The Pentagon has come under fire for operating what some call a “bishop’s fund” (or slush fund) by overcharging the armed services for fuel. Over the past seven years, the Pentagon has profited over $6 billion in fuel revenue through the use of a working capital fund. That money has been used, since 2015, to fund other projects. $80 million went to train Syrian rebels, $450 million went to buttress a fraud-ridden prescription-drug program, and $1.4 billion went to cover unforeseen expenses in the Afghan war.
The Department of Defense is the largest single consumer of fuel on the planet, purchasing upwards of 100 million barrels per year. DoD purchases fuel centrally and sells to its customers through the Defense Logistics Agency (DLA). The Army, Navy, Marine Corps, Air Force, and others purchase this fuel at a fixed price, which makes their own budget accounting easier.
Working capital funds (WCFs), like the one used for DLA’s fuel, are intended to be revolving funds. This means that, after an initial influx of appropriated cash, the fund operates from its revenues. WCFs aim to break even after several years; gains in one year absorb losses in another.
From 2001 to 2009, that is what happened. Even as oil prices rose, DLA’s fund was relatively balanced. With a small markup to account for overhead costs, DLA fuel rates tracked similarly to those of commercial airlines. In 2010, however, DLA’s markup on fuel grew and grew even reaching as high as 125% more than commercial costs. Between 2010 and 2016, DLA charged the armed services $23 billion more for fuel than the open market price, three-quarters of which (according to the Pentagon) was used to pay overhead expenses and fuel-specific requirements.
Obviously, DLA’s price predictions are limited. Their price for fuel is set for a year and the nature of market volatility is prone to create surpluses and shortages. However, the consistent increase on DLA’s price and the consistent profit their WCF has turned (which is counter to the intention of a WCF) has made many wonder if it was intentional. The Pentagon’s comptroller even called for an unscheduled price increase a $1 per gallon even as global oil prices trended downwards. But why?
Pentagon officials, and specifically the acting Comptroller John Roth, have vehemently denied the use or existence of a “slush fund.”
I have an enormous number of outside people looking over my shoulder. The thought that I could somehow establish some sort of reserve in some manner, shape or form and hide it from everyone else just doesn’t make any sense.
Roth’s argument that “there is no way to hide this money and therefore the Pentagon does not have a slush fund” is a semantical one. When people think of slush funds, they think of a secret fund given a nondescript name that money is hidden from auditors and used for off-books covert or illicit reasons. Roth, in that case, is correct. Profits from the fuel WCF are not funneled into some hidden fund. The Pentagon is hiding their slush fund in the greatest place of all: plain sight.
The Pentagon has previously requested Congress to approve the transfer of fuel revenue to other projects, and Congress has been happy to oblige. In one such instance, $80 million was moved to a DoD effort to train Syrians to fight Islamic State forces. The project, which had already cost $500 million and was intended to instruct over 5,000 rebel forces, was scrapped six months after the influx of cash from fuel revenues for failure to train more than 200.
While some may suggest that using fuel profits to benefit other programs keeps the Pentagon from asking Congress for more money, in reality, they are robbing Peter to pay Paul. Overcharging its customers means that those customers have less money for other items. Let us not forget who those customers are. The Army, Navy, Air Force, and Marines take the price hikes as a hit to their budgets. This means less money for training and other operations.
Put plainly, more money for the Pentagon’s “I swear I’m not a Slush Fund” means less money for the training and preparedness of the warfighter. This, in turn, results in the armed services asking Congress for more money in their budgets.
While DLA’s fuel fund may not be as slushy as some claim (Congress, for instance, has ordered the DoD to return some of their profits and cut the budgets of other programs to account for the fuel revenues) it is a symptom of the rampant fiscal irresponsibility that plagues Washington in general and the Pentagon in particular.
Fun Fact: The Pentagon has NEVER been audited.
Hopefully, President Trump will take up the challenge that his predecessors have not. The Pentagon is in dire need of an audit. Will he bring fiscal responsibility back to Washington, or will he continue to pump more money into a system rife with fraud waste and abuse?