Fifty-four years ago, the brand-new Secretary of Defense Robert McNamara thought he could bring Pentagon spending on everyday items under control by applying efficiencies he had used to help turn around the Ford Motor Company.
Instead, he created a monster. McNamara’s creation, known as the Defense Logistics Agency, has grown into a global, $44-billion operation that, were it a private enterprise, would rank in the Fortune 50. Its 25,000 employees process roughly 100,000 orders a day for everything from poultry to pharmaceuticals, precious metals to aircraft parts. In terms of Pentagon contracts, it is nearly as large as Boeing and Lockheed Martin, the Pentagon’s largest contractors, combined.
Key Players
Air Force Lt. Gen. Andrew Busch is director of the Defense Logistics Agency. "Being audited... puts us in a position to more fully explain to the American public what we're doing with all of those dollars."
Denise Parker oversees DLA's audit readiness effort at its network of distribution centers. "When we started we didn't know how to check it as well as we do know."
Simone Reba is the DLA's deputy director of finance. "Stuff we thought should be on our books we didn¹t have it in our records. Our financial system was not reflecting the right inventory."
Sen. Charles Grassley, a senior member of the Budget and Finance Committees, has demanded the Pentagon undergo a full financial audit for years. "This broken accounting system isn't an option. The Constitution requires that we know where the money is spent."
Arnold Punaro is a retired Marine Corps general and the former staff director of the Senate Armed Services Committee. He believes that a major problem with DLA is that it¹s effectively a business "run by three-star [generals or admirals] with no management experience."
Mae Devincentis retired as the agency¹s vice director in 2012 after more than three decades at DLA. A major financial challenge for the agency, she says, is its sheer size. "When you get more missions you get a higher level of complexity."
Led by military officials with little or no private sector experience, DLA lacks the redeeming features of the lean and efficient business McNamara envisioned. A trail of inspector general reports show how DLA is systemically overcharged for parts. It buys things the military doesn’t need – like 80 years worth of aircraft frames for a plane that will likely be out of use long before then. The General Accounting Office in 2010 estimated that about half of the agency's inventory -- said to be worth nearly $14 billion at the time – is just taking up space.
"How do you buy $7 billion of stuff you don't need?" exclaimed Arnold Punaro, a retired major general in the Marine Corps Reserve who is currently overseeing a special task force on logistics for the Pentagon's Defense Business Board. "If a company did that they'd be out of business. Even Walmart."
Congress is now demanding that the entire Department of Defense undergo its first-ever financial audit. And DLA, which after three years of preparation says it is ready for a full scrub of its books, is the test case. A series of mock audits underway for three years demonstrate the enormous challenge.
“We found out the first year how much we really didn’t know,” Simone Reba, the deputy director of finance for the Defense Logistics Agency, said in an interview at the agency’s Fort Belvoir headquarters outside Washington. “Stuff we thought should be on our books we didn’t have it in our records. Our financial system was not reflecting the right inventory."
Even those who are intimately familiar with the Pentagon’s notorious reputation for waste are shocked by what the audits are finding – or rather not finding.
In some instances, DLA has recently found, there was simply no way to locate inventory. Remarked Reba: “It seems it would be pretty easy to track a fire truck."
Read more:
http://www.politico.com/story/2015/12/pentagon-investigation-billions-broken-by-design-216935
