Pentagon Says Accounting Mistake Frees Up $3 Billion More for Ukraine, announces a recent New York Times story.

Here’s some of the detail:

• The Pentagon has significantly reduced its estimate of the value of weapons it has sent to Ukraine, freeing up at least $3 billion to keep Ukrainian troops supplied in their war against Russia over the next several months.
• The Biden administration has faced intensifying pressure to explain how it intended to continue supporting Ukraine without asking Congress to replenish its budget. On Thursday, Pentagon and State Department officials told congressional staff members that they had discovered an accounting issue that could make more resources available before Ukraine’s planned counteroffensive this summer.
• Pentagon officials realized their mistake almost two months ago, according to a senior White House official, who spoke on the condition of anonymity to discuss accounting processes.
• But instead of placating Congress’s concerns, the revelation was met with frustration and anger, as some lawmakers criticized the Biden administration for what they said was an extremely troublesome error…
• Administration officials said their mistake was one of improper valuation, explaining that they had been calculating the price of each item based on how much it would cost to replace it with new equipment, instead of its sale value, which is lower. They plan to make the same change in an assessment of their remaining authority to send Taiwan weapons from existing Pentagon stocks, according to administration and congressional officials.
• “This overvaluation has not constrained our support to Ukraine nor impacted our ability to flow capabilities to the battlefield,” Sabrina Singh, a Pentagon spokeswoman, said in a statement.
• Congressional staff members expressed incredulity that it had taken the administration 15 months of war to identify such a basic and yet pivotal accounting mistake. Some said they thought that the revision might be a way for officials to maintain supplies at a time when available funds for Ukraine were in danger of running out…
• Presidential drawdown authority allows the administration to pull from existing weapons stocks, instead of waiting the several months or years it can take for defense contractors to manufacture weapons under new contracts. The Biden administration has highlighted the program as one of its signature achievements in helping Ukraine battle Russian forces.
• Under drawdown authority, the administration decides which weapons to send out from existing stocks and how to determine their value. Since the start of the conflict, the Pentagon has announced a new drawdown package about every two weeks, with each valued in the hundreds of millions of dollars.

It’s telling that the error was characterized slightly differently by different media, with some  (such as the Los Angeles Times) referring to “net book value” rather than “sale value,” as above. Either way, one opinion piece called this “suspicious,” and went on:

• The current emergency-style Ukraine funding allows the government to circumvent budgetary pressures, avoid getting caught up in issues like omnibus appropriations, and shield the aid from deficit-reduction spending cuts. By reapportioning the newfound $3 billion for Ukraine, the Biden administration could use emergency funding to support Kyiv unabated, even if the rest of the federal budget experiences sweeping cuts.
• And if the error isn’t deliberate? That would signal major flaws in Pentagon oversight. If around 7.5 percent of the nearly $40 billion the U.S. has committed to Ukraine was accounted for incorrectly, there are likely a litany of other financial miscalculations in the $858 billion military budget.
• Whether this $3 billion mistake is a purposeful effort to circumvent Congress or a huge accounting error, it reflects a near-breakdown of the democratic process for military spending.

I’m recording this here as a relatively rare instance of an acknowledged “accounting mistake” carrying significant real-world consequences. Strangely though, it’s not necessarily clear from the detail provided that this is actually a “mistake,” in the sense of a clear misapplication of facts or principles, rather than a change in accounting policy. If, as stated, the administration has the authority to decide how to determine the value of the weapons sent out, then it seems that it can’t have been an error to apply the method originally used. The revised policy may be preferable from the administration’s perspective, but it’s at least debatable whether it’s more conceptually sound than the original method. That is, as the items are being supplied to Ukraine to be used in defending itself against Russia, then a net book amount based on historical cost, or current sale value, would seem like a flawed way of expressing the utility and capacity of what Ukraine is actually receiving (if that were the object). Perhaps some form of “value in use” calculation would be most relevant, although I don’t suppose it’s too easy to conceptualize the act of waging war in terms of discounted cash flow estimates. But then, given the volume and nature of what’s at issue, it’s a challenge to grapple with the numbers at all…

Of course, my comments above are entirely theoretical, and from a realpolitik point of view, I entirely support anything that has the effect of increasing the aid available to Ukraine; its victory against Russia is a moral, cultural and political necessity, for us all. The adverse commentary is essentially correct though to the degree that military spending (any such material spending) should be regulated with more regulatory and strategic specificity than is indicated here. But anyway, when the story of Ukraine’s victory comes to be told, it’ll be good to know there’ll be a little something extra in there for accountants…

The opinions expressed are solely those of the author.