Papers: Pentagon overbills for fuel

$6 billion overcharged to armed services used for other programs

WASHINGTON — The Pentagon has generated almost $6 billion over the past seven years by charging the armed forces excessive prices for fuel and has used the money to bolster mismanaged or underfunded military programs, documents show.

Since 2015, the Defense Department has tapped surpluses from its fuel accounts for $80 million to train Syrian rebels, $450 million to shore up a prescription-drug program riddled with fraud and $1.4 billion to cover unanticipated expenses from the war in Afghanistan, according to military accounting records.

The Pentagon has amassed the extra cash by billing the armed forces for fuel at rates often much higher — sometimes $1 per gallon or more — than what commercial airlines paid for jet fuel on the open market.

Under a bureaucracy that dates to World War II, the Defense Department purchases all of its fuel centrally and then resells it at a fixed price to the Air Force, Navy, Army, Marine Corps and other customers, who pay for it out of their own budgets. The system is intended to reduce duplication and promote efficiency.

The Defense Department is the largest single consumer of fuel in the world. Each year, it buys about 100 million barrels, or 4.2 billion gallons, of refined petroleum for its aircraft, warships, tanks and other machines.

The practice of using fuel revenue to plug unrelated gaps in the defense budget has escalated in recent years, prompting allegations — and official denials — that the accounts are being used as a slush fund.

Pentagon officials defended the arrangement.

Congress has routinely approved their requests to skim off the fuel-purchasing accounts as a straightforward way to balance the Defense Department’s books. Lawmakers, however, are increasingly questioning the budgeting methods that have enabled the Pentagon to accumulate large windfalls from fuel sales in the first place.

The accounting policy exemplifies the enormous scale and complexity of the U.S. military’s business operations, and how waste and inefficiency in the defense bureaucracy can dwarf what Washington spends on other parts of the federal government.

In recent months, for example, the Pentagon has struggled to explain to Congress why it buried an internal study that exposed $125 billion in administrative waste, including high salaries for legions of defense contractors.

Such fiscal problems are deeply rooted. For the past quarter-century, the Defense Department has failed to meet a congressional mandate to clean up its books so it can pass an audit — the only federal agency that has failed to do so.

Meanwhile, the Pentagon is preparing for a military buildup. President Donald Trump has said he will ask Congress to add $54 billion to next year’s defense budget, about a 10 percent spike over current spending caps.

Some senior leaders with the armed forces accused the Pentagon of intentionally overbilling the Air Force, Navy, Army and Marine Corps for fuel and pocketing the difference to pay for other priorities.

“We’ve been complaining about this,” said Ray Mabus, who served as Navy secretary for eight years during President Barack Obama’s administration. “But if we do it too loudly, oh man, they come back on us really hard.”

He and other officials said artificially high fuel prices have left the Navy, at times, with less money for military training, operations and maintenance. The Air Force and Army have not complained publicly about the arrangement.

In a statement, the Pentagon acknowledged that it accumulated $5.6 billion in “enterprise gains” from fuel purchases between 2010 and 2016, but said the surplus was the result of falling oil prices in an inherently volatile market.

“What has happened in the last two years is we have been blessed by lower fuel prices,” said Deputy Defense Secretary Robert Work, the Pentagon’s second-ranking civilian official. “Sometimes you overestimate what the price will cost and you get an asset, and sometimes you underestimate and you get a deficit.”

John Roth, the Pentagon’s acting comptroller and chief financial officer, said it would be impossible to hide a multibillion-dollar slush fund from Congress. He said the Pentagon must receive approval from four different legislative committees whenever it wants to spend money from fuel savings on other programs.

“I have an enormous number of outside people looking over my shoulder,” Roth said. “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.”

Congress has approved the Pentagon’s requests to tap its fuel revenue to pay for shortfalls in other programs. Legislative aides said they did not think that the Defense Department was intentionally manipulating fuel prices. At the same time, Congress has heightened its scrutiny of how the pool of excess cash has materialized.

In reports commissioned by Congress since 2014, the Government Accountability Office has found that the Pentagon has done a poor job of projecting its annual fuel budget and how much petroleum it would actually consume in a given year.

Lawmakers have also asked the Pentagon to give back some of the surplus. In 2015, they forced the Defense Department to return $1 billion and reduced the budgets for other military programs by $2.6 billion to reflect lower-than-expected fuel costs.

And in approving a defense-authorization bill last year, the Senate Armed Services Committee concluded in a report that it was “concerned about the quality and transparency” of the Pentagon’s methodology for setting fuel prices.