On a winter afternoon in Indianapolis, Jessica Hilligoss, a young Defense Department worker, types long strings of numbers and letters into a computer, helping the United States armed forces transfer the billions of dollars it draws each week from the Federal Reserve to contractors, vendors, and military and civilian personnel.

Her job is to review invoices for everything from construction projects to lawnmowing, and to approve payment. Within a few days, another computer system—behind locked doors in the building's basement—deposits the money in the recipients' bank accounts.

The size of nearly 28 football fields, with a facade of alternating red stucco and white cement tiles, the three-story operations center is the federal government's third-largest office building, after the Pentagon and the Ronald Reagan Building, and the place where a big chunk of the Iraq war's soaring price is paid. The center doles out more than $104 billion annually, making it Defense's largest disburser.

Theoretically, when Hilligoss authorizes a payment, the department should be able to instantly track where the money goes and which program it was spent on, in order to make sure the right amounts are paid to the right recipients at the right times. But it doesn't work that way.

Since 2004, the Pentagon has spent roughly $16 billion annually to maintain and modernize the military's business systems, but most are as unreliable as ever—even as the surge in defense spending is creating more room for error. The basic defense budget for 2007 was $439.3 billion, up 48 percent from 2001, excluding the vast additional sums appropriated for the wars in Iraq and Afghanistan. According to federal regulators and current and former Pentagon officials, the accounting process is so obsolete and error prone that it's virtually impossible to tell where much of this money ends up. While the department's brass has made a few patchwork improvements, billions are still unaccounted for. The problem is so deeply rooted that, 18 years after Congress required major federal agencies to be audited, the Pentagon still can't be. (Read a chronology of efforts to modernize the military's financial systems.)

For the first three quarters of 2007, $1.1 trillion in Army accounting entries hadn't been properly reviewed and substantiated, according to the Department of Defense's inspector general. In 2006, $258.2 billion of recorded withdrawals and payments from the Army's main account were unsupported. It's as if the Army had submitted multibillion-dollar expense reports without any receipts.

Preoccupied with protecting their turf, the Army, Navy, Air Force, and Marines continue to maintain separate, increasingly outdated systems that can't talk to each other, trace disbursements, or detect overbilling by contractors. At the Indianapolis facility, as at the Defense Department's four other main U.S. centers for financial operations, accounting programs under the same roof can't share information without extensive jury-rigging, as though contracts, payments, and accounting had nothing to do with one another.