Army funds mishandled, GAO says Millions paid in error to soldiers, contractors in 1992

THE BALTIMORE SUN

An article in yesterday's editions of The Sun about an inadvertent Pentagon payment of $751 million incorrectly attributed the information to a GAO audit of the Army. The information actually came from a GAO audit of the Department of Defense.

The Sun regrets the error.

WASHINGTON -- The military payroll system is so badly managed that the Army inadvertently paid $6 million last September to 2,269 people who had already quit the service, were absent without leave or had deserted their units, congressional investigators said yesterday. In one case, even a dead deserter was sent a paycheck.

And in the first six months of the current fiscal year, the Pentagon recovered $751 million that it had mistakenly paid to military contractors, said investigators who conducted a sweeping audit of the Army's 1992 books. Some of the contractors voluntarily refunded the money, handing back $478 million.

"What this indicates is you've got a system that's really out of control," said U.S. Comptroller General Charles A. Bowsher, who heads the General Accounting Office, the investigative arm of Congress. "It's a big problem, but you don't know how big the problem really is."

His disclosures at a Senate Government Affairs Committee hearing on the Pentagon's financial management problems shocked, angered and frustrated members of the panel, many of whom said they are beginning to lose hope that the Pentagon will ever get its finances in order.

"This is enormously depressing," declared Sen. Byron Dorgan, a North Dakota Democrat. "It's almost scandalous incompetence and an enormous waste."

Sen. John Glenn, who chairs the committee and holds annual hearings on financial management issues, decried "a terrible squandering of tax dollars" and scolded military and civilian defense officials at the hearing. Despite repeated admonitions from Congress to improve the handling of public funds, the Ohio Democrat said, "this has gone on year after year after year, and we've been ignored on this."

Defense Secretary Les Aspin tried to deflect the criticism by distributing a news release announcing the creation of a financial management oversight council. The panel, made up of top Pentagon and military financial officers, would "develop solutions major financial management problems within the department," the announcement said.

'Weaknesses in controls'

Mr. Bowsher told senators that the Pentagon was plagued by "weaknesses in fundamental controls . . . that have led to millions of dollars of losses and inefficiencies." He released part of the audit of the Army's books showing that some of the severest problems were in payroll and bill paying.

The GAO audit revealed that the Pentagon's computerized payroll system used to pay soldiers made $6 million in unauthorized payments in September to 2,269 people who were not entitled to compensation. These included deserters, soldiers who were AWOL or suspended from pay, and 1,219 who had quit the Army or left because of military cuts -- some gone for more than 100 days, according to GAO investigators and Army officials.

In one instance, a female sergeant major who quit the Army on Sept. 25, 1991, continued to receive full pay through May 15 this year, collecting $69,500 "simply because controls were not sufficient to ensure that she was removed from the payroll

system upon her separation," Mr. Bowsher said.

The Army is trying to recover the money from her and other recipients.

Army criminal investigators are looking into an embezzlement scheme linked to the paycheck mess in which a finance office clerk allegedly used phony documents to put a fictitious, or "ghost," soldier on the payroll. The unidentified clerk, who exploited weaknesses in the accounting system, diverted more than $31,000 from that fake soldier's monthly pay to his own account, Mr. Bowsher said.

Army officials surprised

Pentagon officials conceded that the misdirected paychecks surprised Army managers and officials at the Defense Finance and Accounting Service, the agency that actually cuts the checks to pay wages and bills from military contractors. The agency, which reports to the Pentagon comptroller, was created in January 1991 to consolidate the finance and accounting centers that were run by the military services.

The $6 million figure came from sampling one month's payroll and personnel records, so the Army probably paid a lot more last year and in previous years to people who were not entitled to it, Mr. Bowsher said. No one was comparing accounting service payroll and Army personnel records to prevent or detect such payments, he said.

"What is so disturbing about this situation is that there were clear indications that these kinds of payroll irregularities potentially existed, but DFAS did not follow up on them until we repeatedly brought this situation to its attention," Mr. Bowsher said.

The Army has opened a criminal investigation into the people who have received the paychecks in case there was fraud involved, said an Army spokesman, who noted that this group amounted to only 0.3 percent of the active-duty Army at the time.

Meanwhile, efforts are under way to change computer software to check payroll records against personnel records every month, something the Army used to do routinely when it ran its own payroll operation, the spokesman said.

Mr. Bowsher said inquiries have been sent to all the recipients to ask why they were getting Army paychecks, but 500 either refused to respond or cannot be found.

The improper payment of at least $751 million to military contractors was attributed by the GAO to yet another failure to check financial transactions against the records.

Gary Amlin, a senior official at the defense accounting service, told senators that military files appeared to have been lost in the consolidation of the finance centers, making it difficult to reconcile assorted invoices and records.

"It's difficult and unfortunate, but hopefully we'll get these things under control and you will not hear about this again in the future," said Mr. Amlin, whose agency has hired the accounting firm of Coopers & Lybrand for $6 million to help resolve the problem.

Lt. Gen. Merle Freitag, the Army comptroller, defended the service's management performance, citing the Army's careful return of equipment from the Persian Gulf and Europe to the United States as a success story.

The senators remained skeptical, if not cynical. "Unless we take active aggressive measures now, I don't see any hope," said Sen. William S. Cohen, a Maine Republican.

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