WASHINGTON -- The Pentagon is facing an accounting gap, with discrepancies on its books totaling $28.8 billion, its top financial officer told Congress yesterday.
The problem includes a $13 billion imbalance between checks the Pentagon has written over the past 10 years and the vouchers it can produce to account for those payments. The other $15 billion is from a variety of bookkeeping shortcomings.
Pentagon comptroller John Hamre said $1 billion worth of "problem" disbursements were being made monthly without being properly matched to invoices.
"We got into this sad state of affairs because we designed a system where you pay now and account later," he told the Senate Armed Services subcommittee on readiness. "It isn't that we have wicked people trying to screw up, it's that we have a system that's so error-prone that good people working hard are going to make mistakes."
The Pentagon's finances are in such bad shape that Sen. Carl Levin, a Michigan Democrat, said the Defense Department may need the sort of financial control board imposed on the District of Columbia.
"This is totally unacceptable. There is a lot of money here which is going through the sieve," said Mr. Levin, adding that voters experienced "frustration, disappointment, indeed, anger" over reports of continuing Pentagon waste, fraud and abuse, particularly at a time when Congress was ordering major spending cuts in other programs.
Mr. Hamre, in an effort to explain the accounting difficulties, said the Pentagon each month processes 2.5 million invoices, spends $9.2 billion and issues 10 million paychecks.
"So that's 10 million times to get things screwed up," he said.
His own pay, he said, had been miscalculated six times in the 18 months he has spent in the department, adding: "And it's really bad when you screw up your boss' pay. And I've done that a couple of times."
Mr. Hamre's boss, Defense Secretary William J. Perry, has made financial reform a priority in an effort to save money, which can be spent on improving the combat readiness of the armed forces.
The Perry plan calls for reducing the 250 accounting systems the Pentagon operates, halving of the financial staff of 46,000 to 23,000 in five years, and consolidating 300 accounting offices nationwide into 25 financial centers.
To phase out the practice of paying first and accounting for the payment later, beginning July 1 any Pentagon payment of more than $5 million will have to be checked against an invoice, said Mr. Hamre. After October 1, the new rule will apply to payments of more than $1 million. Eventually it will apply to all payments.
The military pay systems for uniformed personnel has been reduced from 18 in 1991 to six today, and will be down to two in 1997. Civilian pay systems have been reduced from 18 to 10. By 1998 there will be a single civilian pay system.
Mr. Hamre said the Defense Department was also screening its retirement rolls after 1,000 military pension recipients in the Philippines failed to turn up at the U.S. Embassy to confirm their status. They were then struck from the rolls.
The Senate panel heard that in fiscal 1994 the Pentagon was accountable for more than $1 trillion in assets, 3 million military and civilian personnel, and $272 billion in expenditures -- approximately equivalent to 50 percent of the federal government's discretionary spending.
"It's big bucks," said Sen. John Glenn, a leader in the decade-old campaign to reform the Defense Department's accounting systems. "If any of the civilian agencies on the chopping block had [the Pentagon's] record on financial management, they would probably be at the top of the hit list."
Charles A. Bowsher, U.S. comptroller general and the top federal financial watchdog, said the Perry blueprint for financial reform was "a good overall plan," but he added that only "modest progress" had been made in implementing it.
Asked about overpayments of an average $750 million yearly to defense contractors, Mr. Bowsher said that frequently it was the contractors themselves who revealed the overpayments to the Pentagon.
An accounting firm, hired by the General Accounting Office to check on 5,000 defense contracts since 1990, found $285 million in overpayments. To date the Pentagon has demanded repayment of $133 million, but has actually collected only $85 million, a GAO official said.
Mr. Bowsher also pointed to the "Byzantine" process of obtaining a military travel voucher, which involved 40 transactions costing the defense department 30 cents for every travel dollar. Administrative charges in the private travel sector were down to 1 cent for every dollar, he said.
