Pentagon spending growth outpaces auditors

http://www.washingtontimes.com/news/2008/oct/20/pentagon-spending-growth-outpaces-auditors/

Monday, October 20, 2008
Pentagon spending growth outpaces auditors
Jon Ward (Contact)

BIG GOVERNMENT SERIES: Second of three parts

Government reports are not known for plain language, much less candor. But in a report issued in March, Pentagon Inspector General Claude M. Kicklighter summed up what had been growing increasingly evident for years: Defense spending has been growing so rapidly that auditors can no longer keep track.

"We currently are not able to provide sufficient audit coverage of [Department of Defense] acquisition programs given the dollars expended by the department," Mr. Kicklighter wrote. "The rapid growth of the DOD budget since FY 2000 leaves the Department increasingly more vulnerable to the fraud, waste and abuse that undermines the department's mission."

Mr. Kicklighter's report noted that Pentagon spending had more than doubled during President Bush's two terms in office, rising from "less than $300 billion to more than $600 billion." Yet staffing levels in his department, which is charged with making sure money is not misspent, had "remained nearly constant."

The resulting lack of oversight is one factor in an explosion in government spending over the past eight years. As documented by The Washington Times on Sunday, the Bush administration, which came to office as the champion of small government, has presided over the largest expansion in the size of government since Franklin D. Roosevelt mobilized the country to overcome the Great Depression and then fight World War II.

• Big government gets bigger

Bush administration officials acknowledge the numbers, but argue that the spending was needed to address new security threats posed by Islamist terrorists.

In fact, more than $5 trillion has been spent in that cause since the Sept. 11 attacks on the World Trade Center and Pentagon. But a monthslong investigation and detailed examination of government audits show that much of that money was spent hurriedly, wastefully and without accountability.

In the view of the Government Accountability Office (GAO) - the auditing and investigative arm of Congress - the Pentagon's hunger for increasingly complex weapons and computer systems has made it particularly vulnerable to wasteful spending.

But similar problems exist in other security-related departments and agencies - including the Department of Homeland Security and the FBI - whose responsibilities and funding have ballooned since Sept. 11.

In one widely publicized case, the FBI contracted out for a new computer system in 2000 but changed the scope of the project after Sept. 11. As a result of complications and confusion, the program was scrapped in 2005 at a loss of $170 million to the taxpayer.

The FBI's procurement specialists were so ignorant of the technology required to build such a system that they were "largely at the mercy of the contractors," an inspector general's report found.

A lack of digital literacy also tripped up the Transportation Security Administration, a branch of Homeland Security that in 2002 called for a national high-speed computer network.

Its procurement specialists initially estimated the cost at $1 billion but later told auditors they had no idea what it would cost because they did not know how it would work. A few years later, the estimate had risen to between $3 billion and $5 billion.

The Homeland Security Department's inspector general's office also found that overbilling by contractors contributed to the overrun.

The federal government "has never had a greater need for agility, but has never seemed so thick with bureaucracy," said Paul Light, a New York University professor who studies good governance. "It has never had a bigger budget, but has never been so short on the resources to do its job."

The Bush administration in June pushed the 2008 federal budget over the $3 trillion mark on the back of its emergency war funding bill, a figure well in excess of any previous budget. Billions of dollars in new and proposed spending on financial rescue packages and stimulus deals are liable to drive the 2009 budget to $3.8 trillion or higher.

Whether adequate resources are available to monitor that spending is harder to quantify.

The White House said it has increased funding for inspectors general governmentwide by 70 percent, and added 2,000 contract specialists to government rolls. But the inspectors general at the Pentagon and FBI say their work forces have increased only slightly if at all while the spending they are required to monitor has soared.

The president's top budget officials were vague when asked why the Pentagon's oversight capability has not kept pace with the river of money flowing through that vast bureaucracy.

"There could be a number of answers, rather than just, they need more people," said Jim Nussle, the president's budget chief.

Undeserved bonuses

A big part of the problem has been the government's growing reliance on outside contractors to do work that an unwieldy and technologically unsophisticated bureaucracy is unable to handle itself.

A House committee's review of more than 700 reports by government watchdogs found "significant waste, fraud, abuse or mismanagement" in federal contracts worth a total of $1.1 trillion since 2002. Waste or fraud was found in 187 projects in the year 2006 alone, according to the report issued last year by the House Committee on Oversight and Government Reform.

"We need to have a whole lot more method to our procurement madness than we have today,"said Clay Johnson, who as the deputy director for management at the Office of Management and Budget (OMB) is the top administration official dealing with contracting issues.

Mr. Nussle, the OMB director, said contracting oversight "is an area that needs more attention."

Particularly egregious is the government's pattern of paying contractors bonuses for their work regardless of the quality of that work.

In December, the GAO found that the Pentagon had been "improperly paying awards and incentives attached to contracts. These are supposed to only be paid out for outstanding performances on contracts but are routinely paid out without regard to performance," the report said.

In one case, the U.S. Marine Corps paid General Dynamics more than $86 million in award fees and bonuses for a land and sea vehicle that repeatedly failed to perform in tests.

In fact, the price tag for the Expeditionary Fighting Vehicle project has gone from $8.5 billion for 1,025 units $13.2 billion for 593 vehicles, largely because of an ineffective design and a need for repeated retooling.

Mr. Light, the NYU professor, said the government's problem with contractors can be traced back to President Clinton and Vice President Al Gore's "reinventing government" project.

"I blame the Clinton administration for much of the trouble we face right now in the contracting process. They initiated the deep cuts in the acquisitions work force," he said.

But Elaine Kamarck, who established and oversaw the Clinton administration's reform of contracting from 1993 to 1997, called that claim "ridiculous."

"It's really a Bush administration problem. [Contracting] wasn't nearly as big under the Clinton administration," she said.

Contract spending has, in fact, more than doubled under Mr. Bush, from $203 billion in 2000 to $412.1 billion in 2006. In 2006 alone, federal money spent on jobs performed by contractors rose from $377.5 billion in 2005 to $412.1 billion, according to the report by the House Committee on Oversight and Government Reform.

More than half of these contracts were awarded with either little or no competition, opening the door to dishonest dealings by politicians and bureaucrats on the front end, and to escalating costs by contractors who have no sense of accountability on the back end.

In 2000, contracts worth $67.5 billion were awarded without "full and open competition," the House committee report said. By 2006, that number had risen to $206.9 billion.

Much of that reflects the growth in overall spending. Mr. Johnson, the White House management official, contended that the ratio of competitive contracts during the Bush administration had stayed at 64 percent throughout the two terms.

"There is no more or no less," he said.

Expertise lacking

The majority of federal contracting is performed through the Defense Department. In 2006, the department accounted for 72 percent of federal procurement, a total of $297.7 billion.

The Department of Energy is the second-largest contractor, with $22 billion in 2006 procurement.

Third largest is the Department of Homeland Security, which was forged from the merger of 22 separate departments and agencies in response to the Sept. 11 attacks.

Homeland Security has produced the largest jump in contract spending of any agency during the Bush presidency, with a 337 percent increase since its creation in 2002. Procurement at the department grew from $3.5 billion in 2003 to $15.1 billion in 2006.

But the Pentagon has experienced by far the biggest problems with spending, according to a March GAO report, which shows the Pentagon's weapons purchases have grown increasingly inefficient and wasteful over the past eight years.

In 2000, the final cost of weapons systems was just 6 percent above initial estimates. By 2007, that figure had risen to 26 percent.

Similarly, overruns on development costs rose from 27 percent in 2000 to 40 percent in 2007.

Behind these price jumps is a familiar problem. The Pentagon is increasingly relying on contractors to handle the design and purchase of complex computer-driven weapons systems because its staff members don't know how to do it themselves.

"At a time when weapon acquisitions are becoming more complex and larger in size, DOD is likewise relying more on contractors and other non-government personnel to help manage and oversee weapon system programs and their contractors," the GAO report said.

"How disinterested are they going to be in doing that job?" House Oversight Committee Chairman Henry A. Waxman, California Democrat, asked in an interview.

Contractors, the GAO said, are increasingly in charge of "developing requirements, designing products, and estimating costs," which has placed "greater risk on the government for fraud, waste and abuse."

"This increased reliance has occurred because DOD is experiencing a critical shortage of certain acquisitions professionals with technical skills as it has downsized its work force over the last decade."

Stan Soloway, who oversaw acquisition reform at the Pentagon under President Clinton, said that "the government has simply not kept pace with the increased role and importance and centrality of acquisition."

Procurement and acquisition traditionally have been viewed as support functions, said Mr. Soloway, who is now president of the Professional Services Council, a trade association for more than 300 contractor companies.

"Today it's a core part of the mission," he said. "We really need to elevate acquisition as a career field more than it is now."

Pressure to produce

Ron Utt, a senior research fellow at the Heritage Foundation, agreed.

"Many agencies have done very little competitive contracting, and so they don't know how to do it. And when they do it, they don't muscle up with competent people who are able to manage it," he said.

Procurement and effective project oversight are "highly valued" in the private sector, and case managers are expected to be experts about the products they are purchasing for their companies.

"You have yet to build anything close to that level of expertise or even a kind of job description that comes close to having that kind of capability in the federal government," Mr. Utt said.

The GAO reviewed 72 weapons systems for its March report. It found that 60 percent of the programs had to "reset" their original cost assessments because the Pentagon "lacked necessary knowledge to reasonably estimate the cost and time it would take to develop and produce the product."

"In most cases, programs also failed to deliver capabilities when promised," the report stated, finding an average 21-month delay in completion.

Mr. Johnson, the Bush administration's point man on procurement issues, said overpayments for weapons systems have gone down during the past eight years, but could not provide documentation for the claim.

"Nobody is pleased with where we are on these large, complex contracts ... but we are doing a better job today than we did before," he said.

Mr. Johnson did blame some overspending on pressure to perform in the post-Sept. 11 environment.

In many cases, he said, the normal deliberative process of buying a complicated weapons system or software program has been put on hyperdrive by the sense of immediacy sparked by Sept. 11 and by the uniqueness of the terrorist threat.

"The needs are great, both for the Defense Department and Homeland Security and so forth. Congress wants it yesterday. The American people want it yesterday," he said. "So there's a lot of pressure."

"We are facing an enemy nobody had identified before. ... Everybody is tending to make this up as we go along because there's no precedent for buying this, how to buy it, what's the best technology to use and what's the best way to buy it."

One other factor hindering the government is the growing age of its work force, which exacerbates its inability to tackle and master new technologies, Mr. Soloway said.

"The federal government does have a significant demographic problem," he said. "There are twice as many employees over 50 as under 30. ... The gap between the federal work force and technology is growing."

'Can of soda' test

The federal procurement system exists for one reason: to get the best value for taxpayers when the government goes shopping. But that mission is not getting accomplished.

Exhibit A: The FBI's first attempt at building an agencywide computer system failed so miserably that it couldn't even pass the "can of soda test."

"This test simply shows," the Justice Department's inspector general wrote in February 2005, "that if a can of soda were to be spilled on one of the servers, causing it to fail, that server's backup would also fail because it was located directly below and would also be damaged by the liquid."

The "Trilogy" system cost the FBI $170 million over five years. Then the agency decided to scrap it and start essentially from scratch.

The inspector general said that "Trilogy" failed in part because the agency's needs changed. The FBI began the project before the Sept. 11 terrorist attacks, and then was locked into a system that did not meet the needs of the agency's new directive, which was to focus more on fighting terrorism than crime.

But far more harmful was the FBI's failure to give clear and specific guidelines to their contractors - DynCorp, which later became Computer Sciences Corp. (CSC), and Science Applications International Corp. (SAIC).

"Trilogy's design requirements were ill-defined and evolving as the project progressed," the IG report said. "The FBI should have approached developing the Trilogy system from an engineering perspective rather than just by relying on what the system should achieve for the user."

But the FBI couldn't give the contractors hard targets, the report said, because it had "a lack of engineering expertise."

"The FBI was largely at the mercy of the contractors," the report concluded.

After the government gave up on its first $170 million try and began a second, $425 million attempt named "Sentinel," it gamely tried to bring in recent college graduates to get its work force up to speed on modern technology. But that only slowed things more and drove costs higher.

Security clearances for the recent graduates proved hard to come by. Two months after the FBI began its second attempt at a computer system, the Defense Security Service, which issues top secret clearances, completely stopped giving out any new clearances for six months in order to clear a backlog, the report said.

'Connectivity' disconnect

The GAO said in a May 8 report to the House Homeland Security Committee that the Department of Homeland Security must do much more to keep contractors accountable on "complex" deals.

The GAO cited the June 2007 example of a $52 million financial management program, eMerge2, that "lacked clear and complete requirements, which led to schedule delays and unacceptable contractor performance."

Homeland Security terminated the contract, and $52 million went down the drain.

In another case, TSA contracted with Unisys in 2002 to purchase a $1 billion national computer network with high-speed connectivity.

But the cost of that project quickly ballooned to more than $5 billion, and even two years after the contract had been awarded, "11 percent of large 'hub' airports and 100 percent of smaller 'spoke' airports were still using dial-up connectivity," said a February 2006 report by the Homeland Security Department's inspector general.

"Several TSA officials" told the IG, years after awarding the contract to Unisys that "they never expected to complete all of the contract objectives within the original contract ceiling and originally estimated that the contract could cost between $3 billion to $5 billion, but set the contract ceiling at $1 billion."

Once again, billions of dollars were wasted because government officials didn't understand the technology well enough to define their needs.

"They were challenged," the report said, "to accurately estimate a contract ceiling because the ... complexity of the technology required to secure the entire U.S. transportation system [was] unknown."

To make matters worse, Unisys "overbilled taxpayers for as much as 171,000 hours worth of labor ... by charging up to $131 an hour for employees who were paid less than half that amount."

Based on those figures, the overbilling by Unisys would come to more than $11.2 million.

The government procurement system, said Sen. Tom Coburn, Oklahoma Republican, is "broken, broken, broken."

"It's just a lack of common sense in what we do that the everyday American is appalled at it," Mr. Coburn said during an interview in his Capitol Hill office. "They have to say, 'Who are the idiots that are running this government?' "

Auditors needed

The answer to Mr. Coburn's question is "not enough auditors," if you ask the watchdogs, and the most dramatic example of that is at the Department of Defense.

"The ratio of DOD IG auditors to the Defense budget has declined significantly" as spending has exploded in response to Sept. 11, Mr. Kicklighter wrote in his March report.

In 2000, the Pentagon's IG had 615 auditors to review $287 billion in spending.

By 2007, the Pentagon had added 54 auditors - a 9 percent increase - while the amount of spending to be monitored bad burgeoned by 53 percent to $439 billion.

Put another way, in 2000 there was one IG auditor for every $467 million in spending. By 2007, each auditor was responsible for $657 million.

After his efforts to document the problem, Mr. Kicklighter resigned at the end of June, just over a year after taking the job.

The FBI's auditor is Justice Department Inspector General Glenn A. Fine, who told a congressional committee in 2007 that oversight at Justice was "significantly constrained" by the lack of growth in his agency over the past 15 years.

"We had 406 employees in 1992, and we have about the same number today," Mr. Fine told the Senate Homeland Security and Governmental Affairs Committee. "While the size of the DOJ OIG has remained flat, our responsibilities have increased dramatically."

Mr. Fine said the problems at Justice were "not dissimilar from many other OIGs."

"Many OIGs have been underfunded and are struggling to do all that is being required of them," he said.

Similar problems exist at the GAO, which is funded by Congress. GAO was pruned in the mid-1990s and has never been returned to its former size.

The GAO had 5,055 full-time employees in 1993, 4,578 in 1994, and 3,677 in 1996. The hemorrhaging continued until 2000, when the number of employees leveled off at 3,192.

Their numbers have stayed the same during the Bush administration, and are currently at 3,100.

David Walker, who ran GAO until his resignation in March, said in an interview that the office is more efficient than ever despite its reduced staffing.

"Don't let size deceive you. It's not just how big you are," Mr. Walker said. "GAO's a lot more effective organization today than it was in the past."

But GAO investigators complained privately to The Washington Times that they are in need of more personnel.

Mr. Walker said that GAO was slashed by the newly minted Republican majority in Congress in the 1990s because "there was a desire to reduce the size of government at that time and GAO was the largest agency in the legislative branch, so it wasn't going to go unscathed."

Mr. Waxman, who has worked aggressively to dig out Republican scandals since the Democrats regained the majority two years ago, charged that Republican ideology is driving the cuts.

"Oversight has been discouraged and accountability undermined," he said. "There seems to be an ideology at work that says government can do no right and private contractors can do no wrong."

As a result, Mr. Waxman said, "There aren't enough people in the government to monitor these contracts. That's an invitation to abuse and we've seen a tremendous amount of abuse. ...

"There are a lot of things we ought to contract out to have done, when it makes sense. If we get a lower price and better quality, certainly we ought to contract it out. But when we're overpaying through contracting ... that doesn't make sense to me."

Mr. Johnson, the OMB's deputy director for management, said that "the idea that there is a conscious effort to subcontract out is absolutely false."

"All we care about is what's best for the taxpayer," he said, adding that a competitive sourcing program has shown that the private sector can perform at a lower cost than the government 80 percent of the time.

• Tuesday: The future of limited-government conservatism