Panel against abolishing Pentagon 'operations fund' that's lost track of billions

September 13, 1993|By Richard H. P. Sia | Richard H. P. Sia,Washington Bureau

WASHINGTON -- The $118 billion financial management system used by the military to buy goods and services routinely loses track of billions of tax dollars, but Pentagon trouble-shooters want time to reform the system rather than abandon it.

In an unreleased study of the Defense Business Operations Fund, top Pentagon officials found that most of the clerks and managers running the system never understood how it is supposed to work.

The confusion is so widespread that both civilian and military personnel who work with the fund often use guesswork to prepare their financial reports, sometimes altering the data after deadlines have passed, the team says in a 135-page report, a draft of which was obtained by The Sun.

The report on the fund, which was created by the Bush administration in 1991 to make the purchase of military support services more cost efficient, is expected to be released soon.

The management team, composed of senior defense and military officials led by Deputy Defense Secretary William J. Perry, concedes that the bookkeeping is so bad "it is virtually impossible to adequately manage any aspect of [business fund] operations."

But the officials strongly advise against getting rid of it, as some congressional and military critics would like to do. The few critics who have seen copies of the draft are accusing the panel of "just nibbling around the edges," said one congressional aide.

Sen. Charles E. Grassley, an Iowa Republican who favors tougher action, insisted in a floor speech Friday that the business fund should get another year to clean up its books, but no more.

"There is no financial control over a huge chunk of the defense budget," he said. "The breakdown of financial discipline at the Pentagon must be brought to a screeching halt."

The Pentagon officials who scrutinized the fund refused to comment on the report before it is released to the public.

Bush administration blamed

In their draft, they blame many of the problems on "poor management decisions" by the Bush administration, which they

say hastily imposed a new system from the "top down" without any coordination with the military or clear lines of authority. But the officials also credit their predecessors for the idea of using one large revolving fund to handle everything from aircraft maintenance to payroll accounting.

Despite its troubles, the business fund "is here to stay," the draft report says. Defense Department officials continue to believe in the potential of the system to cut the military's cost of doing everything from buying toilet paper to fixing planes.

The officials who wrote the draft report make every effort not to offend many of the financial managers they must depend on to get the business fund's books in order. They apologize for the report's "negative" tone and add, "We do not criticize the skill and dedication of those responsible for the [fund's] initial implementation; they are to be commended for their efforts."

While the draft report does not offer any vivid examples of the fund's troubled operations, it identifies more than three dozen financial management deficiencies and mistakes that Mr. Perry and his team believe will take at least three to five years to correct -- and require an unspecified increase in spending.

Defense Secretary Les Aspin, who as a congressman tried to delay the creation of the business fund, ordered Mr. Perry to oversee a comprehensive review of the fund in April, shortly after The Sun reported that its mismanagement threatened to consume money the military needs to maintain combat readiness in an era of sharply reduced defense budgets. The General Accounting Office, meanwhile, was alerting Congress that the fund couldn't produce any credible financial records or verifiable savings to taxpayers.

Warning from Aspin

When Mr. Aspin ordered the review, he warned that the business fund may be replaced "if acceptable oversight of this system cannot be established."

Since then, an unpublicized audit by the Pentagon inspector general's office found that the fund managers violated 15 laws and regulations, mostly dealing with financial reporting. Citing "significant" weaknesses in internal controls over money, auditors said in a June 30 report that they are "unable to [assure] the public that [business fund] assets were safeguarded against loss from unauthorized use."

The auditors actually threw up their hands, saying they couldn't do a thorough review because the trail of checks, receipts, invoices and records was incomplete. Records showing $3.1 billion in cash payments couldn't be verified.

When it was created in October 1991, the Defense Business Operations Fund consolidated nine revolving funds and several worldwide defense activities, such as commissary and accounting operations. It has become one of the world's biggest businesses, with $126 billion in assets, 360,000 civilian and military employees and $118 billion in sales of goods and services to the military last year.

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