A Billion here, a Billion there, and pretty soon it adds up to real money

CBS News barely scratched the surface.

The actual Pentagon audit [.pdf] reveals a lot more waste of taxpayer money than the news outlets bothered to report. (Where is that "liberal media" again? Under aWol's desk? Behind the curtains? Or maybe it was smuggled into Syria?)

On May 13, 2005 PL 109-13 “Emergency Supplemental Appropriations Act for Defense, the Global War on Terror, and Tsunami Relief, 2005,” became law, and set aside $5.7 Billion for the Iraq Security Forces Fund. The Commander, Multi-National Security Transition Command-Iraq received $5.2 billion to provide equipment, services, training, supplies, and construction of and repairs to facilities and infrastructure.

On June 15, 2006 PL 109-234, “Emergency Supplemental Appropriations Act for Defense, the Global War on Terror, and Hurricane Recovery, 2006” became law. That piece of legislation mandated a series of three audits of the Iraq Security Forces Fund.

The third audit is now complete, and the Multi-National Security Transition Command - Iraq (MNSTC-I) has been unable to account for over a billion dollars in materiel, services, weapons and cash. As a result, the MNSTC-I was not able to provide reasonable assurances that the Iraqi Security Forces Fund had achieved or was achieving the results the money was supposed to buy, or even that the funds were used in the manner intended when the American taxpayers were handed the tab. The MNSTC-I was not able to offer assurances that there were even safeguards in place to prevent waste, fraud and mismanagement. Because of these shortcomings, several of the auditable transactions revealed that $1.8 million of funds could have been “put to better use.”

The internal Pentagon auditors recommend that the MNSTC-I develop and implement internal controls and protocols for forward-deployed personnel to observe and follow to maintain records to facilitate oversight of the funds and establish “accountable property records for expenditure of wartime funding.” In addition, the audit recommended that the MNSTC-I develop procedures for the processing, management and oversight of Military Interdepartmental Purchase Requests (MIPRs) and identify personnel requirements for proper sourcing in the Joint Manning Document that is submitted through CENTCOM and the Multi National Forces – Iraq, the Joint Chiefs and the Department of Defense. The goal of the recommendations is to ensure compliance with DoD financial regulations.

Now, before we dig in to the findings, it would be appropriate to remind ourselves that the Pentagon uses accounting methods that would make your average Hollywood studio accountant turn beet-red with shame. When they admit that a billion went missing, apply exponents as multipliers until your mind is boggled and you pass out – then double it, and you might be half way there. Maybe. If they’ve been frugal about the waste, fraud and abuse.

Let’s look at the areas the audit examined, shall we?

Service Contracts The Department of Defense’s own protocols require triannual reviews be conducted on service contracts. This was not done.

Service MIPRs Because MNSTC-I lacked internal safeguards and protocols, there is no way to even tell if the funds allocated to the State Department were ever disbursed.

Equipment Contracts Lack of procedure and protocol at MNSTC-I led not only to a lack of oversight, but to the lack of an audit trail as well. Instead, MNSTC-I relies heavily on other DoD Components in the field to self-report. This way of doing business makes audits virtually impossible.

Equipment MIPRs Receipts for equipment and materiel passed off to the ISF did not record traceable data. In plain English – lots and lots of guns went out the door, without so much as having the serial numbers recorded.

Construction MNSTC-I did not have policies and procedures in place to assure that construction projects were being completed on time or to spec. Instead, they simply relied on contractors and subcontractors to self-police and properly report. The Pentagon only reviewed six incomplete construction contracts, leaving 84 unexamined, because MNSTC-I claimed that the task of providing documentation would prove too onerous.

So to recap…

The MNSTC-I was not able to provide any reasonable assurances that the ISFF has achieved any of the intended results, or that resources were appropriately distributed. Without auditable records, the audit determined that at least $1 Billion in equipment was unaccounted for. Not only is the equip missing, the scenario under which it went missing was so disjointed and chaotic that the Pentagon auditors determined that trying to track it down would be an exercise in futility. Instead, they have opted to simply write it all off, with a promise to do better in the future.

Auditors simply throwing their hands in the air and writing off at least a Billion bucks just perfectly illustrates fiscal responsibility by the Bush administration and makes those vetoes and veto threats totally understandable.

Right?

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Army to review Iraq contracts for fraud

A 105mm M1 Abrams tank, outside the
Tank-Army Automotive and Armaments Command (TACOM)
Detroit Arsenal, Warren, MI

On Monday, ten specially trained auditors, criminal investigators and acquisitions experts will descend on the Tank-Army Automotive and Armaments Command (TACOM) north of Detroit to begin an audit of a sampling of approximately 6000 contracts worth $2.8 billion issued by an Army office in Kuwait that has been identified as a hotbed of corruption.

The office in question, located at Camp Arifjan, buys supplies and gear to support American G.I.'s as they rotate in and out of Iraq. Nearly two dozen Army, military and civilian employees have been charged with accepting bribes and kickbacks, and $15 million has changed hands. Depending on what the investigators discover, the number of individuals charged will likely grow. Currently the Army Criminal Investigations Command has 83 ongoing corruption investigations relating to contract fraud.

The highest profile corruption case to be charged so far involves Army Maj. John Cockerham, who stands accused of bribery, conspiracy, money laundering and obstruction. Prosecutors charge that Cockerham, in concert with his wife and sister, took at least $9.6 million in bribes in 2004 and 2005 during the time he was a contract officer in Kuwait.

Some of the red flags that have been raised include contracts awarded to vendors outside the usual competitive bidding process and contracts that went through the motions of the bidding process, then were awarded to the highest rather than the lowest bids. In other instances, what was purchased was not what was delivered.

"Is there anything in there that might indicate to us that there might be some potential fraudulent activity?" Jeffrey Parsons, director of contracting at Army Materiel Command, said in an AP interview. "If there are patterns that we start to identify, then we're going to do further review."

Contracts with significant problems will be forwarded to the Army Audit Agency and the Army Criminal Investigation Command. If there's credible evidence of wrongdoing, the FBI and prosecutors from the U.S. Justice Department are called in.

In Warren, Mich., home to a large Army acquisition center, the contracting review team will examine 314 of the Kuwait contracts, each worth more than $25,000 and issued between 2003 and 2006.

In Kuwait, a separate team of 10 at Camp Arifjan is already going through 339 contracts of lesser value and awarded during the same time period, according to Army Materiel Command at Fort Belvoir, Va.

Both reviews are to be finished before the end of the year.

Preliminary results of an investigation into the contracts coming out of Camp Arifjan in 2007 has wrapped up, and the investigators uncovered numerous problems with the office, including high staff turnover, slip-shod record keeping, inadequate staffing, and lack of oversight. Those personnel problems, coupled with billions of dollars of war funding, create an environment where corruption, malfeasance and misconduct find fertile soil.

The investigative teams in both Michigan and Kuwait will be reviewing paper records, but they will also be using data-mining techniques to search electronically stored data for signs of wrongdoing. "Do we have contractors with different names but the same address?" Parsons said. "That would cause some suspicion." He also indicated that the investigators would be relying on tips provided by individuals familiar with the imperfect process.

If a contractor and an acquisitions officer conspire to break the rules for personal gain, uncovering the corruption can be extremely difficult. "You can have a contract file that is pristine - all the documentation is there," Parsons said. "Just going through the contract files doesn't necessarily give you 100 percent assurance that something else might not have been going on."

Beating the checks and balances in the federal procurement process is a difficult trick to pull off, requiring attention to detail and precise planning. It takes someone schooled in the system to know how to evade it. Unfortunately, the Army had some very smart "bad apples" who knew how to pull it off.

The 6000 contracts that came from the office in Kuwait spawned 18,000 transactions for myriad support items, from laundry and warehouse services to bottled water and food. Every transaction presented an opportunity for fraud to be committed.

In 2005, two Lt. Generals who were top commanders in Iraq, Steven Whitcomb and John Vines, became so concerned about allegations of corruption that they pushed for the Criminal Investigation Command to establish field offices in Iraq and Kuwait.

The Army investigating the allegations of fraud, abuse, bribery, corruption and kickbacks is a good start, but it is time to take a page from history. It is time for a reprise of the Truman Committee.

In 1940, as World War II gripped the globe and United States involvement in the conflict became more and more likely, the United States appropriated $10 Billion in defense contracts in preparation for that eventuality.

Early in 1941, reports of malfeasance and abuses by the contractors reached Missouri Senator Harry S Truman, and the news did not sit well with WW I Infantry Captain “Give ‘em Hell Harry.” In typical Truman fashion, he set out to seek the truth, not by summoning “experts” but by embarking on a 10,000 mile tour of military installations. On this fact-finding tour, he discovered that the companies that received the contracts were clustered in the east, with a mere handful divvying up most of the largesse. He also discovered that they were receiving a fixed-profit, regardless of performance.

He returned to the Senate convinced that the defense efforts of the United States were being undermined by waste and corruption, and he proposed the notion of a special Senate committee that would investigate the National Defense Program.

President Roosevelt was convinced to let Truman head up the committee, being sympathetic to the President and his administration. The President was assured that the committee would not be too much trouble, as it would only be allotted $15,000 to investigate billions in defense contracts.

The Truman Committee was created by unanimous Senate decree on 01 March 1941. Over the next three years, with Senator Truman at the helm, the committee held hundreds of hearings, traveled thousands of miles to conduct field inspections, and saved millions of dollars in cost over-runs. Senator Truman was not shy about threatening executives with prison time as he whacked greedy corporate snouts out of the public trough.

Before Claire McCaskill announced her Senate bid, I was encouraging her to run for the Class I seat that Truman once held, and touting her background as our state auditor and as a tough prosecutor as reasons she should run and reasons we should vote for her, because the Iraq fiasco needed a good auditing, in the spirit of Harry Truman.

During her campaign, she seized on my the idea of a modern day Truman Committee to investigate waste, fraud and corruption in the reconstruction of Iraq. During a speech in Harry S Truman’s hometown of Independence last year, she spoke admiringly of the former President and his diligence in reining in war profiteers. "He was fearless. He uncovered enormous undeserved profits. I believe we need a new Truman Committee. I will fight for such a committee.”

Less than a year after she was elected, and a mere nine months after taking her seat, she is very close to bringing the notion to fruition. The Senate recently agreed to a plan from Senators McCaskill and Webb to get a handle on the Pentagon’s scattershot method of awarding private contracts for work in Iraq. It was added to the Defense Authorization Bill for 2008.

The audits that get underway on Monday certainly underscore the need for the oversight body that would be created from the legislation offered by Webb and McCaskill. In fact, they demand it.

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