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MSU professor shines spotlight on Pentagon’s massive accounting irregularities

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The Pentagon has dodged submitting its audit for its yearly budget since 1990, when Congress passed "The Chief Financial Officers Act."


Last week, David Lindorff published a piece for The Nation titled “The Pentagon's Massive Accounting Fraud Exposed: How US military spending keeps rising even as the Pentagon flunks audit." The research by Mark Skidmore, an economics professor at Michigan State University, on the Pentagon's budget irregularities formed the basis for the article.

Today, Lindorff and Skidmore joined Stateside to discuss the controversy surrounding the Pentagon. In this web exclusive, we give an extended interview with more details on how both men became involved with the controversy.

In 1990, Congress passed a law called “The Chief Financial Officers Act,” also known as the “CFO Act.” The law mandated that all federal entities that receive a budget must submit audits every year.  Gradually, all federal agencies became compliant with the order, except for one: the Pentagon. As Lindorff explains, the Pentagon is the largest single line item in the federal budget when it comes to discretionary funding with 54% of tax dollars alone going to the agency. The Pentagon was supposed to be in compliance with the CFO Act as of 1996, but, until this year, has failed to comply. 

This year, Congress took matters into their own hands, allocating $900 million to hire outside auditors led by EY to complete the audit. “1,200 auditors went through Pentagon books for a year and they came up with nothing. The only things they were able to audit well—and this is significant—is the retirement plan and the payroll,” says Lindorff. 

Skidmore, who has a background in public budgeting and public finance, came to start researching the Pentagon’s budget when he heard about a larger discrepancy in the federal government’s budget during an interview he was listening to. Skidmore heard a reference to a report on the Office of Inspector General’s website that for the 2015 fiscal year, the Army had an authorized spending budget of $122 billion but that the OIG was also reporting $6.5 trillion in unsupported adjustments for the agency. Skidmore explains that unsupported adjustments are transactions the government officials say they can’t verify. 

Skidmore didn’t understand how the spending could be trillions of dollars over the authorized budget and yet not specified. After finding the report himself, he began conducting his own research on the matter, and found that the U.S. government’s records indicate $21 trillion in transactions that cannot be verified. 

This research captured Lindorff’s attention when it was released in 2016. “I read it and I thought ‘Jeez how come I’m not reading about it in the Times? And the Post? And seeing it on CBS? That’s a huge number and it doesn’t make any sense. I wasn’t even looking at the Army part, I was looking at the Pentagon budget that was about $500 billion and then they had this $6.5 trillion figure in the budget.” Frustrated that the mainstream press wasn’t looking into the matter, he wrote an article himself called “Pentagon Money Pit.”

When Lindroff learned that between 1998-2015 there were various OIG reports in which different aspects of the Pentagon’s budget had “plugs” in their budget where the numbers didn’t have entries to explain them, Lindorff continued trying to figure out what these numbers meant. When Lindorff interviewed key figure Mark Armstrong, who for six years served as Supervising Director of Audits for the OIG—the internal auditor for the Pentagon—he told Lindorff the numbers the Pentagon submits to Congress are garbage. 

Skidmore wants more data before determining what these numbers mean and isn't convinced they are "plugs." “I'm not an insider. What I’m trying to do as a researcher is look at these and try and ask reasonable questions that we all should have answers to," he adds.  

Stateside reached out to Michigan's Senators for comment. The statement from Senator Gary Peters, a Ranking Member of the Federal Spending Oversight Subcommittee and a member of the Armed Services Committee, reads, in part: “It is vital that we ensure American’s servicemen and women have the resources to execute their mission safely and effectively. However, I remain very concerned with how the Department of Defense has struggled to keep track of funds, and the military must put in place a modern and efficient accounting system." 
Michigan's other Senator, Debbie Stabenow, who sits on the Senate Budget Committee, did not respond to our requests.  
Listen to the full interview above to hear more on the Pentagon officials' reaction to failing the audit, next steps, and a recent push to allow departments with secret budgets to be even more secretive.

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