An exposé of the Pentagon’s massive accounting fraud and why it is only now coming to light.
Two weeks ago Congresswoman-elect Alexandria Ocasio-Cortez (D-NY) made a splash when tweeting about what she thought to be $21 trillion in misappropriated Pentagon money that she claimed was enough to pay for Medicare for all. She based her conclusions on misreading a complex article in the Nation, “The Pentagon’s Massive Accounting Fraud Exposed,” by investigative journalist Dave Lindorff. It’s too bad since her misreading took the focus away from the real story, which revealed the Department of Defense’s (DOD) hugely corrupt budgeting practices.
The author of that article, Dave Lindorff, is Jeff Schechtman’s guest in this week’s WhoWhatWhy podcast. According to Lindorff, more than 25 years ago, Congress ordered DOD to submit to an independent audit. After decades of stalling, the department finally failed its first ever audit this month. Lindorf shows how they are not just cooking the books, but literally making numbers up and, in so doing, are perpetuating a massive accounting fraud on the American people.
Lindorff’s investigation reveals not only why the Pentagon failed the audit, but why it resisted for so long. He explains how $21 trillion of Pentagon financial transactions, on both sides of the ledger, between 1998 and 2015 could not be traced, documented, or explained.
In this conversation, Lindorff details how the fraud worked to inflate an already huge budget, the accounting tricks being used to fund secret programs, and how clueless Congress and the American people have been about the biggest single line item in the US federal budget.
While Ocasio-Cortez got it wrong about the $21 trillion, there is no question that the Pentagon’s accounting fraud diverts many billions of dollars that could be devoted to other national needs.
“It’s a failure. It’s an epic failure. I mean, it’s like this is much worse than Enron. They couldn’t really do the books at all.”
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|Jeff Schechtman:||Welcome to Radio WhoWhatWhy. I’m Jeff Schechtman. Some of you may recall a week or two ago, newly elected Congresswoman Alexandria Ocasio-Cortez made a splash, talking about $21 trillion in misappropriated Pentagon money, which she claimed was enough to take care of Medicare for all. She based her conclusions on the misreading of an article in the Nation by investigative reporter, Dave Lindorff.|
|It’s too bad, because her misreading took the focus away from what the story did say about the Defense Department’s shady and possibly unconstitutional budgeting practices and the massive amount of fraud that has now been uncovered. What the story did detail is how the Pentagon badly failed its audit that it has resisted for decades, and that $21 trillion of financial transactions on both sides of the ledger between 1998 and 2015 could not be accounted for. We’re going to talk about that today with my guest, Dave Lindorff.|
|Dave Lindorff is an award-winning investigative reporter, a long-time contributor to the Nation, and the author of several books, including The Case for Impeachment. It is my pleasure to welcome Dave Lindorff here to talk about his story, “The Pentagon’s Massive Accounting Fraud Exposed.” Dave Lindorff, thanks so much for joining us here on Radio WhoWhatWhy.|
|Dave Lindorff:||Well, thank you so much for having me on.|
|Jeff Schechtman:||When we look at the totality of this story, is it a story about incompetence, mismanagement, fraud, or theft? What is the underlying issue here?|
|Dave Lindorff:||Well, I think it’s primarily corruption and fraud, and then it’s pretty clearly going to be theft, too, if it gets investigated ever, because when you have books that can’t be monitored and that are basically so obtuse and filled with fake numbers that you can’t make heads or tails out of them, it’s an open invitation for theft. One of the things you’re relying on, at that point, is the high moral standards of the people involved, and clearly, there’s nothing exceptional in that regard at the Pentagon. It’s just another agency of the federal government filled with people who are trying to line their pockets and increase their power and increase their budgets, and it’s not any different than any other agency. If this is the one agency in the government that refuses to create an auditable budget, then it’s an open invitation for all of that: waste, fraud, abuse, corruption.|
|Jeff Schechtman:||Given the scope of this $21 trillion in really unaccounted for monies on both sides of the ledger, one comes away with the impression that an awful lot of people in the government, in the Pentagon, had to be involved in all of this.|
|Dave Lindorff:||Absolutely. I mean, one of the things that I found really interesting that was… I had a guy on the record, Jack Armstrong, who for five years was the Supervising Director of Audits at the internal auditing agency for the Pentagon, the Office of Inspector General. He’s the one who is quoted in the piece as saying, “If the Pentagon were being honest, that they would go to Congress and say, ‘All the numbers we are giving you for our annual reports to go with our budget request are garbage.’” That’s pretty strong language for an agency that accounts for — what? — 54 percent of disposable, of discretionary budgets in the Federal Government, and just mind-blowing.|
|What he also said, at another point, was that… I was asking him, “Well, what do they mean when sometimes they say that there’s almost a trillion dollars in expenditures that are supported, and maybe two trillion dollars that aren’t supported?”|
|He said, “Oh, oh, well, ‘supported’ only means, in our jargon at the Inspector General’s Office, that they were signed off on by the appropriate higher authorities.”|
|In other words, all of these numbers, and this is the key to the article that Ocasio missed, is that these numbers are made up really out of thin air, and they’re used for both getting balances to work out and to make the budgets completely impenetrable. I mean, as Chuck Spinney said in talking to him… He’s this very famous whistleblower from the ’80s, the guy who found that they had put the F-18 into production with a design flaw that caused the wings to fall off, and on a smaller scale, but one that really caught attention, that they were buying hammers that you could get in Home Depot for a couple of bucks, for $434 and toilet seats for $600, that were not unique, but just toilet seats. Anyway, Chuck said that the purpose of all this is deliberate, and it’s to paralyze Congress, and I would add, to paralyze the media, because when you see these weird numbers, you just don’t want to ask about them, because you don’t want to be labeled a kook.|
|Jeff Schechtman:||One of the objects of the exercise here is to do all of this with the numbers, in order to garner more defense authorization from Congress. Talk about the nexus between those two things.|
|Dave Lindorff:||Yeah, well, okay, so there’s two things that basically are being done by the Pentagon accountants that is deceptive, and deliberately deceptive. One is they have these things called “plugs,” and that’s not an accounting term. That’s a Pentagon term for plugging in numbers in the budgets that have no basis in reality and no ledger entries to support them.|
|Then you have something else, called “nippering,” which was explained to me by a longterm Pentagon accounting person, who’d been there for 30 years and is now a lobbyist. He explained that what they do… A nipper is a metal shear that cuts metal, and so you can cut out pieces of metal, and then move it around to something else. Nippering is to snip out part of the budget and move it, so that you don’t have to do what the Congress requires, which is, if you don’t spend your money by the end of the year, you have to return it to the Treasury. The Pentagon avoids that by shifting it into other budgets.|
|They actually convert one-year money, money that was appropriated by Congress for something, like say, the Army’s operational budget, and is supposed to be spent by the end of the year. If it’s not, it’s supposed to go back to the Treasury, but they never return money to the Treasury. They then nipper it and turn it into five-year money, which is the kind of thing you use for funding weapons programs and things like that. That money doesn’t have to be returned until the end of the program, by which time, if you still haven’t spent it, you can nipper it into another program.|
|What they do is they make it look like they spent all the money that was appropriated the prior year, and then ask for more. Congress always says, obligingly, “Yes, and maybe we’ll give you a little extra.” Then the money that hasn’t been spent, that was hidden, builds up into an enormous slush fund, which I was told could be as high, by now, as $100 billion. That’s a lot of money. That’s bigger than most federal agency budgets for a year: Education, Labor Department, Interior. All those budgets are less than $100 billion. It’s an enormous amount of money for them to have that’s totally unaccountable, and they can do what they want with, without any oversight whatsoever.|
|Jeff Schechtman:||Where does the General Accounting Office fit into this?|
|Dave Lindorff:||Well, this was interesting, too, because I got a guy who… The Pentagon wouldn’t talk to me. I could not get, on the record, any official level person. I did get a background interview with one, a deputy undersecretary level person, but it was on deep background, so I can’t say what unit it was of the Pentagon management or any quote from the person. I got two people who were press people, one from the BOD and one from the DOD Office of Inspector General’s Press Office, who answered a few questions, not always particularly honestly, and that was it.|
|I did have a lot of people off the record, and a few on the record, not at the Pentagon, but former Pentagon people on the record. Then I got Asif Khan, who remarkably was very candid and used his name. He is the Director of the National Security Asset Management Unit of the GAO, which monitors the budgets of the Pentagon, the CIA, probably Homeland Security, I would say, anything that’s classified national security type budgets.|
|He said that, and this is an astonishing thing when you, if you think about it… It should bother anybody who’s a taxpayer. The Pentagon has for years been on the GAO’s list of agencies with a high risk for fraud, waste, and abuse, because of their horrible budgeting and accounting. That should… People should just be outraged.|
|Jeff Schechtman:||Given how much misappropriation there has been, given these accounting practices that we’ve been talking about, it seems that it would be impossible, at this point, to do the kind of forensic accounting that would be necessary to even get to the bottom of this.|
|Dave Lindorff:||Well, that’s what happened. Congress finally threw up its hands, after 26 years or 28 years of stonewalling by the Pentagon and refusing a congressional act, which required them to have an auditable budget and to submit to an audit each year. Every other federal agency has come around to having that. I think HUD was the last one, maybe around 2015 or something like that, to get it together. The Pentagon never did, and so Congress just threw up its hands and said, “Well, you’re going to be audited, and we’re allocating $900 million for this year to have you audited by a bunch of outside accounting firms.”|
|Ernst and Young was hired to supervise that, and there were 1,200 auditors from a variety of outside reputable firms that were poring over the books for a year, and on November 15th, which was their deadline, they basically came out and said, “We can’t do it.” It’s a failure. It’s an epic failure. I mean, it’s like this is much worse than Enron. They couldn’t really do the books at all.|
|I was told by Asif Khan in September, months before they reported this. He said, “There’s no way they’re going to do an audit. They’re just going to come up with a list of thousands of deficiencies that have to be fixed before they can do an audit.” That’s exactly what they’ve had to do.|
|He also told me it’s going to be years before they can really have a clean audit, because in order to do an audit, you have to have a reliable set of books from the prior year, and the Pentagon doesn’t have a reliable set of books from the prior year. To get that… They don’t have it this year. They won’t have it next year. He said it’ll be several years, at best. He said, “That would be if the Pentagon was fully cooperating, and I don’t see signs that they are,” was what he told me. That’s pretty grim, you know? Yet, nobody’s being arrested. Nobody’s being fired. It’s pretty mind boggling that the Congress is afraid of the Pentagon. They’re afraid to be accused of not supporting the troops.|
|The media also, the mass media, the corporate media, buys into this American militarist policy, for the most part, and they also are afraid of being labeled conspiracy theorists, so they don’t want to look at this either for what it really is. Nobody… Here’s an interesting thing. When we ran the story initially online a couple weeks ago, we got flooded with calls from people like you, lots of Pacifica shows and programs, for interviews about the story, but not one mainstream news organization has reached out and asked about it, not one.|
|Jeff Schechtman:||Is there a way to deal with this, going forward? In other words, if it can’t be solved, looking back over this long period of time, going back, as you talk about in the story, all the way back to 1998, can it be cleaned up, going forward, and simply writing off all the waste, fraud, and abuse that has happened up to this point?|
|Dave Lindorff:||What has to be done, really, is… I’ve thought a lot about this. The real problem is that this system has been essentially an escalator to make the budget go up every year, unjustifiably. It’s a built-in way of just jacking up the budget because, look, we have a record budget now, and we aren’t even really seriously at war. The only thing that could remotely be called a war is Afghanistan, and we only have 15,000 guys there, which is 2.8 percent of what we had in Vietnam during the years of ’67, ’68, ’69, ’70, ’72, when it was a real hot war, nothing like that. We don’t have a war. The 15,000 guys are theoretically not even fighting. They’re supposed to be trainers and supervisors of the Afghan Army, so we don’t have a war, and yet we have a record budget.|
|That’s the great success of the Pentagon. It’s basically about, not national security, but increasing a budget for the people that work there. What we really need to do, at this point, when we have an agency that large that’s eating up half our discretionary income and at great opportunity cost for the things that Americans really need, is to have a thorough evaluation, like a sort of zero budgeting based evaluation of the military and what we really need and why.|
|I would argue that we probably could get by with 10-20 percent of the Pentagon that we have now, because Russia’s budget has been declining for the last few years, while we’re told that they’re an existential threat to us. They actually spend less than Saudi Arabia. We really need this huge re-evaluation of why we’re spending close to a trillion dollars a year on our military and how we got there.|
|Jeff Schechtman:||Where does the $21 trillion number that was bandied about, that was reported because of Ocasio-Cortez’s comments… Where does that $21 trillion number come from, within the context of this story?|
|Dave Lindorff:||Oh, the guy that gets the credit for that is Mark Skidmore and also a woman, Catherine Austin Fitts, who was an Assistant Treasurer under George Herbert Walker Bush’s Administration in the HUD, Housing and Urban Development, because she found the same kinds of things going on there, when she worked there and got interested in this. What Mark did was he heard about a $6.5 trillion Army budget, with $6.5 trillion in these entries on the asset and liability side of the ledger in 2015 from an OIG audit of the Army budget, because the OIG’s never audited the whole Pentagon budget. They order… They’re a small operation, and they do one part of the Pentagon budget each year, maybe Marines one year, Navy one year, Army one year, that kind of thing.|
|That year, they did the Army. It was a $122 billion budget that year, and they had $6.5 trillion of entries like a billion dollars of accounts receivable, which are bills due, and $800 billion in funds supposedly transferred to the Army from the Treasury Department, and they’re bogus numbers. He looked into it to see, well, what is going on here? He decided to look at all the years of the OIG reports on different parts of the budget, going back… He just randomly, I guess, picked that one, the 2015, back to 1998, which would be 17 years. That’s where he got the total of these entries.|
|He had two doctoral students working with him, and he came up with the $21 trillion and change. Nobody reported that, by the way. He did a report with Catherine Fitts in 2017, and it didn’t get reported anywhere but the alternative media. I give a lot of credit to Representative-elect Ocasio, because even though she got it wrong, and it would be hard to get it right in a tweet, because it’s a complicated story, what she did was, for the first time since 2001, she got this kooky number reported in a mainstream publication, the Washington Post, which had studiously avoided reporting it when the study came out, and didn’t report the $6.5 trillion either, didn’t report any of them.|
|Where’s the Washington Post investigative team working on this? Where’s the New York Times investigative team working on this? They’re not!|
|Jeff Schechtman:||Do you think it’s the complexity of the story that keeps people away from it, or there are other reasons?|
|Dave Lindorff:||Well, look. In 2001, and I write about this briefly in the article… In 2001 on September 10th, which is a number people should sort of remember, Donald Rumsfeld, who is the Secretary of Defense at that time under George Bush Jr., he held a press conference to announce that his office had found $2.3 trillion in untraceable financial transactions, was the term he used, in the Pentagon’s budget. He said… Very sternly, he said, “This is a matter of life and death to find out what this is and what this money and transactions are about and,” he said, “the enemy, it turns out, of the United States, is not Russia or China. It’s the Pentagon bureaucracy.” Nobody had ever, except perhaps Eisenhower in his farewell address, said anything remotely as strong as that, critical of the Pentagon before that, and nobody’s said anything about it since then.|
|He didn’t know what it was. I’m speculating that maybe Mattis doesn’t know what it is either. I mean, how can you… I think the Pentagon’s sort of operating on autopilot and just boosting its budget all the time, which people like Mattis are happy about, and everybody else. They may not even know what they’re spending money on, because you can’t. I don’t know how you manage a thing like the Pentagon, when you don’t have books that you can rely on.|
|From the point of view of the Pentagon, it works. They keep getting more money, so what the hell? You know, they don’t run out. To your question about why it doesn’t get reported on, I think that since 2001, 9/11, the media has fallen on its face. It acts patriotic at the expense of truth, and they’re afraid of these kinds of accusations, both not supporting the troops and of buying into conspiracy theories.|
|The truth is $21 trillion over that period of time works out to about $1.5 trillion per year, and if you were… If that was actually money, as some ill-thought-out articles on the left and on the right have written, we would never have had any recessions. That would be an incredible amount of deficit spending into the economy every year. We’d have a lot of inflation, but we wouldn’t have any recessions. There’s no sign of that money flowing into the economy. It’s not real money.|
|Jeff Schechtman:||Dave Lindorff. His article, his cover story, in the Nation is “The Pentagon’s Massive Accounting Fraud Exposed”. Dave, I thank you so much for spending time with us here on Radio WhoWhatWhy.|
|Dave Lindorff:||Thank you for having me on and for letting me try to explain this thing.|
|Jeff Schechtman:||Well, thank you, appreciate it. Thank you for listening and for joining us here on Radio WhoWhatWhy. I hope you join us next week for another Radio WhoWhatWhy podcast. I’m Jeff Schechtman. If you liked this podcast, please feel free to share and help others find it by rating and reviewing it on iTunes. You can also support this podcast, and all the work we do, by going to whowhatwhy.org/donate.|