How About Improper Payments in the Military?

By Veronique de Rugy

Last week, I wrote about the $137 billion in improper payments made by various government agencies in FY2018. The number was reported by the federal government’s PaymentAccuracy.gov website. As I noted, social insurance and welfare programs were sources of the vast majority of these improper payments.

After the publication of the article, I was contacted by Bill Bergman, research director of Truth in Accounting, who wanted to share a piece he wrote in complement to mine. As Bergman noted there, I made no mention of improper payments in the Department of Defense. That’s true. The 12 “high-priority” areas with improper payments listed in the PaymentAccuracy.gov report do include two Veteran Affairs programs, but no Defense programs.  

Bergman asks: “Are there no improper payments in the Department of Defense?”

Excellent question!

Like in the previous piece, I am going to leave aside what I think DoD should do or not do, and focus on the government’s definition of improper payment. With that in mind, the simple answer, which Bergman also answers, is that, based in the eligibility standards set by the U.S Department of Treasury in collaboration with two other Executive-branch agencies when they established the website PaymentAccuracy.gov, there doesn’t appear to be.

The truth, however, is much more complicated—and, frankly, super annoying.

The PaymentAccuracy.gov website is the Executive-branch’s effort to account for Uncle Sam’s improper payments. It is worth noting that there isn’t much teeth to the effort since agencies are usually immune to embarrassing reports like this one, and no actions are ever taken to change the course of things by, for instance, cutting the budgets of careless agencies until they correct the issue.

Then there is the Government Accountability Office (GAO). This agency, which serves as the auditing arm of Congress, issues its own reports on improper payments. While GAO’s methodology is very different than that of Treasury, the trend reported looks very similar. In 2017, GAO noted that the Inspector Generals (IGs) of 15 of 24 departments reported those departments as noncompliant, and that some of the information reported was misleading.

In previous years the Financial Report of the U.S. Government attempted to provide a government-wide estimate of improper payment. It gave up in 2017.  Instead, as Bergman notes, in its latest opinion letter (for 2017) the GAO states that “the federal government is unable to determine the full extent to which improper payments occur …”, hence admitting the unreliability of the numbers published in previous years.

As for DoD, Bergman adds: “In its 2017 opinion letter, the GAO took note that the DOD Inspector General stated that DOD “did not ensure that all improper payments were included in certain programs’ improper payment estimates, and as a result, the DOD published unreliable estimates of improper payments for fiscal year 2016” -- for 2016, not 2017.”

Considering that the Department of Defense spends well over $600 billion each year, it is ridiculous that until last year the Department of Defense failed to subject itself to a comprehensive audit, that no one can provide a reliable accounting of where all that money is really going, and that the IG office has been writing reports that say “DOD published unreliable estimates of improper payments” - all without consequences.

As a taxpayer, lack of accountability pisses me off. It adds insult to injury since, like many, I have had to deal with the Internal Revenue Service in the past. And that’s before I even start thinking about how long we have been in Afghanistan and in Iraq and our involvement in Syria.

Now, the Pentagon has been audited. But it didn’t pass and the audit revealed major flaws. Defense News noted: “The effort overall is considered a ‘failed’ audit in the strict term, as only 5 of the 21 individual audits checked received a fully passing grade, with two more receiving an ok grade.” Yet, Deputy Secretary of Defense Patrick Shanahan seems fine with the results, telling reporters, “We failed the audit, but we never expected to pass it.”

How comforting to know just what low standards the Deputy Secretary has for his agency! In fact, he believes that after years of refusing to comply with the audit requirements that other agencies (more or less) comply with, he deserves credit simply for attempting to get it done. He said, “It was an audit on a $2.7 trillion organization, so the fact that we did the audit is substantial.”

Call me crazy, but I have a rule that goes like this: if your budget is so big that you don’t have a clue where all your money is going, your budget is too big.

Imagine if a company behaved this way, and refused to get audited for 26 years straight and then failed its audit. How long do you think its investors would stick around? The question answers itself. But the DoD does not have to worry about suffering this difficult outcome since our “investment” in them is mandatory.

So now you know why DoD wasn’t included into the PaymentAccuracy.org website. I do too. Thank you for that Mr. Bergman.

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Veronique de Rugy

AIER Senior Fellow Veronique de Rugy is also a Senior Research Fellow at the Mercatus Center at George Mason University and a nationally syndicated columnist. Her primary research interests include the US economy, the federal budget, homeland security, taxation, tax competition, and financial privacy.