As Elon Musk eyes Defense Department, conflicts of interest, accounting issues loom

USA Today

16-02-2025

As Elon Musk eyes Defense Department, conflicts of interest, accounting issues loom Trump floated cutting the defense budget in half, once things 'settle down' with Russia and China. That contrasts with comments from Hegseth about investing in national security.
Show Caption
Hide Caption
Musk defends 'deleting' entire agencies amid rising criticism
Elon Musk pledged to find $1 trillion in savings in the government. But some have accused him of letting politics drive his decision-making.
Defense Secretary Pete Hegseth welcomed DOGE to the Pentagon, where Elon Musk will face an accounting system that has never passed an audit and decades of rampant price gouging by defense contractors.
On Thursday, Trump floated cutting the defense budget in half – after things "settle down" with Russia and China. It was a sharp turn from Defense Secretary Pete Hegseth's comments earlier the same day that "nobody can or should test the extent of America's willingness to invest in national security."
Defense policy experts say the Pentagon's $850 billion budget is in sore need of oversight – investigators regularly uncover billions of dollars of waste and the department's disjointed accounting system has yet to pass an audit.
For years, the Pentagon has been trying – and failing – to clearly account for its finances. Seven years after it handed in its first official audit, the Defense Department has not received a passing grade on a single one.
But balancing the military's books, which Hegseth has said he would achieve within four years, is not the same as the sweeping cuts of programs, sacking of federal workers, and shutdown of entire departments orchestrated by Musk elsewhere in Washington.
The Pentagon has spent more than $14 trillion since 9/11, with up to 50% going to defense contractors, Brown University's Cost of War project found.
Defense contractors often hire subcontractors, who then hire their own subcontractors, creating a dizzying spiral of spending.
"It becomes, with each layer of contracting, harder to track who's getting the money, and whether it's actually going for its intended purpose or not," said Heidi Peltier, an economist with the Project. "By the time the final bill is hitting the Department of Defense or hitting the taxpayer, you have these multiple layers of profit."
Musk's defense contracts raise conflict of interest questions
Peltier said oversight was necessary to track down wasteful spending. Within the Pentagon, the main source of that oversight comes from the Pentagon's office of the inspector general, which maintains an anonymous tip line to collect reports of fraud, waste and abuse.
Its mission is nonpolitical – it serves as an "independent, nonpartisan, objective oversight agency," said Mollie Halpern, a spokesperson for the office. In the first quarter of this year, the office's criminal investigative branch recovered $46.3 billion through its criminal, civil and administrative recoveries, according to Halpern.
Trump fired Robert Storch, the Defense Department's inspector general, along with the inspectors of 16 other agencies last month. Storch and seven other inspectors sued Trump this week, claiming their ousting was illegal.
The role is currently held by an acting inspector general who is a veteran of the office.
But Trump can nominate replacements for the inspectors he fired, although they would need to pass senate confirmation first. And Musk's financial entanglement with Washington's largest department has stirred skepticism and concerns about conflict of interest.
Musk, a defense contractor, has already faced questions of whether his wide-reaching business interests disqualify him as a government watchdog. The State Department quietly removed the name of Tesla, which is owned by Musk, from a $400 million contract for armored vehicles on its website this week after multiple outlets reported on it.
His entrance to the Pentagon, where his companies hold billions of dollars in contracts, raises the question of whether he could tip the scales in his financial favor.
In 2020, SpaceX, which Musk owns, won a $150 million contract to build launchers for the Space Development Agency's spaceships. And the Pentagon is paying Starlink, his satellite company, millions to provide Ukraine internet.
The true scope of Musk's contracts with the Defense Department is impossible to know, since many of his contracts are classified.
"There already is the appearance of conflict of interest," Todd Harrison, a senior fellow at the American Enterprise Institute, who specializes in the defense budget, said of Musk's role in the administration. Even contracts that have already been obligated could be canceled. Although "it's unusual, you could do it more broadly," he said.
Pentagon bogged down with price gouging, accounting troubles
In recent decades, internal investigations, congressional commissions and reports have unearthed myriad examples of the scale of contractors' price gouging.
Just this week, Lockheed Martin, the top U.S. defense manufacturer, settled a $30 million lawsuit accusing it of overcharging the Pentagon for years.
Examples over the years include Lockheed Martin and its subcontractor, Boeing, charging the Pentagon a 40% greater price for Patriot missiles and an additional $16 million Haliburton charged to feed a military base in Kuwait. Some veer into the ridiculous – an extra $149,000 spent on soap dispensers, and $14,000 toilet seats.
The Pentagon's discombobulated accounting system also creates a black box where potential fraud or wasteful spending can't be found.
The internal financial controls of the Defense Department's many organs are rife with data processing incompatibilities, making it difficult to accurately compare books. That runs the risk of inconsistencies and inaccuracies popping up as accounting information is handed off between components.
The Department's accounting has "weak internal controls," said Asif Khan, a Government Accountability Office director focused on financial management. Values could be "materially misstated, and there aren't enough controls to be able to identify what the misstatement is."
If an accounting value is lost, it's difficult to ascertain "whether that really is an improper payment, or whether, indeed, fraud is taking place," Khan said.
The Pentagon points out that some of its parts – a minority – have passed their audits. Of the 28 components within the Department that reported their finances, nine received an "unmodified" opinion, meaning a clean audit, one received a "modified" opinion, meaning its bookkeeping had issues, but was ultimately reliable, three reviews were still pending, and the remaining 15 failed.
Hegseth has said he will push for the Pentagon to pass an audit at the end of Trump's term. Khan said, to pass the 2028 audit, new systems would likely need to be in place by the end of 2026.
Modernizing those systems costs even more money – around a billion dollars, according to Harrison. This fiscal year's defense budget includes an another $1.3 billion for "audit services, support, remediation and financial systems" in the push to pass the next audit.
Harrison said passing the audit has value in transparency and accountability.
"The American taxpayers deserve that," he said. "They deserve to know where their $850 billion go, how it's spent and make sure it's spent wisely," he said.