THE BLOG
12/13/2008 05:12 am ET Updated May 25, 2011

Unauditable

President-elect Obama has a very full plate of problems and there is increasing pressure for him to find ways to pay for them. It seems like every group has their hand out claiming that they need more money in these bad economic times. As messy as these problems are, there is no bigger mess than the Department of Defense. Yet last month the DOD said that they will need $450 billion more over a five year period than they thought.

My question to the DOD is: "How do they know?" How can they say that they need more when they don't know what they have and where it is going? Both the Government Accountability Office and the DOD Inspector General (IG) have been telling the DOD for years that they are "unauditable." It is a funny sounding word and it is almost unimaginable that the largest military organization in the world (the DOD budget is larger than all the other military budgets in the world combined), does not have a handle on where its money is going and what we are receiving for the money.

Having investigated the DOD for almost 30 years, I can tell you that it has increasingly been getting worse. Every so often there is a blue ribbon panel or a "business enterprise" effort in and out of the DOD that studies it and proclaims a new effort to start trying to make the various financial accounting systems in the DOD and each of the services to talk to each other. These efforts are doomed to failure by powerful defense contractor lobbyists, careerists in the DOD, and their fellow travelers in the Congress... the old military industrial complex and now the new war service industry that has popped up to service our wars replacing many troop tasks because of the lack of troops.

I remember my shock when I first heard the word "unauditable." About a decade ago, one of my sources called the DOD hotline to report major fraud in DOD accounting. After many delays and vague letters from the DOD IG, he finally received a letter saying that they could not investigate his fraud because the DOD was unauditable. That, unfortunately, was not the only time I have seen this excuse.

When I try to explain DOD contracting and accounting to people for the past thirty years, many people strain to understand how this problem has gone on so long without solutions. I have to make the listener understand that most of the groups in the DOD benefit from this financial chaos. The more chaotic the finances, the harder it is to prove weapons overruns, a big and attention getting story from the 1960's to the 1980's with recent renewed interest. Officials and the generals in the DOD can obfuscate the extent of the fraud and waste. Without clear knowledge or documentation of overruns, members of Congress can tout bringing contractor and subcontractor money to their districts or states for jobs and prestige.

Without clear paper or electronic trails to where the money is going in DOD contracts, it makes it much harder for the DOD investigative agencies and the Department of Justice to file fraud cases against contractors. I have worked for twenty years with whistleblowers who have filed qui tam False Claims act cases, fraud cases that are filed on behalf of the Federal government to reclaim illegally spent money back to the government. As the financial chaos has deepened in the DOD, it is becoming harder and harder to prove cases because the accounting is so abysmal. How can you prove fraud in a legal setting if the paper trail is chaos or non existent? This is especially true with Iraq war contractors and it is rumored that there are fifty or more Iraq contract qui tam False Claims cases held up in the Justice Department under investigation to see if the government wants to take the cases.

Many of these fraud cases rely on the investigation of the Defense Contract Audit Agency (DCAA). This beleaguered agency was gutted in the 1990's during the streamlining the government effort. (What better way to streamline the money flow in the DOD than to decimate the pesky auditors and investigators that slow up the money with embarrassing questions?) Recently, there was an Associated Press article that explored how the DCAA has been going easy on contractors. Having spoken to auditors deep in this agency for years, it is not surprising because aggressive and innovative auditors are not rewarded; the career emphasis is on closing your audit as quickly as possible. If an auditor pushes hard on a contractor to get information, the contractor often complains to the DCAA management and pressures the agency to transfer the pesky auditor. There is no career reward for gaining money back for the government. There are many more problems with this unauditable agency that are too numerous to discuss in this blog but are crippling our defense efforts. The main losers are the troops.

So what can President-elect Obama do with this mess that no one has been able to conquer? With chaos is also opportunity. One of his closest congressional allies, Senator Claire McCaskill, has taken on this problem with DOD accounting with vigor. She told me that if she can change just part of this accounting problem, she could save billions of dollars and really have accomplished something important. She should urge President-elect Obama should go bold and appoint a point person in the DOD who is as tough as Rahm Emanuel with a secretary of defense to back him or her up. Someone needs to buck up the audit and investigative arms of the DOD and who is willing to say no to the entrenched powers. I will be writing more blogs on this in the next few weeks, trying to tackle the various problems in the DOD for more details. I hope that the system can change. Even though I have been involved with qui tam False Claims cases that have returned over $100 million to the U.S. Treasury, I know that we often are getting ten cents on the dollar or less. Fixing the problem before we pay the contractors is much more effective and can save billions of dollars, something the US is very short of these days. It is a daunting challenge but if Obama and McCaskill are bold and can make this giant department auditable again, they will have done a great service to the country, the DOD, and especially the troops. It would be a giant step to the smart government that Obama has promised to the American people.