Inspector General Robert P. Storch announced today that the Department of Defense Office of Inspector General (DoD OIG) released the “Audit of the DoD’s Revaluation of the Support Provided to Ukraine Through Presidential Drawdown Authority.”
“The use of Presidential Drawdown Authority (PDA) is a critical component of U.S. policy in crises,” said IG Storch. “Compliance with applicable policies for valuing defense articles provided under PDA is of the utmost importance. While the DoD has already acknowledged some difficulties in this area, improperly valuing defense articles provided under PDA risks undermining confidence in how the DoD reports the using PDA for Ukraine and other partners.”
In June 2023, the DoD acknowledged a $6.2 billion error stemming from its overvaluation of PDA provided to the Government of Ukraine (GoU). From the first 37 PDA Execute Orders, the OIG selected a nonstatistical sample of general equipment (GE) and operating materials and supplies (OM&S) defense articles. The audit team reviewed revaluation data for about 2,300 pieces of GE of defense articles subject to depreciation, such as Humvees, radar systems, tanks, and armored personnel carriers, and similar data for nearly 23,000,000 pieces of OM&S, such as ammunition and missiles that are expended, and not subject to depreciation. The DoD OIG determined that based on its sample review, the DoD overvalued defense articles provided to the GoU by an additional $1.9 billion, comprised of $653 million for GE and $1.25 billion for OM&S. Combined with the previously acknowledged $6.2 billion error, the total of overvalued defense articles provided through PDA is $8.1 billion.
“The identification of an additional $1.9 billion in overvalued defense articles in our sample, on top of the previously announced $6.2 billion, shows that the DoD and its Components failed to fully implement the updated policies associated with the DoD Comptroller’s instructions in the spring of 2023,” added IG Storch. “We also discovered instances where some DoD Components involved in the valuation of defense articles lacked a full understanding of the accounting principles in the DoD Comptroller’s policy updates and were unable to implement these updates due to financial reporting material weaknesses.”
The DoD OIG made several recommendations, including that the Under Secretary of Defense (Comptroller)/Chief Financial Officer (USD(C)/CFO) require the Military Departments to perform a full reconciliation of GE and OM&S provided to GoU under PDA Execute Orders 1-37 to ensure the assets are valued according to applicable policy. Additionally, the DoD OIG recommended that in coordination with the Defense Security Cooperation Agency, the USD(C)/CFO determine policy for valuing GE with a net book value of zero and develop a standardized pricing methodology for OM&S.
The DoD OIG will continue to monitor the USD(C)/CFO’s progress toward fully implementing all recommendations.