Posting #9: The Department of Defense's use of taxpayer money

The story

A very common story in the United States is that people who have the highest incomes are naturally deserving of that cash, that somehow the work they do is the most valuable and so should be commensurately rewarded. (The reverse applies, too, in the story: if you don’t have the cash, you don’t deserve it.)  Their income, it seems to be believed, is an ultimate sign of the value of their work as opposed to the notion that some labor is more inherently valuable than others.  Power and status consequently accrue to these high-income people, like male professional athletes, private equity managers, real estate tycoons, tech entrepreneurs, bank presidents, and corporate CEOs.  It is their being naturally deserving that shuts down any dispute that they might be overvalued, overpaid, overpowerful sociopaths. 

The implications for the US military

This story of naturalizing of who is most deserving and who is not, it seems to me, is what is behind the repeated failures of the Department of Defense to pass a federally-mandated annual audit year after year yet its paying no price for the botch.  It is the ONLY federal agency that has yet to pass.  Yet, as supposedly naturally deserving as it is, the Department still has been repeatedly rewarded with increased budgets and half of the discretionary funds Congress doles out. 

I would wager that most of us know the fear of being audited.  Individual taxpayers are not audited on a regular basis, unless you call, mandated since 1913 and the passing of the 16^th Amendment, filing tax returns an “audit.”  Still, the Government Accountability Office reports that individual taxpayers with incomes below $25K and above $500K are audited at a higher-than-average rate.  It must be a startling prospect to be informed by the Internal Revenue Service that one is to be audited, it is so rare for individuals in that vasty middle class. 

But many institutions that receive taxpayer dollars are required by law to be audited every year, expected as they are to be responsible with and transparent about how they use those dollars.  For instance, since 1984 all nonprofit organizations that receive federal grant awards of over $750K are required to be audited annually.  Some local governments and all publicly-owned companies are required to be audited annually.  And since 1990, 24 major executive branch departments and federal agencies are required to be independently audited annually. 

One major element of any of these audits is that the institution or individual being audited is expected to pass (or to have a “clean” audit in audit-speak), and that the repercussions for not passing can be severe.  The penalties for an individual taxpayer range from having to pay additional taxes to being charged with criminal activity.  A non-profit can at the very least lose its non-profit status and suffer other “significant adverse consequences.”  A corporation can be accused of fraud and tax evasion.

But the Department of Defense suffers no such repercussions, neither for refusing to conduct an audit nor for failing it. 

Following the 1990 mandate, the Pentagon dragged its heels.  Meanwhile, other federal agencies under the same requirement passed audit after audit, using modern accounting standards apparently foreign to DoD.  Without all of these agencies delivering clean audits, the United States government could not know how taxpayer monies were being spent, how effectively the expenditures were being recorded, or what was being wasted.  Neither could the Pentagon know, despite being given hundreds of billions of taxpayer dollars annually and having trillions of dollars in assets.

To goad DoD into doing what it ought to have done two decades earlier, Congress included a provision in the 2010 National Defense Authorization Act (i.e. the defense budget) granting DoD another seven years to prepare itself for an audit.  Still, the Pentagon was not ready in January 2017 when the  General Accountability Office (GAO) determined that “serious financial management problems at the Department of Defense (DOD)… have prevented its financial statements from being auditable.”  The GAO reported the same problems in its March 2019 2018 Financial Report of the United States Government, meaning that DoD failures persisted in making it impossible for the GAO to assess the financial reliability of the entire US government. 

Still, since late-2017, the Department of Defense has attempted every year to conduct an audit. It has employed thousands of auditors to audit various parts of the DoD—the Army, Navy, et cetera—to the tune of billions of dollars.  According to a War on the Rocks op-ed by Steve Blank, “In 2019, the audit cost $428 million in auditing costs ($186 million to the auditors along with $242 million to audit support) and another $472 million to fix the issues the audit discovered.”  If this figure applies to the five years that the Pentagon has attempted to sort through its taxpayer financing, then it has spent nearly five billion dollars on auditing and fixing the problems identified by the audits.  At least the auditors must be happy with plenty of billable hours, in the recent past and, possibly, the distant future. 

Despite coming terribly late to the required-by-law-audit-party, and despite being unprepared for an audit year after year, increasingly huge budgets are repeatedly granted to the Department of Defense from discretionary funds. I think this reveals that not only is the military regarded as naturally deserving, it also seems to be thought, like the banks in 2008, as too big to fail.  This phrase “refers to an entity so important to a financial system that a government would not allow it to go bankrupt due to the seriousness of the economic repercussions.” Though this concept usually is applied to financial institutions, I think the business of defense—AKA the “military-industrial complex”— is immense in this country and so needs to be propped up over and over.  Instead of going bankrupt, however, the institution is permitted to continue what appears to be a reckless use of taxpayer dollars.  Hence, regardless of DoD’s inability to account for how it spends taxpayer monies, it continues to be bolstered with bigger and bigger budgets.

Finally, because the budgets involve money and because defense is Big Business in this country, these monster budgets result in greater political power…which then continues to produce astronomical budgets.  Consequently, unlike all of the other federal agencies that have repeatedly passed their mandatory audits, there is little incentive for DoD to pass the required audit.

So what?

Someone might, indeed, argue that DoD is one of the biggest, if not the biggest, of all federal agencies and so it ought to be cut some slack.  Undoubtedly, it’s hard to keep track of the millions of people, billions of dollars, and trillions of property under the umbrella of national defense.  But I would argue that it is because it is so big that it has a greater obligation to keep track of all these millions, billions, and trillions.  We must not imagine that because it is naturally deserving or too big to fail that it can be excused from fully and responsibly accounting for all of the dollars we taxpayers have invested in our national security.

I’m going to get a little wonky here so that you can understand as a taxpayer how your dollars are used in federal budgeting, especially in regard to national defense. 

(Hang with me.  I’m learning a lot of this for the first time.)

Federal spending is divided into three parts: mandatory spending (66%), discretionary spending (26%), and interest payments on the debt (8%).

Non-discretionary funds, or “mandatory” ones, are required to be paid and there is no discretion, or choice, on the part of lawmakers to be enacted yearly.  Though they can make changes to the mandatorily-funded programs, they may not shuffle the funds allocated by law to the programs.  Included in this category of federal spending are payments such as Medicaid, Medicare, and Social Security, but there are many others.  These payments are the so-called “entitlements” that conservative lawmakers so frequently want to limit, abolish, or privatize because the payments are mandated and because they make up so much of federal spending: about two thirds.

Unlike mandatory funds, discretionary funds need to be decided on every year by Congress and the President.  The national defense budget comes out of this portion—a bit more than a quarter—of federal spending.  According to the Treasury Department,

Discretionary spending is money formally approved by Congress and the President during the appropriations process each year. Generally, Congress allocates over half of the discretionary budget towards national defense and the rest to fund the administration of other agencies and programs. These programs range from transportation, education, housing, and social service programs, as well as science and environmental organizations. 

To reiterate: defense is regularly given more than its fair share of the discretionary funds, to the detriment of other federal programs, like health spending, education, and diplomacy.  Nearly half of discretionary funds are allocated to the Pentagon, which says something about our national priorities.  This disproportionate allocation and subsequent deprivation of some federal programs over others also means that funding armed force over delicate diplomacy, for instance, often may mean using brute force when delicacy is called for. As the saying goes, when all you have is a hammer, everything looks like a nail.

In fact, it looks like the United States is in a mysterious escalation mode since it continues to raise its national defense budget even when potential enemy countries do not and even when the Pentagon cannot pass an audit.  War as American big business is reflected in the ballooning U.S. Defense budget, from $384B (2000) to $502B (2014) to $734B (2019).  Despite an expected “peace dividend” with the conclusion to the two wars in Afghanistan and Iraq and a subsequent reduction in the defense budget, the most recently approved budget increased to $886B (2024) and will escalate further to $895.2B in 2025.  Sure, some of this increase can be attributed to monies committed to the war in Ukraine.  But that doesn’t account for most of the federal spending allocated to national defense.  As journalist Andrew Cockburn cautions in “The Military-Industrial Virus,”  “Wars are a consequence of the quest for bigger budgets,” not vice versa. 

Additionally, the United States is a global outlier in defense spending.  As of April 2023, the United States accounts for nearly forty percent of global defense expenditures and “now spends more on defense than the next 10 countries combined.”  According to the non-partisan Peter G. Peterson Foundation, “In determining the appropriate level of such spending in the future, it will be important to evaluate whether it is being used effectively and how it fits in with other national priorities.”    

This is precisely my not-an-economist, taxpaying-citizen-of-the-United-States opinion: What are our national priorities when so much of our national treasure is given to an institution that cannot demonstrate effective use? 

 

Some US lawmakers have been asking that same question. 

After DoD failed its first three audits, in 2021 Senators Bernie Sanders, Chuck Grassley, Ron Wyden, and Mike Lee introduced a bipartisan bill—Audit the Pentagon Act of 2021—that would penalize any part of the Pentagon that is unable to produce a “clean” audit.  “The Pentagon and the military industrial complex have been plagued by a massive amount of waste, fraud and financial mismanagement for decades,” they declared. “That is absolutely unacceptable.”  Grassley added, "We've seen example after example of excessive and inefficient spending by the Pentagon, and every dollar squandered is a dollar not being used to support our men and women in uniform.  After 30 years to get ready, this bill pushes the Defense Department to finally achieve a clean annual audit – a requirement that every other federal agency is held to.”  This bill did not pass because it did not receive a vote, nor did it receive a vote in the House of Representatives, though it was introduced by Representative Barbara Lee and cosponsored by 12 Democrats and 5 Republicans.

Despite the reluctance of our lawmakers to legislate this clearly evident problem in 2021, the bills were proposed again in 2023.  Senators Sanders, Grassley, Wyden, and Lee were joined this time by 6 Democrats and 2 Republicans and specified that the penalty would be 1% to any agency within DoD that was unable to produce a clean audit.  Representatives, led by Barbara Lee and joined by 8 Republicans and 12 Democrats, also introduced a bill to incentivize DoD to pass its annual audit.  Their bill also applied a financial penalty to any agency at the Pentagon unable to produce a clean audit.

It is heartening to see lawmakers taking a stand on the failures of the Department of Defense to account for all the treasure entrusted to it by American taxpayers.  At the same time, it is disheartening to see the decades it has taken to hold the Pentagon to account.

It seems to me that it is our post-Vietnam/All-Volunteer-Force/Support-Our-Troops bedazzlement with our military, evident in stories of its being naturally deserving, that silences any criticism of it.  I trust that many Americans want to see a healthy military force that is adequately housed, armed, and compensated.  I doubt that many of us want to see the reverse.  But at this point, when stories of waste and fraud abound and the Pentagon cannot pass an audit, can it be trusted to responsibly shepherd the vast monies taxpayers give it?  Does defending freedom really require this free-flow of cash?