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[Congressional Record Volume 141, Number 80 (Monday, May 15, 1995)]
[House]
[Pages H4925-H4926]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

            CRONYISM INVOLVED IN REPUBLICAN BUDGET PROPOSAL

  (Ms. FURSE asked and was given permission to address the House for 1 
minute and to revise and extend her remarks and include extraneous 
material.)
  Ms. FURSE. Mr. Speaker, can this really be true? The 1996 budget 
before us cuts school lunches, makes Medicare more expensive, guts 
environmental protection, all in the name of balancing the budget, but 
the biggest item of all is not touched. In fact, it is increased. The 
millions of Americans who thought that the end of the cold war meant 
the end of huge Pentagon budgets will be sadly disappointed.
  For years, when thoughtful people said that the waste in the Pentagon 
was enormous, we were criticized for not being strong on defense. But, 
of course, we were right all along.
  An article in Sunday's Washington Post states, ``Each year the 
Department of Defense inadvertently pays contractors millions of 
dollars that it does not owe.''
  ``In addition,'' the article says, ``the department has spent $15 
billion''--and I repeat, $15 billion--``it cannot account for over the 
last decade.''
  Why are we cutting education, nutrition, health care, and 
environmental protection, but increasing Pentagon spending? Could it 
possibly be that defense contractors make huge contributions? But 
children, seniors, endangered species, they do not.
  This is not an issue of security. This is an issue of cronoyism.
  Mr. Speaker, the article referred to is as follows:

                [From the Washington Post, May 14, 1995]

Losing Control--Defense Department--Billions Go Astray, Often Without a 
                                 Trace

                            (By Dana Priest)

       Each year, the Defense Department inadvertently pays 
     contractors hundreds of millions of dollars that it does not 
     owe them, and much of the money is never returned.
       In addition, the department has spent $15 billion it cannot 
     account for over the past decade.
       And Pentagon purchasing agents appear to have overdrawn 
     government checking accounts by at least $7 billion in 
     payment for goods and services since the mid-1980s, with 
     little or no accountability.
       Unlike the infamous $7,600 coffee pot and $600 toilet seat 
     pricing scandals of years past, these problems, and many 
     more, are the result of poor recordkeeping and lax accounting 
     practices that for years have characterized the way the 
     Defense Department keeps track of the money--$260 billion 
     this year--that it receives from Congress.
       According to a series of investigations by the Department's 
     inspector general and the General Accounting Office, and 
     ongoing work by Pentagon Comptroller John J. Hamre, the 
     department's systems of paying contractors and employees are 
     so antiquated and error-prone that it sometimes is difficult 
     to tell whether a payment has been made, whether it is 
     correct, or even what it paid for.
       Just how much money does the poor accounting waste?
       Former deputy defense secretary and new CIA Director John 
     M. Deutch wouldn't hazard a guess. ``Lots,'' he scribbled 
     recently on a reporter's notebook in response to a question.
       For months after he took the job as chairman of the Joint 
     Chiefs of Staff in late 1993, Gen. John Shalikashvili 
     received paychecks for the wrong amount. In the last year and 
     a half, Comptroller Hamre counted six problems with his own 
     pay.
       A paper-based system in which items frequently are 
     misplaced or lost and computers that often cannot talk to 
     each other are part of the problem. But there are other major 
     systemic weaknesses. A lack of basic accounting procedures--
     such as matching invoices and payment records, or keeping 
     track of money spent on a given piece of equipment from one 
     year to the next--has made it impossible to determine how 
     billions of dollars have been spent by each of the service 
     branches.
       In addition, Hamre explained, tracking the money has been 
     nearly impossible because 300 different program directors--
     the Air Force F-16 fighter program director, the commanding 
     officer of an aircraft carrier, the head of a maintenance 
     depot, for example--have had separate checkbooks, each one 
     free to write checks without regard to the balance in the 
     Pentagon's central registry.
       The U.S. Treasury has always paid the bills, even when 
     there was no money in a given project's account, because it 
     assumes any error was unintentional and someday would be 
     corrected, said Pentagon officials and inspector general 
     investigators.
       ``There's this huge pot of money over there in the Treasury 
     that you can keep drawing down,'' said the Deputy Inspector 
     General Derek J. Vander Schaaf. ``As long as your [overall] 
     checkbook's good,'' he said, meaning the Treasury, ``nobody 
     screams.''
       The problems were created over several decades and made 
     worse during the 1980s Reagan administration defense buildup 
     during the latter days of the Cold War, when there was little 
     political will to scrutinize the record sums being spent.
       Today, however, even ardent defense hawks have become 
     disturbed over the mismanaged flow of funds. Some Republicans 
     who looked deeply into the matter are suggesting a freeze on 
     military spending until the Pentagon's corroded payment 
     system can be permanently fixed.
       ``The defense budget is in financial chaos,'' said Sen. 
     Charles E. Grassley (R-Iowa), who [[Page H4926]] is 
     advocating a freeze. ``The foundation of the defense budget 
     is built on sand.''
       A Senate Armed Services subcommitte is scheduled to hold a 
     hearing on the problems Tuesday. It will be chaired by Sen. 
     John Glenn (Ohio), a Democrat, who was authorized by 
     Republicans to conduct it because of his long-standing 
     interest in the subject.
       Among the problems detailed by the Defense Department, the 
     Pentagon inspector general and the GAO:
       Of the 36 Pentagon departments audited by the inspector 
     general (IG) in the last year, 28 used ``records in such 
     terrible condition'' as to make their annual financial 
     statements--an accounting of money collected and money 
     spent--utterly worthless, said Vander Schaaf.
       Financial officials cannot account for $14.7 billion in 
     ``unmatched disbursements,'' checks written for equipment and 
     services purchased by all military units within the last 
     decade. This means that accountants know only that a certain 
     amount of money was spent on the overall F-16 jet account, 
     for example, but not how much was spent on F-16 landing gear 
     or pilot manuals because they cannot find a purchase order 
     from the government to match the check.
       ``You don't know what you're really paying for,'' Vander 
     Schaaf said.
       The $14.7 billion represents ``hardcore problems'' where 
     department accountants have tried but failed to find the 
     records. ``We could be paying for something we don't need or 
     want,'' said Russell Rau, the IG's director of financial 
     management.
       In the last eight years, various military offices appear to 
     have ordered $7 billion worth of goods and services in excess 
     of the amount Congress has given to them to spend. These 
     ``negative unliquidated obligations'' may indicate that a 
     bill has been paid twice or mistakenly charged to the wrong 
     account because bookkeepers at hundreds of maintenance 
     depots, weapons program offices and military bases did not 
     keep track of payments they made, said Vander Schaaf.
       Of the $7 billion ``the government has no idea how much of 
     this balance is still owed,'' Rau said.
       Hamre has threatened to take part of the $7 billion out of 
     the military services' current operating budget if they 
     cannot find documentation for the expenditures by June 1.
       Every year the Defense Department pays private contractors 
     at least $500 million it does not owe them, according to 
     Vander Schaaf. The GAO believes the figure is closer to $750 
     million.
       The payment system is in such bad shape that the Pentagon 
     relies on contractors to catch erroneously calculated checks 
     and return them. Many of the overpayments are due to errors 
     made on a paper-based system in which haried clerks are 
     judged by how quickly they make payments. And because there 
     is no adequate way to track the amount of periodic payments 
     made on a contract, businesses often are paid twice for the 
     work they have done.
       Defense Department finance officials believe they are 
     recouping about 75 percent of the overpayments, although they 
     admit they have no way of knowing exactly how much is being 
     overpaid.
       Today, after an 18-month struggle by Hamre to turn the 
     situation around, the department still has 19 payroll systems 
     and 200 different contracting systems.
       Hamre, who wins praise from Republicans and Democrats for 
     his efforts, has undertaken a major consolidateion of payroll 
     and contracting offices. He has opened more than 100 
     investigations into whether individual program managers or 
     service agencies violated the law by using money appropriated 
     for one program for something else or for paying contracts 
     that exceeded their budget.
       He has frozen 23 major accounts and has stopped payment to 
     1,200 contractors whose records are particularly troublesome. 
     In July, clerks will be prohibited from making payments over 
     $5 million to any contractor ``unless a valid accounting 
     record'' of the contract can be found. By October, the amount 
     drops to $1 million, which means it will affect thousands 
     more contracts.
       According to Hamre and Rau, a number of cases are under 
     investigation for possible violations of the Anti-Deficeincy 
     Act, the law that governs how congressionally appropriated 
     money must be spent. Penalties range from disciplinary job 
     action to criminal prosecution. Investigators are trying to 
     determine:
       Why there is an unauthorized expenditure of around $1 
     billion on the Mark 50 torpedo, and the Standard and Phoenix 
     missiles. Hamre and Rau suspect that Navy officials used 
     money appropriated for other items or wrote checks on empty 
     accounts to pay contracts from 1988 and 1992.
       Whether Air Force officials used money from various weapons 
     programs to build a golf course at Wright-Patterson Air Force 
     Base in Ohio beginning in 1987.
       What happened when some programs ran out of money. ``There 
     are some [cases] in the Air Force now that really stink,'' 
     Hamre said. When money for the Advanced Cruise Missile ran 
     out, Air Force officials simply terminated the existing 
     contract and rewrote another, more expensive one the 
     following day, Pentagon investigators recently concluded. In 
     order to pay for cost overruns associated with the new C-17 
     cargo plane, contract officials simply reclassified $101 
     million in development costs as production costs.
       Hamre said the services allowed such money mingling to go 
     on partly because of the complexity of the yearly 
     congressional appropriations process. ``People want to find 
     an easier way to get the job done,'' he said. ``They are 
     trying to get some flexibility in a very cumbersome system.''
       But, he added, some services also have resisted correcting 
     problems and punishing wrongdoers. ``I'm very frustrated by 
     it,'' he said. ``In the past, they just waited until people 
     retired. It was the old boy network covering for people.''
       The Defense Department is unlike any government agency in 
     scope and size. It sends out $35 million an hour in checks 
     for military and civilian employees from its main financing 
     office in Columbus, Ohio. And it buys everything from 
     toothbrushes to nuclear submarines; about $380 billion flows 
     within the various military purchasing bureaucracies and out 
     to the private sector each year.
       It takes at least 100 paper transactions among dozens of 
     organizations to buy a complex weapons system. Some supply 
     contracts have 2,000 line items and, because of the 
     congressional appropriations process, must be paid for by 
     money from several different pots.
       Fixing the problems without throwing the entire system into 
     chaos, Hamre said, ``is like changing the tire on a car while 
     you're driving 60 miles per hour.''
       But some argue it has never been more important to make the 
     fixes quickly.
       ``Here we are in a period of reduced spending, it's 
     critically important today that we get a bigger bang for the 
     buck,'' said Sen. William V. Roth Jr. (R-Del.), chairman of 
     the Government Affairs Committee, where many of the current 
     problems were first revealed. ``We've got to put pressure on 
     to expedite it. At best, it will take too long.''
       But in the world of Defense Department financing, time is 
     not always a solution, as one small example illustrates.
       In 1991, because of a computer programming error, the 
     department's finance and accounting service centers 
     erroneously paid thousands of Desert Storm reservists $80 
     million they were not owed. When officials realized the 
     mistake, they began to send letters to service members to 
     recoup the overpayments. Many veterans complained to 
     Congress, which then prohibited the Pentagon from collecting 
     any overpayment of less than $2,500 and made it give back 
     money collected from people who received less than that 
     amount.
       To comply, the Defense Finance and Accounting Service 
     (DFAS) payment centers in Cleveland, Denver, Indianapolis and 
     Kansas City created new computer programs to cancel the debts 
     and issue refunds. But they did not adequately test the new 
     programs, IG and GAO investigators found.
       As a result, the appropriate debts were not canceled, and 
     improper amounts of refunds were issued, often to the wrong 
     service member. The DFAS center in Denver, for example, 
     canceled $295,000 that service members owed it for travel 
     advances. In all, the botched effort to follow Congress's 
     direction cost taxpayers an additional $15 million, Pentagon 
     officials said.
       ``It isn't possible now'' to recoup the money, Hamre said. 
     ``We can't reconstruct the records. We admit were really, 
     really bad. We won't do it again.'' The IG's office has 
     agreed that it would be too costly to reconstruct the records 
     and recoup the loss.
       As he often does when he testifies about these matters on 
     Capitol Hill, Hamre confessed to the Senate Armed Services 
     Committee recently: ``We've made a lot of progress. Boy, 
     we've got a long way to go.''

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