Pentagon boasts clean audits, but system of accountability is suspect

Nov 26, 2013 By James Rosen and Marisa Taylor, McClatchy Washington Burea

WASHINGTON -- The Pentagon's central payroll and accounting office, which pays out tens of billions of dollars a year to U.S. service members and defense contractors worldwide, likes to boast of a decade worth of clean audits by outside firms hired to check its books.

The Defense Finance and Accounting Service was created in 1991 by Dick Cheney, then the secretary of defense, to help the government's biggest agency get on top of its spending after President Ronald Reagan had overseen a massive military buildup the previous decade to counter the Soviet Union. Cheney also sought to prevent repeats of the $435 hammers, $37 screws and other embarrassing disclosures of excessive spending.

But more than two decades later -- after another big military buildup, this time in response to the Sept. 11, 2001, terror attacks -- a McClatchy investigation has found troubling signs that the system set up to strengthen accountability for Pentagon spending is broken.

Among the signs of dysfunction, according to interviews with key players, internal emails, memos and other documents obtained by McClatchy, are:

- Outside audits by a certified public accounting firm of the Defense Finance and Accounting Service's books turned out to be shoddy, according to the Pentagon's own accountants, although that same CPA firm had endorsed the agency's previous fiscal records for years.

- In reaction to the skeptical evaluations, Pentagon officials pressured their accountants to suppress their findings, then backdated documents in what appears to have been an effort to conceal the critiques.

- The Defense Department's Office of the Inspector General, which was brought in to watchdog the audit, not only helped squelch the critical work but also allowed the outside firm to be paid despite the serious questions about the quality of its work.

"The unchecked and wasteful spending at the Pentagon has been well-documented, starting when I uncovered $700 toilet seats," said Sen. Chuck Grassley, an Iowa Republican who has chronicled profligate Pentagon spending for years. "Attempts to steer the ship in the right direction is a massive undertaking that can only be done with a competent inspector general willing to be a junkyard dog and not afraid to knock some heads."

Grassley said the Defense Finance and Accounting Service and the inspector general's office both failed in their roles. The senator is about to release a report that supports McClatchy's findings.

"The outside audit firm rubber-stamped DFAS' practices using defective audit methods," a draft of Grassley's report concludes. "For its part, the (inspector general) was prepared to call foul on (the accounting firm) for substandard work but was somehow steamrolled by DFAS. The IG failed to do its job."

The problems at the Pentagon's central accounting office suggest one reason why a long list of presidents, lawmakers and defense secretaries have failed to curb Pentagon excess or even establish a straightforward record of Pentagon spending.

The matter has prompted a probe of more recent Pentagon ledgers by the Government Accountability Office, the investigative arm of Congress.

Bridget Serchak, a Pentagon inspector general spokeswoman, would only say that her office never issued the review in question. She declined to comment on the questions raised by McClatchy.

The Defense Finance and Accounting Service, which has 13,000 employees in 10 offices around the globe, is an arm of the Pentagon comptroller, Robert Hale.

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