‘This was not a surprise’: Pentagon again fails annual audit of $3.8 trillion in military assets
Stars and Stripes November 16, 2023
WASHINGTON – The Pentagon has again failed its independent annual audit, mainly because defense officials could not provide auditors with enough information to form a full accounting evaluation, according to the Defense Department’s yearly financial report released Wednesday.
“Auditing the department’s $3.8 trillion in assets and $4 trillion in liabilities is a massive undertaking,” Pentagon Comptroller Michael McCord said. “But the improvements and changes we are making every day as a result of these audits positively affect every soldier, sailor, airman, Marine, guardian and DOD civilian.”
Hundreds of independent auditors examine the Pentagon’s books each year to determine whether it can account for the money it’s given and how effectively the military is spending it. There are three possible audit ratings – an unqualified opinion, a qualified opinion and a disclaimer of opinion.
The consolidated 2023 audit, which is the overall accounting of the Defense Department, gave a disclaimer of opinion, which means the Pentagon couldn’t give auditors enough financial data to allow them to form an opinion. An unqualified, or “clean,” opinion is the highest possible rating and a qualified opinion is an acceptable rating. Both mean that auditors were given enough information to make a complete judgment.
“This was the sixth year of progress toward an unmodified opinion,” the department said in a statement. “Of the 29 component standalone audits, seven received unmodified opinions, one received a qualified opinion and 18 received disclaimers of opinion.”
The Pentagon said the remaining three component opinions are pending. That includes the 2023 audit for the Marine Corps, which was granted an extension until mid-February to furnish more information to auditors.
McCord told reporters Wednesday during a conference call that the Pentagon expected it would not get a clean opinion.
“If even one large component of DOD, such as a military department, doesn’t have an unmodified opinion, it’s mathematically impossible for the entire department to have one,” he said. “So given where we are, this was not a surprise.”
The Pentagon has never passed the yearly audit. The first audit only became federally required in 2018 and the department has been trying to pass them ever since. The 2022 audit also earned an opinion of disclaimer and McCord said a year ago that he was disappointed that report didn’t show more progress. He seemed more pleased with the audit progress this time.
“We remain a trusted institution, and we recognize that we have the obligation to do everything to maintain that trust,” he said. “We have made a lot of progress, and I look forward to our continued improvement.”
The Defense Department continues to be the only Cabinet-level department that’s never earned a clean financial report. Earlier this year, the Government Accountability Office said there are two reasons for that: The Pentagon isn’t managing its financial systems properly and isn’t giving the necessary guidance to make them effective.
“DOD spends billions of dollars each year on its business and financial systems. However, its business systems modernization and financial management efforts have been on GAO’s High Risk List since 1995,” the GAO report concluded in March. “These high-risk areas remain obstacles to DOD’s efforts to achieve [a clean] audit.”
The GAO’s High Risk List, which is updated at the start of every new Congress, identifies federal programs that are especially susceptible to fraud, abuse, mismanagement and waste.
The Pentagon said Wednesday that significant progress was made across five areas in 2023: workforce modernization, business operations, quality decision-making, reliable networks and enhanced public confidence.
“For example, the Department of the Air Force has deployed a total of 65 [automated systems] saving approximately 429,000 labor hours and improving the auditability of business processes,” the Pentagon report said. “The Department of the Navy reviewed $17 billion of unliquidated obligations, validating that 97% of the balances met audit requirements and uncovering $330 million available for deobligation.”
The Pentagon said it also retired several “audit-relevant legacy systems” and “resolved three high priority improper payment programs” to reduce wasted tax dollars. Further, it asked for more help from Congress, which has yet to pass full government funding for fiscal 2024, which began Oct. 1. Lawmakers are on the verge of passing their second continuing resolution, which is a short-term, stopgap measure that extends 2023 funding levels.
“Congress can further help by stabilizing the budget process and avoiding continuing resolutions and government shutdowns,” the Pentagon said.
The House passed a new continuing resolution on Tuesday that would guarantee funding for the military until Feb. 2 and the Senate was expected to pass it as soon as Wednesday. If short-term funding is not passed by Friday at midnight, the federal government will shut down.
“I’m glad that we appear to be on track to [do this] before the last minute,” McCord said. “But, this will be our 14th year now of lengthy [continuing resolutions] out of the last 15. And we have got to do better.”
Congress has become increasingly critical of the Pentagon’s failed audits – and some lawmakers have even proposed punishment if the trend continues. In the summer, a bipartisan group of senators raised the Audit the Pentagon Act, which would penalize any military component that fails the annual audits and force it to surrender 1% of its budget. Lawmakers have previously, but unsuccessfully, attempted to pass similar legislation.
“Last year, the DOD … was unable to account for over half of its assets,” the bipartisan group said when they announced the bill in June.
“We have got to end the absurdity of the Pentagon being the only agency in the federal government that has never passed an independent audit,” said Sen. Bernie Sanders, I-Vt., one of the bill’s sponsors.
The Defense Department said about 1,600 auditors worked on the 2023 audit, which cost $187 million — a reduction from the $218 million that the Pentagon’s 2022 accounting cost. McCord did not explain why the new audit cost less, but the report said auditors made fewer on-site visits and more virtual visits than they did a year ago.