United States Military Academy graduating cadets stand during their graduation ceremony at Michie Stadium on Saturday, May 22, 2021, in West Point, N.Y.

United States Military Academy graduating cadets stand during their graduation ceremony at Michie Stadium on Saturday, May 22, 2021, in West Point, N.Y. Eduardo Munoz Alvarez / AP

How the Service Academies Could Improve Defense Management

Why a disciplined study of the economics of national security should be required for future military leaders.

Every year, the federal government issues audited consolidated financial statements. And for more than 20 years now, the Government Accountability Office has delivered a “disclaimer” of opinion on those statements. That’s because the auditors lack sufficient evidence to certify whether the statements are fairly presented and consistent with generally accepted accounting principles. The primary reason for this disclaimer? The Defense Department’s abysmal accounting systems and processes. 

The Pentagon needs to prioritize improving its accounting and financial management capacity to inspire greater confidence in how it manages taxpayer resources. While Defense has made positive strides in this direction, much remains to be done. Last year, for example, the number of department entities that earned an opinion on their financial statements increased, but the number of identified material control weaknesses continued to rise.

While obtaining an unqualified opinion on the department’s consolidated financial statements is a worthy goal, it’s only part of the equation. The ultimate point is to increase the timeliness, completeness, integrity and usefulness of overall financial and management information to improve Defense operations. It shouldn’t just be trying to get good grades on a single annual financial report.  

This is a broad, deep, challenging and continuous mission. Therefore, we propose a foundational step forward on the quest to achieve sustainable success.

Three years after the Pentagon underwent its first full departmentwide audit, a review of the core academic requirements at the military service academies suggests they lack adequate emphasis on basic economics, accounting, public finance, financial management and other key management principles and practices.

Given the criticality of sound financial management to the integrity and efficiency of military operations, the service academies should collaborate to develop a required core course in basic economics and public finance. The objective should be to inspire future service leaders to care about managing resources in a manner that will maximize the economy and effectiveness of defense spending. 

The new core course would provide a solid interdisciplinary foundation for future senior leaders. It could be titled “The Economics of National Security.” This course would provide basic lessons from microeconomics, macroeconomics, accounting, finance, acquisition/contracting practices, human capital policies, information systems, applicable constitutional provisions, and other relevant subjects. It should also include historical lessons for the contribution of public finance to the success (and failure) of nations and past great powers.

This core course should be required for any student to graduate. Communities of scholars and practitioners could be recruited for the mission, and other Defense educational institutions, such as the National Defense University, could provide additional post-graduate required courses for selected personnel. 

We believe the development of required core economic and public finance-related courses at all service academies can help to increase the esprit de corps and respect for those charged with stewardship of the department’s resources. The initiative would emphasize the relevance to the mission, and offer more advanced accounting and finance educational opportunities for selected officers. Given evolving security threats and the country’s current unsustainable fiscal path, the time for action is now.

Bill Bergman is the director of research at Truth in Accounting. David Walker is a former U.S. Comptroller General.