Thursday, August 25, 2016

Hole in my pocket

One thing that kinda drives me nuts about my Fellow Americans is the ridiculous luuuurve they have for the U.S. Army (and the other uniformed services) that lives only inside their heads.

This isn't the actual Army, the one with the dudes and gals and hosers, the studs and the spuds, the hard workers and goldbricks, the one that can cut you like a knife and then fall over its own feet like a sack of sawdust. You know...the one that is a bunch of Americans wearing the same colored clothes with all the same virtues and all the same vices you see and hear about on the evening news.

This is some sort of shiny, perfect Army populated by heroes and supermen, driving dinosaur-powered tanks that shoot laser beams from their eyes and have the sorts of powers found typically in comic books. This Army is composed of A-students who were the #1 in their Bible Study class and can deadlift 300 pounds while putting all thirty rounds into a two-inch square 300 meters away on full automatic.

I've never once seen this Army, and I kinda wish I could just to see what it'd be like.

I suspect I'd feel completely inadequate.

Anyway, the real Army managed to lose 6.5 trillion back in FY15.

Not steal. Not spend. Not waste. Just...lose. As in "...the fuck? It was...I know I had it. Where...let me look under the desk. Goddamn it..."

The Inspector General's report lays it out pretty clearly; the Army just flat-out has no idea where this jack is, or what it did with it. It wasn't criminal, it probably got put to some sort of use, possibly good use...but nobody knows. The accounting at DFAS and the associated Army financial agencies was bad enough that if a private company had done it that badly it'd have gotten its nuts thoroughly rapped by the IRS.

The IG concludes that due to a waterfall of errors and fuckups:
"As a result, the data used to prepare the FY2015 AGF third quarter and yearend financial statements were unreliable and lacked an adequate audit trail. Furthermore, DoD and Army managers could not rely on the data in their accounting systems when making management and resource decisions. Until the Army and DFAS Indianapolis correct these control deficiencies, there is considerable risk that AGF financial statements will be materially misstated and the Army will not achieve audit readiness by the congressionally mandated deadline of September 30, 2017."
The really frustrating part of all this is that you'd think, with 6.5 trillion just kind of lost somewhere the Army could have slipped a hardworking old platoon sergeant a couple of casual hundred thou. on the downlow. Y'know? Kind of a "thank you for your service" kinda thing..?

But, noooooo.


  1. One needs to be careful here. Auditors *love* audit trails. However, audit trails are expensive and get funded out of operational funds. When the auditor says stuff like "not adequately documented or supported" it translates into a demand to hire more accountants and bookkeepers.

  2. Apparently this was 1) an IG audit, not conducted by a private firm, so no chance of sleazing extra funding, and 2) a prep for the 9/2017 Congressional audit, so just a warning shot. And the bottom line (if you read the report) was that "not adequately documented" is an understatement. A whole bunch of these portfolios had NO documentation. At all. Just an empty folder with a price tag. This looks like a genuine shitshow...

  3. Back many decades ago as a young NCO I pursued a college degree through the University of Maryland overseas campuses and/or mail order extensions courses (there was no online dot-edu back then).

    One course I remember on Okinawa was Accounting 101 taught in the evening by an Air Force Major. He was the base Comptroller at Kadena Air Base and was a CPA with a PhD in Financial Management. According to him, all of the officers working for him and the senior NCOs were also CPAs. It was mandatory. I never heard of such a requirement for any of the other services. I don't know how the Army controls $$$$. As I recall the comptroller at USMC bases and units where I served at was a secondary or tertiary duty, I believe by a Junior Officer in the S-4 or G-4. Or perhaps by the S-5 or G-5 in special cases.

    That major was a great teacher too. He stressed accuracy in accounting, and the importance of always being ready for an audit regardless of circumstance. He also emphasized the importance of reliable back-up systems. He regaled us with a story regarding the disposition of funds when nearing the End-of-Fiscal-Year: Air Force Bases and Commands around the world would shift unspent funds to a base in the next time zone as their own deadline was drawing near; if that base could not use it then it was sent to the next time zone; and so on until it was all either spent or time finally ran out. Now the nut of that story was NOT 'bamboozling DOD and Congress'; basically what he was telling us was that the AF financial system had the efficiency and precision to pull it off.

  4. In the Canadian government, the Auditor General's office has grown massively in the last few decades. In the past, much government spending happened via decisions of local officials in charge of whatever branch of the byzantine bureaucracy they occupied. Spending was done as a judgement call and was controlled via management budgeting and supervision mechanisms.

    Auditors, when summoned, pointed out that there is no paper trail justifying each decision and that traditional controls were more at the gross sum level. There was little or no documented reasoning over any particular expense. The auditors would be careful to say that they did not know if the expense was unreasonable, just that given the documentation they had, there was no way to tell.

    Given that auditors are not typically technical experts in whatever branch of the government they are auditing, even if they had documentation, they would not be able to tell if it was reasonable (they would have to hire external subject matter experts to do that).
    Still, no documentation meant no idea if it was a good expense.

    In this drive for an audit trail, they typically push process based decision making rather than technically correct decision making. (cause that is what they can do).

    Accordingly, the Canadian government now spends a lot of time and money turning over the the decision making machine. It is, at best, unclear that the *quality* of decision making has improved given its measurably greater costs.

  5. I suppose they love the pride and the feeling of superiority, not the military.
    And those trillions of dollars weren't lost, but rather unaccounted - literally.

    It's been known for years that the Pentagon is inauditable, due to worse accounting than Enron. This looks like they swept away the old sins by kinda writing them off, in order to get at least the future accounting auditable.

  6. "Along with the Pentagon, the GAO cited the Department of Homeland Security as having problems so significant that it was impossible for investigators to audit it."
    from 2013:

  7. US dollar is the world currency. U.S. Treasury Department print dollars and Federal Reserves Banks distribute them.

    Did that money really exist in the first place?
    Isn’t the magic of banking in creating money out of thin air (and disappear like thin air), like Aladdin’s shapeshifting Jinn?
    Disney’s Aladdin is a story for children.
    ‘Official reports’ are stories for adults, authoritative records that make reports the official version. ‘Official version’ does not necessarily mean ‘true version’ otherwise it would loose its magic.
    Since no auditing is possible, any hypothesis is valid, even the most grotesque one that no one would ever dare to believe, except the magician who performed it.

    1. Nonsense. The USD is merely a widely accepted currency for foreign trade and for foreign currency reserves.

    2. I've seen some imaginative conspiracy theories before, but "imaginary money" is a new one...

    3. Well, anonymous is correct. The US dollar is made from pure imagination. It is purely a collective hallucination. Anonymous is further correct that the American government obtains considerable value by exporting dollars (albeit constructed by pixie dust) and importing actual material stuff. The American economy escapes the economic downside of over-inflating the supply of money because, at least to date, relatively little of the exported dollars finds it was back into the American economy.

      However, I disagree with anonymous that no auditing is possible.

    4. No, it's not imaginary and it's not a hallucination.
      Money has the power to motivate because there is a cultural acceptance for the idea to pay with a universal exchange good instead of with natural goods.

      Goldbuggers and others who talk incessantly about "fiat money" close their eyes to the fact that this acceptance is almost perfectly universal in the world in order to feel as if they know something others don't know - and then feel smarter. It's quite the same as conspiracy theorising; it makes people feel good about being smarter without needing to have the intelligence or the diligence (learning & research) to actually become smarter.

      Anonymous above avoided the usual tell-tale vocabulary of goldbuggers and conspiracy theorists, but the direction is easily recognisable.

      And Ael, printing money to pay for imports is economically equivalent to lending foreign money to pay imports. In the end, the foreigners end up with a claim to your future output - be it your money stored in their account (or vaults) or the credit contract that entitles them to get your money later.

      Money supply can be changed quickly to cope with a return of domestic money from foreign hands. That reflux would simply substitute for liquidity supply from the central bank.

    5. You say "cultural acceptance", I say "collective hallucination". If "cultural acceptance" is real, how many grams does it weigh?

      And yes, you are correct, giving away dollars in exchange for goods is technically a loan. However, the US government expects that the loan won't ever be repaid (and if it was to be repaid, would be paid back in dollars anyway -yes, it is that circular).

      A loan that won't ever be repaid is pretty much the same thing as a gift. Good times, while they last.

  8. Chief,
    I'm sure that all of us remember reports of survey.
    if we lost a compass we paid for it.
    maybe somebody lost an entire nation.
    jim hruska

    1. After I got off active service, jim, I got a registered letter from DoD informing me I had been assessed some thousand dollars for a pair of NVGs some joker burned in on a jump in Panama. I was one of the in-flight safeties and, since it was an in-flight rig, was responsible for JMPIing the guy.

      I fired back a letter requesting proof that the jumper hadn't 1) screwed w his lowering line after JMPI, or 2) made a mistake preparing to land. We went back and forth for a couple of years until...invasion!

      Suddenly after 1989 the statement of charges disappeared. My guess is that some enterprising S-4 turned a whole BUNCH of unrecoverable charges into "combat losses"...

  9. The Army accounting system has ways to clearly document the transfer of funds between some accounts, and lacks ways of clearly documenting transferring funds between other accounts. The difference being whether or not such transfers are anticipated. However, the latter types of transfers still take place.

    Further, in order to make a disbursement, the funds must be "obligated" at the time the decision to spend is made. The "obligation" earmarks the funds for the planned disbursement, and available funds in the account are reduced by the obligation until the disbursement is made, and the account is then only charged for what is actually spent. For a simple example, when a TDY travel order is cut, the issuing office obligates the estimated travel expense. That obligation remains on the books until the individual submits a Travel Expense Voucher to recoup the actual cost of the travel. Then the books are adjusted to reflect the actual cost of travel, and any unexpended obligated funds are released back into the account, or additional expense charged to the account. What mike described above was the year end dance to clear all unexpended obligations to get the remaining funds to execute. Don't want to leave any money on the table when the fiscal year budget expires.

    Now, if funds are obligated across budget accounts, the accounting can get tricky. The command responsible for the account does not have line authority for the individual or office executing the funds. Thus, documentation of the actual expenditure may not be turned in to the obligating authority, just confirmation of the funds being executed via computer. Instant loss of audit trail. A similar disconnect can occur with transferred budgeted funds, based on what mechanism is used to make the transfer.

    In the end, the books "balance", but tying the actual disbursements back to the books becomes a nightmare. The Army can "prove" the money was spent legitimately, but lacks a clear paper trail as to exactly where the money originated.

    There are a variety of means to ensure certain categories of funds are only spent as originally intended. For example, uniformed personnel pay and allowances funds (PA) are "fenced", which means money cannot be transferred into nor out of those accounts, but only spent on pay and allowances. This galled Rummy no end, as nothing would have made him happier than to raid the services PA accounts to buy neat stuff. Just miss end strength authorizations and have money to spare. The execution of obligated funds can, for many categories, be carried into the next fiscal year, making it an even wilder nut roll.

    1. That is mind boggling! Based on my own work experience at such a low level as to be practically invisible, when "accounting" whether for finance, work process, or results is wildly complicated - there is a reason and that reason is rarely, if ever, beneficial to the system, institution, or end goals. On the other hand, I've often found that surrendering unspent funds led to frivolous expenditures to avoid losing the money and/or having the next budget decreased because there was unspent money in the existing of previous budget.

      Just as an aside, Aviator47, I always look forward to your posts for their objectivity and clarity.

      Jay in N.C.

    2. US law prohibits obligating more funds than appropriated by Congress. The complicated Army accounting system is designed to prevent over obligations. When you consider that much spending authority is decentralized, an intricate system of checks and balances is necessary.

      How decentralized is the spending? Well just think of aircraft and vehicle refueling away from military installations. If the pilot or driver buys retail fuel, the price can vary significantly from the bulk contract price of fuel dispensed on post. The fuel budgets are typically based on primarily on-post fuel, with a factor for retail fuel. How much retail fuel is necessary can vary, based on mission profiles, etc. Sometimes it is more economical to fly a longer route to take advantage of government contract fuel to minimize cost. All receipts, whether government or retail need to be turned in to the cognizant accounting office to avoid over obligation, should retail purchases exceed the estimated level. The receipts are then obligated until the actual invoice is received and a disbursement is made.

  10. Me too, Al. Am hoping you can and will post more often.