For the sixth consecutive year, the Department of Defense (DOD) has not passed its self-audit, according to a recent report. This audit involved 29 separate entities within the DOD, overseeing assets totaling $3.8 trillion and liabilities amounting to $4 trillion. Out of these entities, only seven managed to achieve a passing score. The Medicare-Eligible Retiree Health Care Fund, in particular, received a “qualified opinion,” indicating that although there were some misstatements found, they supposedly did not impact the overall bottom line. Meanwhile, three audits are still underway, and the remaining 18 entities, including major sectors like the Defense Advanced Research Projects Agency and the National Security Agency, did not pass.
The National Defense Authorization Act (NDAA) for Fiscal Year 1990, incorporating the Chief Financial Officers (CFO) Act of 1990, mandated financial audits for the DOD and other federal departments. However, it wasn’t until 2018 that the Pentagon started complying with this directive, by which time the original drafters of the legislation were nearing retirement.
The first audit in 2018 did not go well for the DOD. The Congressional Research Service noted that auditors could not express an opinion on the financial statements due to their unreliability. This failure did not seem to significantly disturb the Pentagon, as humorously exaggerated by the Deputy Secretary of Defense’s emotional reaction at the time.
There has been a persistent lack of progress in the DOD’s audit performance. In 2021, Pentagon Comptroller Mike McCord expressed uncertainty about meeting the predicted 2027 deadline for passing the audit.
While the focus of the audit is often on financial management, it also assesses the DOD’s efficiency and security systems implementation, including surprising discoveries like the Navy finding nearly $1 billion in unaccounted spare parts. However, these aspects receive less attention due to their complex nature and the challenge of conveying their significance.
The ongoing failure of the DOD to pass its audit is attributed to a lack of accountability and seriousness regarding the process. No significant career repercussions occur for failing the audit, which has rendered it a mere formality. This lack of urgency and accountability is further compounded by Congress’s continued funding increases for the DOD without a clear understanding of the department’s financial management. The article suggests that until failing an audit has real career consequences for high-ranking officials, it will remain a disregarded requirement, with millions of dollars spent on what is perceived as a pointless exercise.
Author: Scott Dowdy