In February 2019, Dr. Mark Skidmore and I published one of our landmark articles on the missing money, titled “Should We Care about Secrecy in Financial Reporting?” In that article, we provided an assessment of the nature of the missing $21 trillion—officially referred to as “unsupported journal voucher adjustments”—that we and Dr. Skidmore’s students had painstakingly documented for the 1998-2016 period.

Included in the $21 trillion were $6.5 trillion in unverifiable Army transactions for the year 2015. One effort to downplay the significance of the $6.5 trillion in unsupported adjustments came from then Department of Defense (DOD) Comptroller David Norquist, who spoke at a hearing (captured on C-SPAN) headed by former Representative Walter Jones (R-NC). Norquist’s remarks are still available on YouTube, and recently, a Solari subscriber asked us to explain why they are not credible.

The rebuttal we provided in our 2019 article still stands, and we republish it below.

A recent [May 2018] C-Span video recording came to our attention in which David Norquist, Comptroller of the DOD, offered an explanation to Congressman Walter Jones regarding the nature of the Army’s $6.5 trillion in unsupported adjustments. Norquist’s testimony is available on YouTube, and the following assessment was originally provided by Kotlikoff in 2018.

In his testimony, Norquist indicated that the unsupported journal voucher entries are the result of changes in the “property book” that amount to hundreds of billions of dollars. According to Norquist, the system that tracks the property book is not integrated with the system that tracks the general fund ledger, and thus large unsupported adjustments are required for reconciliation. From his testimony, Mr. Norquist says that changes in the valuation of property and equipment due to depreciation, base closures, equipment becoming obsolete, etc. are leading to large undocumentable adjustments.

Let us examine his statement. The original Army OIG report from 2016 [published on July 26 of that year and titled Army General Fund Adjustments Not Adequately Documented or Supported] highlighting unsupported adjustments of $6.5 trillion indicates that $164 billion in undocumentable adjustments were related to property (see page 27 of the report). First, the $164 billion in unsupported adjustments is substantial and yet there is no indication regarding what properties, equipment, etc. required changes in valuation. However, what is more important is that while $164 billion is a substantial figure, it accounts for only two percent of the $6.5 trillion. Why were an additional $6.3 trillion in unsupported adjustments needed? Because the publicly available reports do not offer detailed explanations and additional data are not forthcoming, we are left to “trust” that the authorities are offering an accurate assessment.

Further evaluation is in order. Consider the Army for which we found $11.5 trillion in unsupported adjustments over the 1998-2016 period. During this period, authorized general fund Army spending was just over $2 trillion. We know from other sources that about 40 percent of the Army’s general fund budget is allocated to personnel costs, and therefore was not used for purchasing property and equipment. For simplicity, assume that the remaining amount (60 percent of the $2 trillion, or $1.2 trillion) was used to purchase property and equipment, and assume all of this spending is fully written off at 100 percent. For how many years could the Army write off all non-personnel spending and then call it an unsupported adjustment? Between 1998 and 2016, the Army’s average annual budget was about $118 billion, of which roughly $71 billion annually was for non-personnel spending. Dividing $11.5 trillion by $71 billion shows that the Army could have fully written off all non-personnel spending for the past 163 years (assuming a stable budget allocation in real terms), and then called it an unsupported adjustment. From this evaluation, it seems that Mr. Norquist’s explanation does not hold up to a modest level of scrutiny.