[Congressional Record Volume 141, Number 53 (Wednesday, March 22, 1995)]
[Senate]
[Pages S4312-S4313]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                  INTEGRITY OF DEFENSE BUDGET NUMBERS

  Mr. GRASSLEY. Mr. President, I want to resume my discussion of the 
accuracy of defense budget numbers. I have been speaking on the subject 
of the Defense Department and the issue of our appropriations for the 
succeeding fiscal years so far this week on two other occasions. I will 
have two other speeches to make on this subject.
  Yesterday, I started discussing the mismatches in the DOD's budget 
and its accounting books. I want to pick up where I left off yesterday. 
I want to tick off some of the most glaring disconnects and mismatches 
that we have in the accounting books.
  First, the General Accounting Office says that our Defense Department 
has at least $33 billion of problem disbursements. That is the latest 
figure, $33 billion. Just June 30, last year, the Defense Department 
quantified this problem that they call problem disbursements to be only 
$25 billion. We have an $8 billion increase in that figure called 
problem disbursements.
  Every time I check, the estimate seems to be higher. It just keeps 
climbing. Now it is $33 billion. A person might ask, what is a problem 
disbursement? That is their language. It is primarily a disbursement 
that cannot be matched with an obligation.
  Secretary Perry has $33 billion in unmatched disbursements. He thus 
has $33 billion in costs that cannot be tracked. I cannot say that we 
say that that is spent illegally. It is just that we have not matched 
it up at this point.
  But that is a major problem when you consider the fact that there are 
people in this Congress who want to increase defense expenditures by 
$55 billion or more over the next 5 years.
  Secretary Perry knows that the $33 billion was spent, but he does not 
know how the $33 billion was spent. He does not know what it bought. 
All he knows for sure is that the $33 billion went out the door.
  Some of it could have been stolen, and I can show you a couple cases 
of real fraud in a moment.
  We are never really going to know how the money was used until all 
the matches are made. If we cannot make hookups on the $33 billion, 
then what does that say about the other outlay numbers in the budget? 
Are they hooked up to the right accounts?
  There is a second major disconnect in the accounting books. This is 
the one between the check writers and the accountants who are supposed 
to make sure that the work, services, or product was performed and 
goods or services delivered before payment is made.
   [[Page S4313]] A recent spot-check audit by the General Accounting 
Office produced some very disturbing results: $1.4 billion of 
overpayments. Contractors, in some instances, voluntarily returned 
money. It was not earned. It was not due. But we tried to pay it. And 
they wanted to return it.
  The result of a new General Accounting Office audit is just as bad: 
$820 million in erroneous payments to the top 100 contractors. How many 
other faulty payments remain undetected or unreturned? I do not think 
anybody knows. Even the news media and a Pentagon official spoke about 
it, in reaction to my comments yesterday. People high up say, yes, they 
know they have major problems.
  The Pentagon check-writing machine is stuck on full power. It is on 
automatic pilot, and the accounting department has gone on a long 
vacation. In some cases, the Defense Department tells the contractors, 
``Don't worry, just hold on to the overpayment until your contracts are 
reconciled.''
  That brings me then to the third big financial disconnect at the 
Pentagon.
  Reconciliation is a detailed examination of contracts with known or 
suspected problems and is a primary tool of detecting duplicate, 
erroneous, or illegal payments. Unreconciled contracts--that is another 
bottomless accounting pit.
  The problem has been identified by both the GAO and the DOD inspector 
general. One of the Pentagon's main contract paying operations, the 
center in Columbus, OH, has 13,600 unreconciled contracts, including 
2,707 contracts that are overdisbursed by $1.2 billion.
  The checking account on those 2,707 contracts is overdrawn by $1.2 
billion then. Since the records are in such bad shape, the DOD IG and 
the GAO think it will take 5 million to 10 million man-hours to 
reconcile these contracts. At $58 an hour charged by a firm like 
Coopers & Lybrand, it could cost $550 million to make all the fiscal 
connections and to clean up the accounting mess. And that is the 
cleanup cost for just one location, Columbus, OH. And there are many 
others.
  At those rates, the total cost of the bookkeeping cleanup operation 
could approach the cost of the DOD's environmental cleanup operation.
  There is a fourth gaping hole in the accounting books. This one may 
even be worse. This one involves DBOF, which is short for the Defense 
Business Operations Fund.
  DBOF is a $77 billion-a-year operation. DBOF purchases everything 
from fuel to repair parts to toilet paper and light bulbs. Much of what 
is bought by DBOF is needed to train the Armed Forces and keep them 
ready for combat. Unfortunately, DBOF's books are a mess. DBOF's books 
are in such bad shape that the inspector general had to issue a 
disclaimer of opinion for the second year in a row.
  In the language of accountants, that means the IG could not audit 
DBOF's books. If you cannot audit the books, you do not know how much 
money is being spent. We know how much money is being pumped into DBOF, 
but we do not have any idea what is coming out the other end.
  The breakdown of controls within DBOF could help to explain why the 
Pentagon still cannot relate resources to readiness. DBOF should help 
us answer this question: If we add $1 billion to the budget to increase 
readiness, how much more readiness do we get? DBOF cannot answer that 
issue.
  The breakdown of fiscal connections within DBOF alone means that 
there are no controls or accountability over about 30 percent of the 
defense budget.
  Mr. President, I know that these are harsh judgments on the condition 
of the Department of Defense's books, but they are based on many years 
of watchdogging, plus the carefully documented work of the General 
Accounting Office and the DOD inspector general.
  We have a breakdown in the financial controls in four key areas of 
the defense budget. Unless this mess gets cleaned up, we will not know 
how DOD is spending the people's money. The breakdown of internal 
controls makes it easy to steal money from defense accounts. The 
implications of the defense accounting breakdown were brought home hard 
recently in two cases: The cases of a Mr. James Lugas and a Mr. James 
Edward McGill. Both men are in jail for stealing from the taxpayers. 
Both were able to tap into the DOD money pipe with ease and steal 
millions of dollars.
  They operated undetected for a number of years, and they were not 
detected because of internal audits or tight controls. They were caught 
by pure chance. They were caught because of their own outrageous 
behavior.
  One was a low level GS-8 accountant. He was literally living like a 
king. His neighbors thought he was dealing in drugs, so they turned him 
in.
  The other submitted 32 invoices for payment on a phantom ship that 
the Navy supposedly had. All he needed to set up shop and do business 
with the Navy were a rubber stamp, blank invoices, and a mailbox. And 
the checks just started rolling in. He never did any work. Nor did he 
ever perform any services.
  If the DOD was matching disbursements with obligations as they 
occurred, then Mr. Lugas and Mr. McGill would have been caught 
immediately. And that is what worries me, Mr. President. How many 
others like McGill and Lugas have tapped into the DOD money pipe 
undetected?
  This situation is a disgrace. It tells me we cannot meet our 
constitutional obligations to the taxpayers of our country to make sure 
their money is honestly and legally spent. We cannot give the taxpayers 
an accurate and complete report on how the Pentagon is spending their 
money.
  This is a serious breach of responsibility to the American people. 
That is over the long haul. But immediately, Mr. President, as we go 
into the budget process over the next 2 months, both Houses of Congress 
need to be cognizant of the unmatched disbursements, the stealing of 
money, before we put $55 billion more in the defense budget.
  How can you make that determination in good conscience if you do not 
have a good accounting system and know from where you are starting?
  So I end these remarks on the disconnect between the accounting and 
budget books.
  Tomorrow, I want to turn to the program budget mismatch, which is 
also a major problem.
  I yield the floor.

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