Pentagon can’t pass audits due to ‘error-prone’ systems, lack of guidance, watchdog says
Stars and Stripes March 7, 2023
WASHINGTON — A lack of oversight guidance within the Pentagon is a major reason why it’s still the only large government department that has yet to pass an independent audit, though it spends billions trying to modernize its fiscal systems, a watchdog report said Tuesday.
The Pentagon has been unsuccessful in overseeing its financial systems and imposing the necessary guidance to make them fully effective, according to the report conducted by the Government Accountability Office.
The Defense Department has one of the federal government’s largest budgets annually, which makes the department a frequent target of criticism — especially because it has yet to pass its annual independent audit that accounts for how it spends its money.
“DOD spends billions of dollars each year on its business and financial systems. However, DOD’s business systems modernization and financial management efforts have been on GAO’s High Risk List since 1995,” the 88-page GAO report states. “These high risk areas remain obstacles to DOD’s efforts to achieve [a clean] audit.”
The GAO’s High Risk List identifies federal programs and operations that are particularly susceptible to fraud, abuse, mismanagement and waste. The list, which is updated at the start of every new Congress, also identifies areas that need reform.
The report issued Tuesday found the department — without proper guidance for monitoring its fiscal and business systems — will probably keep spending large amounts of money on lackluster oversight that produces records that cannot pass an audit.
Last fall, the Pentagon again failed its yearly independent audit mainly because auditors said the department couldn’t provide a complete set of fiscal records for review. The Pentagon has never passed the yearly audit, which has led Congress to propose a bill to penalize any federal department that can’t pass one. Neither chamber has yet passed the bill, however.
“Effective oversight of systems is essential to moving DOD in the right direction,” the GAO report states. “Key elements of such oversight include establishing oversight processes, using and communicating quality information, sustaining leadership commitment, and managing risk.”
The watchdog agency made nine recommendations for the Pentagon, such as making certain data is complete and accurate, documenting detailed “system compliance” and ensuring strategic planning for staffers who maintain fiscal systems. Specifically, the report identified a particular lack of guidance for initial approval and yearly certification of the Pentagon’s management systems.
“The lack of detailed guidance puts DOD at risk of making decisions based on a ‘check the box’ exercise that does little to make meaningful improvements,” the GAO study concluded, adding the deficiencies could lead the Pentagon to make decisions based on faulty information and continue using systems that will continue to fail audits.
The Pentagon responded to the GAO report by agreeing or partly agreeing with all nine recommendations.
“We acknowledge evolving and enhancing our oversight is critical to DOD’s efforts to achieve [a clean] audit,” Robin Farley, the Pentagon’s acting deputy comptroller for enterprise financial transformation, wrote in a letter to the GAO.
The Pentagon said it will take steps to improve accuracy of data collection and analyze capability gaps between “existing staff and future needs.”
Some experts have said part of the auditing problems could be the Defense Department operated without an inspector general for almost seven years between 2016 and last December when Robert Storch was given the job. During that period, defense spending rose by more than $200 billion, according to the Project on Government Oversight, a Washington-based nonprofit group that investigates waste and government failures.
“While there is much work remaining, and some of our most complex problems still lay before us, the audit has been a catalyst for business reform across the department,” the Pentagon said last November after it failed the 2022 audit.
Congress approved a Pentagon budget of nearly $800 billion for fiscal 2023, an increase to its $728 billion budget for the previous year. The defense budget typically accounts for about half of all federal discretionary spending each year, the GAO noted.
The Pentagon will have its next opportunity to pass the annual independent audit in the fall, but the GAO said unless the department is serious about complying with all nine recommendations, it is only delaying the goal of receiving a clean audit.
“The DOD systems environment that supports its business functions, including financial management, has been overly complex and error-prone,” the report said. “DOD’s financial management continues to face long-standing issues -- including its ineffective processes, systems, and controls; incomplete corrective action plans, and the need for more effective monitoring and reporting.”