Summary Report on “Unsupported Journal Voucher Adjustments” in the Financial Statements of the
Office of the Inspector General for the Department of Defense and the Department of Housing and
Urban Development*
*Since we first published this report, it appears that some of the links to original sources at the Office of
the Inspector General have been changed or taken off line. However, all of the original government
documents can be found at Solari
Mark Skidmore
Mark is professor of economics and agricultural,
food and resource economics at Michigan State
University, where he holds the Morris Chair in
State and Local Government Finance and Policy.
He also serves as Director of the North Central
Regional Center for Rural Development. He
received his doctorate in economics from the
University of Colorado in 1994, and his bachelor's
degree in economics from the University of
Washington in 1987. Mark is Co-‐editor of the
Journal of Urban Affairs.
E-‐mail: This email address is being protected from spambots. You need JavaScript enabled to view it.
Catherine AusJn FiKs
Catherine is the president of Solari, Inc., publisher of
the Solari Report, and managing member of Solari
Investment Advisory Services, LLC. She served as
managing director and member of the board of
directors of the Wall Street investment bank Dillon,
Read & Co. Inc., as Assistant Secretary of Housing
and Federal Housing Commissioner at the United
States Department of Housing and Urban
Development in the first Bush Administra[on, and
was the president of Hamilton Securi[es Group, Inc.
Catherine graduated from the University of
Pennsylvania (BA), the Wharton School (MBA).
E-‐mail: This email address is being protected from spambots. You need JavaScript enabled to view it.
On September 10, 2001, Secretary of Defense Donald Rumsfeld stated in a Congressional hearing that
the Department of Defense had lost track of $2.3 trillion in transac[ons. Mr. Rumsfeld made the
following statement:
According to some es[mates, we cannot track $2.3 trillion in transac[ons. We cannot share
informa[on from floor to floor in this building because it's stored on dozens of technological
systems that are inaccessible or incompa[ble."1
-‐Remarks as Delivered by Secretary of Defense Donald H. Rumsfeld, The Pentagon,
Monday, September 10, 2001
Since that [me, numerous documents produced by the Office of the Inspector General have reported
trillions of dollars as “unsupported journal voucher adjustments”. According to the Office of the
Comptroller (hip://comptroller.defense.gov/Portals/45/documents/fiar/FIAR_Plan_May_2015.pdf), the
defini[on of journal vouchers is as follows:
Journal vouchers are summary-‐level accoun[ng adjustments made when balances between
systems cannot be reconciled. Omen these journal vouchers are unsupported, meaning they lack
1
1 You may also view a CSPAN recording of Representa[ve Cynthia McKinney (D-‐GA) ques[oning Donald Rumsfeld
about DOD financials in March 2005 at hips://www.youtube.com/watch?v=9RvLL-‐-‐vSsA&mode=related&search=.
suppor[ng documenta[on to jus[fy the adjustment or are not [ed to specific accoun[ng
transac[ons. While many adjustments are valid, having too many journal vouchers may be an
indicator of underlying problems, such as weak internal controls. For an auditor, journal
vouchers are a red-‐flag for transac[ons not being captured, reported, or summarized correctly.
Auditors must judge whether the errors that triggered the journal voucher are isolated or
systemic, leading them to select more transac[ons to test. If the auditors cannot es[mate the
magnitude of the errors, they may not be able to complete the audit or issue an opinion on the
financial statements.
Any journal voucher or entry requires appropriate documenta[on such as receipts with accompanying
explana[ons. Journal voucher entries without such documenta[on are referred to as “unsupported
journal voucher entries”, and “unsupported journal voucher adjustments” are some[mes used to
reconcile accounts. According to DeVries and Kiger (2004), when audi[ng private en[[es
unsubstan[ated journal entries and other adjustments represent significant exposure to poten[al fraud.
Thus, in both the private and public sectors, unsupported journal voucher entries and adjustments are
considered red flags for poten[al fraud.
The Inspector General’s report for the Army in fiscal year 2015 is also notable: this document reported
$6.5 trillion in unsupported journal voucher adjustments (hips://media.defense.gov/2016/Jul/
26/2001714261/-‐1/-‐1/1/DODIG-‐2016-‐113.pdf), see page 4). The report indicates that unsupported
journal voucher adjustments are the result of agencies failure to correct system deficiencies. Also, there
was a lack of guidance on system-‐generated adjustments. The result, according to the report, is that
data used to prepare the year-‐end financial statements were unreliable and lacked an adequate audit
trail. For context, consider the fact that the en[re budget of the Department of Defense (DOD) in 2015
was $565 billion. Therefore, the unsupported journal voucher adjustments for the Army were more
than 10 [mes the en[re DOD budget.
These two reports (the Rumsfeld announcement in 2001 regarding the “lost” $2.3 trillion and the $6.5
trillion in unsupported adjustments in 2015) prompted us to conduct a search at the website of the
Office of the Inspector General and the Government Accountability Office to compile documents
between the years 1998 and 2015 for the DOD and the Department of Housing and Urban Development
(HUD) that indicate the amounts of unsupported journal voucher adjustments.2 To make these
documents more easily accessible to the general public, they have been made available at hips://
missingmoney.solari.com/dod-‐and-‐hud-‐missing-‐money-‐suppor[ng-‐documenta[on/. While we were
unable to recover data for a number of years, we were successful in iden[fying $21 trillion in
unsupported adjustments for DOD and $350 billion for HUD. For those unaccustomed to dealing with
large figures, $21 trillion is equal to about $166,000 per household in the United States. For further
context, the en[re sum of authorized DOD and HUD spending for years 1998-‐2015 in nominal terms was
$8.6 trillion and $781 billion, respec[vely.3 Thus, the unsupported journal voucher adjustments we
iden[fied for DOD, which are incomplete, were more than twice the size of authorized spending over
the period. The sums are smaller for HUD in rela[on to its total budget, in part because we were only
able to iden[fy four years for which the amounts of unsupported adjustments or errors were reported.
However, in fiscal year 2015, HUD “material errors” in repor[ng were $270 billion, nearly eight [mes the
2
2 We an[cipate conduc[ng searches for other federal agencies in the future.
3 These data were obtained from historical tables available at hips://www.whitehouse.gov/omb/budget/
Historicals.
size of its $36 billion budget. The explana[on given in the report was as follows (see hips://
www.hudoig.gov/sites/default/files/3-‐16-‐2017-‐HouseHearing-‐Wriien-‐Tes[monyPDF.pdf, page 4):
Of the $278.5 billion in errors, $159.4 billion was due primarily to (1) incorrect data entry, (2)
omission of restated balances, or (3) incorrect data provided by HUD’s component en[[es (FHA
and Ginnie Mae). The remaining $119.1 billion were due to inappropriate rounding adjustments.
We found several instances in which rounding was performed to the nearest billion and hundred
billion instead of the nearest million as required.
The Inspector General reports that are available to the public only provide summary informa[on; thus it
is impossible for us to conduct a detailed assessment of the nature of these unsupported adjustments
and errors. However, the report for fiscal year 2015 “Army General Fund Adjustments Not Adequately
Documented or Supported” (hips://media.defense.gov/2017/Apr/18/2001734010/-‐1/-‐1/1/00-‐167.PDF)
offers some addi[onal informa[on in the appendices. Consider Appendix C Table 4 on page 27 of the
report, which provides a summary of net changes in the Army General Fund balance sheet that are due
to unsupported journal voucher adjustments. On the asset side, there is the following increase:
$794 billion in Fund Balance with Treasury
For liabili[es, there is the following increase:
$929 billion in Accounts Payable.
These two items are the largest entries. Summing all the changes in Appendix C Table 4, there is a net
increase of $1 trillion in assets resul[ng from unsupported journal voucher adjustments, and a $1 trillion
increase in net liabili[es due to unsupported journal voucher adjustments. While the appendices do not
provide a full accoun[ng of the $6.5 trillion in unsupported adjustments ar[culated in the report, this
addi[onal informa[on offers some guidance with regard to ques[ons one might ask:
1) On the asset side of the ledger, from where did the addi[onal $794 billion in Fund Balance with
Treasury come? These adjustments appear to represent a flow of funds to the Army through
Treasury above and beyond the known resources authorized by Congress. Were these
addi[onal funds authorized and if so when and by whom? From where did the funds come?
2) For liabili[es, if our interpreta[on is correct the $929 billion in Accounts Payable represents the
amount owed for items or services purchased on credit. What en[[es are expected to receive
payment, which appear to be in excess of authorized spending? While the DOD systems do not
provide adequate documenta[on to answer this ques[on, it seems possible to learn more about
such transac[ons via other means. For example, numerous DOD contractors are publically
traded companies that regularly produce SEC filings and audited financial statements. Also, the
Federal Reserve Bank acts as the fiscal agent for the government and therefore has a record of
transac[ons.4 Would not prudent fiscal management compel one inquire further?
The report offers a footnote in Appendix C Table 4 sta[ng that: “DFAS Indianapolis personnel stated
that the majority of the increase is related to budget execu[on adjustments from prior years that must
be applied to establish the correct beginning balances for the general ledger accounts reported on this
line.” Again, it seems possible, with further inquiry, to learn more about the nature of these
adjustments and when the original transac[ons occurred. In principle, it could be that these
adjustments represent a one-‐[me event to reconcile the budget. However, as can be seen from the
3
4 See hips://www.newyorkfed.org/abouihefed/whatwedo.html.
compiled documents available at hips://missingmoney.solari.com/dod-‐and-‐hud-‐missing-‐money-‐
suppor[ng-‐documenta[on/, these types of substan[al adjustments have occurred on a regular basis.
Turning to the 2001 Rumsfeld comment, consider the document “Statement of Robert J. Lieberman
Assistant Inspector General Department of Defense Before the Task Force on Defense and Interna[onal
Rela[ons House Budget Commiiee on Department of Defense Financial Management” which was
delivered in July 2000 (hips://media.defense.gov/2017/Apr/18/2001734010/-‐1/-‐1/1/00-‐167.PDF). This
may have been the document Mr. Rumsfeld was referring to when he indicated that the DOD could not
account for $2.3 trillion. On page 9 of this report, we see that $2.3 trillion in transac[ons were
“unsupported by reliable explanatory informa[on”. There is liile explana[on of the nature of these
adjustments except that they are evidence of “how poor the exis[ng systems are”. The explana[on in
the document is that exis[ng systems are inadequate given the complexity of DOD opera[ons and
contracts.
In our opinion, the DOD is no more complicated than large mul[-‐na[onal corpora[ons, which by and
large have effec[ve systems of financial management. As a general rule DOD personnel are well-‐
trained, skilled, and competent. Further, DOD has had more than two decades to correct any
inadequacies in their systems of financial management. The ongoing and repeated nature of the
unsupported journal voucher adjustments coupled with the seemingly enormous size of the
adjustments warrants the aien[on of both ci[zens and elected officials.5 By making these government
documents more readily accessible at hips://missingmoney.solari.com/dod-‐and-‐hud-‐missing-‐money-‐
suppor[ng-‐documenta[on/, we hope others will take note, inquire, and demand access to the
necessary informa[on for independent and Congressional inquiries. How is it that such large sums of
unsupported journal voucher adjustments could be possible given the size of the appropriated DOD and
HUD budgets? It is important to recognize that federal agencies maintain credit, loan, guarantee,
insurance and, in the case of HUD, securi[es opera[ons. Without reliable accounts and records of
financial assets and liabili[es, such opera[ons theore[cally have the poten[al to leverage the resources
managed.6
If we can draw themes regarding the stated explana[ons for the unsupported adjustments from all of
the government reports we were able to collect for years 1998 through 2015, they are: 1) inadequate
systems financial management, 2) complexity of DOD opera[ons, and 3) deficiencies in feeder systems
and management. Regardless, the reports we have collected point to a failure to comply with basic
Cons[tu[onal and legisla[ve requirements for spending and disclosure. The reports also reveal a
willingness on part of Congress to approve new spending and various governmental and third par[es to
process transac[ons despite that failure.
While budgets can be complex, in principle accoun[ng relies primarily on basic math. It should be
feasible to track revenues flowing in and expenditures flowing out, and share this informa[on in a
format that can be understood by literate people. The federal government is once again facing a
4
5 It should be noted that there have been reports of large amounts of money going missing in Iraq in connec[on
with US opera[ons in the Middle East. How those reports relate to the undocumented adjustments is unknown.
See: hips://www.vanityfair.com/news/2007/10/iraq-‐billions200710?currentPage=all&printable=true.
6 The appropria[ons budget is not the only source and use of funds for government agencies. With programs
involving guarantees, credits and loans (as with both HUD and DOD) and securi[es opera[ons the amount of
transac[ons can be much larger than the appropria[ons budget.
poten[al budget crisis. Without formally expanding the debt limit beyond the exis[ng $20 trillion
ceiling, the federal budget and the economy will experience a significant shock. These issues will come
to a head in December 2017. It seems now, more than ever, a transparent and publically available
accoun[ng of the $21 trillion in unsupported adjustments would be especially [mely and valuable.
References
DeVries, D. D., & Kiger, J. E. (2004). Journal entries and adjustments? Your biggest fraud danger. Journal
of Corporate Accoun[ng & Finance, 15(4), 57–62. hips://doi.org/10.1002/JCAF.20023
https://missingmoney.solari.com/wp-content/uploads/2018/08/Unsupported_Adjustments_Report_Final_4.pdf
