Swell, $800 Million Unaccounted for Defense Department

Ah, an audit finally? Missing documentation but not the assets? What did the ledger show?

The Defense Logistics Agency is the Department of Defense’s logistics combat support agency, providing worldwide logistics support in both peacetime and wartime to the military services as well as several civilian agencies and foreign countries.

DLA employs about 25,000 employees. The agency’s headquarters is at Fort Belvoir, in Northern Virginia.

 

Exclusive: Massive Pentagon agency lost track of hundreds of millions of dollars

A damning outside review finds that the Defense Logistics Agency has lost track of where it spent the money.

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One of the Pentagon’s largest agencies can’t account for hundreds of millions of dollars’ worth of spending, a leading accounting firm says in an internal audit obtained by POLITICO that arrives just as President Donald Trump is proposing a boost in the military budget.

Ernst & Young found that the Defense Logistics Agency failed to properly document more than $800 million in construction projects, just one of a series of examples where it lacks a paper trail for millions of dollars in property and equipment. Across the board, its financial management is so weak that its leaders and oversight bodies have no reliable way to track the huge sums it’s responsible for, the firm warned in its initial audit of the massive Pentagon purchasing agent.

The audit raises new questions about whether the Defense Department can responsibly manage its $700 billion annual budget — let alone the additional billions that Trump plans to propose this month. The department has never undergone a full audit despite a congressional mandate — and to some lawmakers, the messy state of the Defense Logistics Agency’s books indicates one may never even be possible.

“If you can’t follow the money, you aren’t going to be able to do an audit,” said Sen. Chuck Grassley, an Iowa Republican and senior member of the Budget and Finance committees, who has pushed successive administrations to clean up the Pentagon’s notoriously wasteful and disorganized accounting system.

The $40 billion-a-year logistics agency is a test case in how unachievable that task may be. The DLA serves as the Walmart of the military, with 25,000 employees who process roughly 100,000 orders a day on behalf of the Army, Navy, Air Force, Marine Corps and a host of other federal agencies — for everything from poultry to pharmaceuticals, precious metals and aircraft parts.

But as the auditors found, the agency often has little solid evidence for where much of that money is going. That bodes ill for ever getting a handle on spending at the Defense Department as a whole, which has a combined $2.2 trillion in assets.

In one part of the audit, completed in mid-December, Ernst & Young found that misstatements in the agency’s books totaled at least $465 million for construction projects it financed for the Army Corps of Engineers and other agencies. For construction projects designated as still “in progress,” meanwhile, it didn’t have sufficient documentation — or any documentation at all — for another $384 million worth of spending.

The agency also couldn’t produce supporting evidence for many items that are documented in some form — including records for $100 million worth of assets in the computer systems that conduct the agency’s day-to-day business.

“The documentation, such as the evidence demonstrating that the asset was tested and accepted, is not retained or available,” it said.

The report, which covers the fiscal year that ended Sept. 30, 2016, also found that $46 million in computer assets were “inappropriately recorded” as belonging to the Defense Logistics Agency. It also warned that the agency cannot reconcile balances from its general ledger with the Treasury Department.

The agency maintains it will overcome its many hurdles to ultimately get a clean audit.

“The initial audit has provided us with a valuable independent view of our current financial operations,” Army Lt. Gen. Darrell Williams, the agency’s director, wrote in response to Ernst & Young’s findings. “We are committed to resolving the material weaknesses and strengthening internal controls around DLA’s operations.”

In a statement to POLITICO, the agency also maintained it was not surprised by the conclusions.

“DLA is the first of its size and complexity in the Department of Defense to undergo an audit so we did not anticipate achieving a ‘clean’ audit opinion in the initial cycles,” it explained. “The key is to use auditor feedback to focus our remediation efforts and corrective action plans, and maximize the value from the audits. That’s what we’re doing now.”

Indeed, the Trump administration insists it can accomplish what previous ones could not.

“Beginning in 2018, our audits will occur annually, with reports issued Nov. 15,” the Pentagon’s top budget official, David Norquist, told Congress last month.

That Pentagon-wide effort, which will require an army of about 1,200 auditors across the department, will also be expensive — to the tune of nearly $1 billion.

Norquist said it will cost an estimated $367 million to carry out the audits — including the cost of hiring independent accounting firms like Ernst & Young — and an additional $551 million to go back and fix broken accounting systems that are crucial to better financial management.

“It is important that the Congress and the American people have confidence in DoD’s management of every taxpayer dollar,” Norquist said.

But there is little evidence the logistics arm of the military will be able to account for what it has spent anytime soon.

“Ernst & Young could not obtain sufficient, competent evidential matter to support the reported amounts within the DLA financial statements,” the Pentagon’s inspector general, the internal watchdog that ordered the outside review, concluded in issuing the report to DLA.

The accounting firm itself went further, asserting that the gaping holes uncovered in bookkeeping procedures and oversight strongly suggest there are more.

“We cannot determine the effect of the lack of sufficient appropriate audit evidence on DLA’s financial statements as a whole,” its report concludes.

A spokeswoman for Ernst & Young declined to respond to questions, referring POLITICO to the Pentagon.

Grassley — who was fiercely critical when a clean audit opinion of the Marine Corps had to be pulled in 2015 for “bogus conclusions” — has repeatedly charged that “keeping track of the people’s money may not be in the Pentagon’s DNA.”

He remains deeply doubtful about the prospects going forward given what is being uncovered.

“I think the odds of a successful DoD audit down the road are zero,” Grassley said in an interview. “The feeder systems can’t provide data. They are doomed to failure before they ever get started.”

But he said he supports the continuing effort even if a full, clean audit of the Pentagon can never be done. It is widely viewed as only way to improve the management of such huge sums of taxpayer dollars.

“Each audit report will help DLA build a better financial reporting foundation and provide a stepping stone towards a clean audit opinion of our financial statements,” the agency maintains. “The findings also improve our internal controls, which helps to improve the quality of cost and logistics data used for decision-making.”

The WH, DHS and State Taking on a Higher Middle East Threat

We have been making demands to list the Muslim Brotherhood as a terror organization for years. While other allied nations have taken a more aggressive posture with listing the Muslim Brotherhood as a threat, the United States remains uncommitted. Are some pieces beginning to line up for national security?

The State Department is at least taking ‘some’ steps however in the right direction, but it regards Egypt.

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Foreign Ministry Spokesperson Ahmed Abu Zeid welcomed the decision made by the United States to include the groups of “Hasm” and “Lewaa El-Thawra”, affiliated with the Muslim Brotherhood terrorist organization, on the US list of terrorist organizations. He regarded the decision as a positive development in the recognition of Egypt’s international partners, primarily the UnIted States, of the danger the Muslim Brotherhood and its offshoots pose to the security and stability of Egypt and its people.

 The Spokesperson added that the US decision is a practical display of solidarity with Egypt against terrorism, and the despicable attempts that aim to hinder its developmental trajectory and economic launch. This stance was recently expressed by the US officials at the highest levels, and represents an important step forward towards adopting an international comprehensive and effective strategy to eradicate and root out terrorism.

Okay, that is a good thing. But there are a few more piece of news to add.

A Department of Homeland Security draft report from late January called on authorities to continuously vet Sunni Muslim immigrants deemed to have “at-risk” demographic profiles.

The draft report, a copy of which was obtained by Foreign Policy, looks at 25 terrorist attacks in the United States between October 2001 and December 2017, concluding there would be “great value for the United States Government in dedicating resources to continuously evaluate persons of interest” and suggesting that immigrants to the United States be tracked on a “long-term basis.”

The CBP draft report comes on the heels of a controversial study by DHS and the Justice Department, released on Jan. 16, which claimed that three out of every four individuals convicted of international terrorism or terrorism-related offenses were immigrants. Critics have charged that the joint report had serious methodological issues and cherry-picked the data to justify the Trump administration’s restrictive immigration policies. Read more here for context.

What is the Trump administration coming to learn that the previous administration refused to address?

Following the events of September 11, 2001, the Iranian Revolutionary Guard helped relocate al-Qaeda members and leadership by providing them with new clothes, shoes, Iranian passports and money.

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These details were discovered in a series of letters from the al-Qaeda communication officer Atiyyatullah al-Libi, whose real name is Jamal Ibrahim al-Shtaiwi al-Musrati. He was appointed by Osama bin Laden himself as an al-Qaeda envoy in Iran.

The letters also reveal the nature of the cooperation between Iran and one of the al-Qaeda fighting factions in Libya.

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Letters from a member of the Libyan al-Qaeda fighting groups called Nader, addressed to Atiyyatullah al-Libi who in turn informed bin Laden about its content, showed that the Iranian regime’s approach to its international relationships is based on interests, not friendship.

This is what the Iranian Revolutionary Guard confirmed in a meeting with Nader while arranging for his departure from Iranian territory in 2007. They said: “We have no friends in the world, even the place you are going to, there are only common interests between us.”

According to the letter, this took place at the headquarters of al-Qaeda leaders and the al-Zarqawi group in one of the compounds dedicated for them.

An Iranian passport and a warning not to return

At the end of these discussions, the Revolutionary Guards granted the al-Qaeda fighter, Nader, an Iranian passport with an entry stamp, according to the letter. He added that he met a “Kurdish brother” who lent him a sum of money, after which al-Qarry (an al-Qaeda leader who was killed by an unmanned US drone in Afghanistan in 2017) sent him another $1,080.

Al-Masry becomes Ayman al-Zawahiri’s deputy in Syria

The escape was in 2007, as mentioned in a letter from Atiyyatullah to Osama bin Laden which was found as part of what is known as the Abbottabad files.

Nader remained in Iran along with Abu al-Khair al-Masry and Muhammad Rajab Abdul Rahman, the second-highest ranking commander of al-Qaeda.

“Abdulhadi al-Libi left a week before me, and I do not know anything about him. As for Abdullah Rajab, he stayed with us for a year and 4 months, while his family stayed in a house in Zahedan, which made him psychologically ill. But after a year and 4 months, they reunited him with his family and told him you have to stay here,” Nader said.

Despite the fact that Iran kept Abu al-Khair al-Masry for more than a decade and a half, the Revolutionary Guard sent him to Syria in 2013 as a deputy of Ayman al-Zawahiri who was the top leader of al-Qaeda. Al-Masry was killed in Idlib, north of Syria, in 2015.

Al-Qaeda recruitment and the move to Syria

The Iranian’s coordination with the Syrian regime in recruiting al-Qaeda elements, and directing them according to the common interests of both parties, was revealed in a letter showing parts of negotiations between the Iranian Revolutionary Guard and a number of al-Qaeda factions in Evin prison.

Nader reunited with al-Qaeda members in Evin prison three weeks before he was released, and they were all sent to a “secret location”.

Bin Laden’s companions and al-Zarqawi

Iran’s Evin prison was not limited to Osama bin Laden’s companions and fighters, it also housed the al-Zarqawi group, including Abu al-Qasim, known as “Khaled Al Arouri”, al-Zarqawi’s assistant who is currently based in Syria and is part of what is known as the Khorasan Qaeda group.

This group’s leaders moved from Iran to Syria in 2013. The prison also housed the Yemeni Ali Saleh Hussein, known as “Abu al-Dahak”, who was close to Osama bin Laden, and was the link between al-Qaeda and its supporting organizations in Chechnya.