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Report: Pentagon doesn't know where the money is going

The Defense Department, which has promised to publish a reliable account of how it spends its money by 2017, has discovered that its financial ledgers are in worse shape than expected and that it will have to spend billions of dollars in the coming years to make its financial accounting credible, the Center for Public Integrity reported Thursday.

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Defense Secretary Leon Panetta testifies before the Senate Armed Services Committee on Thursday. He was joined by the chairman of the Joint Chiefs of Staff, Adm. Michael Mullen.

The U.S. military has spent more than $6 billion to develop and deploy new financial systems, but the effort has been plagued by significant added overruns and delays, defense officials told the CPI, a nonprofit investigative news organization.

The Government Accountability Office said in a report last month that although the services can now fully track incoming appropriations, they still can't demonstrate that their funds are being spent as they should be.

Despite the difficulties in putting a new audit system in place, Secretary of Defense Leon Panetta, in opening remarks to the House Armed Services Committee, pledged Thursday to cut the implementation timeline in half "so that in 2014 we will have the ability to conduct a full budget audit."

"This focused approach prioritizes the information that we use in managing the department, and will give our financial managers the key tools they need to track spending, identify waste, and improve the way the Pentagon does business as soon as possible." 

But the effort to speed accountability will itself be costly. Pentagon officials were already budgeting $300 million a year for new accounting systems and other preparations for 2017. The CPI reported that several officials estimated that meeting the earlier deadline could cause that spending to rise beyond a billion dollars over the next three years.

The Pentagon’s bookkeeping has come under increased scrutiny as Congress and the Obama administration have vowed to reduce the federal deficit. The Pentagon requested $671 billion for fiscal 2012, but disputes over the deficit prevented Congress from passing the budget by the Sept. 30 deadline. The department could face substantial cutbacks if a special bipartisan "supercommittee" can’t agree on a formula for reducing the deficit.

As the Associated Press explained this week, the summer debt agreement between President Barack Obama and Congress mandates $350 billion in defense cuts over 10 years, and that figure could grow significantly depending on how the supercommittee slashes at least $1.2 trillion from future deficits. But if the panel stumbles, or Congress rejects its recommendations, the cut to defense could be even deeper as automatic reductions kick in, with half coming from defense.

Panetta testified Thursday that the budget cuts will force difficult choices.

"We have a strong military, but one that has been stressed by a decade of fighting, squeezed by rising personnel costs, and is in need of modernization given the focus of the past decade," he said, referring to fighting insurgencies and terrorists in Iraq and Afghanistan.

Meanwhile, international security issues have grown more complex, Panetta said, noting the United States in the future must be prepared to continue dealing with violent extremism as well as the nuclear ambitions of Iran and North Korea, the prospects of cyber attackers who may target American infrastructure, and other threats.

"Our challenge is taking a force that has been involved in a decade of war and ensuring that we build the military we need to defend our country for the next decade even at a time of fiscal austerity," Panetta said in a statement prepared for a House Armed Services Committee hearing. Also testifying before the panel was Army Gen. Martin Dempsey, making his first congressional appearance since taking over as chairman of the Joint Chiefs of Staff on Oct. 1.

NBC News Pentagon correspondent Jim Miklaszewski and the Associated Press contributed to this report.