Defense waste, fraud leave senators angry

April 13, 1994|By Gilbert A. Lewthwaite | Gilbert A. Lewthwaite,Washington Bureau of The Sun

WASHINGTON -- The Army spent $8 million on unauthorized pay, some of it to 76 deserters. Four pay clerks cashed in on six "ghost" soldiers who did not exist and promoted one of them six times. A former Navy employee stole $3 million over four years by submitting 114 invoices for machinery parts that were never delivered.

Such examples of Pentagon waste, fraud and abuse sparked outrage at a Senate hearing yesterday on financial mismanagement at the Defense Department.

"We all know that over the years, stories of Pentagon waste and fraud and abuse have given Americans a rather negative view of how their tax dollars are spent," said Sen. John Glenn, the Ohio Democrat who chaired the Senate Governmental Affairs Committee hearing. "Unfortunately, today's hearing is not going to improve that image very much."

Most seriously, the panel was told, the Pentagon continues to pay $2.5 billion each month for goods and services without being able to match the payments to actual contracts. At one point last year, according to a General Accounting Office audit, the Defense Department's imbalance between payments and bills reached $41 billion, or 15 percent of the fiscal 1994 defense budget of $267 billion.

"It's as if you and I paid our credit-card bills without first seeing what the charges were for," Mr. Glenn said. "This is unacceptable."

John Hamre, who was recruited by the Clinton administration to be the comptroller charged with putting the Pentagon's financial house in order, said the unmatched payments had been cut to $11 billion by matching invoices to payments. But, citing the monthly $2.5 billion discrepancy, he added: "There is also too much bad stuff still coming in the front door every month."

The GAO attributed the unaccounted payments to bookkeeping errors, not fraud. But Charles A. Bowsher, the U.S. comptroller general, told the panel yesterday that the unaccounted payments "vividly illustrate the scope and the depth of financial management weaknesses that waste [Defense Department] resources and hamper its operations."

Mr. Glenn added, "It's no wonder that as a result, we continue to see some crazy cases of fraud."

Among the cases cited:

* At least 6,600, and perhaps up to 12,400, contracts on which payments have not been matched to deliveries.

* A congressional directive that forgave service members' debts, up to $2,500, incurred during the Persian Gulf war, resulted mainly in the wrong soldiers' being forgiven the wrong debts, including debts run up by fraud and misrepresentation.

* Overpayment of $1.4 billion to contractors in the first nine months of 1993. A GAO report released yesterday revealed that, in most cases, the overpayment was discovered by the contractor, not by the Pentagon. "When the government must rely on contractors rather than its own controls to detect and recover overpayment, the risk of loss is unacceptably high," said Mr. Bowsher, the U.S. comptroller general.

* A computer system so lax that it is possible to create new pay records and destroy old ones without leaving an audit trail, allowing the "ghost" soldiers to be created. "I would note, with some incredulity, that one of these ghosts had a rather good career in the Army," Mr. Glenn said. "He was deployed to Southwest Asia and promoted six ranks to sergeant first class."

Derek Vander Schaaf, acting Pentagon inspector general, gave these assessments of Pentagon performance on four accounting standards:

* Keeping obligations and costs within the law: a marginal pass.

* Safeguarding against waste, loss and unauthorized use of funds, property and other assets: unlikely to pass.

* Keeping proper accounting records of income and outlays: 100 percent chance of failure.

* Conforming to comptroller general accounting principles and stands: failure.

Mr. Glenn suggested that the Pentagon should be exempt from civil service employment rules to enable it to get rid of officials responsible for the mismatch between payments and receipts, and the other management failures.

"I don't want to scare everybody in the civil service half to death," Mr. Glenn said. But he noted that private companies can "move people, fire them." He added: "You can't do that in the government employment. . . . I think we have to take drastic action. We're talking $41 billion of taxpayer money here. That's a crisis."

Other senators joined Mr. Glenn in a bipartisan call for civil service accountability.

Sen. Charles E. Grassley, an Iowa Republican, said: "Responsible officials must now be held accountable and disciplined for what has happened."

Mr. Hamre, the Pentagon comptroller, told the panel: "I've heard lots of people say, 'Nobody is taking responsibility.' I am responsible. The problems we have in the department are my problems."

When he arrived at the Pentagon last year, Mr. Hamre said, he found 161 accounting systems and 66 finance systems. It was common, he said, for the Pentagon to write checks on 23 overdrawn accounts.

"We are not going to write checks now on accounts that are in the red," he said. "Sounds kind of dumb, doesn't it, but that's something to be proud of."

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