO had overstated the problem and mischaracterized some of the debts as errors.
    IN THE DARK: When Shawn Aiken sought answers about the deductions from his pay,
    IN THE DARK: When Shawn Aiken sought answers about the deductions from his pay, "they couldn't even tell me what the debts were from," he says. REUTERS/Ivan Pierre Aguirre
    Pay errors are part of a larger phenomenon that Reuters will explore in a series of articles: the Defense Department's endemic failure to keep track of its money - how much it has, how much it pays out and how much is lost or stolen.
    The department's authorized 2013 budget, after sequester, totals $565.8 billion - by far the largest chunk of the annual federal budget approved by Congress. Yet the Pentagon is literally unable to account for itself. As proof, consider that a law in effect since 1992 requires annual audits of all federal agencies - and the Pentagon alone has never complied. It annually reports to Congress that its books are in such disarray that an audit is impossible.
    In this series, Reuters will delve into how an organization that fields the most sophisticated technology in the world to fight wars and spy on enemies has come to rely on an accounting system of antiquated, error-prone computers; how these thousands of duplicative and inefficient systems cost billions of dollars to staff and maintain; how efforts to replace these systems with better ones have ended in costly failures; and how it all adds up to billions of taxpayer dollars a year in losses to mismanagement, theft and fraud.
    For all its errors, Pentagon record-keeping is an expensive endeavor. For fiscal 2012, ended Sept. 30, the Defense Department requested $17.3 billion to operate, maintain and modernize the more than 2,200 systems it uses to manage finances, human resources, logistics, property, and weapons acquisitions, according to an April 2012 GAO report. That amount does not include billions of dollars more in each of the military services' "operations and maintenance" budgets used for upkeep of the systems. Nor does it cover all of DFAS's $1 billion-plus budget.
    The issue has yet to garner much attention in the political arena, despite continuing debate over the U.S. government's deficits and efforts to restore fiscal order. More immediately, the mess in Pentagon pay in particular carries implications for national security. In its December 2012 report, the GAO recognized that fielding soldiers burdened with pay errors "may pose financial hardship for the soldiers and detract from their focus on mission."
    Officers complain that the difficulty of keeping track of personnel makes it harder to deploy men and women in times of war. Retired four-star Navy Admiral William J. Fallon says that while serving in 2007 and 2008 as chief of the U.S. Central Command, overseeing joint military operations in Afghanistan and Iraq, he had to maintain "an incredibly bloated staff" from each of the services to keep him informed of the numbers and availability of troops. "It is an incredibly inefficient, wasteful way of doing business," he says.
    This way of doing business has also proved resistant to change. A recalcitrant bureaucracy, competing priorities - war, among others - and until recently, congressional indifference have stymied any efforts to impose order. Most notable among those efforts: a project to install a new, unified pay- and personnel-management system that eventually ate more than $1 billion before the Pentagon killed it.
    "If you look at the things this country has done, how hard is this?" says Daniel Denning, assistant secretary of the Army for manpower and Reserve affairs from 2002 to 2007 and now a consultant at MBO Partners LLC in McLean, Virginia. "If someone could put something like Facebook together or Google, one would think that bringing these decades-old military personnel and pay systems into the 2012 world shouldn't be that hard."

    Source: Center for Strategic and Budgetary Assessments (top); Office of Management and Budget
    Source: Center for Strategic and Budgetary Assessments (top); Office of Management and Budget
    The mistakes in soldiers' pay may seem small - $1,000 here, a few hundred there. But for an Army private first class making a base annual salary of about $23,000, or a wounded veteran on disability, they can be devastating. Former soldiers have had their civilian wages and their Veterans Administration benefits garnished. They have been pursued by private collection agencies and forced to pay tax penalties. In other cases, too, deserters have continued to be paid for months, and sometimes years, after disappearing.
    The Pentagon's record-keeping tangle not only increases the potential for errors; it also forces DFAS to depend heavily on "manual workarounds," another source of errors. Neither the Pentagon or DFAS or the military services can specify how many workers are used to handle these tasks, but "it takes a massive amount of human effort," says Roy Wallace, an Army assistant deputy chief of staff.
    "At last count, there were 167 manual workarounds" for the 40-year-old pay system used by DFAS and all the services except the Marines, he says. As a result, staff often must transcribe information from one system onto paper, carry it to another office, and hand it off to other workers who then manually enter it into other systems - a process called "finger-gapping" that Wallace faults as a further source of errors.
    Another sort of workaround was a main reason for Aiken's hardships at Fort Bliss. Injured by a rocket-propelled grenade in Afghanistan, Aiken was eventually sent to an Army hospital in Landstuhl, Germany. Upon arrival there, he should have been designated as a "wounded warrior," a status that would have automatically forgiven all debts related to the overpayments DFAS later claimed and entitled him to benefits he didn't receive.
    Lacking a unified, automated system to process soldiers arriving from combat zones, DFAS had to post staff at Landstuhl to do the work in person, by hand - but only for those soldiers arriving by air. Aiken, who had already moved with his unit from Afghanistan to another location in Germany, arrived by bus.
    BATTLE FATIGUE: With severe PTSD, traumatic brain injury, a damaged hip and other war-related damage, Shawn Aiken was undergoing treatment and therapy as he limped from office to office at Fort Bliss, texas, seeking relief from the Pentagon's deductions from his pay. REUTERS/Ivan Pierre Aguirre
    BATTLE FATIGUE: With severe PTSD, traumatic brain injury, a damaged hip and other war-related damage, Shawn Aiken was undergoing treatment and therapy as he limped from office to office at Fort Bliss, texas, seeking relief from the Pentagon's deductions from his pay. REUTERS/Ivan Pierre Aguirre
    "We're not out to screw our own people," said Defense Department Comptroller Hale, to whom DFAS reports. "The military pay system is just very complex."
    DFAS said pay errors are extremely rare. Based on a self-audit, it said, its accuracy for pay and calculation of benefits for military personnel in the nine months through July 2012 was 99.76 percent. The agency also said it had undergone partial audits for pay accuracy by the inspector general of the Defense Department and by the GAO.
    But a spokeswoman for the Defense Department inspector general and a senior GAO official said their respective offices hadn't audited the overall accuracy of DFAS pay in the past five years, and neither could recall any such audit ever having been conducted.
    Further, in a report issued in February this year, the Defense Department inspector general found "significant deficiencies" in DFAS's own internal auditing organization. These included failure to "exercise sufficient professional judgment," ineffective quality-control monitoring and failure to comply with required accounting standards.
    DFAS Director Teresa McKay declined to be interviewed for this article and declined to allow Reuters to interview any other DFAS personnel. Her boss, Pentagon Comptroller Hale, backed that decision. The agency accepted only written questions.
    Source: DFAS
    Source: DFAS
    "In general, what we often find and what we are trying to do a better job of explaining to our customers, is they are not familiar with (and in some cases, not happy with) the time needed for us to process and correct errors," DFAS spokesman Thomas LaRock said in an email. "Each case and any associated documentation must be reviewed by DFAS and the military service before a final decision on the validity of the debt or claim can be made."
    When the U.S. invaded Iraq in 2003, retired four-star general Peter Schoomaker heeded a call from Defense Secretary Donald Rumsfeld to return to active duty - as Army chief of staff, the highest military rank in the Army.
    Schoomaker returned to work, but he didn't get paid. DFAS had - correctly - stopped Schoomaker's monthly retirement checks when he resumed active duty. But its computers weren't able to restart pay for a soldier returning from retirement.
    It took months for Schoomaker to start receiving his pay, and even more to get reimbursed for the months he had been stiffed.
    In the meantime, soon after Schoomaker's return to active duty, a computer-generated letter arrived at his home, addressed to his wife and offering condolences on the general's death. DFAS's computers were programmed to assume that when a retiree was taken off the rolls, that person had died.
    The letter didn't cause any undue alarm at the Schoomaker home; the general was living there at the time. He did notice that the letter spelled his name three different ways.
    "If the Chief of Staff of the Army is treated that way," Schoomaker says, "you can imagine how a private is treated."
    James Watkins, assistant secretary of the Army for financial management, said the system has been reprogrammed to fix the glitch that prompted the condolence letter: "We would catch that today," he said.
    The same can't be said for the pay error that affected Schoomaker. The reason lies in the origins of DFAS.
    Source: Peter Schoomaker
    Source: Peter Schoomaker
    The agency was born in the push to realize savings in defense spending after the Cold War. To that end, then-Defense Secretary Dick Cheney in 1991 approved a plan to create DFAS by consolidating into one entity some of the overlapping pay and accounting functions that had been performed separately by each of the military services.
    But the consolidation wasn't complete. While the newly created DFAS would handle payroll duties across all branches of the military, personnel responsibilities would remain with each of the services. That decision haunts the Pentagon to this day.
    Information handled by the personnel departments of the military branches plays a big part in determining how much a soldier is paid. This information includes promotions, discharges, assignment changes, marriages and divorces.
    Congress has made it even more complicated in recent decades by establishing a multitude of pay levels. There is basic pay, plus "entitlements" for everything from serving in a combat zone to housing allowances to re-enlistment bonuses. An individual's pay can change several times in a day.
    With the creation of DFAS, ensuring correct pay for soldiers required speedy, efficient communication between the new agency handling payroll and the different military branches, each still running its own personnel operations. No one was prepared.
    DFAS, for its part, inherited a pay operation that even at the time was an antique - a 20-year-old Air Force system that DFAS renamed the Defense Joint Military Pay System, or DJMS. It ran, and still runs, on Cobol, a computer language that dates to 1959. Most of the Cobol code the Pentagon uses for payroll and accounting was written in the 1960s, according to 2006 congressional testimony by Zack Gaddy, director of DFAS from May 2004 to September 2008.

    Source: GAO
    Source: GAO
    Wallace, the Army assistant deputy chief of staff, says the system has "seven million lines of Cobol code that hasn't been updated" in more than a dozen years, and significant parts of the code have been "corrupted." The older it gets, the harder it is to maintain. As DFAS itself said: "As time passes, the pool of Cobol expertise dwindles."
    Further, the system is nearly impossible to update because the documentation for it - explaining how it was built, what was in it, and how it works - disappeared long ago, according to Kevin McGraw. He retired recently after working 30 years in DFAS's Cleveland office, most of that time responsible for maintaining the part of DJMS that handles Navy pay. "It's hard to make a change to a program if you don't know what's in there," McGraw says.
    Most of the personnel systems that each of the military services operates are just as old and obsolete. Typically, within each branch, different systems handle different categories of active-duty soldiers, while still others handle Reserve and National Guard personnel. Most of these systems can't talk to each other. And each has its own pipeline into DFAS, with its own way of translating data into a form that DFAS can use in its separate systems for active-duty and for Reserve and Guard personnel.
    Donald Shycoff, deputy comptroller at the Defense Department when DFAS was formed two decades ago, says that the intention of establishing the agency was to save money, and that there was no discussion then about the potential impact of separating pay and personnel functions.
    Cheney, through a spokesman, declined to comment.
    To catch mistakes, the Army relies mainly on local commanders to review monthly pay figures and report any errors. The GAO found that the Army doesn't enforce the requirement. From October 2011 through March 2012, it said, 26 percent of the monthly reports were turned in late or not at all. At some bases, the rate was as high as 40 percent.

    Source: DFAS; Shawn Aiken
    Source: DFAS; Shawn Aiken
    The heavy reliance on paperwork in the absence of unified pay and personnel systems also means that money continues to flow to soldiers who are absent without leave and others who shouldn't get it.
    Spokesmen for the military services said that when an individual goes AWOL, the name and other identifying information are sent to the Defense Manpower Data Center, an office under the secretary of defense. A spokeswoman for the secretary of defense's office said the center does not check with DFAS to make sure that pay to AWOL personnel is stopped. It's up to the individual services to notify DFAS, she said, which "is a proven means of doing business."
    Commanders often don't bother to notify DFAS about an AWOL soldier, though they are required to do so, according to the December GAO report. Similarly, National Guard and Reserve personnel who leave active duty but don't fill out the required paperwork may continue to receive pay.
    Beginning in November 2009, Carl W. Marquis of Burke, Virginia, then a commander in the Navy Reserves, spent three months on active duty at the Patuxent River Naval Air Station in Maryland. When his tour ended, he didn't sign out. DFAS continued depositing full active-duty pay into his bank account for 15 months, totaling $159,712.
    Source: DFAS
    Source: DFAS
    DFAS and Navy officials learned of the mistake only after an administrator with Marquis's Reserve unit in Virginia questioned why his name was missing from the unit's rolls. By then, he had spent all but $25,000 of the money, court records show. In December 2011, Marquis pleaded guilty to a "concealment" charge and was sentenced to four months in jail.
    Marquis, now a fitness trainer in Reston, Virginia, declined to comment.
    Gary J. Pfleider II had been through rehab for drug addiction and was working at a Wal-Mart and a pizza restaurant when he joined the Oregon National Guard in October 2001. He says he wanted to "do something for my country" after the Sept. 11, 2001, terrorist attacks and keep his life on the right track for his two little girls.
    INSULT, AFTER INJURY: Wounded warrior Gary J. Pfleider II couldn t afford to stay in his apartment after the Pentagon moved aggressively to collect erroneous debts from him, forcing him to move into a shack behind his parents' house in Lebanon, Oregon. REUTERS/Steve DiPaola
    INSULT, AFTER INJURY: Wounded warrior Gary J. Pfleider II couldn t afford to stay in his apartment after the Pentagon moved aggressively to collect erroneous debts from him, forcing him to move into a shack behind his parents' house in Lebanon, Oregon. REUTERS/Steve DiPaola
    Repeatedly denied deployment to Iraq because of his drug record, he wrote a letter in pencil on lined paper to then-First Sergeant Michael Amen "beging (sic) and pleading with you to please let me deploy out. … This deployment is all I have left."
    Amen acceded, and wasn't disappointed. "Gary was a tremendous soldier and asset to the unit," Amen says. Capt. Stephen Bomar, who also was with Pfleider in Iraq, says, "He is one of our heroes."
    Pfleider (pronounced FLY-der) was a specialist in a National Guard unit assigned to fill craters blasted into roads by improvised explosive devices. On Sept. 24, 2007, his platoon was working on "Route Tampa," 43 miles from a military base in Balad, central Iraq, when a sniper's bullet tore through his left thigh, severing arteries before punching out a six-inch-long exit wound.
    In the ensuing days, he nearly bled to death three times. Recovery was slow. He lost a big chunk of thigh muscle to gangrene.
    In February 2009, five months after his discharge, Pfleider was back in his hometown of Lebanon, Oregon, when he received from DFAS a bill for $3,136.73 and a warning that he had 30 days to pay. In subsequent bills, the amount increased steadily, mainly from interest and penalties.
    DFAS moved aggressively to collect. By March 2010, the Treasury, on DFAS's behalf, had clawed back $1,630 by withholding Pfleider's 2009 tax refund and garnishing his federal benefits. After keeping $97 in administrative fees, it turned over $1,533 to DFAS. The Treasury then handed off the balance of Pfleider's debt - about $2,100 - to a private collection agency, which Pfleider says hasn't tried to recoup the money since sending an initial debt notice.
    The 36-year-old Pfleider, a lean 6 foot 2 with a buzz cut, a beard and a ring in each ear, doesn't work. He often walks with a cane, is usually in pain, and suffers from severe PTSD, with flashbacks, panic attacks, occasional fits of rage, and night terrors. His only income is from Social Security and VA benefits, totaling $1,992 a month.
    Unable to afford the rent on his apartment, Pfleider moved into a workshop in back of his parents' house. He doesn't drive, and lack of money makes it hard to visit his two daughters, who live with their mother in Washington state.
    Around the time DFAS was dunning him, Pfleider received a separate surprise from the Oregon National Guard: an itemized demand for $1,400, representing the value of equipment - a helmet, a sleeping bag and the like - that he didn't return before he was medevacked out of Iraq.
    "What was I supposed to do?" he says. "Stop and gather up all my gear and make sure I brought every piece with me on the plane?"
    Television station KVAL in Eugene, Oregon, did a story about that equipment bill in May 2010. The next day, the Guard said it had dropped the claim.
    He got no such relief from DFAS. Pfleider says he didn't see wording on the first DFAS bill stating that the $3,136.73 debt was for three weeks the agency had erroneously paid him after his discharge. Later bills said nothing about the source of the debt.
    It turns out that nearly all of Pfleider's debt resulted from errors by the Army, DFAS and the Oregon National Guard. Pfleider was mistakenly paid for the extra three weeks because the Army had reported his discharge a month late, DFAS said. He also was overpaid after Army officials demoted him several months before his discharge.
    The demotion resulted from a failed drug test after Pfleider returned from a weekend with family in Lebanon. Documents related to the demotion say Pfleider tested positive for methamphetamine; Pfleider says he took methadone, an old prescription from earlier treatments, to relieve leg pain when a missed bus forced to him to sleep on a station floor.
    DFAS records show that after the Army demoted Pfleider in February 2008, the Oregon National Guard mistakenly promoted him. After confused communications between the Army and the National Guard, the Guard then demoted and re-promoted Pfleider several times. Because Pfleider was on active duty, the Guard had no legal authority to change Pfleider's rank or pay; only the Army did. DFAS erroneously accepted the promotions and demotions the Guard reported, raising and lowering Pfleider's salary accordingly.
    Most of the salary overpayments were recouped by DFAS when it docked Pfleider's pay before he left the service. Even so, DFAS said Pfleider still owed $1,098.87 for such overpayments when he was discharged in September 2008.
    In response to inquiries from Reuters, DFAS accountants reviewed Pfleider's pay records and sent to Reuters a four-page analysis that, among other things, found additional debts charged to Pfleider by mistake and benefits not paid.

    Sources: DFAS; Fort Bliss Wounded Warrior Battalion staff; Shawn Aiken
    Sources: DFAS; Fort Bliss Wounded Warrior Battalion staff; Shawn Aiken
    DFAS confirmed that most of the debts charged to Pfleider should have been canceled because of his status as a wounded warrior and other reasons. DFAS couldn't erase the $1,098.87 Pfleider still owed for salary overpayments because Defense Department rules forbid cancellation of any debts related to a demotion under the Uniform Code of Military Justice - even if those debts result from payments made in error.
    Pfleider's revised total debt of $1,098.87 was less than the $1,533 the Treasury had already collected from him on behalf of DFAS. After accounting for other, smaller underpayments to Pfleider, as well as interest and penalties, DFAS said his final total debt came to $815.50 - or only about 25 percent of what it had claimed when it started sending bills to him. DFAS deducted that from the $1,533 it already had collected and in mid-April, a month after Reuters inquired about his case, paid him the balance of $717.50.
    When soldiers like Pfleider and Aiken seek explanations about pay problems, getting answers is tough. It's hard for DFAS to find answers, too. Because of the division between pay and personnel, the agency must submit requests to personnel staff at the relevant branch of the military when it wants questions answered. The wait can take weeks or longer.
    DFAS debt notices tell soldiers to address any questions or challenges to the agency. But DFAS admits it often doesn't investigate errors, and generally refers military personnel back to their units, telling them to provide documentary proof to support their claims. Likewise, DFAS said it does not review for potential underpayments the pay records of personnel as they prepare to leave their branch of service or after they leave.
    DFAS does operate call centers. In 2011, it said, those centers received 726,680 calls from current and former military personnel, mostly with routine inquiries. The agency said it often refers callers to their units.
    Pavlos Kaltsas was a Navy officer who held several senior positions at DFAS through 2005, including overseeing a call center for Navy personnel in Cleveland, Ohio. Staff were limited in what they could do, he says, because they were unable to retrieve the necessary information or make the necessary changes on the computers in front of them. Kaltsas says call center staff often told military personnel to check back in a few weeks - in "the hope that the member just gives up."
    Every few days, he says, a Navy officer who had paid his way to Cleveland would show up, refusing to leave until his pay problem was fixed. Kaltsas, assigned to deal with some of them, says that despite his efforts, he often wasn't able to get DFAS to resolve mistakes.
    Craig Arndt, a Navy captain, was one of those who showed up. While stationed in Kuwait from 1999 through 2002, he called DFAS to ask that it pay him the special allowances and entitlements he should have been receiving. He got nowhere.
    Source: Kevin McGraw, retired DFAS employee of 30 years
    Source: Kevin McGraw, retired DFAS employee of 30 years
    Later, while on leave in 2003 and again in 2005, he paid his own airfare from his home in Florida to Cleveland to demand what he was owed. Arndt says that at the end of his second visit, with the issue still unresolved, Karl Bernhardt, a senior pay official, told him that DFAS staff had already spent an inordinate amount of time on Arndt's case.
    Arndt persisted. "They couldn't push me around because I was a captain," he says.
    Arndt, who retired in 2011 after 30 years in the Navy, eventually accepted a settlement of $15,000. "I don't even know if that was all of it," he says, because of the difficulty of calculating all of the various entitlements he says he was owed. DFAS denied his separate claim of $2,000 to cover an increase in life-insurance premiums after the agency switched his coverage without telling him.
    Bernhardt, the senior pay official, said he doesn't recall Arndt or the incident or any time when an officer paid his or her way to Cleveland to complain about a pay error and attempt to get it fixed.
    DFAS said it has put in place a certification program for call center employees and plans additional improvements for the centers. It also said it has "not had, in recent years, military people show up uninvited at DFAS Offices to request or demand that perceived pay problems be corrected."
    It wasn't until after the start of the first Gulf War, in 1990, that the problem of pay errors took on any urgency as thousands of Reserve and National Guard personnel were mobilized for Operation Desert Storm.
    For months, many of the soldiers called up weren't paid because the system couldn't put them on the active-duty payroll, according to Eric Reid, director of the Army Financial Command. Many found themselves on both Reserve and active-duty payrolls, and were thus paid twice. Later, thousands of demobilized soldiers continued to receive their active-duty pay because the systems were unable to remove them from the active-duty rosters.
    In 1996, Defense Secretary William Perry and his staff were sufficiently alarmed to ask the Defense Science Board - a group of corporate executives and senior military personnel that advises the Pentagon on technology - to study the problem and offer ideas for fixes.
    The board was unsparing in its criticism. The pay system was "obsolete," it said in its report. It concluded that dysfunctions of the system "damage the morale and welfare of the Service members and their families."
    The board's recommendation: Scrap the current system. The Pentagon should emulate big corporations and implement a "single, all-Service and all-component, fully integrated personnel and pay system, with common core software."
    RECOGNITION DUE: Shawn Aiken was injured while serving in Iraq and Afghanistan, but the Pentagon s pay personnel failed to designate him as a wounded warrior on at least two occasions when doing so would have erased his alleged debts and prevented his family s ordeal. REUTERS/Handout Picture
    RECOGNITION DUE: Shawn Aiken was injured while serving in Iraq and Afghanistan, but the Pentagon s pay personnel failed to designate him as a wounded warrior on at least two occasions when doing so would have erased his alleged debts and prevented his family s ordeal. REUTERS/Handout Picture
    Thus was born the Defense Integrated Military Human Resources System, or DIMHRS (pronounced DIME-ers). Under the plan, the Defense Department would buy a commercial, off-the-shelf personnel system and install it with minimal modifications. It chose a product from PeopleSoft, the big human-resources and managerial software maker, since acquired by Oracle Corp.
    Under this system, when a soldier's status changed, his or her pay and benefits would be updated with a few keystrokes. Soldiers would be able to change certain information - applying for additional pay after getting married, for example. And DIMHRS would combine the separate systems for active-duty and Reserve personnel.
    The Pentagon told Congress in 1997 that the new system would cost $577 million. That was cheap, given the savings that would result from eliminating 88 pay and personnel systems, the secretary of defense's office said at the time. It would be phased in quickly, beginning with the Army in 2004.
    Soon after development got under way, delays began to mount, and costs began to rise. Staff in the individual services insisted on changes to accommodate their particular needs. They wanted DIMHRS to be grafted on top of existing systems. Months stretched into years. The services were insisting on "15,000 requirements, and they were adding requirements when I left in 2009," says Nelson Ford, former undersecretary of the Army. "I concluded that DIMHRS was not going to work."
    Source: DFAS
    Source: DFAS
    Tina Jonas, the Pentagon's chief financial officer from 2004 to 2008, and other officials overseeing the project say it wasn't a priority among top brass, who left implementation to lower-level managers, rarely checking in on progress.
    In early 2009, the system was still undergoing testing. Deputy Secretary of Defense Gordon England, about to leave office as the new Obama administration was settling in, wanted to make a final decision on whether to continue spending money to impose DIMHRS on a reluctant bureaucracy, or kill it.
    At a meeting Jan. 14, 2009, England gathered together the secretaries of the Army, Navy and Air Force and their top-ranking generals and admirals, along with DIMHRS personnel, to discuss the issue. The consensus, according to participants, was that the only way to make it work would be to pull a four-star general from the wars in Iraq and Afghanistan to manage what they saw as a bookkeeping project.
    England pulled the plug. After more than a decade of development and more than $1 billion of taxpayer money spent, DIMHRS was dead. England and the military leaders agreed to let each of the military services pick from the remains of the project to update their own, separate systems.
    England, now president of defense consulting firm E6 Partners, says he has come to believe that DIMHRS was doomed from the start: "The payroll systems in DOD are hugely complex."
    Defense Secretary Robert Gates revealed the decision to dump DIMHRS in testimony before the Senate Armed Services Committee in February 2010. For the money spent, he told the committee, all that the military got was "an unpronounceable acronym."
    Roland Burris, who served just 21 months in the Senate after his controversial appointment by disgraced Illinois Governor Rod Blagojevich, was the only senator at the hearing to react to Gates's announcement, saying the U.S. "could save millions and millions of dollars" with a rationalized military pay system.
    A spokeswoman for Democratic Senator Carl Levin of Michigan, the committee chairman, said other members were focused on budgeting for the wars in Iraq and Afghanistan and "didn't have time to get to every other issue of importance."
    More recently, several lawmakers have been pressing the Pentagon to reform its record-keeping systems. Senator Carper, the Delaware Democrat, and Senator Tom Coburn of Oklahoma, the ranking Republican on the Homeland Security and Government Affairs Committee, have conducted investigations and requested GAO audits of the military - including the audit released in December last year.
    "Unfortunately the problem of pay errors at the Department of Defense is widespread and will continue," Carper said, unless Congress, the White House and military leaders make concerted efforts to correct it.
    On the DFAS website, a page devoted to wounded warriors reassures them of its commitment. "From the moment you leave the combat zone," it says, "our Wounded Warrior Pay Management teams are at work to make sure your pay and other entitlements don't become things that you or your family have to worry about."
    Shawn Aiken had a different experience.
    The wounded warrior was a high-school student in Blair, Nebraska, a few miles north of Omaha, when his mother was diagnosed with stomach cancer. He helped care for her until her death a year after his graduation. He enlisted in the Army in June 2003, at age 22, after a small business he had started foundered. He was drawn to a medical specialty; with training, he qualified as a combat medic.
    Aiken's combat tours began in August 2005, when he was deployed with the 172nd Stryker Brigade to Mosul, Iraq. Three months later, he was the only medically trained soldier accompanying two platoons on patrol outside of Mosul when they were ambushed. Troops traced the gunfire to a nearby house. They fought their way inside. The house blew up. Aiken was alone to treat 23 wounded soldiers until help arrived.
    U.S. Army combat medic Shawn Aiken holds up the bag of his prescription medicines at his home in El Paso, Texas on May 20, 2013.    REUTERS/Ivan Pierre Aguirre
    U.S. Army combat medic Shawn Aiken holds up the bag of his prescription medicines at his home in El Paso, Texas on May 20, 2013. REUTERS/Ivan Pierre Aguirre
    He ignored the screams of those he knew he couldn't save in order to focus on those he could. "I still see the faces of some of the guys that were laying there, screaming and crying for help," he says.
    Aiken retains the boyish face that beams from snapshots taken while he was serving overseas. He speaks haltingly, and stops when his memory fails him. Still, he can't forget when he was standing next to one of his best buddies, a fellow medic, and cracked a joke. His friend burst out laughing and flung his arms in the air - just as a sniper's bullet pierced his armpit and tore through his chest. "All the way to the hospital I did CPR on him, but there was nothing I could do to save him," Aiken says.
    In 2006, the Army awarded Aiken an Army Commendation Medal for saving three lives in two days of combat in Iraq.
    In 2010, after re-enlisting, Aiken was in Afghanistan when an armored vehicle he was riding in hit an anti-tank mine. Aiken suffered a concussion and neck and back injuries.
    Later that year, a rocket-propelled grenade blasted him through the air and sent him slamming head-first onto hard ground.
    His commanders wanted to evacuate him to the Army's Landstuhl Regional Medical Center in Germany. He pleaded with them to let him remain because as a sergeant, he says, he felt a responsibility to his men. They relented, but forbade him to go on patrol. Weeks later, Aiken's unit was transferred to Schweinfurt, Germany, where he began visiting Landstuhl for treatment.
    U.S. Army combat medic Shawn Aiken is shown during his EKG appointment at the VA Medical Center in El Paso, Texas on May 24, 2013. REUTERS/Ivan Pierre Aguirre
    U.S. Army combat medic Shawn Aiken is shown during his EKG appointment at the VA Medical Center in El Paso, Texas on May 24, 2013. REUTERS/Ivan Pierre Aguirre
    At that point, everyone familiar with Aiken's case agrees, he should have been designated a "wounded warrior." That status entitles soldiers to receive special pay while they are hospitalized or in "warrior transition units." Most debts to the military are to be canceled. And the exemption from income taxes for soldiers in combat zones is extended while they are hospitalized.
    But Aiken was taking a bus on his visits to Landstuhl. DFAS staff there, meeting wounded warriors as they arrived by air, never caught him in their system.
    Back in Germany after a leave in the United States, Aiken, depressed and still suffering from PTSD, gulped down lethal doses of the drugs Xanax and OxyContin. Just before losing consciousness, he telephoned a friend, who raced over and got him to the hospital in time for staff to save him.
    Landstuhl doctors sent him to a VA hospital in North Chicago, Illinois, for specialized treatment for his PTSD. After nearly 15 weeks there, he was discharged and sent back to Germany. In August 2011, he was demoted from sergeant to specialist for having beaten up a fellow soldier in a fight in Afghanistan.
    Finally, in October 2011, the Army - for "compassionate reasons" - transferred him to Fort Bliss, Texas. There he could be closer to Monica, a former soldier herself, and his two children with the wife he was divorcing, who live in El Paso.
    Aiken was now assigned to the warrior transition battalion at Fort Bliss. Upon arrival there, he was "in-processed" by DFAS personnel who, after reviewing Aiken's pay records, determined that he owed several thousand dollars to the Defense Department for earlier overpayments. They put through orders to dock his pay.
    The DFAS personnel evidently never noticed that Aiken had not been given wounded warrior status. If they had caught the error, then by law Aiken's debts would have been waived, and he and his family would have been spared their financial ordeal.
    DFAS spokesman LaRock said the agency has "no part in designating a soldier as a wounded warrior." That responsibility, he said, rests with the medical department of the relevant military service - in Aiken's case, the Army Medical Department.
    Margaret Tippy, a spokeswoman for the Army Medical Department, said she could "say with certainty" that her department doesn't have primary responsibility for designating a soldier as a wounded warrior.
    Earlier statements by Pentagon officials indicate it is DFAS's job to designate wounded warriors. In congressional testimony in 2006, then-DFAS Director Gaddy said the agency had developed a "Wounded in Action Pay Management Program," and that "we identify and monitor all battle-injured and non-battle-injured soldiers who have served in a combat zone from October 7, 2001, to the present." At the same hearing, then-Pentagon Comptroller J. David Patterson said oversight of wounded warriors was the responsibility of his office and DFAS.
    It wasn't until February 2012 - after Aiken had taken out loans, pawned his belongings and accepted charity to keep him and his family afloat through Christmas and beyond - that his nurse case manager noticed he wasn't listed as a wounded warrior. On Feb. 27, he was officially declared one.
    In March, he received small reimbursements for meal expenses. In the following months his pay trended upward, but didn't reach normal levels until June 2012, eight months after the deductions started. But he still wasn't reimbursed for most of the money withheld over the previous months.
    Reuters first asked DFAS about Aiken's case in September 2012. In response, the agency reviewed his records and, in mid-November, sent Reuters a summary that detailed 14 errors related to the money clawed back from Aiken. The sums include alleged overpayments of housing and meal allowances for soldiers living off-base, as well as wounded warrior benefits he hadn't received, such as the tax exemption, free hospital meals and special pay for hospitalized wounded warriors.
    The summary also includes $1,291 that DFAS charged him for "delayed notice" of his divorce, which was declared final the day he was traveling from Chicago back to Germany. Once there, he says, he reported the divorce, but to his old unit, not the wounded warrior transition unit in Schweinfurt he was joining, and DFAS was never notified. Thus the agency claimed as a debt the benefits he'd been paid as a married soldier with children, from the date of his divorce until his arrival several months later at Fort Bliss.
    DFAS declined to provide a figure for the total amount of debt it collected from Aiken. An analysis by Reuters of Aiken's pay records - including monthly pay statements obtained from DFAS under a waiver Aiken signed - shows that from October 2011 through March 2012, DFAS withheld more than $4,700 from his pay.
    Aiken says he believes that since the pay review prompted by the Reuters inquiries, DFAS has now fully repaid him for the debts it collected.
    A Reuters examination of his records and DFAS responses to questions suggest otherwise.
    DFAS said that since October 2012, it has reimbursed Aiken $1,818.31. That amount, plus $490.25 in meal reimbursements he received in March, brings the total repaid to Aiken to only $2,308.55.
    At least part of the shortfall is due to "partial" payments of extra pay that wounded warriors receive, known as "Pay and Allowance Continuation." DFAS didn't explain why it didn't pay the full benefit, nor did it list the dollar amount it approved.
    DFAS's review of Aiken's pay history did not catch all of the mistakes. His pay records show that DFAS double-billed him for $622.06 in alleged meal overpayments in December and January and mistakenly deducted twice that amount from his pay. Aiken eventually was reimbursed for the original $622.06, but not the remainder.
    Today, Aiken and Monica, who married in February last year, live in a small stucco house, one of many like it near Fort Bliss. Their first child, son Mason, was born last November. After two surgeries, Aiken spends most of his days on the base, receiving treatment and counseling. He still has nightmares, flashbacks, chronic pain and other symptoms.
    (Edited by John Blanton)
    Next, Part 2: Behind the Pentagon’s opaque ledgers, a running tally of epic waste

    SOME THANKS: The Pentagon took back more than $4,000 from retired Air Force Master Sergeant George Koffler for pay it said he didn t deserve; his former commanders say he was entitled to the money. REUTERS/Richard Carson
    SOME THANKS: The Pentagon took back more than $4,000 from retired Air Force Master Sergeant George Koffler for pay it said he didn't deserve; his former commanders say he was entitled to the money. REUTERS/Richard Carson
    Four months after 25-year Air Force veteran George Koffler retired, the Defense Department demanded that he give back $4,034.67 in pay it said he hadn't deserved.
    In the more than two years since, the former master sergeant has vainly sought an answer to a simple question: Why?
    Even as Koffler repeatedly asked the Defense Finance and Accounting Services, or DFAS, for an explanation, the Pentagon's payroll agency arranged to garnish his pay from his new civilian job and report the alleged debt to credit agencies. The unpaid balance was eventually turned over to a private collection agency.
    Koffler is among the many retired or discharged military personnel who Reuters found are suddenly dunned by DFAS for money they never owed, or for overpayments they erroneously, and unknowingly, received. And as his case illustrates, many of them struggle to get an explanation for the claimed debt.
    Koffler's ordeal began in February 2011, when he opened his mail to find the DFAS debt notice. "It was kind of like a slap in the face," he says.
    The notice said the debt was for most of the "special duty assignment pay" he had earned for his last five years as an Air Force first sergeant. But there was no reason given why he, in particular, didn't deserve that pay.
    Koffler, who served in Bosnia, the first Persian Gulf War and the 2003 invasion of Iraq, as well as on humanitarian missions, had risen over the years to become a master sergeant, one of the top ranks of Air Force enlisted personnel. In 2005, he graduated from the Air Force's First Sergeant Academy.
    In the Air Force, first sergeant is a specialized job open to high-ranking sergeants. Under federal law, Air Force first sergeants, during the period Koffler served, were to receive an additional $150 a month in "special duty assignment pay" to cover the job's extra workload. The duties include serving as top adviser to a commander and overseeing mission readiness and the health and well-being of airmen.
    Koffler could think of nothing that would disqualify him for his first-sergeant's pay. He first called the DFAS office in St. Louis, Missouri, to ask for an explanation. The agency mailed him a multipage packet filled with accounting codes he couldn't decipher.
    He next phoned pay officials at Randolph Air Force Base, outside San Antonio, Texas, and the closest base to his home in Spring, Texas. Personnel there told him to call DFAS headquarters in Indianapolis, where staff told him to call the DFAS office in St. Louis.
    A frustrated Koffler then wrote a detailed letter to DFAS to dispute the debt. Koffler says he never received any response.
    The 48-year-old Koffler works at a high school as an Air Force Junior Reserve Officer Training Corps instructor. For seven months, DFAS garnished his pay, taking more than $300 every two weeks, or about 15 per cent of his salary.
    When Koffler and his wife were arranging to buy living-room furniture in early 2011, the salesman withdrew an offer of $1,500 in financing. The DFAS debt, it turned out, had sharply lowered Koffler's credit rating.
    "You kind of feel like they left you out to dry," Koffler says.
    DFAS declined to make anyone available to discuss Koffler's case, and it did not respond to questions about whether it investigated Koffler's complaints.
    During his years as a first sergeant, Koffler received more than $8,000 in special-duty pay - roughly double the amount it billed him. In a written response to questions, DFAS said that with the aim of recouping the full amount from Koffler, it had already collected $4,130 through withholdings from his last two paychecks.
    Koffler says he recalls no such deductions, and a Reuters examination of his monthly pay statements turned up none for the alleged debt before his retirement.
    In response to a Privacy Act waiver Koffler signed, DFAS turned over documents stating that the Air Force had asked DFAS to collect the money because "the servicemember was not eligible for the special duty pay." But the documents don't say why he was deemed ineligible.
    DFAS referred Reuters to the Air Force's Personnel Center, where spokesman Michael Dickerson said DFAS should have the answer. Dickerson confirmed that Koffler was a first sergeant for the five years before he retired. He said the personnel center has no responsibility for special-duty pay. He suggested that Reuters contact units Koffler served in.
    Two commanders Koffler served under during his last five years in the Air Force said he had earned his special-duty pay as a first sergeant. One of them, Lieutenant Colonel William Salinger, said Koffler's performance was "absolutely spectacular."
    Reuters then went to Air Force Secretary Michael Donley. His spokeswoman, Ann Stefanek, said that she checked Koffler's pay records and that "there's a possibility there is an error." She declined to provide details. She said Donley's office would not look into whether the Air Force and DFAS had erred in claiming the money back.
    Stefanek declined to say whether the Air Force has any records explaining the debt, or why Donley's office would not investigate. She suggested that Koffler begin a new appeals process if he wants to contest the debt. Beyond that, she said in an email, "I don't have any additional information to provide at this time."


    Behind the Pentagon’s doctored ledgers, a running tally of epic waste

    MILES OF AISLES: At the Defense Logistics Agency's giant storage facility outside Harrisburg, Pennsylvania, lack of reliable information on what's there makes it hard to throw out excess inventory. REUTERS/TIM SHAFFER

    Part 2: For two decades, the U.S. military has been unable to submit to an audit, flouting federal law and concealing waste and fraud totaling billions of dollars
    LETTERKENNY ARMY DEPOT, Chambersburg, Pennsylvania - Linda Woodford spent the last 15 years of her career inserting phony numbers in the U.S. Department of Defense’s accounts.
    Every month until she retired in 2011, she says, the day came when the Navy would start dumping numbers on the Cleveland, Ohio, office of the Defense Finance and Accounting Service, the Pentagon’s main accounting agency. Using the data they received, Woodford and her fellow DFAS accountants there set about preparing monthly reports to square the Navy’s books with the U.S. Treasury’s - a balancing-the-checkbook maneuver required of all the military services and other Pentagon agencies.
    And every month, they encountered the same problem. Numbers were missing. Numbers were clearly wrong. Numbers came with no explanation of how the money had been spent or which congressional appropriation it came from. “A lot of times there were issues of numbers being inaccurate,” Woodford says. “We didn’t have the detail … for a lot of it.”
    The data flooded in just two days before deadline. As the clock ticked down, Woodford says, staff were able to resolve a lot of the false entries through hurried calls and emails to Navy personnel, but many mystery numbers remained. For those, Woodford and her colleagues were told by superiors to take “unsubstantiated change actions” - in other words, enter false numbers, commonly called “plugs,” to make the Navy’s totals match the Treasury’s.
    Jeff Yokel, who spent 17 years in senior positions in DFAS’s Cleveland office before retiring in 2009, says supervisors were required to approve every “plug” - thousands a month. “If the amounts didn’t balance, Treasury would hit it back to you,” he says.
    After the monthly reports were sent to Treasury, the accountants continued to seek accurate information to correct the entries. In some instances, they succeeded. In others, they didn’t, and the unresolved numbers stood on the books.
    At the DFAS offices that handle accounting for the Army, Navy, Air Force and other defense agencies, fudging the accounts with false entries is standard operating procedure, Reuters has found. And plugging isn’t confined to DFAS (pronounced DEE-fass). Former military service officials say record-keeping at the operational level throughout the services is rife with made-up numbers to cover lost or missing information.
    A review of multiple reports from oversight agencies in recent years shows that the Pentagon also has systematically ignored warnings about its accounting practices. “These types of adjustments, made without supporting documentation … can mask much larger problems in the original accounting data,” the Government Accountability Office, the investigative arm of Congress, said in a December 2011 report.
    Plugs also are symptomatic of one very large problem: the Pentagon’s chronic failure to keep track of its money - how much it has, how much it pays out and how much is wasted or stolen.
    This is the second installment in a series in which Reuters delves into the Defense Department’s inability to account for itself. The first article examined how the Pentagon’s record-keeping dysfunction results in widespread pay errors that inflict financial hardship on soldiers and sap morale. This account is based on interviews with scores of current and former Defense Department officials, as well as Reuters analyses of Pentagon logistics practices, bookkeeping methods, court cases and reports by federal agencies.
    As the use of plugs indicates, pay errors are only a small part of the sums that annually disappear into the vast bureaucracy that manages more than half of all annual government outlays approved by Congress. The Defense Department’s 2012 budget totaled $565.8 billion, more than the annual defense budgets of the 10 next largest military spenders combined, including Russia and China. How much of that money is spent as intended is impossible to determine.
    In its investigation, Reuters has found that the Pentagon is largely incapable of keeping track of its vast stores of weapons, ammunition and other supplies; thus it continues to spend money on new supplies it doesn’t need and on storing others long out of date. It has amassed a backlog of more than half a trillion dollars in unaudited contracts with outside vendors; how much of that money paid for actual goods and services delivered isn’t known. And it repeatedly falls prey to fraud and theft that can go undiscovered for years, often eventually detected by external law enforcement agencies.
    The consequences aren’t only financial; bad bookkeeping can affect the nation’s defense. In one example of many, the Army lost track of $5.8 billion of supplies between 2003 and 2011 as it shuffled equipment between reserve and regular units. Affected units “may experience equipment shortages that could hinder their ability to train soldiers and respond to emergencies,” the Pentagon inspector general said in a September 2012 report.

    AT SEA: Since 2000, the Navy has spent more than $1 billion to upgrade its record-keeping, but it still lacks the ability to account for ships, submarines and other physical assets. REUTERS/HO NEW
    Because of its persistent inability to tally its accounts, the Pentagon is the only federal agency that has not complied with a law that requires annual audits of all government departments. That means that the $8.5 trillion in taxpayer money doled out by Congress to the Pentagon since 1996, the first year it was supposed to be audited, has never been accounted for. That sum exceeds the value of China’s economic output last year.
    Congress in 2009 passed a law requiring that the Defense Department be audit-ready by 2017. Then-Defense Secretary Leon Panetta in 2011 tightened the screws when he ordered that the department make a key part of its books audit-ready in 2014.
    Reuters has found that the Pentagon probably won’t meet its deadlines. The main reason is rooted in the Pentagon’s continuing reliance on a tangle of thousands of disparate, obsolete, largely incompatible accounting and business-management systems. Many of these systems were built in the 1970s and use outmoded computer languages such as COBOL on old mainframes. They use antiquated file systems that make it difficult or impossible to search for data. Much of their data is corrupted and erroneous.
    “It’s like if every electrical socket in the Pentagon had a different shape and voltage,” says a former defense official who until recently led efforts to modernize defense accounting.

    No one can even agree on how many of these accounting and business systems are in use. The Pentagon itself puts the number at 2,200 spread throughout the military services and other defense agencies. A January 2012 report by a task force of the Defense Business Board, an advisory group of business leaders appointed by the secretary of defense, put the number at around 5,000.
    “There are thousands and thousands of systems,” former Deputy Secretary of Defense Gordon England said in an interview. “I’m not sure anybody knows how many systems there are.”
    In a May 2011 speech, then-Secretary of Defense Robert Gates described the Pentagon’s business operations as “an amalgam of fiefdoms without centralized mechanisms to allocate resources, track expenditures, and measure results. … My staff and I learned that it was nearly impossible to get accurate information and answers to questions such as ‘How much money did you spend’ and ‘How many people do you have?’ ”
    The Pentagon has spent tens of billions of dollars to upgrade to new, more efficient technology in order to become audit-ready. But many of these new systems have failed, either unable to perform all the jobs they were meant to do or scrapped altogether - only adding to the waste they were meant to stop.
    Mired in a mess largely of its own making, the Pentagon is left to make do with old technology and plugs - lots of them. In the Cleveland DFAS office where Woodford worked, for example, “unsupported adjustments” to “make balances agree” totaled $1.03 billion in 2010 alone, according to a December 2011 GAO report.
    In its annual report of department-wide finances for 2012, the Pentagon reported $9.22 billion in “reconciling amounts” to make its own numbers match the Treasury’s, up from $7.41 billion a year earlier. It said that $585.6 million of the 2012 figure was attributable to missing records. The remaining $8 billion-plus represented what Pentagon officials say are legitimate discrepancies. However, a source with knowledge of the Pentagon's accounting processes said that because the report and others like it aren’t audited, they may conceal large amounts of additional plugs and other accounting problems.
    The secretary of defense’s office and the heads of the military and DFAS have for years knowingly signed off on false entries. “I don't think they're lying and cheating and stealing necessarily, but it's not the right thing to do,” Pentagon Comptroller Robert Hale said in an interview. “We've got to fix the processes so we don’t have to do that.”
    Congress has been much more lenient on the Defense Department than on publicly traded corporations. The Sarbanes-Oxley Act of 2002, a response to the Enron Corp and other turn-of-the-century accounting scandals, imposes criminal penalties on corporate managers who certify false financial reports. “The concept of Sarbanes-Oxley is completely foreign” to the Pentagon, says Mike Young, a former Air Force logistics officer who for years has been a consultant on, and written about, Defense Department logistics.
    Defense officials point out that most plugs represent pending transactions - like checks waiting to clear with a bank - and other legitimate maneuvers, many of which are eventually resolved. The dollar amounts, too, don’t necessarily represent actual money lost, but multiple accounting entries for money in and money out, often duplicated across several ledgers. That’s how, for example, a single DFAS office in Columbus, Ohio, made at least $1.59 trillion - yes, trillion - in errors, including $538 billion in plugs, in financial reports for the Air Force in 2009, according to a December 2011 Pentagon inspector general report. Those amounts far exceeded the Air Force’s total budget for that year.
    Defense Secretary Chuck Hagel declined to comment for this article. In an August 2013 video message to the entire Defense Department, he said: “The Department of Defense is the only federal agency that has not produced audit-ready financial statements, which are required by law. That’s unacceptable.”
    DFAS Director Teresa McKay declined to be interviewed for this article.
    In an email response to questions from Reuters, a Treasury spokesman said: “The Department of Defense is continuing to take steps to strengthen its financial reporting. … We're supportive of those efforts and will continue to work with DOD as they make additional progress.” While the Treasury knowingly accepts false entries, it rejects accounts containing blank spaces for unknown numbers and totals that don’t match its own.
    Senators Tom Coburn, an Oklahoma Republican, and Joe Manchin, a West Virginia Democrat, introduced legislation earlier this year that would penalize the Pentagon if it isn’t audit-ready by 2017. Under the proposed Audit the Pentagon Act of 2013, failure to meet the deadline will result in restrictions on funding for new acquisition programs, prohibit purchases of any information-technology systems that would take more than three years to install, and transfer all DFAS functions to the Treasury.
    “The Pentagon can’t manage what it can’t measure, and Congress can’t effectively perform its constitutional oversight role if it doesn’t know how the Pentagon is spending taxpayer dollars,” Coburn said in an email response to questions. “Until the Pentagon produces a viable financial audit, it won’t be able to effectively prioritize its spending, and it will continue to violate the Constitution and put our national security at risk.”

    Video Taxpayer dollars down a black hole

    The practical impact of the Pentagon’s accounting dysfunction is evident at the Defense Logistics Agency, which buys, stores and ships much of the Defense Department’s supplies - everything from airplane parts to zippers for uniforms.
    It has way too much stuff.
    “We have about $14 billion of inventory for lots of reasons, and probably half of that is excess to what we need,” Navy Vice Admiral Mark Harnitchek, the director of the DLA, said at an August 7, 2013, meeting with aviation industry executives, as reported on the agency’s web site.
    And the DLA keeps buying more of what it already has too much of. A document the Pentagon supplied to Congress shows that as of Sept. 30, 2012, the DLA and the military services had $733 million worth of supplies and equipment on order that was already stocked in excess amounts on warehouse shelves. That figure was up 21% from $609 million a year earlier. The Defense Department defines “excess inventory” as anything more than a three-year supply.
    Consider the “vehicular control arm,” part of the front suspension on the military’s ubiquitous High Mobility Multipurpose Vehicles, or Humvees. As of November 2008, the DLA had 15,000 of the parts in stock, equal to a 14-year supply, according to an April 2013 Pentagon inspector general’s report.
    And yet, from 2010 through 2012, the agency bought 7,437 more of them - at prices considerably higher than it paid for the thousands sitting on its shelves. The DLA was making the new purchases as demand plunged by nearly half with the winding down of the Iraq and Afghanistan wars. The inspector general’s report said the DLA’s buyers hadn’t checked current inventory when they signed a contract to acquire more.

    Just outside Harrisburg, Pennsylvania, the DLA operates its Eastern Distribution Center, the Defense Department’s biggest storage facility. In one of its warehouses, millions of small replacement parts for military equipment and other supplies are stored in hundreds of thousands of breadbox-size bins, stacked floor to ceiling on metal shelves in the 1.7 million-square-foot building.
    Sonya Gish, director of the DLA’s process and planning directorate, works at the complex. She says no system tracks whether newly received items are put in the correct bins, and she confirmed that because of the vast quantities of material stored, comprehensive inventories are impossible. The DLA makes do with intermittent sampling to see if items are missing or stored in the wrong place. Gish also says the distribution center does not attempt to track or estimate losses from employee theft.
    The Pentagon in 2004 ordered the entire Defense Department to adopt a modern labeling system that would allow all the military branches to see quickly and accurately what supplies are on hand at the DLA and each of the services. To date, the DLA has ignored the directive to use the system. William Budden, deputy director of distribution, said in an interview that the cost would have exceeded the potential benefits, and that the DLA’s existing systems are adequate.
    A “Clean Out the Attic” program to jettison obsolete inventory is making progress, DLA Director Harnitchek said in an interview. But the effort is hindered because the lack of reliable information on what’s in storage makes it hard to figure out what can be thrown out.
    The DLA also has run into resistance among warehouse supervisors who for years have been in charge of a handful of warehouse aisles and jealously husband their inventory. “I believe that the biggest challenge is helping item managers identify things we have in our warehouses that they can just let go of,” Budden said in an interview published in an undated in-house DLA magazine.
    A few miles away, amid the gently rolling hills of south central Pennsylvania, a series of 14 explosions interrupt the stillness of a spring afternoon, shooting fountains of dirt more than 100 feet into the air. Staff at the Letterkenny Army Depot - one of eight Army Joint Munitions Command depots in the United States - are disposing of 480 pounds of C4 plastic explosive manufactured in 1979 and at risk of becoming dangerously unstable.

    BOMBS AWAY: Staff at the Letterkenny Army Depot detonate three-decade-old explosives that were at risk of becoming dangerously unstable in storage. REUTERS/GARY CAMERON
    If Woody Pike could have his way, the soldiers would be destroying a lot more of the old, unused munitions stored in scores of turf-covered concrete “igloos” ranged across the Letterkenny compound.
    There are runway flares from the 1940s, and warheads for Sparrow missiles that the military hasn’t fielded since the 1990s. Most irksome, because they take up a lot of space, are rocket-launch systems that were retired in the 1980s. “It will be years before they’re gone,” says Pike, a logistics management specialist and planner at Letterkenny.
    More than one-third of the weapons and munitions the Joint Munitions Command stores at Letterkenny and its other depots are obsolete, according to Stephen Abney, command spokesman. Keeping all those useless bullets, explosives, missiles, rifles, rocket launchers and other munitions costs tens of millions of dollars a year.
    The munitions sit, year after year, because in the short term, “it’s cheaper for the military to store it than to get rid of it,” said Keith Byers, Letterkenny’s ammunition manager. “What’s counterproductive is that what you’re looking at is stocks that are going to be destroyed eventually anyway.”
    Also, an Army spokesman said, the Pentagon requires the Army to store munitions reserves free of charge for the other military services, which thus have no incentive to pay for destroying useless stock.
    To access ammunition and other inventory still in use, depot staff often must move old explosives, much of which is stored in flimsy, thin-slatted crates. “Continuing to store unneeded ammunition creates potential safety, security and environmental concerns,” Brigadier General Gustave Perna said in a 2012 military logistics newsletter, when he was in charge of the Joint Munitions Command. The cost and danger of storing old munitions “frustrates me as a taxpayer,” he said. Perna declined requests for an interview.

    LANDSCAPING: Scores of storage bunkers dot the rolling hills of the Letterkenny Army Depot. GOOGLE EARTH
    Sometimes the danger leads to action, as when the C4 was detonated. And the depot recently received funding to destroy 15,000 recoilless rifles last used during World War II, Pike says.
    Yet, on the day of the C4 blasts, piles of Phoenix air-to-air missiles - used on Navy F-14 fighter jets that last flew for the U.S. in 2006 - had just been offloaded from rail cars and were waiting to be put into storage.
    In 2010, as part of the Defense Department’s modernization effort, the Joint Munitions Command scrapped a computer system that kept track of inventory and automatically generated required shipping documents. It was replaced with one that Pike says doesn’t do either.
    His staff now must guess how much inventory and space Letterkenny has. The Army built at additional cost a second system to create shipping documents and an interface between the two systems. “We’re having problems with the interface,” Pike says.

    Media reports of Defense Department waste tend to focus on outrageous line items: $604 toilet seats for the Navy, $7,600 coffee makers for the Air Force. These headline-grabbing outliers amount to little next to the billions the Pentagon has spent on repeated efforts to fix its bookkeeping, with little to show for it.
    The Air Force’s Expeditionary Combat Support System was intended to provide for the first time a single system to oversee transportation, supplies, maintenance and acquisitions, replacing scores of costly legacy systems. Work got under way in 2005. Delays and costs mounted. In late 2012, the Air Force conducted a test run. The data that poured out was mostly gibberish. The Air Force killed the project.

    LETHAL INVENTORY: Missile warheads like these are among the thousands of munitions that sit in Letterkenny igloos year after year because it is cheaper in the short term to store them than to destroy them. REUTERS/GARY CAMERON
    The system “has cost $1.03 billion … and has not yielded any significant military capability,” the Air Force said in a November 2012 announcement.
    Fixing the system would cost an additional $1.1 billion, it said, and even then, it would do only about a quarter of the tasks originally intended, and not until 2020.
    The Air Force blamed the failure on the main contractor, Virginia-based Computer Sciences Corp, saying the company was unable to handle the job.
    Computer Sciences spokesman Marcel Goldstein said that the company provided the Air Force with important “capabilities,” and that “the progress we made, jointly with the Air Force, and the software we have delivered could be the foundation for the next effort to develop and deploy a logistics system for the Air Force.”
    David Scott Norton, an expert in accounting systems who worked for CSC on the Air Force contract, said the project employed too many people, making coordination and efficiency impossible. “There were probably thousands of people, both Air Force and contractors, on it,” he says. High turnover among both Air Force and contractor staff hurt, too, he says; many of the people who worked on it weren’t the people who had conceived and designed it.
    More than $1 billion was wasted when the Pentagon in 2010 ditched the Defense Integrated Military Human Resources System, launched in 2003 as a single, department-wide pay and personnel system that would eliminate pay errors. Interagency squabbles and demands for thousands of changes eventually sank it.
    The Air Force’s Defense Enterprise Accounting and Management System was supposed to take over the Air Force’s basic accounting functions in 2010. To date, $466 million has been spent on DEAMS, with a projected total cost of $1.77 billion to build and operate it, an Air Force spokeswoman said. The system lacks “critical functional capabilities,” and its “data lacks validity and reliability,” according to a September 2012 Defense Department inspector general report.
    It now isn’t expected to be fully operational until 2017.
    The Army’s General Fund Enterprise Business System is often held up as an example of rare success. Up and running in 2012, GFEBS is now used in Army posts all over the world to handle basic accounting functions.
    Some things it does well, but the inspector general said in March last year that the system didn’t provide department management with required information and may not resolve “longstanding weaknesses” in the Army’s financial management, “despite costing the Army $630.4 million as of October 2011.”
    In 2000, the Navy began work on four separate projects to handle finances, supplies, maintenance of equipment and contracting. Instead, the systems took on overlapping duties that each performed in different ways, using different formats for the same data. Five years later, the GAO said: “These efforts were failures. … $1 billion was largely wasted.”
    The Navy started again in 2004 with the Navy Enterprise Resources Planning project to handle all Navy accounting - at first. The Navy later decided on a system design that would cover only about half of the service's budget because a single, service-wide system would be too difficult and time-consuming, according to former Navy personnel who worked on the project. Accounting for property and other physical assets was dropped, too.
    Now in use, the Navy ERP relies on data fed to it from 44 old systems it was meant to replace. “Navy officials spent $870 million … and still did not correct” the system’s inability to account for $416 billion in equipment, the Pentagon inspector general said in a July 2013 report.
    The Navy declined to comment.

    Even an effort to coordinate all these projects ended in failure. In 2006, Deputy Secretary of Defense Gordon England established the Business Transformation Agency to force the military branches and other agencies to upgrade their business operations, adhere to common standards and make the department audit-ready.
    Three years later, the Center for Strategic and International Studies said that while the Defense Department was spending “in excess of $10 billion per year on business systems modernization and maintenance, (o)verall the result is close to business as usual.”
    Defense Secretary Gates shut it down in 2011 - after the Pentagon had spent $700 million on it. England declined to comment on the episode.
    Former BTA officials blamed the failure on their lack of authority to enforce their decisions and resistance from the individual services.
    Over the past 10 years, the Defense Department has signed contracts for the provision of more than $3 trillion in goods and services. How much of that money is wasted in overpayments to contractors, or was never spent and never remitted to the Treasury, is a mystery. That’s because of a massive backlog of “closeouts” - audits meant to ensure that a contract was fulfilled and the money ended up in the right place.
    The Defense Contract Management Agency handles audits of fixed-price contracts, which are relatively problem-free. It’s the Defense Contract Audit Agency that handles closeouts for department-wide contracts that pay the company or individual for expenses incurred. At the end of fiscal 2011, the agency’s backlog totaled 24,722 contracts worth $573.3 billion, according to DCAA figures. Some of them date as far back as 1996.
    The individual military services close out their own contracts, and the backlogs have piled up there, too. The Army’s backlog was 450,000 contracts, the GAO said in a December 2012 report.

    TICK-TOCK: Secretary of Defense Chuck Hagel has said the Pentagon’s inability to be audited “is unacceptable” and is overseeing efforts to meet audit-readiness deadlines. REUTERS/YURI GRIPAS
    The Navy and Air Force did not have estimates of their backlogs.
    “This backlog represents hundreds of billions of dollars in unsettled costs,” the GAO report said. Timely closeouts also reduce the government’s financial risk by avoiding interest on late payments to contractors.
    To trim its backlog, the DCAA last year raised to $250 million from $15 million the threshold value at which a contract is automatically audited. DCAA says that by concentrating its auditors on the biggest contracts, it will recoup the largest sums of money, and that it will conduct selective audits of smaller contracts, based on perceived risk and other factors. Still, hundreds of thousands of contracts that would eventually have been audited now won’t be.
    “Having billions of dollars of open, unaudited contracts stretching back to the 1990s is clearly unacceptable, and places taxpayer dollars at risk of misuse and mismanagement,” Senator Thomas Carper, a Delaware Democrat and chairman of the Homeland Security and Governmental Affairs Committee, said in an email response to questions. “We must make sure that the Department of Defense is actively assessing risks and making sure that contractors who fall underneath the threshold remain accountable for their work.”
    Spotty monitoring of contracts is one reason Pentagon personnel and contractors are able to siphon off taxpayer dollars through fraud and theft - amounting to billions of dollars in losses, according to numerous GAO reports. In many cases, Reuters found, the perpetrators were caught only after outside law-enforcement agencies stumbled onto them, or outsiders brought them to the attention of prosecutors.
    In May this year, Ralph Mariano, who worked as a civilian Navy employee for 38 years, pleaded guilty in federal court in Rhode Island to charges of conspiracy and theft of government funds related to a kickback scheme that cost the Navy $18 million from 1996 to 2011. Mariano was sentenced Nov. 1 to 10 years in prison and fined $18 million.
    Mariano admitted that as an engineer at the Naval Undersea Warfare Center in Newport, Rhode Island, he added money to contracts held by Advanced Solutions for Tomorrow. The Georgia-based company then paid kickbacks to Mariano and others, including friends and relatives.
    Mariano was charged more than five years after the allegations against him first emerged in a 2006 civil whistleblower lawsuit in federal court in Georgia that had been kept under seal. Court documents suggest one reason why the conspiracy went undetected for so long: The Navy not only gave Mariano authority to award money to contractors; it also put him in charge of confirming that the contractors did the work. The Navy never audited any of the contracts until after Mariano was arrested, a Navy spokeswoman confirmed.
    On the opposite side of the country, federal prosecutors in San Diego, California, in 2009 accused Gary Alexander, a Navy civilian employee, of arranging with subcontractors to have them bill the Defense Department for services never performed and then pay him kickbacks from money the subcontractors received. Alexander masterminded the scheme while he was head of the Air Surveillance and Reconnaissance Branch of the Navy’s Space and Naval Warfare Systems Center, based in San Diego.
    Alexander in 2010 pleaded guilty to defrauding the Navy and filing false tax returns. He was sentenced to 75 months in prison and was required to pay restitution and forfeitures totaling more than $500,000.
    Robert Ciaffa, a federal prosecutor assigned to the case, said the bills were easily padded because DFAS didn’t require detailed invoices. The case came to light, he said, only after “a woman friend” of one of Alexander’s associates went to prosecutors in 2008 with information about the fraud.
    A Navy spokeswoman said that Navy Secretary Ray Mabus has taken steps to avert such fraud, including creating a contract review board, requiring closer oversight of employees who manage contracts and establishing antifraud units within Navy contracting services.
    Ciaffa said the Alexander case prompted his office in 2009 to set up a toll-free fraud tip line that has so far have yielded at least six cases. One led to guilty pleas in March 2012 by four civilian employees of the North Island Naval Air Station, near San Diego, after they were accused of receiving $1 million in kickbacks from contractors.
    In its 2007 audit-readiness plan, the Defense Department called on DFAS to eliminate plugs by June 2008. That hasn’t happened.
    In its financial report for 2012, the Army said each month it “adjusts its Fund Balance With Treasury to agree with the U.S. Treasury accounts.” In its 2012 annual report, the Defense Logistics Agency said it does the same. “On a monthly basis, DLA’s (Fund Balance With Treasury) is adjusted to agree with the U.S. Treasury accounts.”
    The Navy, in a footnote in its 2012 financial report, “acknowledges that it has a material internal control weakness in that it does not reconcile its” numbers with the Treasury’s. The footnote said the Navy inserts inaccurate numbers in its monthly reports so that they agree with the Treasury’s. It said it is working with DFAS to try to eliminate the problems.
    The Treasury says it requires the monthly reports from Pentagon agencies to ensure that it is “providing accurate financial information to Congress and the general public.” The reports verify that the military is using money for its intended purposes; spending money on things other than what it was appropriated for is, with rare exceptions, a violation of the Antideficiency Act, which forbids anyone but Congress to appropriate money. The law carries penalties for individuals involved in violating it.
    Because of the lack of accurate accounting, a 2012 GAO report said, “the Department of the Navy is at increased risk of Antideficiency Act violations.”
    Without a functioning, unified bookkeeping system, the Pentagon’s accountants have no option but to continue taking that risk.
    Woodford, the former accountant in DFAS’s Cleveland office, says that in the frenzy to complete the Navy’s monthly financial reports to the Treasury, much of the blame rested with the “old antiquated systems” the Pentagon used. A common reason for inserting plugs was that “you knew what the numbers were, but you didn’t have the supporting documents.”
    The Navy data, pouring in through dozens of jury-rigged pipelines into similarly disparate systems, required many “manual workarounds” - typing data from one system into another, which only added to the potential for errors.
    “They do so much manual work, it’s just ridiculous,” says Toni Medley, who retired five years ago after 30 years doing an assortment of jobs at the same DFAS office. It’s tedious work, she says, and the people doing it “make a lot of mistakes.”
    The Navy declined to comment.
    Yokel, the retired official at the DFAS Cleveland office, worked as a consultant on the Navy Enterprise Resource Planning project, the new accounting system that fell short of expectations. He says that in recent years, the new system has managed to reduce the number of plugs, though they still can add up to a lot in dollar terms. And nearly half the Navy’s budget isn’t covered by the system.
    (Edited by John Blanton)
    Next, Part 3: Why the Pentagon’s many campaigns to clean up its accounts are failing
    The Pentagon has spent billions of dollars on efforts to make itself audit-ready in time for not one, but two deadlines - one in 2014, the other in 2017.
    It won’t meet the first and probably won’t meet the second.

    PRESSURE TACTICS: While serving as secretary of defense, Leon Panetta imposed a 2014 deadline on the Pentagon to make a major portion of its accounts audit-ready. REUTERS/POOL
    The deadlines represent efforts inside and outside of the Pentagon toward meeting a goal that has eluded it since the mid-1990s, when all government departments were first required by law to submit to annual audits. The Defense Department, alone among all federal agencies, has so far failed to meet that requirement - leaving trillions of dollars in cumulative annual defense budgets unaudited.
    Amid fierce national debate over ballooning national debt, Congress in 2009 passed a law to prod the Pentagon, setting a 2017 deadline for audit-readiness. Two years later, then-Secretary of Defense Leon Panetta added to the pressure, ordering that a significant portion of the Pentagon’s books - its annual report on the status of all appropriations - be audit-ready by 2014.
    That report, the Statement of Budgetary Resources, is, in essence, the Pentagon’s checkbook, showing the amount of money from congressional appropriations spent or committed to being spent, and the amount remaining for new spending. Without it, there is no way to budget accurately or ensure accountability.
    Tina Jonas, Defense Department comptroller from 2004 through 2008 and now president of UnitedHealthcare Military & Veterans, says that when she was drafting budgets, the lack of reliable financial statements made it impossible for her to know how much money the Pentagon had and how much it needed. “I didn’t want to ask Congress for money that we didn’t need,” she says.
    A senior Pentagon official confirmed that the 2014 deadline won’t be met. The Pentagon discreetly acknowledged the same in an unremarkable passage on page 5 of section II of the November 2012 “Financial Improvement and Audit Readiness (FIAR) Plan Status Report” from Defense Department Comptroller Robert Hale’s office: “The scope of first year audits of the SBR (Statement of Budgetary Resources) in FY 2015 will be limited to audits of schedules containing only current year appropriation activity.” (Panetta’s order requires that the SBR be audit-ready in 2014 so that a first audit can be conducted in 2015.)
    That means the audit will ignore the hundreds of billions of dollars in unspent appropriations from previous years, as when, for example, Congress approves a multiyear weapons contract. The reason, Pentagon officials said, is that huge amounts of essential data have been lost in the Pentagon’s accounting systems, or were never recorded in the first place. The comptroller’s office said that out of $992 billion in appropriations, about $220 billion won’t be examined, using estimates based on 2012 numbers.
    “This is a tactical change that refines the scope of the audit,” said Jennifer Elzea, a spokeswoman for the secretary of defense. “It does not change the goal, which is to improve the strength of our business processes and the quality of our financial information.”
    Comptroller Hale said through a spokesman this month: “I expect most DoD budget statements will be ready for audit. It is possible that, because of budget turmoil and other problems, a few may not be ready.”
    Lack of trustworthy data also makes the 2017 legally mandated deadline a long shot. Absent reliable accounting systems in the military services and other defense agencies, it will remain impossible to trace specific accounting entries to the “transaction level” to determine what the money paid for and whether the goods or services were delivered. Rivalries among the military services and Defense Department offices that want to keep their own systems also stand in the way. So does the services’ inability to figure out a way to value assets like ships, planes and weaponry.
    For these reasons, says Gordon Adams, an American University professor of U.S. foreign policy and a specialist on defense issues, “we'll get to 2017, and if past is prologue, the Defense Department will just move the goal posts again.”

    ALTERED STATES: “We cannot track $2.3 trillion in transactions,” then-Secretary of Defense Donald Rumsfeld said in 2001. The next day, al Qaeda attacked the U.S., and priorities changed. REUTERS/JONATHAN ERNST
    For decades, fighting and winning the Cold War dominated Congress’s permissive approach to annual Pentagon appropriations. Then Congress passed the Chief Financial Officers Act of 1992, requiring annual audits of all federal departments, did lawmakers begin to pressure the Pentagon to manage its purse like any other government department. The law mandated that the Pentagon by audit-ready by 1996.
    But year after year, top defense officials would appear before the House and Senate armed services committees to be scolded for missing their deadlines, and then they would set new ones. The next year, and the next, the scene was re-enacted. Congress and the White House stood back as more than half a trillion taxpayer dollars a year went unaudited.
    Just weeks into his new job as secretary of defense under President George W. Bush, Donald Rumsfeld stated the problem: “Our financial systems are decades old. According to some estimates, we cannot track $2.3 trillion in transactions.” The importance of the issue, he said in a speech at the Pentagon, was not “about business practices, nor is the goal to improve figures on the bottom line. It's really about the security of the United States of America. And let there be no mistake, it is a matter of life and death.”
    That was Sept. 10, 2001. The next day, al Qaeda hijacked commercial airliners and flew them into the World Trade Center and the Pentagon. It would be nearly a decade before Pentagon accounting drew the attention of Congress.

    Why the Pentagon’s many campaigns to clean up its accounts are failing

    SUCCESS, SORT OF: Workers confer in temporary offices set up in Alexandria, Virginia, for the rollout last year of the Army’s General Fund Enterprise Business System, which, though touted as a success, can’t perform many of the functions is was meant to handle. REUTERS/Jonathan Ernst

    Part 3: Time and again, programs to modernize Defense Department record-keeping have fallen prey to bureaucratic rivalry, resistance to change and a lack of consequences for failure.
    ALEXANDRIA, Virginia - The U.S. Air Force had great expectations for the Expeditionary Combat Support System when it launched the project in 2005. This accountants’ silver bullet, the Air Force predicted a year later, “will fundamentally revolutionize the way the Air Force provides logistics support.”
    The new computer-based logistics technology would replace 420 obsolete, inefficient and largely incompatible “legacy” systems with a single, unified means of tracking the hardware of warfare. And it would be done for a mere $1.5 billion, combining three off-the-shelf products from Oracle Corp and modifying them only enough so that they could work together.
    Seven years and $1.03 billion taxpayer dollars later, the Air Force announced in November 2012 that it was killing the project. ECSS had yielded “negligible” value and was “no longer a viable option,” the Air Force said. It would have taken an estimated $1.1 billion more to turn it into a system that could perform about one-quarter of its originally planned tasks, and couldn’t be fielded until 2020.
    An August 28, 2013, report on the project, commissioned by an undersecretary of defense, filled in more of the blanks. The original promise of ECSS “was an exaggeration not founded on any true analysis,” it said. The plan was “ambiguous”; the Air Force failed to determine what ECSS would replace and what it would need to succeed.
    That seven-year exercise in waste was not an anomaly. It was the norm for the U.S. Defense Department’s effort in recent years to upgrade the way it keeps track of money, supplies and people. Burdened with thousands of old, error-filled record-keeping systems - estimates range from 2,100 to more than 5,000 of them - the Pentagon is unable to account for itself, and thus for roughly half of all congressionally approved annual federal spending.
    To fix that, the Defense Department has launched 20 or more projects to build modern business-management systems since the late 1990s. At least five were subsequently killed as complete failures after billions of dollars were spent on them. Nine projects now under way or already implemented carry an estimated total cost of $13.9 billion to build and operate, according to the Defense Department comptroller’s office. All of those in use can’t do everything they were supposed to do and are hooked to legacy systems they were supposed to replace.
    The Defense Department inspector general said in a 2012 report that just six of these so-called Enterprise Resource Planning projects under way had racked up cost overruns of $8 billion and delays ranging from 1.5 to 12.5 years. With each failure, a pattern emerges: An off-the-shelf product with a proven track record in the private sector is chosen and then modified to the point where it doesn’t work properly.
    “On every single one of the ERPs, they go out and customize the shit out of it to make it do what the legacy system did the same way the legacy system did it,” said Mike Young, a former Air Force logistics official and now a consultant on defense logistics and accounting.

    KEEPING TRACK: The Defense Logistics Agency, which manages supplies for the military at giant warehouses like this one outside Harrisburg, Pennsylvania, has built a $2 billion-plus accounting system that can’t produce standard financial statements, according to the Pentagon’s inspector general. REUTERS/Tim Shaffer
    Reuters has found that success is likely to remain elusive unless the Pentagon can change the way it goes about fixing its accounting problems. Interviews with scores of current and former defense officials, contractors and Pentagon watchers, as well as a review of dozens of reports by oversight agencies, show that the Pentagon is continually thwarted by a lack of accountability for failures, rivalry among and within various branches of the department, resistance to change, and an incentive to spend.
    With its efforts to build reliable accounting systems in disarray, the Pentagon isn’t likely to meet a congressionally mandated 2017 deadline to be audit-ready. All other federal agencies are audited annually, in accordance with a 1990 law, and with rare exceptions, they pass every year. The Pentagon alone has never been audited, leaving roughly $8.5 trillion in taxpayer dollars unaccounted for since 1996, the first year it was supposed to be audited.
    In previous installments of this series, Reuters has exposed the staggering costs and harmful effects of the Defense Department’s chronic accounting dysfunction. Persistent pay errors hound soldiers, sapping troop morale, while an impenetrable tangle of logistics and personnel systems can hinder commanders’ ability to know who and what are available for deployment. And the lack of reliable accounts - Pentagon staff routinely insert billions of dollars a year of false accounting entries to cover missing information - conceals huge sums lost to waste, fraud and mismanagement.
    In response to questions about the Pentagon’s modernization efforts and the findings of this Reuters investigation, the office of Undersecretary of Defense Robert Hale, the Pentagon’s comptroller, emailed a written statement that said: “I note with disappointment that these articles misrepresent the efforts of a group of hard-working government workers who, despite furloughs and sequester and turmoil, have successfully provided financial services during two wars.”
    The Pentagon has for years kept lousy books with impunity.
    The 2009 law requiring the Defense Department to be audit-ready by 2017 provides for no penalties if it misses the deadline. Senators Tom Coburn, an Oklahoma Republican, and Joe Manchin, a West Virginia Democrat, introduced legislation earlier this year that would, among other things, limit new weapons programs, if the Pentagon misses the target. The bill has attracted co-sponsors, but otherwise has gone nowhere in the Senate.
    From 1995 through 2002, Senator Charles Grassley pushed through an amendment to the annual defense appropriations bill requiring the Pentagon to account for its expenditures by following one seemingly simple procedure: match each payment to the expense it covered. The order was ignored, and Grassley gave up. “The goal was for the practice to become self-sustaining,” Grassley said in an email to Reuters. “It was wishful thinking.”
    Rivalry and turf issues among and within each of the military services also thwart comprehensive fixes to the bookkeeping mess. Each branch has insisted on building from scratch its own systems for basic accounting, logistics and personnel, roughly tripling costs. The Army, Navy and Air Force also routinely disregard department-wide standards and rules imposed by the secretary of defense’s office in order to preserve their own ways of doing things.
    That’s what happened to the Defense Integrated Human Resource System, which was intended to replace the scores of payroll and personnel systems that cause so many pay errors. Competing demands from military services ultimately rendered the system useless, and it was killed in 2010 after sucking up $1 billion.

    ON THE LINE: Army personnel provide telephone support for new users of the Army’s General Fund Enterprise Business System. Army staff called their training sessions for the new system “the valley of despair.” REUTERS/Jonathan Ernst
    High turnover takes a toll, too, as Pentagon personnel are shuffled into new jobs every few years, reinforcing what people involved in many projects said is a lack of personal investment in successful outcomes.
    In 2009 - when the Air Force was four years into it ill-fated ECSS project - Jamie Morin became Air Force comptroller, succeeding John H. Gibson II, who now is vice president of the defense-support division of aircraft maker Beechcraft Corp. As the service’s top financial official, Morin would have been a primary user of ECSS. Less than a year after the project’s collapse, the Obama administration nominated Morin to head the Pentagon’s Office of Cost Assessment and Program Evaluation.
    At Morin’s October 2013 confirmation hearing before the Senate Armed Services Committee, none of the members asked him about ECSS or another troubled Air Force modernization project under his watch, the Defense Enterprise Accounting and Management System. In a written response to questions from Reuters, Morin said: “In testimony and reports, we have indicated that the Air Force is on a well-designed, albeit aggressive path toward meeting … audit readiness goals.”
    The Air Force replaced a brigadier general and a civilian executive after the ECSS project was killed, an Air Force spokeswoman said, without providing further details. But at the time, it blamed the failure mainly on primary contractor Computer Sciences Corp, saying the Falls Church, Virginia, company lacked the necessary capabilities.
    David Scott Norton, an accounting systems specialist who worked for Computer Sciences Corp on the project, disputed that, saying the problem was high turnover. Contractor personnel “who talked to the client [the Air Force] in the beginning didn’t implement the system,” he said. Air Force personnel, too, were “always moving in and out. That just doesn’t work. You needed a dedicated team.”
    The Pentagon’s inefficient method of pursuing efficiency has been on full display in the Army, which, among other efforts, has been building three separate new systems to handle accounting.
    It launched the Logistics Modernization Program, or LMP, in 1998 with Computer Sciences Corp as the primary contractor. The Global Combat Support System - Army, or GCSS-A, began in 1997 and used Northrop Grumman as contractor. And the General Fund Enterprise Business System, meant to be the Army’s new central accounting system, began in 2005, using Accenture as contractor.
    The three projects, each overseen by different agencies within the Army, with three different primary contractors, at different times bought licenses to use the same off-the-shelf software package, SAP’s Enterprise Resource Planning package. Each team then modified the software to create its own version to fit specific needs without making sure they worked together, people involved in the projects said.
    In 2008, as work on all three projects was under way, the Army office that oversees acquisition of information systems issued a report, obtained by Reuters, faulting the Army for building a “fragmented portfolio of ERP systems that have developed along independent paths. ... The Army cannot trace its business processes from factory to foxhole” without incurring additional “huge integration and operational costs.”
    The report recommended that the Army halt work and consolidate the three systems. Doing so, it said, would save between 25% and 50% of the estimated $4.7 billion construction and operating costs of the three separate systems.
    Backers of each project objected, according to people involved, and the report’s recommendations were ignored.

    TOP GUNS: Defense Department Comptroller Robert Hale (right), here testifying with then-Defense Secretary Robert Gates before the House Appropriations Defense Subcommittee in 2011, is the Pentagon’s chief financial officer, responsible for efforts to modernize the department’s dysfunctional accounting systems. REUTERS/Kevin Lamarque
    Kristyn Jones, deputy assistant secretary of the Army for financial information management, said that if the Army were to start over, “we probably would have chosen a different path.” She said one of the biggest challenges was getting workers to adapt to it. She and others involved in building GFEBS said many of the thousands of Army workers who would use the new system referred to their required training sessions as entering “the valley of despair.”
    Gary Winkler, the Army program executive who oversaw acquisition of computer systems for the Army from 2007 through 2011, said developing the three projects separately, without coordination, hurt all of them. They “all go through these stovepipe approval processes without considering what is going on to the left or the right or behind,” he said.
    As a result, the systems had to be linked through a costly network of pipelines - 282 such pipelines among the new and legacy systems, according to the Government Accountability Office, the investigative arm of Congress. “If you draw all of the connections, it looks like a bowl of spaghetti,” Winkler said. The systems must be continually tweaked because when one element requires a software update, for example, all the pipelines and other linked systems have to be updated, too.
    When the Logistics Modernization Program, intended to streamline supply lines and better manage inventory, was eventually fielded in 2010, it was deficient in so many ways that the Army had to add an “Increment 2,” which won’t be ready until September 2016. This has increased the projected cost of building and operating the LMP to $4 billion from $2.6 billion, according to Army figures.
    “The current system does not support certain critical requirements, including enabling the Army to generate auditable financial statements by fiscal year 2017,” the GAO said in a November 2013 report.
    The second Army project, GCSS-A, had an original completion date of late 2015; late 2017 is now the target, for an estimated total building and operating cost of $4.2 billion, compared with the originally projected $3.9 billion.
    Lastly, GFEBS, after an investment of more than $760 million, was fully fielded around the world in 2012, one year behind schedule. The Army touts it as a success, saying on its website: “The system is transforming the way the Army does business by enhancing the information available for leaders and managers across the Army.”
    But this success is limited. GFEBS can’t track basic transactions - for example, payment of an electricity bill for an Army installation. To do that, it relies on legacy systems it was meant to replace. And because some legacy systems are unable to communicate with GFEBS, operators of those systems have had to revert to manually preparing spreadsheets to pass on data from thousands of Army posts.

    Bookkeeping has never been a priority for the military. “They don’t train contracting officers or disbursement officials at West Point,” said a former senior Pentagon official who was involved in modernization efforts.
    For years, winning the Cold War was the primary directive, with little consideration for cost. More recently, wars in Iraq and Afghanistan overshadowed concerns about rising defense spending, bad bookkeeping and attendant waste.
    John Hamre became Defense Department comptroller in 1993, three years after Congress passed the law requiring that the Pentagon be audit-ready by 1996. He didn’t think upgrading accounting systems was vital to the Pentagon’s ability to fulfill its mission. “Would I like a better accounting system? Absolutely,” said Hamre, who left his post in 1997 and now is chairman of the Pentagon’s Defense Policy Board and chief executive of the Center for Strategic and International Studies, a bipartisan, nonprofit think tank in Washington, D.C. But, he said, “we’re getting military missions done every day. We just don’t use accounting for that.”
    Many of the people interviewed for this series involved at all levels of the Pentagon’s accounting modernization program said that until recently, lack of interest or attention from the very top - from secretaries of defense and the civilian secretaries of the individual military services - has meant that no one steps in to impose order and consistency.
    “You cannot just throw money at an ERP system and expect it to work unless somebody at the top says ‘You’re going to work together, and you’re going to get it done,’ ” said Norton, the former Computer Sciences Corp employee.

    WORDS AND ACTIONS: U.S. Secretary of Defense Chuck Hagel has publicly stressed the importance of making the Pentagon audit-ready, even though the Pentagon isn’t likely to meet its 2017 deadline. REUTERS/Yuri Gripas
    President Barack Obama’s three defense secretaries to date - Robert Gates, Leon Panetta and, now, Chuck Hagel - have spoken out strongly both publicly and inside the Defense Department about the importance of meeting audit-readiness deadlines. Panetta in 2011 set an even tighter deadline, ordering that a major portion of the department’s books be audit-ready by 2014. Officials have since acknowledged that the deadline won’t be met, and that the department plans to conduct an audit more limited in scope than what Panetta ordered.
    The secretary of defense is empowered by law to order the military services to clean up their bookkeeping, adhere to Defense Department accounting rules and hew to common standards for building new accounting systems. But he doesn’t control the purse-strings - Congress does - so he “can’t say to the military services, ‘You can’t have the money’ ” if you don’t make this work, said Richard Loeb, a former Office of Management and Budget official and now an adjunct professor of government contracting and fiscal law at the University of Baltimore law school.
    Congress has enabled the Pentagon’s institutional bias against change. “I think we do, all of us, bear some share of responsibility - myself included,” said Representative Robert E. Andrews, a Democrat from New Jersey on the House Armed Services Committee. “If I were to go home and start explaining that I was proposing a bill related to getting the Defense Department accounting systems to work right and the importance of accounting, they’d be asleep about half way through the first sentence.”
    The Defense Logistics Agency, which buys, stores and distributes supplies for the U.S. military, has built a $2 billion-plus accounting system to make itself audit-ready.
    It’s a failure.
    In a March 2013 report, the Defense Department inspector general said the so-called Enterprise Business System was so compromised by fundamental errors in its construction that its data couldn’t be used to produce the standard financial statements required for an audit. Fixing the system to meet the Pentagon’s basic accounting requirements “would be cost prohibitive,” the report said. The DLA is using it anyway.
    Fixing logistics is important - both to save money and to ensure that supplies are on hand when needed. The private sector realized that a long time ago. In recent decades, companies like Wal-Mart Stores Inc and Best Buy Co have raised supply-chain management to a precision science that saves huge sums.
    By contrast, the Pentagon’s fragmented logistics systems “have contributed to longer lead times, excess inventory and stockpiling, duplicative activities and systems, inadequate performance measurements, and increased costs,” according to a 2011 report by the Defense Business Board, a group of business leaders that advises the secretary of defense’s office.
    The board found that the department uses more than 1,000 separate logistics systems, and that in 2010, logistics cost $210 billion, or about 30% of that year’s defense budget.
    Department-wide, duties are shared between the DLA, handling ordering and storage of supplies, and the U.S. Transportation Command, or Transcom, which handles delivery. Each has its own administration and computer systems, and each of the military services operates its own depot maintenance, supply, delivery and logistics accounting systems.
    The Defense Business Board recommended combining all of the various logistics systems to “achieve significant budget savings, allowing the Department to preserve funds for force structure and the modernization of military capabilities.”
    No action was taken on the board’s recommendations. “I have nothing for you on this,” William Urban, a spokesman for the secretary of defense’s office, said in an email response to questions about why the recommendations were not adopted.
    Defense Secretary Hagel and other top Defense Department officials have argued that the impact of the budget sequester - automatic across-the-board spending cuts written into the 2011 congressional budget agreement - would be disastrous for the nation’s defense capabilities if allowed to continue. Congress heard: The latest budget deal would restore a big chunk of the cuts that would have occurred in 2014 and 2015.
    But lack of reliable numbers on how the Pentagon spends the money it receives undercuts arguments for protecting higher spending levels. “You have the (military) service chiefs pissing and moaning on the Hill because they have to take the sequester,” said Franklin Spinney, a former senior analyst in the Pentagon who has written extensively on Pentagon weapons acquisition and spending priorities. But “they don’t have a clue what that’s going to cost.”

    BLACK BOX: Former Pentagon analyst Franklin Spinney says the Defense Department’s inability to determine how it spends its money undercuts its arguments against budget cuts. REUTERS/Gary Cameron
    There is no doubt that bad bookkeeping conceals movements of money that in some instances are illegal. The Antideficiency Act of 1884 forbids anyone to commit U.S. funds to purposes not explicitly approved by Congress - a way to prevent federal officials from writing government checks for anything they want. The law includes civil penalties - officials responsible for violations can be demoted or dismissed - and also provides for criminal prosecution.
    But because the Pentagon has never been audited, it is impossible to determine the frequency or extent of violations. In its annual Antideficiency Act Report for 2012, the GAO reported that the U.S. Special Operations Command illegally diverted more than $136 million over six years to pay for a helicopter development project. The Special Operations Command concluded that there had been “no willful or knowing intent on the part of the responsible parties” to break the law, though it issued a “letter of admonishment” to a senior civilian employee.
    The Pentagon isn’t incapable of fixing its broken business operations. For decades, the Mechanization of Contract Administration Services, or MOCAS (pronounced “moh-KAZZ”), which handles payment of nearly all of the Defense Department’s most complicated contracts, caused some of the department’s biggest headaches.
    It made erroneous payments and spewed out inaccurate data. Much of this was because contract data, long strings of alphanumeric code, had to be entered by hand. Typos were rife. As much as 30 percent of the transactions it processed had to be redone, often by hand. The Defense Finance and Accounting Service, which operates MOCAS, said the system currently handles $3.4 trillion in active contracts.
    In 1994, the Pentagon launched the Standard Procurement System to rationalize procurement by replacing MOCAS and at least 10 other contract payment systems. By 2002, the new system was years behind schedule, and the estimated cost of building and operating it had risen to $3.7 billion from $3 billion. When tested, it crashed. The Pentagon killed it.
    Faced with having to rely on MOCAS indefinitely, the Defense Finance and Accounting Service decided to tweak it. Funding for an upgrade was limited, so DFAS relied heavily on its own workers, who knew MOCAS inside and out. It also hired as consultants retirees who had spent much of their careers working with the system.
    MOCAS runs on COBOL, one of the earliest computer languages, and it lacks many of the options and preferences that make modern applications like Microsoft Word so easy to use. The MOCAS update team built an add-on to make MOCAS more user-friendly. It acquired another add-on that allowed electronic invoices and other data from contractors to flow directly into MOCAS. By eliminating paper invoices, they reduced the error rate to a tiny percentage.
    The fixes worked so well that in 2008, the Defense Contract Management Agency, one of MOCAS’s main users, posted a “Happy 50th Birthday” wish to it on the agency’s website.
    According to users, the 55-year-old system now handles tasks with lightning speed and an extremely low error rate.
    But that success is hollow. The Pentagon remains saddled with other contract-payment systems. And MOCAS is not an accounting system; it must transmit data back to scores of accounting systems across the department for each transaction to be entered in ledgers. Many of the accounting systems are old and require manual data entry, so entry of transactions may lag behind MOCAS by a month.
    Piecemeal fixes that don’t address overarching dysfunction reduce even further the chances the Pentagon will be audit-ready by 2017. Worse, said Charlie Murphy, a longtime member of Senator Grassley’s staff, the Defense Department will have added billions of dollars in new technology that failed to deliver. “Supposedly,” Murphy said, “there’s a maestro that’s going to make them all play like a symphony.”
    (Edited by John Blanton)
    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.