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Ocasio-Cortez’s Misguided Tweet

Rep.-elect Alexandria Ocasio-Cortez tweeted that $21 trillion worth of “Pentagon accounting errors” could finance two-thirds of Medicare for All. It can’t.

The misguided tweet is based on a tally by university researchers who found $21 trillion worth of untraceable transactions in the Department of Defense between 1998 and 2015. It’s a legitimate problem the Pentagon says it’s trying to fix. But transactions — which can be counted multiple times as they pass through accounts — are not the same as spending.

The U.S. actually spent a total of a little over $9 trillion on defense in those years. Even if the U.S. had eliminated the entire defense budget for those years, that wouldn’t cover two-thirds of  Medicare for All.

Ocasio-Cortez, an incoming Democratic representative, supports The Expanded and Improved Medicare for All Act, a House bill that would expand Medicare into a universal health care program. An Urban Institute analysis of a similar Medicare for All plan proposed by Sen. Bernie Sanders in 2016 put the cost to the federal government at about $32 trillion over 10 years. (While the federal government would pick up the tab, Ocasio-Cortez argues that Medicare for All would reduce health care spending overall.)

Those are the figures that underpin a Dec. 2 tweet from Ocasio-Cortez, who claimed two-thirds of the federal cost of Medicare for All could be funded by “$21T in Pentagon accounting errors.”

Unsupported Transactions

The misleading tweet cites a story in The Nation that includes the line, “In all, at least a mind-boggling $21 trillion of Pentagon financial transactions between 1998 and 2015 could not be traced, documented, or explained, concluded Skidmore.”

That’s a reference to research by Mark Skidmore, an economics professor at Michigan State University, and Catherine Austin Fitts, a former assistant secretary of the Department of Housing and Urban Development in the first Bush administration. The two looked into trillions of dollars’ worth of “unsupported journal voucher adjustments” identified by the Office of the Comptroller at the Department of Defense.

In a podcast on Dec. 2, Skidmore described “unsupported adjustments” as “essentially transactions that our own government says we can’t verify.” Skidmore and a small team of researchers tracked $21 trillion of such vouchers between 1998 and 2015 — an “almost unfathomable amount of money,” Skidmore said.

In his report, Skidmore writes, “The ongoing and repeated nature of the unsupported journal voucher adjustments coupled with the seemingly enormous size of the adjustments warrants the attention of both citizens and elected officials.”

In testimony before the House Armed Services Committee in January, David Norquist, the Pentagon’s comptroller, acknowledged that the amount of unsupported journal vouchers at the Pentagon is a “problem that needs to be fixed,” but he said characterizing it as lost money is inaccurate.

Norquist, Jan. 10: We have systems that do not automatically pass data from one to the other. So the Army goes in – and others — at the end of their financial statements, finds the number from their property book and writes it into their general ledger. That is called a journal voucher entry. Depending on the amount of property, that can be hundreds of billions of dollars. Because they don’t have adequate support for that journal voucher, the whole entry is considered unsupported. Now from a management point of view this is bad. It’s not the same thing as not being able to account for money that the Congress has given you to spend, but it’s still a problem that needs to be fixed. …
I wouldn’t want the taxpayer to confuse that with the loss of something like trillions of dollars, that wouldn’t be accurate. But it’s an accounting problem that does need to be solved because it can help hide other underlying issues.

Indeed, the discrepancies were behind a Department of Defense announcement last month that it failed its first-ever comprehensive audit, a massive effort undertaken by some 1,200 auditors.

“Though we were unable to achieve a clean (unmodified) opinion, the audit provides us with a powerful additional method to identify accounting and financial reporting issues as well as their root causes, target and develop corrective actions, prioritize business process reforms, and verify the proper remediation of audit findings,” Norquist wrote about the audit.

However, defense budget experts told us Ocasio-Cortez is misinterpreting what the $21 trillion figure identified by Skidmore represents. It is not an amount of missing or wasted money that could simply be reallocated to other government functions, such as health care.

“The whole thing is misleading,” said Todd Harrison, director of defense budget analysis at the Center for Strategic and International Studies.

The entire Department of Defense budget during the period of 1998 to 2015 was about $9.2 trillion dollars. That’s how much was actually spent, Harrison told us in a phone interview.

“They are talking about transactions,” Harrison said. “If money goes in one account, and it is transferred to a different agency. That money gets counted every time there’s a transaction, even if they are internal.” As a result, he said, Skidmore is double- and triple-counting the same funds.

In other words, said Travis Sharp, a research fellow at the Center for Strategic and Budgetary Assessments, “the $21 trillion figure counts the dollar value of accounting adjustments, not the dollars themselves, meaning a single dollar could be counted multiple times as it moves around.”

Sharp used the analogy of a married couple that has two separate checking accounts. “Each month, they move $100 dollars from one account to the other temporarily to meet the minimum balance requirement, but afterward they move the $100 back to the first account,” Sharp said. “After 12 months, how much money was involved in their adjustments? The most reasonable answer is $100. Using the technique employed to reach the $21 trillion figure, however, the answer would be $2,400 (i.e. $100 moves twice each month = $200 x 12 months = $2,400). This analogy illustrates the problem with thinking of the $21 trillion as wasted money, though clearly DoD must strengthen its accounting practices.”

No $21 trillion for Other Projects

Marc Goldwein, the senior vice president and senior policy director for the Committee for a Responsible Federal Budget, wrote to us via email that defense spending cuts would come nowhere near covering the cost of Medicare for All.

“Actually, over the next decade, defense discretionary spending is projected to total $7 trillion,” Goldwein said. “So even ELIMINATING defense spending – obviously a ridiculous notion even for the most anti-military politician – would only pay for about one fifth to one quarter of Medicare for all.”

Sharp noted that the Pentagon’s recent audit indicates the Department of Defense has $2.8 trillion worth of assets (see page 23). “So, you would have to sell everything DoD owns 8 times over to raise $21 trillion,” Sharp told us.

In fact, the Department of Defense has not received $21 trillion in (nominal) funding across the entirety of American history, said Christopher Sherwood, a Department of Defense spokesman. He pointed to historical budget data kept by the White House Office of Management and Budget (see Table 3.1), that shows defense spending from 1940 through 2017 came to a total of just over $17 trillion.

“Money Congress appropriates for DoD stays at the Department of the Treasury until they make a payment on behalf of DoD,” Sherwood told us via email. “Any funds that remain unspent at the end of the period of availability will remain at the Department of the Treasury and are no longer available to DoD at that point.”

It’s also wrong to assume the transactions represent improperly spent money.

“Just because the money can’t be traced, documented, or explained doesn’t mean that it is 100% wasteful and easy to cut,” Goldwein said. “… There is no way we can cut enough waste in defense to pay for a large share of Medicare for All.”

Harrison likened the unsupported transactions to an employee submitting an expense report at work, and not having all of the receipts. It doesn’t mean that the employee is attempting to defraud the company.

“The vast majority [in the defense budget] is legitimately spent,” Harrison said. “People may disagree with whether it was needed, but it was spent for the purpose that Congress appropriated it for.”

Sherwood, the Pentagon spokesman, said, “While DoD systems were designed to execute and report budgetary information, many were not originally designed to support private sector financial statement preparation, so this causes a significant number of adjustments.” And those adjustments can quickly accumulate to massive numbers over time. “If the person did not have time to do adequate research or if it was the valuation of older equipment where the records did not exist, then it would be an ‘unsupported adjustment,'” Sherwood said.

Sherwood said the Pentagon is “actively working to fix this problem by improving system interfaces.” But he said not to expect that it will result in any windfall of cash. “The savings it will create is by reducing the labor needed to manually enter the Journal Vouchers and reducing the time it takes to perform research, but that is it,” he said.

In a follow-up tweet, Ocasio-Cortez said that her point was “to say that we only demand fiscal details w/ health+edu, rarely elsewhere.”

But that’s not what her original tweet stated. Rather, it argued that “Pentagon accounting errors” could finance two-thirds of Medicare for All. And that’s simply not the case.

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$21 trillion in "Pentagon accounting errors" could finance two-thirds of Medicare for All.
Sunday, December 2, 2018