Introduction

The U.S. Navy has struggled for a long time to track its own spending, as well as the work routinely performed on its ships, planes, and aircraft, in a manner that complies with modern accounting standards. It sits in this pool of hot water with the other military services, which jointly face a statutory deadline to meet those standards by 2017.

Several years ago, in an effort to meet the deadline, it began to implement a new software system to help it keep track of its finances and resources, including inventories, readiness, vessels, aircraft, and spare parts. It was not cheap, costing nearly a billion dollars so far.

But inexplicably, according to auditors at the Defense Department, the Navy has not yet used the accounting system to track the value of $416 billion worth of military equipment – around 85 percent of the service’s total assets in 2012 — gravely undermining its usefulness.

The Pentagon’s auditors first disclosed the Navy’s lapse in a report on July 18, which warned that having such a sizable amount of “unauditable” military equipment raised questions about the ability of the Navy – and the Defense Department as a whole – to meet the legal deadline.

The report by the Pentagon’s Office of Inspector General is a reprise of its earlier warnings that the military services are moving too slowly and sloppily in bringing their accounting practices into the 21st century.

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It matters, according to the IG’s office and many independent defense analysts, because using antiquated procedures to keep track of what the military has, what it’s buying, and how much it’s worth makes it hard for the Pentagon to operate efficiently, to buy only what it truly needs, and to be certain its funds are not being misspent.

The Defense Department is virtually alone among federal agencies in never having collected a positive review of its accounting statements from federal auditors. Top defense officials have pressed the military services to work harder and faster, partly in response to rising pressure from lawmakers on Capitol Hill.

But the Navy, according to the report, has essentially stuck to some of its bad habits. Financial office staffers “used inefficient manual processes and journal vouchers to report the amount of military equipment assets on its financial statements,” according to the report conducted from August 2012 to March 2013.

If the Navy used the new system to record the value of its military equipment, then it could track the equipment’s “actual costs from acquisition through retirement,” the IG report said.

Four Navy commands were affected – air, sea, supply systems, and space and warfare. Instead of using one new system that swept up everything they controlled, the Navy’s financial officers juggled data from six separate, antiquated accounting systems, according to the report.

Navy officials have not clearly stated why they did not change their process for tracking equipment before rolling out the new, $870 million accounting system. In their response to the IG, Navy financial management staffers said they could not provide documentation of the decision. The report said that as of January 2013, no plan was in place to take action.

A senior Navy official said in the report that he agreed with the inspector general’s recommendation to develop a plan to include this new program — or a comparable system — in its equipment reporting process. But he noted that “other competing requirements” related to compiling an auditable budget by 2017 “have consumed the majority of available resources.” The Navy said it recently created a council focused on property issues, and would ask them to work to move this issue higher up on the priority list.

The DOD IG complained that this response was not enough, and requested that Navy officials provide additional comments by August 19.

These concerns may sound familiar: The Center for Public Integrity reported in October 2011 that military financial systems are in worse shape than expected and the Pentagon’s efforts to improve have been plagued by overruns and delays. CPI reported in December 2011 that the Navy’s accounting practices may not be able to meet the standard by 2017, despite decades of attempts. And in March 2012, CPI outlined the Army and Navy’s problems with developing workable accounting software.

Navy officials did not respond on July 19 to a request for comment.