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Fiscal nightmare looms at 'bloated' Pentagon

While Chuck Hagel’s quest to become defense secretary was a long and painful ordeal, he’ll be facing a different kind of pain once he’s confirmed - likely on Tuesday - and replaces Leon Panetta at the Pentagon.

In addition to the spending cuts required by the Budget Control Act, which will trim the Defense Department’s budget resources by 8 percent in the current fiscal year, Hagel faces a nightmarish budget challenge.

He will be running a department with nearly 1.4 million people serving in uniform and nearly 800,000 civilian employees.

Hagel’s department is bigger than several major U.S. corporations, but its finances remain deeply troubled, obscure and impenetrable – even to budget experts and even after more than 20 years of warnings from the federal government’s accounting watchdog, the Government Accountability Office.

Just two weeks ago, the GAO kept the Pentagon on its annual "High Risk List" of departments whose books are so mysterious and opaque that they're at high risk of fraud, waste and mismanagement.

Related: After seven-week struggle, Hagel poised for defense confirmation

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Former Senator Chuck Hagel testifies before the Senate Armed Services Committee during his confirmation hearing to become the next secretary of defense on Capitol Hill January 31, 2013 in Washington, DC.

The GAO said that the Defense Department “is one of the few federal entities that cannot accurately account for its spending or assets.” The report added, “Without accurate, timely, and useful financial information, DOD is severely hampered in making sound decisions affecting its operations.”

As one specific example, the accounting watchdog cited the department’s supply-chain management which as of late 2011 had amassed $9.2 billion worth of excess inventory on hand and had already ordered $523 million worth of inventory which was purchased but likely unnecessary.

And the GAO noted that it had first put the Pentagon’s supply-chain management problem on its "High Risk List" in 1990.

Outside observers agree that the Pentagon’s finances are troubled and that it costs taxpayers too much money to get each aircraft carrier, missile, drone and other weapons system.

Retired Army Gen. David Barno, the former U.S. commander in Afghanistan and now a senior fellow at the Center for a New American Security in Washington, told a Council on Foreign Relations panel discussion earlier this month, “We're delivering capability in the military sense for more and more overhead cost year after year after year” due to an “egregiously inefficient Defense Department that's leaking money.”

He said the Pentagon’s method of operating is comparable to driving a 1985 Oldsmobile which is leaking oil, “and every time we go out on the highway at 65 miles an hour, we come back after another day, there's more and more oil on the floor of our garage in the morning. And our solution has been to buy more oil, to put it in the engine and go drive it at 65 miles an hour.”

Members of the Senate Armed Services Committee engage in a sharp discussion regarding Chuck Hagel's nomination as defense secretary and his disclosure of personal income.

And Hagel himself said in August of 2011 that the Defense Department “in many ways, has been bloated. Let's look at the reality here. The Defense Department's gotten everything it wanted the last 10 years and more.”

Despite the warnings from GAO and others, the Defense Department’s financial morass wasn’t a major focus of the questioning last month at Hagel’s confirmation hearing before the Senate Armed Services Committee.

Hagel did field some queries on the department’s finances from Sens. Claire McCaskill, D-Mo., Roy Blunt, R-Mo., and Angus King, I-Maine.

But apart from referring to the need for giving his subordinates in the Pentagon “flexibility” and “direction and expectations,” Hagel supplied little insight on what plans he might have in mind to make the Pentagon more accountable. And he more often asked questions than supplied answers.

Hagel did say that in both the Iraq and Afghanistan wars, Defense Department inspector generals had uncovered “billions and billions of dollars that are unaccounted for. Corruption, fraud, waste, abuse, it really is quite astounding.”

But he added, “When you think about the universe of money that went into both those wars, no one should be surprised.”

Then he asked “How do we fix it? What we do? How do we learn from this?”

He added more questions later in the hearing, “Why aren't we auditing these programs? Where's the accountability? That's certainly an area that we're going to have to take a look at.” And within days Hagel will have his chance to begin that accountability and to reduce the bloat he saw in his department.

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