Defense Department audit is overdue

OPINION:

At the beginning December 2017, the comptroller of the Department of Defense (DoD) David Norquist announced that DoD would conduct its first ever audit. According to Mr. Norquist, “It is important that the Congress and the American people have confidence in DoD’s management of every taxpayer dollar.” Given that President Trump subsequently signed the 2018 National Defense Authorization Act — authorizing nearly $700 billion for DoD and that the Pentagon has an estimated $2.4 trillion in assets — an audit is long overdue.

The requirement for U.S. government agencies to present financial statements was established in the 1990s, but for more than two decades, the DoD has been unable — some would way unwilling — to comply. However, conducting an audit is important for several reasons.

To begin, the Department of Defense comprises more than half of U.S. government discretionary spending — $1.2 trillion for fiscal year 2018. If we want to hold the government accountable for fiscal responsibility, we can’t possibly do that if more than half of what it spends isn’t audited to provide financial transparency. Indeed, the Government Accountability Office (GAO) stated in a January 2017 report that one of the major impediments to its ability to render an opinion on the federal government’s financial statements was “serious financial management problems at the Department of Defense (DoD) that have prevented its financial statements from being auditable.”

Moreover, despite having the lion’s share of discretionary spending, DoD has consistently insisted that it needs more money. Since 9/11, the defense budget has more than doubled — from $316 billion in fiscal year 2001 to $700 billion for fiscal year 2018. But if we don’t know how DoD has spent the hundreds of billions of dollars given to it annually, how can we know whether increased spending is warranted?

Understanding how the Pentagon spends its money goes well beyond the procurement scandals of the 1980s, when the Grace Commission discovered that DoD spent $435 for a hammer and $600 for a toilet seat. While we should certainly be concerned about such spending, there are much bigger fish to fry. For example, the F-35 fighter jet that is now the most world’s most expensive weapon system with an estimated total program cost of $406.5 billion. It’s too late to do anything about sunk costs already spent on that program, but an audit would help us make sound decisions about future spending.

Moreover, the DoD owes the American taxpayer an audit after deciding to ignore its own internal study that identified $125 billion in business operations that could be saved over five years. The study revealed that DoD was spending about a quarter of its budget on overhead and core business operations such as accounting, human resources, logistics and property management. The need for an audit is underscored by the fact that the Pentagon didn’t know what it was paying for those operations. McKinsey & Company — the consulting firm hired to conduct the study — guessed the cost was anywhere between $75 and $100 billion a year, but wrote in a memo: “No one REALLY knows.”

Some are arguing that the DoD can’t afford an audit. Yet, to believe that what amounts to the world’s largest corporate enterprise can’t afford an audit is nonsense. According to DoD Comptroller Norquist, any army of some 1,200 auditors will cost about $870 million. That amounts to a little more than one-tenth of a percent of the total DoD budget for fiscal year 2018.

Given that McKinsey & Company found $125 billion in potential savings, one has to believe that an independent audit will also find cost savings in the billions of dollars. With a $700 billion budget and $2.4 trillion in assets, we can’t afford not to have the Pentagon audited.

• Charles V. Pena, a senior fellow with Defense Priorities, is the former director of Defense Policy Studies at the Cato Institute and author of “Winning the Un-War: A New Strategy for the War on Terrorism” (Potomac Books).