Sloppy accounting behind US Army’s RM26.2 trllion mystery
(MMO) – The United States Army cannot adequately account for US$6.5 trillion (RM26.2 trillion) in adjustments made to its year-end 2015 financial statements, according to a Department of Defence Inspector-General’s report released on July 26.
The inspector-general said the adjustments, made through “journal vouchers,” lacked essential documentation or were inaccurate or incomplete, AMI Newswire reported.
The result was that the department and army managers “could not rely on the data in their accounting systems when making management and resource decisions”.
According to AMI Newswire, the inspector-general warned that until the army got control over their accounting problems, “there is considerable risk (Army General Fund) financial statements will be materially misstated and the army will not achieve audit readiness by the congressionally mandated deadline of Sept 30, 2017.”
Nothing in the inspector-general’s report said the trillions of dollars in question was lost or stolen.
Instead, the report illustrated a decades-long problem with military accounting practices that made keeping track of how and why the Pentagon spent taxpayer dollars so difficult.
Centre for Defence Information’s Straus Military Reform Project director Mandy Smithberger told AMI Newswire the problems with military accounting were “enduring”.
One of the biggest, Smithberger said, was complexity.
The “initial gathering of this information is so decentralised by offices with varying documentation quality that Defence Finance Accounting Service (DFAS) accountants end up scrambling at the last minute to document what they can and allow the remaining ‘mystery’ numbers to stay in so they can meet their deadline,” she said.
Part of the problem stemmed from the DFAS, which the inspector-general said “did not adequately support US$2.8 trillion (RM11.3 trillion) in third-quarter adjustments and US$6.5 trillion in year-end adjustments made to Army General Fund data during FY 2015 financial statement compilation”.
Department of Defence’s Office of Inspector-General public affairs chief Bridget Ann Serchak told AMI Newswire both the US$2.8 trillion and US6.5-trillion figures cited in the report “are possible because adjustments are made to the Army General Fund financial statement data throughout the compilation process for various reasons, such as correcting errors, reclassifying amounts and reconciling balances between systems”.
“The general ledger data which posts to a financial statement line can be adjusted for more than the actual reported value of the line,” she said.
“For example, there was a net unsupported adjustment of US$99.8 billion (RM402.8 billion) made to the US$0.2 billion (RM0.8 billion) balance reported for Accounts Receivable.”
Documenting the reasons behind those adjustments, including specific transaction information, is critical for creating a reliable and accurate audit trail, a task the inspector-general said DFAS personnel failed to do.
In the fiscal year-end 2015 report on the Army’s General Fund, the inspector-general found DFAS has made 142,355 adjustments to the financial statements.
Of those, 138,887, representing over US$4.4 trillion (RM17.76 trillion) in transactions, lacked proper documentation.
The report also found DFAS “corrected errors or reclassified amounts to other accounts” without documentation saying why the changes were necessary.
In some cases, the inspector-general found DFAS simply “changed general ledger data without adequate documentation to support the adjustments.”
The report also said the DOD’s accounting system removed 16,513 of 1.3 million records from the data set, but no one knew why.
The inspector-general recommended a series of actions to correct the problems, including identifying the “root causes of errors” that resulted in undocumented adjustments to the army’s balance sheet.
Both army and DFAS officials agreed with the report’s recommendations.
