Commentary

The Pentagon Purloined Purchases

By Edward L. Hudgins
August 10, 2001
Remember those famous Pentagon hammers and toilet seats that cost nearly $1,000? One would think the federal government would have learned its lesson: government agencies, especially huge ones like the Pentagon, need close monitoring lest they flush the taxpayers’ money down their very expensive toilets.

Now we find that the Pentagon has outdone its scandal-ridden self. In recent years it has issued 1.8 million credit cards to its workers, who have racked up some 10 million purchases valued at $5.5 billion in 2000 alone. The problem is that many of those purchases might be fraudulent and the Pentagon is not stepping forward to make good on those debts.

No doubt Pentagon bean counters thought that each individual credit card transaction would be less costly than, say, requiring soldiers and sailors to fill out lots of purchase requisitions and obtain approval and signatures from lieutenants and colonels. Paper work and red tape can be such nuisance when you’re eager to spend someone else’s money.

But a recent General Accounting Office (GAO) study, for example, looked at two military installations in San Diego. Purchases by personnel from those bases that appeared to be “potentially fraudulent” included $500 for cosmetics at Mary Kay (Gotta look your best in battle); $1,500 in gift certificates from Nordstrom (and show proper appreciation to your friends); and $700 in CDs from Sam Goody (and get your head in the mood to fight). Were these purchases necessary for the defense of the country?

“Abusive purchases” included $400 designer leather briefcases from Nordstrom and $100 designer Palm Pilot holders. Flat screen computer monitors were purchased for about $800 to $2,500 each, compared to the standard monitors usually purchased by the government for $300 each.

Cases of fraud that were investigated included $27,000 in purchases of pizza, jewelry, tires and flowers by 27 cardholders, and one marathon cardholder who managed to scoop up $17,000 in personal items from Wal-Mart, Home Depot, shoe stores, pet stores, boutiques, and eye care center and restaurants in only eight months.

There were reports of a soldier who spent $3,100 at a nightclub on the taxpayers’ tab, and a reservist’s wife who went on a $13,000 shopping spree in Puerto Rico. You get the picture. But apparently the Pentagon did not.

The GAO found, for example, “a weak overall internal control environment” at the San Diego facilities. That means that no one was minding the store. To be fair, in that facility there was one poor grunt who was responsible for reviewing 700 monthly card statements from 1,526 cardholders per month, which works out to about 15 minutes total to certify the validity of every item on a statement. And this case is just the tip of the iceberg.

To make matters worse, the Pentagon, which passed out the cards, is not stepping forward to cover the debts of its personnel who have left their bills unpaid or in some cases even left the military. It is reported that Bank of America had to write off $59 million in fraudulent debts involving some 42,000 military travel credit cards. Bank of America and other banks might have to make up such losses by raising credit card rates for honest, on-time bill payers like you and me.

The lesson that the Pentagon and many of our lawmakers miss is this: Because governments are spending other people’s money, they have less incentive to be responsible. That is why we impose paperwork, red tape, oversights, and reviews on bureaucrats. Yes, these safeguards do cost money and time. That is why governments are inherently inefficient. And that is why they should be allowed to do only limited, essential tasks like defend the country. If oversight is removed in the name of efficiency, the likely result will be even more waste and abuse.

Edward L. Hudgins is the Cato Institute’s director of regulatory studies.