How Obama Won

November 5, 2008

The M & M Strategy

How Obama Won

By CHUCK SPINNEY

Counterpunch

http://www.counterpunch.org/2008/11/05/how-obama-won/

The M&M or Motherhood and Mismatch Strategy was conceived by the American strategist, Col. John R. Boyd.   The basic goal of an M&M strategy is to build support for and attract the uncommitted to your cause by framing a “motherhood” position -- i.e., a position no one can object to, like the mythical “motherhood, apple pie, and the American way” -- and then inviting  your opponent in to repeatedly attack it and, in so doing, smash himself to pieces at the mental and the even more decisive moral level of conflict.  Self-destruction will happen inevitably, if you can successfully induce your adversary into attacking your motherhood position in a way that exposes mismatches among the three poles of his moral triangle, defined by (1) What your opponent says he is; (2) What he really is as defined by his actions; and (3) the World he has to deal with.  Whether consciously or not, I believe Obama has an intuitive feel for the moral leverage inherent in the M&M strategy and this  enabled him to outmaneuver McCain and his campaign and bring them to the verge of mental and moral collapse.  That Obama also did this to Hillary Clinton suggests it is no accident.

The key to setting up a successful M&M strategy is building the Motherhood position, then making it into a moral fortress.  This is easier said than done, because it involves defining your cause nontrivially in self-evidently positive terms and then shaping the environment as well as your self-definition in a way that always reinforces that motherhood position.  Mr. Obama defined himself initially as a unifier and a change agent for a divided country in which a  clear majority of people believed their nation was on the wrong pathway into the future.  Who can argue with that definition? To be sure, it is an empty vessel, but it is pure motherhood, and it works like a charm if you can maneuver your adversary into playing by your rules.

Obama skillfully used passionate, uplifting oratory to energize mass demonstrations to set the initial self-definition in the public mind and to build enthusiasm and momentum, and then he demonstrated coolness under pressure and carefully crafted oratory to reinforce that motherhood position with his self definition.  Sometimes he did this subliminally, as  in his speech at Cooper Union, which led historian Gary Wills to dutifully compare Obama’s speech to Lincoln’s speech at Cooper Union.  And sometimes Obama was more direct, as in his thoughtful Philadelphia speech which converted the Wright affair into a larger discussion of how racism affects whites as well as blacks.

Obama put the final touches on this self definition in the debates and capped it off in a brilliantly produced “infomercial.”  But while he was making subliminal appeals to Lincoln and direct appeals to man’s better angels, Obama also baited McCain to attack him, usually subtly with the political equivalent of a rope-a-dope jabbing operation.  He constantly compared McCain’s votes in the Senate to Bush’s record and made fun of the contradictions implicit in McCain’s positions.  Occasionally Obama’s jabs were  brazen, e.g., when he publicly dared  McCain to bring up the Ayers connection before the third debate.  McCain foolishly went for that red cape and in so doing diminished himself in front of millions.  

A key aspect of Obama’s tactical jabs is that they were never hateful and almost never personal, unless legitimated as tit for tat by McCain’s personal guilt-by-association attacks on Obama. Instead, Obama’s tactical jabs were usually focused on contradictions implicit in McCain’s actions and campaign speeches, which McCain, being of a belligerent nature, obligingly took personally.   In retrospect, it is now clear that Obama’s actions never deviated from his motherhood image of being a coolly competent unifier intent on changing the status quo.  He reinforced that definition with disciplined behaviour that was always consistent with the three poles of his own moral triangle, even when exogenous events intervened in the world he had to deal with, which became especially clear during the financial panic, which he exploited simply by stepping back and keeping his cool. 

The contrast between Obama’s M&M strategy and McCain’s behavior was stunning.  Obama, a newcomer and virtual outsider, used uplifting, albeit vague, oratory to shape the popular environment in a way that reinforced his own self-definition.  In contrast, McCain, like Hillary before him, is a creature of the Washington status quo, a known quantity.  And like Hillary, he chose to echo Obama’s call for change.  So, he fell into the same trap and signed on to Obama’s definition of Motherhood  -- unity and change.   It was a trap, because McCain’s definition of motherhood, like Hillary’s, was illogical at its core -- McCain’s argument implicitly asked voters to buy the following gibberish:  ‘I am an experienced creature of the status quo in a country where a large majority of you believe it to be dangerously divided and on the wrong pathway into the future, but my experience  (in helping to create this status quo?) makes me the better qualified to achieve the Motherhood goal (which the inexperienced outsider had the temerity to establish?).’   

Borrowing your adversary’s motherhood position is not the best way to kick off your own M&M strategy.

It is now clear that an M&M strategy was not McCain’s intention, even though he signed up for Obama’s game.  To see why, let us examine McCain’s strategic triangle in the context of his fundamentally weak starting point.  Bear in mind, the triangle is a clean abstraction; reality is of course messier, categories overlap and sharp distinctions always fade into penumbras in the real world.  Nevertheless, I think applying this abstraction can be a useful analytical tool to clarify our appreciation of why the M&M strategy can be so powerful in Obama’s case and so destructive in McCain’s case: 

(1) What McCain says he is:  McCain, being a well-known creature of the establishment, had less maneuver room in which to define himself than Obama.  He chose to expand the myth he had assiduously created for himself by defining himself as a man of honor with the wisdom born of hard experience, as an independent maverick, and as a super patriot whose most basic moral value was to put country ahead of self interest no matter what the cost.  Indeed “Country First” was the bumper-sticker of his campaign.  

(2) What McCain Really Is:  McCain’s own actions, which define who the man he really is, contradicted his own self-definition over and over again, and to an increasingly sharp degree. Consider, please, the following: (a) By going negative with personal attacks that increasingly relied on McCarthyesque, guilt-by-association oratory, McCain and especially his running mate, Sarah Palin, tried to destroy Obama’s character by attacking his motives, patriotism, and even making oblique references to Obama’s otherness (code for race).  In effect, McCain shouted to the world that he was just another Rovian attack dog, that he was more of the same, and not the change agent he claimed to be.

Moreover, while McCain violated his own claim of being a change agent, his smarmy attacks left Obama’s definition of motherhood entirely intact, unquestioned, and probably reinforced.   (b) By sowing division in the country, pitting region against region, town against city, real Americans against not-real Americans, and even inciting violent mob-like attitudes in the minds of supporters, McCain and especially Sarah Palin contradicted McCain’s own self definition of putting country before self interest. (c) By picking Sara Palin as his running mate, he chose a person who is manifestly not ready to become president, should McCain die in office.  This decision not only reinforced the violation of  his self definition of putting country before self, it also contradicted his self definition of being an independent maverick, because the choice of Palin was obviously a sop to the right wing base of the Republican party.  And, to make matters worse, the choice of Palin contradicted his self definition of wisdom under pressure forged in the fires of experience, because even though he had from March until August to choose a running mate, he converted that important decision into an impulsive crapshoot at the last minute, in effect betting on snake eyes, without considering the mathematical odds shaping that outcome. 

(3) Now let’s look at the world McCain had to deal with: i.e., coping with the strategic maneuvers of Obama as well as the exogenous events that always intervene from time to time, most important being the financial meltdown.  As noted above, like Hillary Clinton, McCain fell into Obama’s trap by defining motherhood in Obama’s terms.  The strategic consequence was profound:  To win, McCain, like Hillary before him, had two options: He could take the high road and play the game on Obama’s terms in the hope that he could beat an obviously intelligent Obama intellectually, or that Obama would loose his cool and destroy himself by attacking McCain in a way that contradicted the three legs of Obama’s own strategic triangle.  Or ... McCain could take the low road, and willfully violate the terms of his own strategic triangle in the hope that he could destroy Obama in a brutal head-on personal attack, before the consequences of the violation came back to haunt him.  

The first option held little promise of success for McCain, because Obama had been carefully reinforcing the legs of his own strategic triangle for at least a year and a half, and he had honed his defenses against his own self-destructive temptations during his epic struggle with Hillary Clinton.  There is no evidence that McCain ever understood the nature of the strategic choice Obama had maneuvered him into facing.  Whether McCain realized it or not, he chose the second strategic option which, in military terms, turned out to be the antithesis of Sun Tzu’s advice to always focus your strength against your adversary’s weakness.  McCain, like Hillary, chose to risk weakening  his own strategic triangle with a welter of unfocused tactical assaults, which played directly into Obama’s strength.  In effect, what passed for “strategy” in the McCain campaign was to mindlessly throw everything at Obama in the hope of landing a lucky punch.  

But a welter of Hail Mary attack thrusts is not a strategy in any real sense; it is merely an unfocused jumble of disconnected tactics.  And if one’s opponent is clever at playing the M&M game, these lunges become a prescription for self-immolation.  As the futility of each assault became apparent, McCain switched tactics in what became a mess of increasingly desperate attempts to connect with something that worked -- Ayers, Joe the Plumber, Obama is a socialist, Obama is a wealth spreader, back to Joe the Plumber, etc -- all conveying the impression of flailing around in a futile search to find some combination, any combination, of lucky punches that would score.

 McCain’s mindless desperation came into especially sharp relief when  the exogenous effect of the financial meltdown intruded and tempted McCain into committing a grandstanding  stunt that quickly became an embarrassing debacle.  McCain first made a big deal of publicly postponing his participation in the third debate for the “sake of the country,” then he sowed confusion by rushing to Washington to build a bipartisan consensus, but while in Washington, he did nothing to fix the problem or build a consensus.   Then he reversed course saying things were fixed enough, so he could participate in the debate.  So much for his claim of wisdom born of hard experience.  Meanwhile, Obama stood by coolly while the flailing McCain flung himself off the cliff.

While there are many other examples I could cite, I think it is clear that McCain’s decision to emulate Hillary and take the low road fit into Obama’s M&M strategy like a hand fits into a glove: McCain used his own energy to bash his own moral triangle to pieces.  Not surprisingly, his mental game degenerated  into confusion and disorder, but more importantly, he destroyed himself morally.  And in so doing, it was McCain who made the best case demonstrating why he was unfit to be President:  Like most fighter pilots -- Boyd being a stunning exception -- McCain could not or would not think beyond tactics.  Notwithstanding any personal bravery he may have demonstrated earlier as a naval officer, his ineptitude in the strategic game, which became clearly evident in his duel with the wily Obama, proved that he is morally and mentally unfit to be a successful Commander in Chief.

Obama, on the other hand, proved again that he is a master of the strategy game, and being an effective leader -- President as well as Commander in Chief -- is all about strategy.  

In terms of Colonel Boyd’s Moral Design for Grand Strategy -- his M&M strategy, McCain strove to benefit himself by violating codes of conduct and standards of behavior he professed to uphold and others expected him to uphold, and  in so doing he destroyed himself at the mental level of competition by corrupting his own decision-making process.  At the moral level of competition, McCain dishonored himself by letting his ambition destroy the very identity he had so assiduously built since the early 1980s.  Only in his concession speech did he seek to recover that identity.

But a larger question remains:  Does Obama really intend to deliver on his twin promise of unity and change.  Neither of his main adversaries in the race for President had the strategic sense or the ability to smoke out how Obama actually intends to fulfill the soaring hopes and dreams that his M&M strategy unleashed.  An early indicator of his real intentions will become clear when he name his Treasury Secretary and Defense Secretary.   If he picks one of the democratic apparatchiks or ex-Clintonites who magnified existing problems that Bush made worse, Obama’s presidency will become just another step down the slippery slope that got its first real greasing by the guns and butter decision-making style of the Vietnam War.

The Art of Nonlearning in the Real World

Chuck Spinney

Huffington Post

April 17, 2008

http://www.huffingtonpost.com/chuck-spinney/the-art-of-nonlearning-in_b_97305.html

The Bush administration's theory and practice of grand strategy can be summarized by the sound byte, "You are either with us or against us." But the art of grand strategy is far more subtle than this. The late American strategist, Col John R. Boyd (USAF Ret) evolved five criteria for synthesizing and evaluating a nation's grand strategy. [A compendium of Boyd's work can be found here.]

From the perspective of the United States, Boyd argued that we should shape domestic policies, foreign policies, and military strategies so that they:

• pump up our resolve and increase our solidarity,
• drain away the resolve of our adversaries and weaken their internal cohesion,
• reinforce the commitments of our allies to our cause and make them empathetic to our success
• attract the uncommitted to our cause or makes them empathetic to our success
• end conflicts on favorable terms that do not sow the seeds for future conflicts

These criteria can be thought of as guidelines for evaluating the wisdom of specific policies or actions. But it is obviously difficult to define policies that simultaneously conform to and strengthen to all these criteria. The challenge is particularly difficult for the unilateral military strategies and the coercive foreign policies so popular with the self-referencing foreign policy elite on both sides of the aisle. Military operations and political coercion are often destructive in the short term, and these destructive strategic effects can be in natural tension with the aims of grand strategy, which should be constructive over the long term.

Moreover, the more powerful a country, the harder it becomes to harmonize the often conflicting criteria for a sensible grand strategy. Overwhelming power breeds hubris and arrogance which, in turn, carry a temptation to use that power coercively and excessively. But lording over or dictating one's will to others breeds resentment. Thus, possession of overwhelming power increases the risk of going astray grand strategically.

That risk is particularly acute for aggressive external actions, policies, and rhetoric that are designed to prop up or increase internal cohesion for domestic political reasons. Very often, the effects or military strategies or coercive foreign policies that are perceived as useful in terms of domestic political cohesion backfire at the grand-strategic level because they strengthen our adversaries' will to resist, push our allies into a neutral or even an adversarial corner, or drive away the uncommitted ... which together, can set the stage for continuing conflict.

The German invasion of France through neutral Belgium in 1914 is an classic example of how a policy shaped by inwardly focused strategic considerations (in this case, an inordinate fear of isolation and a two front war) can induce a self-referencing leadership elite into perpetrating a grand strategic disaster on the most colossal scale for the most "rational" of reasons.

Germany was not trying to conquer Belgium or France in WW I. But she became obsessed with the idea that it was necessary to attack and defeat the French army very quickly in order to knock France out of the war before France's Russian ally could mobilize in the East. But the Franco-German frontier was heavily fortified, so the German leadership elite thereby convinced itself of the strategic need to avoid these fortifications by invading small neutral Belgium. But the obsession with military strategy blinded the military planners and Kaiser to the grand strategic effects of such an invasion. In the event, the invasion of Belgium enraged the civilized world. It handed the British a propaganda windfall that the Brits milked to the hilt.

Over the next four years, the Brits successfully constructed an image of Germany as being an unmitigated evil force (which was not the case in World War I). This, combined with continued grand strategic obtuseness on the part of German elite (e.g., the Zimmermann Telegram, unrestricted submarine warfare, etc.), served to effectively isolate Germany at the grand strategic level.

Even America, with its large German population and considerable anti-British sentiment, rejected its long tradition of neutrality and joined Germany's enemies. No doubt the British grand strategic success during the war also helped also to fuel the arrogance that led to the excessively vindictive atmosphere at the Versailles Peace Conference in 1919, which ended the conflict on onerous terms that helped to sow the seeds of future conflict. By deviating from the criteria of sensible grand strategy in victory, Britain, together with Italy and France, inadvertently helped to pave the way for the emergence of true evil in the form of Nazi Germany.

Today, the world is still paying a price for Germany's grand-strategic disaster in 1914 and Britain's ruthless grand-strategic exploitation of that disaster -- the problems in the Balkans, the Middle East, the Russian heartland, and the Caucasus, to name a few, have roots reaching back to destruction of world order between the invasion of 1914 and vengeance of 1919. So perhaps the lesson is this: Whenever a great power fails to adequately consider the criteria shaping a sensible grand strategy, painful unintended consequences can linger for a very long time on a global scale.

Recent events suggest that the administration has learned little from their grand strategic blunders, and that their incompetent "with us or against us" grand strategy will continue to play out in a very unfavorable way in the Middle East. As Robert Fox argues in a recent piece in The Guardian, the vice-president's belligerence and the administrations aggressive anti-Iran rhetoric are driving our Sunni allies into the arms of Russia. By extension such a grand strategic evolution could needlessly increase tensions with Russia and induce US support for an even more belligerent posture toward Syria, Lebanon,and Iran by Israel, making it even more difficult to resolve the Palestinian question.

This does not bode well for the future ... at least until the current administration departs from the world scene and the US switches to a grand strategy that is more in line with Boyd's criteria.

Why Does the Air Force Hate the Hog?

The Hog That Saves the Grunts

By ROBERT CORAM, New York Times, MAY 27, 2003

https://www.nytimes.com/2003/05/27/opinion/the-hog-that-saves-the-grunts.html

The Air Force is planning to give the A-10 Warthog an ignominious homecoming from the Persian Gulf.

Why In early April, Maj. Gen. David Deptula of the Air Combat Command ordered a subordinate to draft a memo justifying the decommissioning of the A-10 fleet. The remaining eight active duty A-10 squadrons (in 1991, the number was 18) could be mothballed as early as 2004.

This is a serious mistake. The A-10 was one of the most effective, lethal and feared weapons of the Iraqi war. Its absence will put troops on the battlefield in grave danger. The decision to take this aircraft out of service is the result of entrenched political and cultural shortsightedness.

About the same time that the general's order was issued, a crucial battle of the Iraqi war was unfolding. The United States Army had arrived at a Tigris River bridge on the edge of Baghdad to find Iraqi tanks and armored personnel carriers positioned at the other end. A deadly crossfire ensued. A call for help went out, and despite heavy clouds and fog, down the river came two A-10's at an altitude of less than 1,000 feet, spitting out a mix of armor-piercing and explosive bullets at the rate of 3,900 rounds per minute. The Iraqi resistance was obliterated. This was a classic case of ''close air support.''

The A-10 was also the most storied aircraft of the first gulf war. It flew so many sorties the Air Force lost count. The glamorous F-117 Stealth fighter got the headlines, but Iraqi prisoners interrogated after the war said the aircraft they feared most were the A-10 and the ancient B-52 bomber.

To understand why the corporate Air Force so deeply loathes the A-10, one must go back to 1947, when the Air Force broke away from the Army and became an independent branch. ''Strategic bombing,'' which calls for deep bombing raids against enemy factories and transportation systems, was the foundation of the new service branch. But that concept is fundamentally flawed for the simple reason that air power alone has never won a war.

Nevertheless, strategic bombing, now known as ''interdiction bombing,'' remains the philosophical backbone of the Air Force. Anything involving air support of ground troops is a bitter reminder that the Air Force used to be part of the Army and subordinate to Army commanders. For the white-scarf crowd, nothing is more humiliating than being told that what it does best is support ground troops.

Until the A-10 was built in the 1970's, the Air Force used old, underpowered aircraft to provide close air support. It never had a plane specifically designed to fly low to the ground to support field troops. In fact, the A-10 never would have been built had not the Air Force believed the Army was trying to steal its close air support role -- and thus millions of dollars from its budget -- by building the Cheyenne helicopter. The Air Force had to build something cheaper than the Cheyenne. And because the Air Force detested the idea of a designated close air support aircraft, generals steered clear of the project, and designers, free from meddling senior officers, created the ultimate ground-support airplane.

It is cheap, slow, low-tech, does not have an afterburner, and is so ugly that the grandiose name ''Thunderbolt'' was forgotten in favor of ''Warthog'' or, simply, ''the Hog.'' What the airplane does have is a deadly 30-millimeter cannon, two engines mounted high and widely separated to offer greater protection, a titanium ''bathtub'' to protect the pilot, a bullet- and fragmentation-resistant canopy, three back-up flight controls, a heavy duty frame and foam-filled fuel tanks -- a set of features that makes it one of the safest yet most dangerous weapons on the battlefield.

However, these attributes have long been ignored, even denied, because of the philosophical aversion to the close air support mission. Couple that with the Air Force's love affair with the high technology F/A-22 ($252 million per plane) and the F-35 fighter jets (early cost estimates are around $40 million each), and something's got to give.

Despite budget problems, the Air Force has decided to save money by getting rid of the cheap plane and keeping the expensive ones. Sacrifices must be made, and what a gleeful one this will be for the Air Force.

The Air Force is promoting the F-35 on the idea that it can provide close air support, a statement that most pilots find hilarious. But the F-35's price tag means the Air Force will not jeopardize the aircraft by sending it low where an enemy with an AK-47 can bring it down. (Yes, the aircraft will be that vulnerable.)

In the meantime, the Air Force is doing its utmost to get the public to think of the sleek F-16 fighter jet as today's close support aircraft. But in the 1991 gulf war and in Kosovo, the Air Force wouldn't allow the F-16 to fly below 10,000 feet because of its vulnerability to attack from anti-aircraft guns and missiles.

Grunts are comforted by the presence of a Hog, because when they need close air support, they need it quickly. And the A-10 can loiter over a battlefield and pounce at a moment's notice. It is the only aircraft with pilots trained to use their eyes to separate bad guys from good guys, and it can use its guns as close in as 110 yards. It is the only aircraft that can take serious hits from ground fire, and still take its pilot home.

But the main difference between those who fly pointy-nose aircraft and Hog drivers is the pilot's state of mind. The blue suits in the Air Force are high-altitude advocates of air power, and they aren't thinking about muddy boots. A-10 drivers train with the Army. They know how the Army works and what it needs. (In combat, an A-10 pilot is assigned to Army units.)

If the Air Force succeeds in killing the A-10, it will leave a serious gap in America's war-fighting abilities. By itself, air power can't bring about victory. The fate of nations and the course of history is decided by ground troops. The A-10 is the single Air Force aircraft designed to support those troops. For that reason alone, the Air Force should keep the A-10 and build new close support aircraft similar to the Hog, demonstrating its long-term commitment to supporting our men and women in the mud.

The Struggle for Israel's Soul

The struggle for Israel's soul

By Franklin C. Spinney, The Hindu, August 20, 2001

http://www.thehindu.com/2001/08/20/stories/05202523.htm

THE STRUGGLE for Palestinian independence has exploded into a vicious ethnic war, replete with racial stereotyping and the killing of women and children on both sides. Regardless of how it ends, a legacy of bitterness, mistrust, and alienation will linger for years. A growing number of opinion makers believe the only way to quell the violence is to separate Palestinians from Israelis. But no one seems willing to discuss openly the question of Palestinian water rights, an issue that must be resolved before a just separation can possibly happen. Its answer will bear heavily on how Israel chooses to define itself in the 21st Century.

The idea of separation is an old one in Israel, dating back at least to the theory of the Iron Wall published in 1923 by Ze'ev Jabotinski, a fervent nationalist and father of the Israeli right. But recent events have increased its popularity, and it is now moving overseas. On August 14, Mr. Graham Fuller resurrected it in the Los Angeles Times with an op-ed entitled ``Build a Berlin Wall in the Middle East''.

Mr. Fuller asserted that the rage and psychological scars on both sides made a normalisation of relations inconceivable. The only solution, he opined, was to give the Palestinians an independent state, then cut all its ties with Israel. Mr. Fareed Zakaria, writing in the Washington Post (``The Real Danger for Israel'', August 10), argued for separation and Palestinian statehood, because Israel's neocolonial occupation of Palestinian land requires onerous policies that will eventually destroy Israel's identity as a liberal western democracy.

Mr. Fuller and Mr. Zakaria, like most observers in America, said nothing about the relationship of water to the independent Palestinian state. But access to water will define the nature of that state, and in so doing, the nature of Israel as well.

Over half of Israel's water comes from territories conquered in the 1967 War. For years, Israel has been consuming more water than nature is replacing - and now it is in the third year of the worst drought in over 100 years. The Sea of Galilee is at the lowest level in recorded history. The water level in the mountain aquifer is near or below its red line - the level below which nature cannot replenish itself. Salt water is seeping into the coastal aquifer after years of over-pumping, causing irreversible damage. Israel has been driven out of Lebanon, the only state in the region with a water surplus.

Israelis consume well over three times as much water per capita as the Palestinians. The ratio between settlers and Palestinians is even more unequal, as much as five or six to one. In Gaza, per capita Palestinian consumption is at least 30 per cent below the minimum standard of 100 litres a day set by the World Health Organisation.

How would a separate Palestinian state on the West Bank and Gaza affect the water budget of Israel? It would sit on top of 90 per cent of the replenishment area feeding the mountain aquifer - the underground reservoir that flows from the highlands in the West Bank to the lowlands in Israel. According to Israel's Prime Minister, Mr. Ariel Sharon, this aquifer supplies one-third of Israel's water. Today, Israel consumes over 80 per cent of its annual flows. Under international law, establishing an independent Palestinian state on top of the mountain aquifer would make that aquifer an international waterway. The Palestinian state would be an upstream riparian, giving it a claim on this water. To be sure, Israel would have downstream water rights - but those rights would be like Mexico's water rights to the Colorado River. The unequal distribution of this water would give the Palestinian state a powerful moral as well as legal claim to a far larger share of this water.

A viable Palestinian state could never be surrounded by Israel. Like the isolated Bantustans inside South Africa, such a state would never truly be separate, because it would always be vulnerable to blockade, intrusion, and domination by Israel. The only possible alternative boundary would be one with Jordan along the Lower Jordan River. But if the eastern border of the Palestinian state rested on the banks of the Lower Jordan, that Palestinian state would have a downstream claim on the sources of the water flowing into the Lower Jordan - primarily the drainage basin of the Upper Jordan River that feeds the Sea of Galilee, which can be thought of as a giant holding tank with a drain into the Lower Jordan River. Israel is now pumping so much water out of this drainage basin that the Sea of Galilee is below its red line and its effluent into the lower Jordan is a non-usable saline trickle. An independent Palestinian state, as a downstream riparian, could lay a claim on Israel for some form of compensation for Israel's pre-emption of these upstream water resources.

The upshot: establishing a viable Palestinian state on the West Bank could internationalise as much as two-thirds of Israel's water budget. Such a development would place Israel on the horns of a dilemma: if Israel insisted on its downstream rights to the mountain aquifer, it would validate the same Palestinian claim on water flowing out of the Upper Jordan basin. But if Israel denied the Palestinian downstream riparian claim on the Upper Jordan basin, it would invite a reciprocal pre-emption by the Palestinians with regard to water flowing out of the mountain aquifer.

More than any other country in West Asia, Israel embodies the central ideal of liberal western democracies: namely that government exists for and is grounded on the inalienable rights of the individual - the rights to life, liberty, and the pursuit of happiness. In a desert, those rights must include an equitable access to life-sustaining water. Since the total water supply is limited, and because Israel consumes more water than nature replaces, there is only one way to achieve this democratic ideal: Israelis must reduce their consumption to enable increased consumption by Palestinians. But a reduction in Israel's total water consumption raises a second dilemma - and this one reaches deeply into Israel's soul.

In economic terms, there is only one production sector in the Israeli economy that could absorb a meaningful reduction in its water consumption: agriculture. Israel has an advanced high-tech economy, and its agriculture sector is an extremely efficient user of water by western standards. Nevertheless, agriculture contributes only four per cent to Israel's Gross Domestic Product, while it soaks up between 50 per cent and 70 per cent of Israel's water budget. Yet the Zionist ideal rests on agriculture - the heroic struggle of the kibbutz together with the idea of making the desert bloom.

The intifada has impaled Israel on the horns of a dilemma that threatens its very soul: to preserve its sense of a democratic morality based on the rule of law and the idea that every individual has value, Israel must sacrifice the Zionist heritage lying at the core of its heroic national self-image, but to preserve its Zionist ideal Israel must sacrifice the sense of democratic morality lying at the core of post- holocaust Jewish humanism. Left un-addressed, this dilemma will grow steadily worse as the continuing depletion of water resources clashes with the growing needs of a rapidly increasing Palestinian population.

Separation cannot be based on the idea of locking the Palestinians inside parched ghettos on the West Bank or expelling them into Jordan. Israel's new Iron Wall will always leak water, and that leakage requires the kind of farsighted cooperation and sacrifice that will make it a stronger democracy and a beacon of hope to the rest of the world.

Addendum: For a more detailed analysis of the Palestinian water question see Water and the Arab-Israeli Conflict.

The Constitution, Situational Ethics & the Phony Debate Over More Defense Spending

by Chuck Spinney

August 25, 1998

Comment: #169

Discussion Thread: #s 49, 61, 114

References (Attached beneath main text):

[1] Letter from Secretary of Defense to Mr. David Mosso, Chairman, Federal Accounting Standards Advisory Board, May 15, 1998.

[2] Elaine Grossman, “Comptroller Appeals to Board to Ease Up on DoD,” Inside the Pentagon, July 9, 1998. 

[3] Elaine Grossman, “Financial Statements Called Unreliable: DoD Inspector General Blames Comptroller For Poor Accounting,” Inside the Pentagon, August 6, 1996. 

[4] Elaine Grossman, “Despite objections by government watchdogs … Accounting Board Grants DoD Request for Less Demanding Standard,” Inside the Pentagon, August 13, 1998.

PURPOSE

My aim in this commentary is to tie the Pentagon’s decision-making crisis to the requirements of Constitution. I intend to show (1) HOW our corrupt accounting system makes a mockery of its system of checks and balances and (2) WHY anyone in government who condones, accepts, excuses, or tolerates these corrupted accounting systems violates the values and duties he or she professes and is expected to uphold.

THE PENTAGON’S DECISION-MAKING CRISIS

As I have stated repeatedly, the leaders in the Defense Department face three intractable decision-making problems: First, new weapons are simply too expensive. Consequently, the modernization plan can not buy enough of them to replace the aging weapons in our inventories on a timely basis, even if procurement budgets increase to $60 billion in the near term as planned, there are no more cost overruns, and budgets continue to rise steadily for the next eight to ten years. But changing to a more realistic menu of lower-cost weapons will not be not easy, because the front loaders and political engineers have used the ‘window of indecision’ to build powerful political protection networks by spreading subcontracts, profits, and patronage to hundreds of congressional districts. Second, the readiness posture of our military forces is deteriorating, a fact the Secretary of Defense acknowledged recently to the Chairman of the House National Security Committee [#157]. But reversing the readiness decline is made more difficult because the “rising cost of low readiness” (an economic consequence of buying ever-more complex weapons) has ratcheted up operating costs of per combat unit [see #100, for example]. Finally, an unauditable accounting system [See DoD/IG testimony attached to Comment #61], together with a broken planning system [see my 1994 memo, Reference #3 to Comment #166] transforms a difficult situation into a Gordian Knot by making it impossible to assemble the information needed to resolve the first two problems.

Each Summer, senior decision makers in the Office of the Secretary of Defense (OSD) review the draft submissions of the new six-year budget plans of each military service to determine if these plans conform to the Defense Secretary’s guidance and priorities. Last May, the military services submitted their drafts to OSD. These plans reeked of budgetary shortfalls [Comment #s 105, 117, 118, 119]. Nevertheless, the leaders of the ongoing Summer review chose once again to ignore completely the root causes of the modernization and readiness problems that are reflected in these shortfalls. By refusing to examine these causes, they are helping to set the stage for a phony debate over the need for larger defense budgets [Comment #s 159, 165, 166, 167, 168 and related threads]. There is no threat to justify higher budgets. Moreover, throwing money at the Pentagon, without first fixing the corrupt accounting system, might relieve readiness pressures somewhat in the short term, but such a policy will put into place a chain of decisions that will worsen the readiness and modernization problems over the long term.

The bookkeeping shambles has been getting worse for at least 25 years and is now, by far, the most egregious of these problems. Without reliable information, effective decisions cannot even be defined, let alone made and executed. So, from the perspective of effective management, detoxifying the corrupted accounting system is clearly a necessary precondition to understanding and resolving the first two problems.

Effective decision making, based on reliable information, is not an impossible dream, but it will take strong leadership and hard work to avoid squandering more of our nation’s scarce resources. A recommendation laying out a plan to produce and use such information is contained in a report I forwarded to the Director of Program Analysis and Evaluation in the Spring of 1997, and when no one in the Pentagon responded to it, I published it in both Challenge and Strategic Review.

The importance of the bookkeeping shambles, however, goes far beyond the issue of competent decision making, however. A corrupted accounting system makes a mockery of the intent and architecture of the Constitution.

We will now turn our attention to this latter issue. Part I describes why the Constitution provides the necessary intellectual framework and moral guidance for understanding and resolving the Defense Department’s accounting crisis, and (2) Part II shows how decision makers in the Pentagon have lost sight of this framework and managed to construct a logically inconsistent and morally indefensible strategy to protect the unworkable status quo described above.

PART I. THE CONSTITUTION: ACCOUNTABILITY AND CHECKS & BALANCES

The Framers of the Constitution designed the system of checks and balances to prevent the rise of unaccountable or, in their words, tyrannical power. They understood their system could not function effectively, if the separate branches of the Federal Government used their monopolistic control of information to misrepresent the nature of their activities or to bias the choices facing the entire system of shared power. Without reliable information, it is impossible to hold the individuals and agencies accountable for their separate actions and intentions, and their grand design for resolving disputes and determining policy via a system of checks and balances would become, to paraphrase Mr. Madison, a prologue to a farce or a tragedy or both.

In this context, many pundits and historians have decried the loss of Comity, or the idea that people can disagree and be civil at the same time, in our nation’s political transactions, which necessarily involve an exchange of information. To be sure, comity is a necessary condition in our Constitutional design. But this requirement does not mean people must be nice or polite to each other. It does imply, however, there must be some minimum standard of honesty disciplining the information used to support political transactions.

The Framers were especially aware of this need when accounting for those transactions that shaped the flow of the people’s money into and out of the Treasury. They set this standard in Article 1, Section 9, Clause 7 of the Constitution, also known as the Accountability and Appropriations Clause, [hereafter referred to a the Accountability Clause] which states, “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.” [Capitalization in original for emphasis]

Note the construction of this clause: “No Money” is an absolute and universal prohibition on any expenditure. It is the purest form of the prohibition “thou shalt not.” Note also how the language and punctuation links [legally enacted appropriations] to [expenditures] to [ALL receipts and ALL expenditures] to [reporting requirements]. This linkage, coupled to the absolute prohibition, defines the minimum standard of honest bookkeeping. The Constitution says the government’s financial accounting system must be grounded precisely on an information system that describes any specific expenditure of any branch or agency of government as a consequence of the specific legally-enacted appropriation that authorized that expenditure (i.e., one passed by Congress and signed by the President).

This is not a minor issue, nor is the Accountability Clause a recondite remnant of 18th Century linguistic gymnastics. According to the late Edward S. Corwin, one of our nation’s foremost constitutional authorities, the Accountability Clause ... “more than any other, gives Congress control over the acts of the other branches of government, the President, the courts, the military, and so on, since all depend on money to carry out their business.” Note also that the Accountability Clause appears in Article 1, Section 9, which places limitations on the power of Congress. That means Congress cannot delegate the power implicit in this clause or change it in any way. The only way to change the limitations imposed by the Accountability Clause is by amending the Constitution.

Despite the Constitution's clarity of original intent and language, Congress has found it necessary to pass laws from time to time to give contemporary form to, and put teeth into, the checks and balances implicit in the Accountability Clause [see quotation of Comptroller General in the Reference to Commentary #152].

The Anti-deficiency Act ( 31 USC 1342 and supporting sections of Title 31, including 1241, 1501, 1511-1519) is a collection of such enabling statutes. This act prohibits government employees from authorizing or making a contract that would involve an expenditure or obligation of money that has not been appropriated. It also states that a government employee or agency may not accept voluntary services for which no money has been appropriated. Violation of the Anti-deficiency Act is felony punishable by up to two years in the slammer and a $5,000 fine.

The Supreme Court recently reinforced the constitutionality of this point, when it upheld the Anti-deficiency Act in Hercules v US (4 Mar 96), by saying … “The Anti-Deficiency Act bars a federal employee or agency from entering into a contract for future payment of money in advance of, or in excess of, an existing appropriation.”

Taken together, Article 1, Section 9, Clause 7 of the Constitution, Professor Corwin’s interpretation of it, the Anti-deficiency Act, and the holding of the Supreme Court make it easy to convert the requirements of the Constitution into a minimum acceptable auditing standard to guide the design of, or changes to, any agency’s bookkeeping system: Namely each expenditure of money by any agency of any branch of the Executive (or Congress or the Judiciary) for any long-term asset or current operation MUST be explicitly, reliably, and clearly connected to the legally enacted Appropriation of that money.

An engineer would call this standard a ‘design specification,’ which raises a question of performance: What system level performance goal is this design spec supposed to achieve?

It is crucially important for readers to recognize that the Framers of the Constitution viewed accountability and checks and balances as SAFEGUARDS against tyranny. In this regard, the intent of the Accountability Clause and its enabling statutes is NOT to establish a cost-accounting system for the purpose of assisting appointed officials in their duty to efficiently manage the activities of their agency. These accounting requirements are intended to EMPOWER the system of checks and balances in order to prevent the insensible accretion of unaccountable or tyrannical power by any branch or individual in government. Efficiency, however desirable it might be, is simply NOT a relevant consideration to the design of this architecture.

From a systems design viewpoint, the preceding ideas of accountability are mechanical in nature, with a negative feedback control loop energized by a legal bludgeon. But machines don’t play politics, people do, and they use their minds. The macroscopic constitutional design will not work in a self-actuating sense, unless there is some compatible ideal of honesty to positively shape the actual conduct of the individuals who produce and use the information that flows among the competing power centers within the system of checks and balances. Obviously, there must be a harmonious interaction among the macroscopic and microscopic levels of activity. How do we inspire individuals and groups to try willingly, and proactively, to attain that necessary comity, while they are engaged in a struggle to gain advantage in a political competition, where the desire to “win” will tempt them to cut corners and take advantage of fast-breaking opportunities?

In other words, how do we channel the energy of loyalty, duty, responsibility, initiative and honor of individuals (who are struggling to achieve their own goals) in a constitutionally constructive direction? A student of evolutionary processes will recognize immediately that this question is about self-organizing behavior at the individual level or, put another way, at the level of the microscopic variations. This implies a need for some form of a positive feedback control loop, to amplify constructive initiatives by individuals when they are confronted by unpredictable circumstances that demand creative responses. This requirement brings us face-to-face with the Oath of Office.

The law (5 USC 3331) requires EVERY individual, elected or appointed to an office of honor or profit in the civil service or uniformed services to take the following oath as a condition of employment in any branch of the Federal Government: 

“I, [name], do solemnly swear (or affirm) that I will SUPPORT and DEFEND the Constitution of the United States against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same; that I take this obligation freely, without any mental reservation or purpose of evasion; and that I will well and faithfully discharge the duties of the office on which I am about to enter. So help me God.” [emphasis added]

The oath is the individual’s unconditional contract with the Constitution. It means supporting and defending the Constitution in the performance of duties takes precedence over supporting or defending the parochial interests of any individuals or factions or organizations within or without the Federal Government. The phrase “bear true faith and allegiance” means that the individuals accepts the Constitution as the external framework defining acceptable behavior, within which, one evolves a personal sense of duty, responsibility, and honor to motivate, shape, and constrain one’s official conduct.

With regard to the question of comity, the phrase “bear true faith and allegiance” establishes the Constitution as the minimum universal standard of acceptable behavior that ALL employees of the Federal government PROFESS and are EXPECTED to uphold during the omnipresent struggle for advantage.

Given the centrality of accountability to the grand architecture of the Constitution and the binding nature by which the oath of office links individual behavior to that grand design, we can now rephrase the question which launched this commentary:

Given the minimum standard of honesty they profess and are expected to uphold, why do senior managers in the Office of the Secretary of Defense permit a corrupted accounting system to persist year after year?

PART II. SITUATIONAL ETHICS, PENTAGON STYLE

We can a make a first-order cut into this question by placing it in the context of the Pentagon’s response to the reporting requirements imposed by the Chief Financial Officers Act of 1990, Public Law 101-576, and its related laws (referred to collectively as the CFO Act).

The aim of CFO Act is to produce more complete, reliable, timely, and consistent financial information for use by the executive branch and Congress (and presumably the American citizenry). It established a time-phased plan for improving accounting systems and auditing procedures. As part of this plan, on September 2, 1993, the Office of Management and Budget (OMB) issued a statement describing the objectives of the Federal Financial Reporting System. 

OMB listed its first objective as “Budgetary Integrity” and defined its importance in Paragraph #113, which tied the requirements of the CFO act directly to the Accountability Clause of the Constitution. Paragraph #113 says, 

“This objective [for budgetary integrity] arises generally from the responsibility of representative governments to be accountable for the monies that are raised and spent and for compliance with law. More specifically it arises from the requirement in Article I, Section 9 of the Constitution … “ Paragraph #114 reinforces this link by saying, “The focus of this objective is retrospective. That is, the focus is on recording actual data from budget execution against appropriations made by Congress using existing budgetary standards.”

The CFO Act also requires the Inspector General of each agency of the U.S. government to produce an independent audit that agency’s books each year to determine if the accounting systems comply with established standards of government accounting. The Defense Department has been flunking these audits since they began, as is evidenced by the almost endless litany of Disclaimers of Opinion issued by the Inspector General (which have been confirmed in separate audits by the General Accounting Office) over the last several years [Commentary #61 and its Reference describe the DoD/IG’s reasons for issuing these disclaimers].

Finally, the CFO Act also created the Federal Accounting Standards Advisory Board (FASAB) to develop and phase in the relevant accounting standards for the Federal Government. The phase-in schedule for these standards requires the Defense Department to begin accounting for the value of past expenditures for all assets (plant, property, and equipment) used to support the Defense Department’s operations on September 30, 1998.

Reference #1 attached to this Commentary is a 15 May 1998 letter from the Secretary of Defense to Mr. David Mosso, Chairman, of the Federal Accounting Standards Advisory Board (FASAB), which I urge readers to examine carefully. It includes a formal dissent to the some of the reporting requirements due to take effect in September 1998. The letter was prepared as part of a response to an “Exposure Draft” of new standards, written by the FASAB in February, in preparation for a formal hearing by the FASAB in June.

Specifically, Secretary Cohen objected to the requirement that the Pentagon use historical costs when accounting for its Property, Plant, and Equipment. Bear in mind, under the strictures of the Constitution and the Anti-deficiency Act, all historical costs are, or should be, past expenditures CONSEQUENT to legally enacted appropriations. Recall also that that the Office of Management and Budget established the retrospective focus to the objective of budgetary integrity.

Let’s examine the counter-argument made the Defense Secretary in this letter. Mr. Cohen begins by saying what is important to HIM: namely the quantities, and the condition, of National Defense Property, Plant and Equipment (PP&E) now available and how much is being spent (cost trends) to procure the PP&E needed to accomplish the mission. Next, he builds the case by saying what is not important to HIM, namely historical cost information for PP&E (some procured as long ago as 1950s), because this information is not useful for making current decisions. Finally, Mr. Cohen says the Department does not have all the documentation needed to satisfy the proposed audit requirements, and he nails the coffin shut by saying, the HIGH COST of developing the unneeded accounting systems would take money away from needed readiness and modernization programs.

There are two gaping flaws in his argument.

First, the argument is an irrelevant distraction, because it substitutes the objective management efficiency for the objective of budgetary integrity. It substitutes a flexible system of situational ethics, defined by what is convenient to managers, for the immutable system of ethics, defined by the intersection of the Constitution with one’s unconditional oath to support and defend it, including the requirements implicit in the Accountability Clause. This kind of argument might apply if one were designing an internal management accounting system, but the first objective of budgetary integrity is to improve the Executive Department’s accountability to others in a Constitutional sense. Indeed, that is why the audits performed by the Inspector General use a retrospective perspective to link expenditures to appropriations.

Second, in addition to being an irrelevant distraction, Mr. Cohen’s argument is illogical. It assumes one can PREDICT what expenditures are needed for current or future readiness and modernization, while admitting one can not determine how past expenditures ACTUALLY shaped past readiness and modernization. This is the same as saying it is easier to perform a more difficult task (PREDICTION) than a simpler task (DESCRIPTION).

Whoever prepared this fatally flawed letter did the Secretary of Defense and the nation a grave disservice. While References 2 and 3 to this commentary do not address this issue, they do provide some insight into WHY Mr. Cohen’s staff induced him to sign an irrational letter that is at variance with the intent and letter of the Constitution.

In Reference #2, for example, Elaine Grossman describes the testimony of William Lynn, the Pentagon’s Comptroller, to a public hearing of the FASAB on 26 June.

Lynn acknowledged the Pentagon needs “to be able to show to the American taxpayer, the Congress, the American public, that we are indeed proper financial stewards, that we indeed are taking care of the large amount of resources that we have been given temporary custody of.” These are the right sounding words, but he also admitted the Pentagon CAN NOT produce a valid accounting trail that links original costs to PP&E assets.

But rather than meet the objectives of the accounting regulation, Grossman reports that the Chief Financial Officer of the Pentagon asked the FASAB to relax the standard to make life easier for managers in the Pentagon. Lynn requested the FASAB to adjust the standard to require only aggregate numbers by major system categories, like “aircraft,” for the current year and the preceding four years. Forcing DOD to move more quickly, Lynn argued, would undermine efforts to improve accounting standards by destroying morale. To this end, he pleaded, “I need for you to help us adapt the standards that you’re developing to make them relevant for the line managers in the Pentagon, the line managers in the Department of Defense … With the secretary’s personal commitment, I can get their attention. But to get their dedication, I need to show that this is going to help them do their jobs. It needs to be relevant to them.”

Lynn’s argument is also fatally flawed.

First, it is illogical to assume Lynn’s accountants can produce auditable aggregate data, when they are not capable of producing the auditable detailed data that are the necessary building blocks of the aggregates. Unfortunately, Ms. Grossman’s report does not indicate whether this basic contradiction mattered the members of FASAB, who, according to my sources, seemed to be hunting for a reason to defer to the Pentagon’s illogical wishes.

Second, the idea of limiting accounting standards for major assets to the current year and the last four years is patently absurd. The overwhelming bulk of the Pentagon’s expenditures for plant, property, and equipment is for assets that last well in excess of four years. Airplanes and ships may last as long as long as 50 years, and even low cost support items, like pickup trucks or air conditioners, are routinely kept for more than four years. Under this reporting requirement, for example, the Pentagon would not have to account for the cost of the B-2 bomber, because the last one was bought more than four years ago. Such an wacky accounting practice would NEVER be tolerated in financial statements of a publicly owned corporation.

Third, Lynn did not explain, nor was he questioned, how a relaxation of an accounting requirement to tie expenditures for assets to appropriations could be deemed an improvement in accounting practices, given OMB’s Objective #1 (Budgetary Integrity) and the many disclaimers of opinion issued by the Defense Department’s own Inspector General, not to mention the restrictions of the Accountability Clause of the Constitution and the Anti-deficiency Act.

Finally, even more than Secretary Cohen’s letter to David Mosso [Reference #1], Lynn’s argument is based on the fallacious assumption that accounting standards exist for the convenience of the bureaucracy and, therefore, they can and should be changed in the interests of greater bureaucratic efficiency, convenience, and morale. Setting aside the obvious question of how less detailed information could possibly produce better and more efficient decisions, the assumption that accounting standards exist to make life easier for bureaucrats in the Pentagon turns the Constitutional concept of accountability and checks and balances on it head.

To make matters worse, the Defense Department’s Inspector General issued yet another critical audit report in June. In Reference #3 (attached below), for example, Ms. Grossman reports the Inspector General reported that the Pentagon had made little improvement in accounting for its expenditures and assets, because DoD did not use transaction-driven general ledgers for its accounting systems and could not produce audit trails linking account balances to supporting documentation or attach accurate values to plant, property, and equipment. The Air Force, for example, could not verify assets valued at $293 billion and the Defense Finance and Accounting Service had to made $350 billion and $459 billion worth of unreconciled adjustments of to the Army and Navy general ledger accounts to match certified status data.

The Inspector General laid part of the blame for this appalling state of affairs squarely on Pentagon’s CFO, whose organization apparently did not have enough “morale” to provide the military services with their FY 1997 DoD “form and content guidance” to guide the preparation of their annual financial statements until January 14, 1998, or AFTER the services had already prepared the second version on their FY 1997 statements. The Inspector General concluded, “The DoD control environment was not conducive to the preparation of auditable financial statements because the CFO did not provide timely guidance to the DoD components.”

CONCLUSION: “BUSINESS AS USUAL” IN THE PENTAGON BEATS THE CONSTITUTION

In Reference #4 (attached below), Ms. Grossman reports that the Financial Accounting Standards Advisory Board (FASAB) caved into the Pentagon’s request and reversed the accounting standard, despite the clear requirement to conform with the Accountability Clause of the Constitution and the retrospective standard for Budgetary Integrity established by the Office of Management and Budget in 1993. The FASAB, in a transparent attempt to blunt criticism, said it would sponsor a year long study of accounting alternatives.

Studying a problem is the standard Washington distraction operation: a study creates the impression of action while permitting ‘business-as-usual’ to continue unabated. Even in the unlikely event where the FASAB study makes a persuasive case for an alternative standard, a knowledgeable official told Ms. Grossman it will take at least another year to take it through the government review process. This is tantamount to a three-to-four year delay, which in the sound bite politics of contemporary Washington is forever, because there is a Presidential election in two years, and it will take a new President at least one and probably two years to build the support needed to tackle the accountability tar baby, assuming he or she wants to.

By their own words and deeds, senior officials in the Pentagon have shown us that they view accountability requirements in terms of bureaucratic convenience, not the Constitutional standards they profess and are expected to uphold.

Moreover, the pusillanimous ruling by the FASAB, a panel established by the Secretary of the Treasury, the Office of Management (OMB) and Budget and the Comptroller General (who is part of the Legislative Branch of Government), directly negates the objective of Budgetary Integrity established by OMB in response to the requirements of the Chief Financial Officers Act, and more importantly, the requirements of the Accountability Clause of the Constitution.

My guess is that Mr. Madison would call the proposals of the Pentagon’s leadership and ruling of the FASAB prologues to a farce or tragedy. Thomas Paine, on the other hand, would probably be angry and call these proposals a form of tyranny, because, the FASAB and the Pentagon have acted as if they could arbitrarily change a check on power of Congress that can NOT be changed or delegated without amending the Constitution.

On the other hand, students of maneuver warfare theory will see the practical value of a corrupt bookkeeping system: it is a great tool for shaping the battlefield prior to a phony debate over the need to increase the defense budget.

Welcome to the 21st Century, where the Pentagon has moved beyond information revolution and replaced the anachronistic ideas of Madison, the quaint passions of Paine, and the careful intellect of Professor Corwin with the situational ethics of the post-information era.

Chuck Spinney

[Disclaimer: In accordance with 17 U.S.C. 107, the following material is distributed without profit or payment to those who have expressed a prior interest in receiving this information for non-profit research and educational purposes only.]

Reference #1

THE SECRETARY OF DEFENSE
WASHINGTON. DC 20301-10000
May 15, 1998

Mr. David Mosso
Chairman Federal Accounting Standards Advisory Board
441 G Street, NW, Suite 3B18
Washington, DC 20548

Dear Mr. Chairman:

This letter is in response to the Exposure Draft, “Amendments, Accounting for Property, Plant and Equipment,” dated February 1998. The Department of Defense concurs with most of the Exposure Draft, and I commend the efforts and progress made by the board in developing government-wide standards for federal accounting.

Question 2 of the Exposure Draft asks whether reporting the quantities and cost trends of National Defense Property, Plant and Equipment am appropriate and useful vice reporting the historical acquisition costs of National Defense property, Plant and Equipment I have a very strong opinion on this issue. As the senior executive and decision maker within the Department of Defense, what is important to me are the quantities, and the condition, of National Defense Property, Plant and Equipment assets to deter potential aggression, and should deterrence fail, to combat hostile enemy threats I am also very interested in, and concerned about, how much is being spent (cost trends) to procure needed National Defense Property, Plant and Equipment assets to accomplish the Department’s mission. As you are probably aware, the quantity and the condition of National Defense Property, Plant and Equipment assets affect the readiness of U.S. Armed Forces. This is vital information to me and most likely very useful to other federal decision makers and the public.

What is of far less importance to me am the historical acquisition costs of National Defense Property, Plant, and Equipment assets previously acquired. Furthermore, I do not understand how historical cost information could be useful in making decisions about Department of Defense matters. Such historical cost information represents the costs of assets procured over many years some as long ago as the 1950s or earlier combined with the cost of assets procured recently. As the complexity of weapons systems has changed substantially over this period, so too have the costs of weapons systems increased. (For example the cost of one B-2 aircraft could exceed the total costs of all B-52 aircraft still in service in the Department.) The reporting of the aggregate sum of such very disparate amounts appears to serve no useful purpose.

In many instances, especially for many of the Department’s older weapon systems, the Department no longer has documentation of historical cost information of a nature that would satisfy audit requirements. Additionally, implementing new systems fore capturing historical cost information for future weapons systems and related equipment would be extremely expensive. The Department of Defense should not be asked to redirect valuable resources from needed readiness and modernization programs to develop the means to report and validate information that is of questionable benefit. Therefore, I am opposed to a requirement to report the historical costs of National Defense Property, Plant and Equipment.

Question 5 of the Exposure Draft asks respondents to comment on the proper accounting treatment for ammunition and munitions. As stated in the Statement of Federal Financial Accounting Standards No. 8, “Supplementary Stewardship Reporting,” stewardship assets are investments by the Federal Government for the benefit of the Nation and are intended to provide long-term benefits to the public, The very large investment chat the Department of Defense has made in the various types of ammunition and munitions, which are essential to the operation of the Department’s weapons systems, serves a long-term benefit to the Nation by providing a deterrence to international hostilities and aggression.

The alternative to treating ammunition and munitions as plant, property and equipment appears to be to treat ammunition and munitions as operating materials and supplies. The Department of Defense believes that ammunition and munitions do not meet the definition of operating materials and supplies, since ammunition and munitions are: (a) acquired with investment fund,, (b) managed through centralized databases to provide world-wide visibility of assets, (c) subjected to special security controls and safeguards against loss, (d) stored, generally, by the Single Manager for Conventional Ammunition, at designated ammunition depots until such time Its issued, (e) issued without cost to the recipient, (f) not held for sale (unlike non inventory, which is held for sale) and (g) Subject to environmental and deferred maintenance considerations. Additionally, in some instances, ammunition and munitions are weapons systems themselves, or, in other instances, used in conjunction with weapons systems. These characteristics more nearly relate to property, plant and equipment.

Clearly, in the opinion of the Department of Defense, ammunition and munitions meet definition of property, plant and equipment (useful life of 2 years or more. acquired for use by the entity and not held for sale). Since ammunition and munitions meet the definition of property, plant and equipment, and because they are integral to the operation of weapons systems; ammunition and munitions should be categorized as National Defense property, Plant and Equipment and recognized as stewardship assets.

Typically, the Board’s accounting standards are applicable to all or most federal agencies. However, the majority of the proposed amendments in this Exposure Draft affect only the Department of Defense. Therefore. I ask that the Board, when deliberating on comments from the respondents, place more weight on the comments from the Department of Defense. I emphasize this because other respondents may not be as concerned about, and certainly less likely to be aware of, the cost of implementing alternatives to the proposed Exposure Draft amendments. Additionally, they may not fully understand the limited benefits that such alternatives may offer.

Sincerely,

/s/ Bill Cohen

Reference #2

Inside the Pentagon.
Vol 14, No. 27, July 9,1998

Comptroller Appeals to Board to Ease Up on DoD … Pentagon Official Says DoD Cannot Meet Cost Reporting Requirement

Elaine M. Grossman

Reprinted with permission of Inside Washington Publishers.  This article may not be reproduced or redistributed, in part or in whole, without express permission of the publisher.

In a public hearing late last month, Pentagon Comptroller William Lynn acknowledged the Defense Department is simply unable to satisfy a government cost accounting regulation under which the Pentagon is expected to assemble an auditable accounting trail for all its major assets, starting with its huge arsenal of weapon systems. But while public interest groups are calling on a federal accounting board to hold DOD’s feet to the fire in providing full weapons cost histories, the Pentagon has trotted out its chief financial officer to get the reporting requirement relaxed.

The standards currently in place call on the Pentagon, beginning Sept. 30, 1998, to report annually to Congress the dollar value of its investments in currently maintained major assets since they were first procured. But in response to Pentagon complaints that the rule is too stringent, the Federal Accounting Standards Advisory Board has drafted an amendment to the regulation that would allow the Defense Department instead to report national defense “plant, property and equipment” or PP&E in only aggregate numbers by major system categories—like “aircraft’—for the current year and the preceding four years (Inside the Pentagon, June 18, pi).

In an “exposure draft” circulated earlier this year, FASAB—the federal accounting oversight panel—said it “believes that information on quantities plus cost trends … would be more useful to users of financial statements than historic cost of PP&E on hand.”

Lynn agreed. “I need your help,” the defense comptroller told the FASAB at its June 26 hearing. “I need for you to help us adapt the standards that you’re developing to make them relevant for the line managers in the Pentagon, the line managers in the Department of Defense,” he said. “With the secretary’s personal commitment, I can get their attention. But to get their dedication, I need to show that this is going to help them do their jobs. It needs to be relevant to them.”

But representatives of government watchdog groups also testifying at the June 26 FASAB hearing said the relevant data for maintaining proper oversight of taxpayer dollars are the detailed, auditable cost histories. Watering down the reporting requirement would make it more difficult to track Pentagon expenditures, even as the jobs of DOD program managers and accountants might be made easier, these advocates said.

The proposed aggregate figures do little for Ralph DeGennaro, the executive director of the Washington, DC based Taxpayers for Common Sense. “I’m more interested in the individual weapon system costs. I want to know what they told me the B-2 [bomber] was going to cost, and what it costs now,” DeGennaro said, “because I want to hold accountable the contractor that built it, I want to hold accountable the officers and the civilian officials of the Department of Defense that promoted the weapon and were responsible for overseeing its procurement, I want to hold accountable the members of Congress and the committees in Congress that authorized and appropriated the money to buy it, and I want to have the information the next time the same people come along and want us to buy something.”

At least one panel member appeared to agree. Donald Chapin, a former General Accounting Office official who joins eight other members on the FASAB, cited earlier comments by Lynn and former Pentagon officials acknowledging that members of Congress are frustrated by a lack of credibility in DOD cost figures.

The amendment under consideration by the FASAB “provides for the status quo … [and] the status quo is not adequate,” said Lisa Jacobson, GAO’s director of defense audits. Noting that pending a forthcoming GAO report on the matter she was voicing her own views at the June 26 hearing, Jacobson told the FASAB, “There is not a current connection between the accounting systems and the logistical systems and the acquisition systems. And one of the objectives of financial reporting that you guys laid out was to provide for that systems accountability as well.”

She noted the FASAB had laid out a standard that a financial statement not only must provide meaning in and of itself, but also must be judged worthwhile when faced with the questions, “How does it support the systems objective? How does it support budget integrity?”

“Those were your other financial reporting objectives,” Jacobson said. “And I think that the presentation in the amendment is losing that concept. In one of the discussions that you had on this amendment, the DOD representative did indicate that by taking these assets off the balance sheet, you clearly said that they don’t have to be part of the financial reporting system. I think the amendment clearly feeds that thought, which I believe is totally inappropriate, [and I think] that there needs to be the financial controls over these assets, that the status quo is not adequate.”

Surrounded by a number of witnesses who asserted there would indeed be value in the stricter reporting standard, Lynn acknowledged the Defense Department is not capable of providing this level of detail on costs.

The comptroller insisted the ‘primary value” of these weapon systems is not their cost, but instead their use in defending the nation. But even if auditable historic weapons costs are of interest, “it’s not practical,” Lynn said. “The equipment that we’ve acquired, we’ve acquired over the past 40 or 50 years, and the records that you would need to try and audit for each and every B-52, humvee and whatever have simply not been retained. This hasn’t been a requirement in the past end the auditable records are simply not there. We’re well beyond the record retention time frame that the Department uses.”

Thus, Lynn said, “we would endorse the proposal that you put forward in your [FASAB] draft.”

In the meantime, Lynn said, the Defense Department is working hard to improve its accounting standards. Forcing DOD to move more quickly would actually undermine those efforts by destroying morale, he said. “Inadequate databases—the inability in particular to produce auditable financial statements - is a particular problem that we think we need to be able to address. We are trying to tackle it. This is not theoretical for us.

“We think we need to be able to do this for three reasons,” Lynn continued. “First and foremost, in our view, would be to demonstrate to ourselves that we have in place sufficient internal management controls to oversee the large amount of dollars that we’re given authority over. Essentially we need the right kind of controls to run what is the world’s largest enterprise.

“Second, we need to be able to do the same to be able to show to the American taxpayer, the Congress, the American public, that we are indeed proper financial stewards, that we indeed are taking care of the large amount of resources that we have been given temporary custody of.

“And finally third, it is the law. Congress in a series of acts in the early 1990s has made the necessity of auditable financial statements the law and we intend to comply with the law,” Lynn said.

He noted, “Frankly, we had not turned to this as a priority until recently. I think there’s a good reason for that. Prior to just recently, we did not have the foundations to do it. And we are still putting the foundations in place, but I think we’re far enough along now that we can now turn to this important requirement.”

In contrast, DeGennaro insisted that it would be a mistake to roll back an existing standard that calls for accounting similar to that demanded in private enterprise. Holding DOD to a high standard is the best way to turn its ailing accounting system around, DeGennaro suggested.

“The trend is toward providing more information to the taxpayers in this information era,” DeGennaro told the FASAB. “I think you ought to have for the top 75, top 200, most expensive weapon programs, we ought to have cost data routinely reported Anything that’s currently in procurement, anything where we’re making judgments now to buy something new compared with something old, we ought to have some cost figures for the old weapon.”

Reference #3

Inside the Pentagon
August 6, 1998, pp. 3-4

Financial Statements Called Unreliable, Inaccurate: DOD INSPECTOR GENERAL BLAMES COMPTROLLER FOR POOR ACCOUNTING

Elaine M. Grossman

Reprinted with permission of Inside Washington Publishers.  This article may not be reproduced or redistributed, in part or in whole, without express permission of the publisher.

In a little-noticed audit report issued in June, the Defense Department’s inspector general found the Pentagon has made little improvement over time in accounting for the $270 billion in fiscal year 1997 annual income and $1.3 trillion in assets DOD manages, and laid much of the blame squarely at the feet of the Pentagon comptroller.

“Until control procedures are strengthened, DOD will continue to produce unreliable, unverifiable, and inaccurate financial statements,” states the IG’s June 22 report. Responsibility for financial control is in the hands of the Pentagon’s comptroller, who also serves as the Defense Department’s chief financial of officer.

Although the comptroller, William Lynn, and his predecessor, now-Deputy Defense Secretary John Hamre, have insisted repeatedly they are attempting to build new foundations for the badly broken accounting system they encountered when President Clinton first took of rice, the IG report suggests these officials have failed to take some relatively easy steps that could improve the books in the near term.

“Noncompliance with fundamental requirements affected the DOD Consolidated Financial Statements for FY 1997,” states the IG in its report. “Although many noncompliance issues related to deficient financial systems are not expected to be corrected for years, others and must be resolved earlier.” Such improvements, says the IG, “would lead to better financial statements and audit opinions.”

For example, DOD’s deputy chief financial of ricer on June 6, 1997 signed a memorandum of understanding with the IG and the director of the Defense Finance and Accounting Service, saying “the CFO was responsible for ensuring that DOD issued guidance on the form and content of the financial statements” from the military services and other DOD components, according to the IG’s report. But, the IG notes, “the CFO did not issue the FY 1997 DOD form and content guidance until Jan. 14, 1998, after the DOD components had prepared [the second version] of the FY-1997 financial statements.”

When the memo of understanding was signed in June 1997, Hamre served as comptroller. A month later, when he was promoted to his current post as DOD’s No. 2 official, Hamre’s principal deputy, Alice Maroni, stepped in as acting comptroller. Lynn took office on Nov. 19, 1997, about a month before the components issued their financial statements to DFAS.

The lack of guidance the components had in preparing service financial statements led to inconsistencies in these statements, making them unauditable, the IG states. “The DOD control environment was not conducive to the preparation of auditable financial statements because the CFO did not provide timely guidance to the DOD components,” the IG writes. “In addition, the CFO did not provide timely and auditable financial statements to the IG,” according to the report.

One example of a problem caused by the lack of guidance was the Army’s misclassification of $4.6 billion in overseas real property assets, the IG states.

The 1990 Chief Financial Officers Act requires the Defense Department to prepare annual audited financial statements. And under the 1994 Federal Financial Management Act, DOD must provide consolidated financial statements comprising those of the services and other DOD components, beginning in FY-97, to serve as part of a government-wide financial statement issued by the secretary of treasury.

The IG found the Defense Department “did not comply with several laws and regulations” relating to the 1997 financial statements. “Material instances of noncompliance included inadequate accounting systems, improper accounting, and inadequate disclosure in the financial statements … Because of the noncompliance, DOD financial statements are of limited use to DOD and other government managers.”

Lynn recently acknowledged DOD is unable to provide auditable reports on the dollar value of its major assets, and thus cannot satisfy a government cost accounting regulation in effect as of this year (Inside the Pentagon, July 9, pi ).

As comptroller, Lynn is responsible for over half of the federal workforce and nearly half of the federal discretionary budget. “In employment and discretionary spending authority,” the IG notes in its report, “DOD is the largest U.S. government agency. In FY 1997 … DOD employed 51 percent of the 4.26 million military and civilian employees in the federal workforce and was responsible for 48 percent of the estimated $536 billion in discretionary federal budget authority.”

Franklin Spinney, a Pentagon analyst who for over a decade has called on his DOD bosses to clean up both past accounting and future planning for weapon systems, said this week the comptroller’s inability to produce sound financial statements is, in effect, an abdication of his constitutional obligation to properly account for the funds DOD spends.

“Every employee of the federal government, whether appointed or elected, takes an oath to support the Constitution, “Spinney told Inside the Pentagon on Aug. 4. “And the Constitution describes the minimum standard of behavior we profess and are expected to uphold. The foundation of the Constitution—the whole system of checks and balances is based on the principle of accountability.”

The Defense Department, Spinney said, has “constructed a system where we aren’t accountable to anybody including ourselves, which is in effect a subversion of the Constitution.”

Asked by government watchdog groups to better document DOD expenditures, U.S. defense of officials have at times suggested it would be a poor diversion of resources to force immediate compliance with a more stringent accounting system (ITP, June 18, pi). But Spinney says “efficiency has nothing to do with this. The Constitution calls for accountability.”

Beyond insufficient controls over DOD accounting, the IG says basic weaknesses in accounting systems lead to immense problems. The IG states that “the primary deficiencies were that most DOD accounting systems:

• “did not use a transaction-driven general ledger to account for and manage resources;

• “did not have audit trails to trace general ledger account balances back to supporting documentation or specific accounting transactions back to the general ledger;

• “did not have a process for accurately identifying and reporting transactions that should be eliminated during the financial consolidation process; and

• “did not accurately value Inventory and Property, Plant, and Equipment.”

“A transaction-driven system controls accounting data from the point of entry to presentation on the financial statements,” the IG explains, “and ensures that all affected accounts are accurately posted …  Lacking these controls, DOD relied on a variety of sources to obtain financial information and then crosswalked that information to a general ledger format to prepare financial statements.”

DOD’s failure to track expenses on the transaction level—even though defense accountants are supposed to do so based on a U.S. Government Standard General Ledger—leads to billions of dollars in accounting errors, the IG reports.

“Consequently, $65.4 billion of expenses reported by the Army could not be audited because Army accounting systems did not produce subsidiary ledgers showing the transactions that made up the summary accounts reported in the Army financial statements,” states the IG. “The Navy could not accurately report the value of assets and liabilities, including the status of funds appropriated, because it lacks a transaction-driven general ledger accounting system … The Air Force’s lack of a transaction-driven general ledger was one reason that the acquisition cost of Air Force assets, valued at $293 billion, could not be verified.”

In addition to a poor control environment and lax accounting practices, the Defense Department has in place insufficient control procedures, the IG finds. “Control procedures throughout DOD were not adequate to properly report balances on the financial statements,” according to the report, entitled “Internal Controls and Compliance with Laws and Regulations for the DOD Consolidated Financial Statements for FY 1997.”

“DOD allowed unsupported adjusting entries to be made; Property, Plant and Equipment to be inaccurately reported; Pensions and Other Actuarial Liabilities to be inadequately supported; Other Liabilities to be understated and unreliable; and the Notes to the Principal Statements to be inconsistently reported,” the IG states.

In one instance of improper changes made to reports, an office of the Defense Finance and Accounting Service in Indianapolis “made adjustments of $350 billion to change Army general ledger accounts to match certified status data,” according to the IG. “However, the DFAS Indianapolis Center did not attempt to reconcile the differences between the general ledger and the certified status reports.” In another instance, “the DFAS Cleveland Center made adjustments to Navy general ledger accounts totaling $459 billion.”—Elaine M. Grossman

Reference 4

Inside the Pentagon
Vol 14, No. 32, August 13, 1998 (pg.1)

Despite objections by government watchdogs … ACCOUNTING BOARD GRANTS DOD REQUEST FOR LESS DEMANDING STANDARD

Elaine M. Grossman

Reprinted with permission of Inside Washington Publishers.  This article may not be reproduced or redistributed, in part or in whole, without express permission of the publisher.

A federal accounting standards board decided last week to grant the Defense Department’s request that a financial reporting rule be relaxed, despite objections raised by government watchdog groups.

In deference to the outcry for greater Pentagon accountability the panel heard at a June 26 public forum, the Federal Accounting Standards Advisory Board will launch a year-long study on alternatives that might better meet the needs of those in and outside the government who attempt to track Pentagon expenditures (Inside the Pentagon, July 16, p3). Closely monitoring DOD funds has been nearly impossible for years, as the Pentagon’s books remain inauditable for well into the next decade and likely beyond (ITP, March 6, 1997, p3).

But in a move that surprised many observers, the FASAB on Aug. 7 decided to adopt the “exposure draft” of a rule change that will allow the Defense Department to report its expenditures on major assets in aggregate categories numbering thousands of systems, like “combat aircraft” or “ships,” for the current year and preceding four years. Only the quantities of items will be reported on a system-by-system basis under the DOD-supported amendment.

The new rule reverses a standard currently in place—which the Pentagon would have been required to implement beginning this year—that would have demanded an auditable paper trail for all major assets, in some cases going back decades.

While some critics acknowledged the existing standard did appear to exceed what is needed for accountability, they called for an amendment that would require the Defense Department to report not only quantities but also recent expenditures on a system-by-system basis. Public interest group representatives scoffed at the notion there was utility in reports on aggregate costs for ships or planes.

Other critics went further, saying it would not even be enough to force the Pentagon to report expenditures on major weapon systems. The issue “is not just not having the information,” said one such government official. “It’s [that the Pentagon is] losing control of the whole process.”

When DOD Comptroller William Lynn appeared before the FASAB at its June 26 hearing, he said such detailed cost reporting would be of little value. But faced with the testimony of watchdog groups asserting otherwise, Lynn acknowledged that even if cost reporting on a weapon system basis was required, the Defense Department is not capable of meeting that standard. Lynn insisted the Pentagon is “still putting the foundations in place” to produce auditable financial statements as required by law (ITP, July 9, p1).

“I think in terms of what would be more useful and interesting to the public, quantity would be it,” said Nelson Toye, the Pentagon representative on the FASAB board, referring to the figures for weapon systems the new amendment would require. “Quantity is probably at this point in time easier to get—and I’m not going to say that it is easy—but it is more meaningful in my view” than the detailed cost data.

Toye objected to reporting expenditures on each of the Defense Department’s specific types of weapon systems in part because the effort to do so would be monumental and the product would be of questionable value. He said his staff has told him there are “131,000 different weapon systems—not 131,000 pieces of equipment—but 131,000 different weapon systems. We clearly … could not list all 131,000 of them.” Toye noted the defense secretary already does report quantities for major categories of assets in his annual report to Congress.

Even though the FASAB has changed the rule in a way that would make Defense Department compliance more feasible, DOD still remains in violation of a wide array of other laws and regulations requiring auditable financial statements on its $1.3 trillion in assets. The Pentagon’s own inspector general recently found DOD continues “to produce unreliable, unverifiable, and inaccurate financial statements” after many years of similar noncompliance with laws governing federal accounting (ITP, Aug. 6, p3).

Thus it is unclear whether the Pentagon will be able to fully comply even with the standard as amended by the FASAB. The cost assessments by weapon system category must still be auditable, according to government officials familiar with the FASAB process, although sources were uncertain how an aggregate figure would be auditable if expenditures on individual weapon systems could not be obtained.

The standard now being replaced would have allowed the Pentagon to use the latest acquisition cost for a major item and apply it to all similar units, said this official. This approach may have been useful for ascertaining value but would have been of limited utility in learning the investment DOD has made in its weapon systems. For example, if Pentagon leaders are correct about there being a “learning curve” that makes later procurement of a weapon system less expensive than the first few, this appraisal technique may tend to underestimate the amount paid for earlier models.

The new standard will require the Pentagon to report what it actually spent on acquiring systems by major categories, for the current fiscal year and four prior years. A greater level of detail will be found only in tabulating quantities of systems.

“If I were running the Defense Department,” said Ralph DeGennaro, executive director of Taxpayers for Common Sense, “I would have red lights and sirens going off because I don’t know where the money is going.”

In an Aug. 10 interview, DeGennaro said that at some point, the Pentagon would be called upon to meet stricter reporting standards on how its $270 billion in annual income is being spent. “Clearly the FASAB won’t lead that change. The FASAB will play on the margins,” he said. DeGennaro did note, though, his view that “there are some good people in FASAB trying to make incremental reforms.”

In coming weeks, the FASAB will finalize its new amendment and forward it for review to the principal members of the FASAB, namely the Treasury Department, the White House’s Office of Management and Budget, and the General Accounting Office, sources said. Whether the relaxed standards embodied in the exposure draft can gain the approval of GAO, the investigative arm of Congress, is uncertain. GAO’s Lisa Jacobson in June told the FASAB her personal recommendation would be to strike down the exposure draft.

Jacobson, GAO’s director of defense audits, said the new amendment essentially “provides for the status quo,” but “there needs to be the financial controls over these assets … “ She added “the status quo is not adequate.”

If the three agencies agree on the changes, they will go to Capitol Hill. The new rule will enter into effect if there are no congressional objections.

During the Aug. 6 debate over whether to move forward with the DOD-supported exposure draft, a number of panel members expressed a desire to see the Pentagon make substantial improvement in its ability to track and report its current and future expenditures—even if historical data has been lost. “I did feel—after the hearing especially—a sense that if we had no requirement or expectation for [tracking this] information, it looked like we were heading towards” a future in which “there’s no record-keeping requirement to keep track of any sort of values,” said Gerald Murphy, a member of the nine-person FASAB, at last week’s meeting, which was open to the public.

“Based on some of the testimony and other comments,” Murphy continued, “I felt that that was going to be a very hard position for FASAB to take. And so I was interested in using something that recognized the current situation—that recognized the tremendous cost which would be involved in having to go back and trying to value lots of old assets—but was looking for a way to provide something for the future, where we could over time get some good value data … What I sought was to] in essence have some sort of transitional period whereby for all new acquisitions, you would be capturing value data for the new acquisitions and over some period of time would have a fuller inventory of value data.”

Requiring DOD to collect and report this data, Murphy said, “would simply be a step in a direction which I had thought might be appropriate.”

Ultimately the board reached consensus only on studying the possibility of calling on the Defense Department for more detailed reporting of its expenditures on assets. The decision came after several FASAB members expressed confusion over what kind of reporting the representatives of accounting groups and government watchdog organizations would find most useful.

A government official familiar with the FASAB process said it will take about a year to complete the study, then at least another year for the board to develop a new amendment, release it for public comment, and take it through the government review process.

One panel member, Donald Chapin, wanted to see the FASAB adopt the exposure draft along with a “promise” that DOD would be required at a future date to provide detailed cost information, even if this promise were not embodied in the new official accounting standard. Fellow FASAB member James Reid appeared to agree, saying the staff should study how prospective costs on major systems might be reported.

“I don’t want to drop cost as a consideration,” he said. “I don’t want to lose the cost in the future on major [systems]—or some reference to cost—because if they don’t do it, 10 years from now somebody else is going to have the same discussion. And if they start doing it, there’ll be something 10 years from now.”

But, Reid added, “I could live without cost on the [exposure draft] for the four years [of historical reporting] for a year or two till we come up with a better idea.”

Board member Norwood Jackson said, though, “I think the study should not have any … predetermined conclusions.” He said that pending the results of the study in a year or so, it is hard to say just what kind of reporting would provide the most utility to accounting data users within and outside the government.

Jackson said he, for one, would have a hard time defending the current standard’s requirement for historical cost reporting. He said he had earlier voted for it “blindly,” but now realizes he “could not defend it on any conceptual grounds.” And he noted he had heard no testimony that would help him understand what utility the historical cost reporting might have. “No one has told me yet today what they’re going to do with it … But the study may tell us what to do with it,” Jackson said.

One government official, speaking on condition of anonymity, said the FASAB’s conclusion was that the exposure draft is “responsive to most people’s needs.”