Finances of Pentagon in disarray Auditors discover quagmire that puts budget plan at risk

April 18, 1993|By Richard H. P. Sia | Richard H. P. Sia,Washington Bureau

WASHINGTON -- The $81 billion Defense Business Operation Fund, created two years ago to help the Pentagon fix planes, feed troops and even buy toilet paper more efficiently, has become such a financial mess that it has no credible records of how tax dollars are being spent, according to congressional investigators and official documents.

They reveal that the heart of the Pentagon's financial system is becoming a quagmire that threatens to consume money the military services need for training and other activities to maintain their combat readiness.

Worst of all, the $70 billion in budget savings that the Pentagon expected to reap from the fund and other Bush administration defense management reforms could turn out to be far less than expected -- forcing the Clinton administration to cut more deeply into defense spending.

"We may have reached a point in our history where the time has come to call in the FBI, to lock the doors, seal the safes and the filing cabinets and begin a top-to-bottom audit of the government's books," said Sen. Charles E. Grassley, an Iowa Republican who has been a frequent critic of Pentagon waste.

The General Accounting Office, the investigative arm of Congress, has uncovered mounting evidence of mismanagement, which is likely to fuel a campaign by Mr. Grassley and other critics to dismantle the fund before the end of the year.

On March 1, Assistant Comptroller General Donald H. Chapin, a top GAO official, sent a strongly worded letter to leaders of the congressional defense committees warning that the fund could not produce a single accurate balance sheet. A copy of the 14-page letter, which has not been made public, has been obtained by The Sun.

"The government has not achieved a rudimentary degree of accounting for its resources," Mr. Chapin said.

Because it is impossible to know how much money is in the fund at any given time, its financial reports are of little value either for internal management or budgeting decisions by the administration and Congress, he said.

Even within the Pentagon, there is increasing awareness that something has gone wrong.

The acting director of the Defense Finance and Accounting Service, which keeps track of the fund's business activities, has warned all his finance centers of "a serious problem with the accuracy, consistency, completeness, timeliness and usefulness of Defense Business Operations Fund financial reports," according to an internal Jan. 13 memorandum.

The Pentagon created the business fund in October 1991 by consolidating nine existing revolving funds and several worldwide activities, such as commissary and accounting operations. The Bush administration promoted this as a major step in its overhaul of Pentagon business operations to improve efficiency and save precious tax dollars.

By centralizing the piecemeal purchase of goods and services, the fund was expected to impose fiscal discipline on managers at every level and force them to pay attention to the costs of doing business. Under the old system, each military service purchased goods and services with little regard for price.

The fund has become one of the world's biggest businesses, with $126 billion in assets and 360,000 civilian and military personnel.

It should generate $81 billion in the sales of goods and services to the military services and defense agencies this year -- which, if it were a corporation, would make it the fifth-largest in the world, behind Fortune 500 leaders General Motors, Royal Dutch/Shell Group, Exxon and Ford.

In theory, the fund would pay for spare parts, ship repairs and other goods and services ordered by military unit commanders. The military units would be billed by the fund for the value of the goods and services and such operating expenses as handling, storage and depreciation.

But in practice there has been rampant overcharging and undercharging for goods and services, resulting in wild fluctuations in monthly cash balances, according to congressional investigators.

More important, they said, there have been no verifiable savings to taxpayers.

The Bush administration had counted on over $70 billion in budget savings through 1997 because of the fund and other efforts to streamline operations and standardize assorted data and accounting systems.

When President Clinton promised as a candidate to cut $60 billion from the Bush defense budget, he was assuming those savings would be realized.

Given the problems of the fund, Defense Secretary Les Aspin said in February that the savings estimate was exaggerated by at least $10 billion. The Congressional Budget Office thinks the shortfall could be as much as $50 billion.

Mr. Aspin named an outside panel to re-examine the Bush cost-cutting assumptions, suggesting that deeper budget cuts, especially in military forces, might be needed to compensate for any dramatic drop in savings.

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