Pentagon Financials Continue to Raise Questions

A Pentagon purchasing program run by the Defense Logistics Agency (DLA) is costing taxpayers an extra 20 percent, according to a Knight-Ridder report in Sunday's Seattle Times. And its computer system is a security risk. Unfortunately, such waste is not widely reported and it's only the tip of the proverbial iceburg. In April 2004, the Christian Science Monitor reported that "almost 20 percent of the billions of American taxpayers dollars being spent to rebuild Iraq is being lost to corruption," one of too few instances of media fulfilling their watchdog role.

It's deja vu all over again (thank you, Yogi Berra): a 1996 Brookings Institution report reminds us of what happened the last time Republicans had control over military spending for two consecutive Presidential terms:

Remember the $600 toilet seats and the $500 hammers that had taxpayers up in arms during the mid-1980s? ... The outrageously priced toilet seats and hammers were the result of defense companies taking advantage of a loophole in acquisition regulations.

The toilet seats and hammers became a shorthand for military waste, albeit not an entirely accurte one, as the Washington Monthly wrote in 1987. Unfortunately, "institutionalized failure in spare parts procurement... simply does not elicit the interest and outrage that high-priced hammers or toilet seats or coffee pots do. Perhaps this is the greatest pity of the hammer controversy: it has given Congress and the press a nice warm feeling of indignation while distracting them -- and the public -- from deeper, more complex, less 'newsworthy' sources of defense waste" which included, the author asserted, sole source contracts and tolerance for "corrupt or inefficient defense contractors."

The Prime Vendor Program
Today's problem seems larger than a loophole -- it seems to simply be largess. Knight-Ridder uses "special 7-foot refrigerator-freezer for airplanes" to illustrate the extent of problem with the Pentagon's "prime vendor" program. In 2003, before the new DLA plan, the manufacturer -- MGR Equipment of Inwood, NY -- charged the Pentagon $17,267 for each refrigerator-freezer. In 2004, "prime vendor" Lankford Sysco Food Services sold the same refrigerator-freezer to the US military (us, the taxpayers) for $32,642.50 each -- an 89 percent markup! Other examples:

One manufacturer who previously sold directly to the government but now sells to the prime vendors said the system doesn't make sense.

"I resent it as a taxpayer," said the firm's chief executive, who spoke on the condition of anonymity for fear of losing business. "Before we'd sell it to [the Defense Department] at a hell of a lot less money. I don't make that money on it. Dietary (one of the prime vendors) is making money hands over fist. ... It makes no sense."

A second manufacturing CEO, who also asked not to be identified for the same fear of losing what little business is left, called it "three-card Monte economics."

DLA sales in Philadelphia, its main center, have more than doubled during the Bush administration: from $2.3 billion in 2002 to $7.4 billion in 2005.

Financial Controls a War Casualty
The Knight-Ridder report focuses on "legal" corruption at home. In July, the London Review of Book examined reports of "financial irregularities" from six different audits of Iraq, in an article entitled "Where has all the money gone?"

The auditors have so far referred more than a hundred contracts, involving billions of dollars paid to American personnel and corporations, for investigation and possible criminal prosecution. They have also discovered that $8.8 billion that passed through the new Iraqi government ministries in Baghdad while Bremer was in charge is unaccounted for, with little prospect of finding out where it went. A further $3.4 billion earmarked by Congress for Iraqi development has since been siphoned off to finance 'security'.

One of the firms to get the most scrutiny is Halliburton, which was led by Vice President Dick Cheney until July 2000:

The GAO report of July 2004 found that in the first nine months of the occupation, KBR was allowed a free hand in Iraq: a free hand, for example, to bill the Pentagon without worrying about spending limits or management oversight or paperwork. Millions of dollars' worth of new equipment disappeared. KBR charged $73 million for motor caravans to house the 101st Airborne Division, twice as much as the army said it would cost to build barracks itself; KBR charged $88 million for three million meals for US troops that were never served. The GAO calculated that the army could have saved $31 million a year simply by doing business directly with the catering firms that KBR hired. In June 2004, the GAO continued, 'by eliminating the use of LOGCAP and making the LOGCAP subcontractor the prime contractor, the command reduced meal costs by 43 per cent without a loss of service or quality.'

In July, the Guardian wrote:

Many of the American agents submitted their paperwork only hours before they headed to the airport. Two left Iraq without accounting for $750,000 each, which has never been found. CPA head office cleared several agents' balances of between $250,000 and $12m without any receipts. One agent who did submit receipts, on being told that he still owed $1,878,870, turned up three days later with exactly that amount. The auditors thought that "this suggests that the agent had a reserve of cash", pointing out that if his original figures had been correct, he would have accounted to the CPA for approximately $3.8m more than he had been given in the first place, which "suggests that the receipt documents provided to the DFI account manager were unreliable"...

An Iraqi hospital administrator told me that, as he was about to sign a contract, the American army officer representing the CPA had crossed out the original price and doubled it. The Iraqi protested that the original price was enough. The American officer explained that the increase (more than $1 million) was his retirement package...

Pilfering was rife. Millions of dollars in cash went missing from the Iraqi Central Bank... The payroll was padded with hundreds of ghost employees. Millions of dollars were paid to contractors for phantom work: $3,379,505 was billed, for example, for 'personnel not in the field performing work' and 'other improper charges' on a single oil pipeline repair contract...

The IAMB, meanwhile, discovered that Iraqi oil exports were unmetered. Neither the Iraqi State Oil Marketing Organisation nor the American authorities could give a satisfactory explanation for this. 'The only reason you wouldn’t monitor them is if you don’t want anyone else to know how much is going through,' one petroleum executive told me.

All this leads us to the story of Bunny Greenhouse, who was demoted for trying to get the US Army Corps of Engineers -- which may have been played like a pawn by the Pentagon on the eve of the Iraq war -- to follow its own rules and the laws of the United States regarding contracts.

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