next on "this week in defense news," the accounting change that could cost d.o.d.

billions, cultural sensitivi welcome to "this week in defense news," i'm vago muradian. afghanistan turned even deadlier after u.s. troops mistakenly burned korans. was this a failure of cultural sensitivity training? we'll talk to an expert involved in that work. and we'll talk to america's leading expert on military valor awards about the supreme court challenge to the stolen valor act and why d.o.d. doesn't want a national database for valor award recipients. but, first, the billion dollar accounting problem for the pentagon isn't prepared to handle. on this program just last week pentagon comptroller bob hale acknowledged that an accounting rule change set to take effect in 2013 could end up costing the pentagon billions if contractors are allowed to pass on more pension costs as allowable contract expenses. how significant is the problem?

and how will the sale of excess military equipment hit defense contractors as they work to boost export sales of new equipment? joining us to answer questions is bill greenwold at the aerospace industry lo was the policy achieve at the pentagon during the obama administration as well as being a form lockheed martin executive. thanks for being here. >> thank you, vago, it's a pleasure. >> let's start out, what does the shift from cost accounting standards to general accounting standards means? >> this is one of the incredibly complex issues that i've had to deal with and so at the risk of simplifying, i'll give you kind of my view on this. the first issue is that there's what's called the aricea or pension protection act and that is the requirement that congress passes to how firms should contribute to the pension funds. so this is a cost to a company.

and then there's the cost accounting standards and the cost accounting standards is another government procedure in which contractors who have cost contracts, remember, those are only 25% of all government contracts are reimbursed for their pension process. so back in the '70s when arisa was passed and when the cost accounting standards were first put up, arisa and cast were harmonized, in other words, if you had a union welder and they were working in a plant in ohio and they worked that year, under arisa, the company would put into the pension fund the amount of money that would cover their pension in the future. and then cass would -- through the cass system, through the government contracting provision, the company would be repaid for that, reimbursed.

what happened in the course of the last 30 years is the congress had made changes to arisa, the most latest being in 2006, but they made a multiple amount of changes and cass never changed. so what you had is a situation in which the firms were required to pay a certain amount and were reimbursed this amount over the long term. >> right. >> so you had in a sense that -- we'll go back to that welder, that welder would work on the line and perhaps 20, 30 years down the road the firms would be reimbursed for this. >> right. >> so what's changed is under the passage of the ppa in 2006, instead of a 30-year reimbursement period, we're now coming to 15 or 20, so that means there's bringing forward of the amount of money that can be reimbursed. however, if you look at it, the government always has its liability, the question is when do they pay for it.

and unlike in the '70s, there's a period of essentially industries kind of providing an interest-free loan, so to speak, for these pensions. but at the end of the day there's going to be a cost. bob hale on the show last week says said there is going to be a cost for this. do we have any idea how big this cost is going to be or how are we going to pay for this cost? are programs going to be canceled to try to even this up somehow? >> this has always been a liability, eventually they're going to have to -- the government through its -- is going to have to work through and the industry will have to work it through. but there are other -- there are options that depend upon how many cost contracts are out there, it depends upon how well the investments are doing. it depends upon various other cost-cutting mechanisms that are put in place under contracts. remember, this is an overhead issue. so it still has to be worked

out what the actual costs will be and i know the pentagon and each of the companies are trying to now try to figure that out. >> is this a cost that actually should be sort of directly in that fashion? shouldn't companies at the end of the day be responsible for covering their own pension expenses? there are those who argue that the companies have reduced that investment in order to return value to shareholders. >> it's one of those areas where if you're a strictly commercial company and more than likely those companies to meet their arisa requirements would have passed on their costs to their customers a long time ago and the difference here is the contractors are not able to pass on those increases. as a matter of fact, through the cost accounting standards have been restricted in the amount of money they can actually -- so there's a major difference between -- >> there's a difference between what one set of rules are saying and what the other set of rules are saying.

>> so, you know, if contractors were able to have passed a law of costs a long time ago, we wouldn't have that issue, but they are not, they're restricted from doing so. >> what the government has done here on hundreds and hundreds of programs is a series of terminations and the government has been very up front saying, hey, look, in a lot of these cases, there's nothing wrong with the system, we don't need it it, the strategy has changed, the war is drawing down, we just have to save money. but the history of terminations is not necessarily a good one. d.o.d. always are we unlocking a lot of barrel of worms here over the long term to have long-term suits landing on the pentagon's doorstep soon? >> i would hope not, and i would hope that the termination liability clauses are straightforward and they will move forward in a way that both industry and the government acting in partnership will do

the right thing. now, in any of these cases, it's extraordinary and complex, and the terms of the termination liabilities clauses, there may be some room for differences of opinion and that's where i think we get into litigation. hopefully we don't get to that point. >> pentagon also is going to be selling a huge amount of military equipment at the very time that defense contractors are looking to keep production lines open on export markets. is this going to be a clash between what the government is trying to sell and what the industry is trying to sell on the open market? >> that would actually, i think, be an extremely new thing for the department to do and we'll have to look at what's legal authority to do that. limitations on what the department of defense could do if they were to sell some of their newer equipment so to speak and what they could do with that money. more than likely that money would be returned to the

treasury as a deficit. >> bill, thanks very much. how the u.s. forces can

the death toll in afghanistan continues to rise after u.s. troops inadvertently burned korans near the bagram air base in afghanistan. military officials explained the incident was not intentional and president obama and central command chief general jon allen have apologized but doesn't appear to have quelled afghan rage. was this a simple mistake that

could have been covered with better cultural sensitivity training. nick dowling specializes in this kind of military training. he's a former member of the national security council during the clinton administration. welcome to the show. >> thanks, vago. >> let's start out. what do we know about this incident and why do incidents like this appear to happen in a fell swoop to sort of reverse months of gains that we made? >> right. it's obviously a huge, huge mistake, general allen's very fast apology demonstrates we wanted to quickly take responsibility and that's one of the first things you do when you make a mistake like this, and we as the force made the mistake. what exactly happened here, the investigation will work through the details of that. but what you saw with general allen and then with president obama apologizing is trying to very quickly quell the anger and there's certain justified anger in this because of the role that islam plays in that society, and to get past it. it's taken longer that he we hoped for us to get past it, but i think we're starting to see things calm down a bit.

>> what does this tell us about cultural sensitivity training across the force? >> well, it's huge. you gotta give the army and marines and duty credit, they've invested a ton in cultural training and everyday there's dozens of events that go off well, relationships that are built that don't make the headlines because of that cultural training. but this is a classic case of one incident, one episode where one person either being stupid or unthinking or just, you know, some combination of events created a huge mistake that's going to take a lot of work to undo. i think the second piece is clearly cultural training remains important to prevent things like this, but it also lays a context so that you understand why these reactions happen and it helps you to get through them as well. >> let's go to a question which some people see as a double standard in play. u.s. inadvertently will burn

some korans, but on the other hand the taliban, you know, will go -- a member of the taliban will go into a mosque, detonate it, kill 25 people and burn korans and that doesn't seem to have the same sort of res nans or create the same sort of rage. is it because the koran burning is more of an excuse to say that afghans are saying to us after 10 years get out of our country? >> the trust level is clearly frayed. we've been there for 10 years. there was a great expectation, great disappointment, lots of different incidents over those 10 years. i think afghans and americans are really tired of this war and that trust has played on the relationship. you also have to see the difference is most afghans recognize that the taliban is the enemy and they recognize them for what they are. they don't expect the taliban to apologize when they blow something up, but they think of the americans as being our powerful ally and our friend. when america does something like this, it plays to all their worst fears of what we're

really about. >> you've talked about this idea of leverage and always trying to use leverage in terms of -- you know, cultural and otherwise to help solve some problems which seem absolutely intractable. what do you mean by that? >> when we look at the whole span of effort that we've taken, we've invested immense amount of resources in afghanistan to try to build up the structure of the capacity of the afghan government, of the afghan economy, all of these different things. but what you also need to do is you need to have a political strategy that brings all the key parties and the influencers into the political process. this is, i think, the piece that the bush administration never really began to solve and that the obama administration inherited a real mess of which is the south. straddling afghanistan and pakistan, this zeno phobic tribal area and the politics of that and how that will be

pieced together in terms of a relationship with a new afghan and a new pakistan, that political puzzle have yet -- we have yet to solve. as long as that remains unsolved, it's hard to ever see afghanistan be truly stable. >> terms of the leverage strategy you talked about, you mentioned to actually put a guy into a position where he's going to fail for him to realize that his interest realize that his interest actually lies with yours, influence that had high credibility early in that process where we implemented the date and accords and we used that leverage effectively to keep all parties on the peace process. we had that kind of credibility in afghanistan back in 2002,

2003, 2004. 10 years later, having put all this money in and tried all these different things, at this point we don't seem to have the leverage we used to have. we're very much now focused on a different strategy which is just mthis off to the afghans themselves in a transition strategy. >> we've got about 20 seconds. is there a real danger given the administration's shift in strategy that all of this kind of cultural training that's aimed at counterinsurgency ops is going to go by the wayside entirely? >> i think it depends on how important it is. the united states military and united states foreign policy apparatus are going to stay engaged in the muslim world, stay engaged in other key cultures that are different from ourselves. understanding it and understanding also how to access the cultural knowledge we need quickly when we find out because no one knows where the next trouble spot is going to be. you need to understand the importance of getting smart on that and bringing subject matter experts and cultural advisers to that conflict when it happens because otherwise it creates enormous difficulty. >> nick, thanks very much for joining us. we appreciate it. up next, one man's fight

george washington himself wanted the names of decorated war heros inscribed on a roll of honor. but the united states has never centralized its records of combat valor and many decorated soldiers, sailors, airmen and marines have left the service and even died without ever getting the recognition they deserve. meanwhile, others, fakeers, frauds, and posers of all sorts have falsely acclaimed valor awards for personal gain, whether public attention and respect or even costly veterans benefits. our next guest has fought an uphill battle for years to ensure that real heros get their recognition and fakeers don't. his storian doug sterner is the curator of the hall of valor database by our sisters publication that contains nearly 100,000 citations of military valor award recipients which fueled interest in the stolen valor act that makes it a crime to falsely claim military awards.

the act now faces a challenge in the supreme court. doug, welcome to the show. >> thank you. good to be back. >> why did the house government oversight and reform committee hope to accomplish? >> the chairman of that committee mistakenly presented a distinguished silver cross based on bogus documents. it was the second case that he had been duped by and he was upset there was no way to quickly vet these awards. >> and what was accomplished during the hearing? >> well, at least it was brought to a forefront of the american consciences that this is not happening. most americans are stunned to find out there is no roll of valor or accounting for our awards system, so i think it helped to make people aware of something he'll address. >> there are obviously many places where the medal of honor recipients are documented, there are halls of honor in many separate places. why not have an official honor

roll for the rest of military awards, whether they're brown stars or silver stars or anything else? >> that's a very good question. in fact, the day before my testimony i found an army regulation they are required by their own regulations to keep a historical record of the people they present awards to. so they're in violation of their own regulation by their failure to that. but they're far more -- there are far more important and compelling reasons to do this. >> what's the status of the case in front of the supreme court right now? >> we're awaiting a decision by the supreme court, expected in june. i'm cautiously optimistic that we are going to win this one. >> this ended up i think in front of the supreme court because there was a small time california politician, if i remember correctly, who falsely claimed to have been a medal of honor recipient. he was brought up on the stolen valor act. but on appeal he won because he said, well, my 1st amendment rights include lying, you know, in terms of being able to express himself. why would the award of lying about a military decoration be any different at the end of the

day whether you're lying about a sports accomplishment? >> well, if you're lying about a sports accomplishment, a college degree, something like that, you're lying about something that's given by an entity. our awards system is established by congress. they have a responsibility to protect its integrity. so this lie affects something that is a federal award and so the congress has a compelling interest to ensure that it's properly protected. >> there's also a moral component of this, but does the moral component of that translate into a legal component as far as the law is concerned? >> as far as the law is concerned, probably not. but, you know, things people say as well, if they do it for fraud, there is almost always fraud. we're not trying to put grandpa in jail for telling war stories over the dinner table. >> right. >> most of these cases have additional fraud associated with stolen valor and not infrequently it's their false military claims that brings them under the microscope that help us find these other

things. >> and they use it, obviously, for personal gain. the military services who also testified at the hearing said this is more trouble than it's worth, the establishment of these kind of databases. why is it more trouble than it's worth and why are they either right or wrong by that? >> that's a very good question. first of all, if these awards aren't worth keeping track of, then the military should just quit giving them. there's mo reason to dpif awards if you're not going to keep track of it or a pat on the back and it will last as long as that silver star that is awarded. so it is worth the time. but also the congressman yesterday cited $10 million in fraud from prosecutions in the last year, another $5 million in administrative costs for half that amount. we at military times could provide the government with a database of all of the men and women who have received combat decorations, purple heart, even meritorious bronze stars for half of that amount that would be far in excess of the 95%

imleetion. >> this is really a life goal for you. can you give us a little bit of an update on where you stand on this database because it's just a massive undertaking. >> we currently have nearly 100,000 records in the hall of valor. we believe that the twop two 0 levels of a war, the service crosses and the medals of honor are 100% complete, but i say 99.99% for the same reason you say he allegedly robbed the bank even when you have a photograph of it. silver stars are work in progress. we have got that approximately 20% complete. with a little bit of funding, we could complete that in two years, not only for the silver star but for the legions of merit, the distinguishing flying crosses and even the bronze stars. >> so you want to get it to the bronze star level at least? >> that's a short-range goal. it should be done -- i'll tell ya, i get people that send me all the time their achievement medals and i haven't got time to enter them. but, you know, i think to that man, that woman, that award, low precedence, but it's very important and we should do it all. >> sir, thanks very much.

appreciate it. coming up in my notebook, why the preght must

sometimes arcane rule changes can suddenly loom as big and potentially expensive problems. since 2007 d.o.d. has known that starting in 2013 a change in accounting rules for government contractors will allow them to pass along more of their pension expenses to the government, raising program costs just as d.o.d. works to sharply cut spending. d.o.d. comptroller robert hale said on this show just last week that the change could add billions in unbudgeted costs. but he added several caveats. first, the change doesn't fully kick in until 2014 when companies can start charging 25% of their higher allowable costs, steadily ramping up over four years. second, the government's exposure depending on the health of individual companies'

pension plans. third, d.o.d. would ask contractors to br in mind the government's tough financial straits. using traditional financial arit ma particular, lockheed martin is underfunded, general dynamics by 33% and northrop grumman 14%. it's hard to see how companies will forego allowable costs given their responsibility to maximize shareholder returns. still, hale deserves credit for mentioning a potential problem. d.o.d. must now know how these problems affect their plans. with so little wiggle room, not planning for known expenses is a risk it can't afford to take. thanks for joining us for "this week in defense news," i'm vago muradian. you can watch this program online at defensenewstv.com or you can e-mail me at vago@defensenewstv.com. and before we go, we want to wish a hardy get well to marine corps comdant general jim aim o's who's recovering from emergency back surgery. i'll be