Defense Secretary James Mattis made some frank remarks about the Pentagon's budget woes last month. “I cannot right now look you in the eye and say that we can tell you that every penny in the past has been spent in a strategically sound manner,” he said during a speech to graduating Air Force cadets in Colorado Springs, CO. “And so, this year, for the first time in 70 years, the Pentagon will perform an audit.”
The idea is simple, in theory: get some outsiders (1,200 accountants and some big-name firms) to scrutinize the books to identify where the money goes. But the process promises to be a painful exercise for the Pentagon, which has struggled to manage its $700 billion annual budget. Big-ticket items have the biggest cost overruns, most notably the F-35 Lightning II. But even well-run programs, like the effort to create the new B-61-12 nuclear bomb, have baseline discrepancies that run into the billions.
As we await the Defense Department’s big audit, here's what we know about why the Pentagon can't control it's spending.
We Don’t Know What Things Cost
Suppose you're making a grocery list and want to estimate your food expenses. You might list the cost of each item in a column and then add them up. But now imagine you are guessing at the prices of each item, taking into account fluctuating data like the cost of industrial supplies and the rate of monetary inflation. Plus, the recipe you’re shopping for may change, and the ingredients may require some extra test batches in the kitchen. Now you're starting to shop like the Pentagon.
The Government Accountability Office released a report last month scrutinizing the cost of America's new nuclear bomb, the B-61-12. This is a modernization program by the Pentagon and National Nuclear Security Administration (NNSA) intended to consolidate four nuclear weapon variants into one bomb. The report mentions two estimates: a $7.6 billion price tag calculated by the Pentagon, and an independent NNSA estimate that adds up to $10 billion.
A $2.4 billion gap is real money, even for the Pentagon. Yet the GAO said both figures are correctly tabulated and gave the program high marks for using best accounting practices. How can that be? It turns out that professionals can count the costs in different ways, and both ways can be considered accurate.
Click here for the full story, on the Popular Mechanics website.