The Pentagon's $1 Trillion Problem

The Defense Department has spent billions to fix its antiquated financial systems. So why does the Pentagon still have no idea where its money goes?

Since 2004, the Pentagon has spent roughly $16 billion annually to maintain and modernize the military's business systems, but most are as unreliable as ever—even as the surge in defense spending is creating more room for error. The problem is so deeply rooted that, 18 years after Congress required major federal agencies to be audited, the Pentagon still can't be. (Read a chronology of efforts to modernize the military's financial systems.)

For the first three quarters of 2007, $1.1 trillion in Army accounting entries hadn't been properly reviewed and substantiated, according to the Department of Defense's inspector general. In 2006, $258.2 billion of recorded withdrawals and payments from the Army's main account were unsupported. It's as if the Army had submitted multibillion-dollar expense reports without any receipts.

Preoccupied with protecting their turf, the Army, Navy, Air Force, and Marines continue to maintain separate, increasingly outdated systems that can't talk to each other, trace disbursements, or detect overbilling by contractors.

According to David Walker, who recently left his post as head of the Government Accountability Office, the failure of the Pentagon's outdated and incompatible systems to keep tabs on expenditures—even as the wars in Iraq and Afghanistan eat up an ever-bigger chunk of the federal budget—puts several Defense Department agencies high on the G.A.O.'s list of federal programs that are mismanaged and prone to fraud, waste, and abuse.

[Excerpt of an article by Scot Paltrow, Portfolio.com]