The United States Department of Defense (DoD) – the government’s largest agency – released the results of its seventh annual department-wide budget and found it was unable to fully account for its expenditures and assets. This isn’t the first time it was unable to get the numbers to add up, and in fact, the Pentagon has failed all seven years since mandatory audits were implemented in 2018.
The DoD is getting closer and is on track to a clean audit in 2028. Once again, the department had a reason as to why it failed to pass the audit – namely, it didn’t provide sufficient information to auditors. Critics might contend that is a reason, yet exactly not a good one.
However, this was anticipated, and is an issue that will need to be resolved in the future, the Pentagon’s top bean counter explained.
“Despite the disclaimer of opinion, which was expected, the Department has turned a corner in its understanding of the depth and breadth of its challenges,” said Michael McCord, Under Secretary of Defense (Comptroller) and chief financial officer (CFO). “Momentum is on our side, and throughout the Department there is strong commitment—and belief in our ability – to achieve an unmodified audit opinion.”
Show Us The Money
The process was conducted by the DoD’s Office of the Inspector General and was supported by independent auditors, who pour over the Pentagon’s books. In total, the audit involved 1,700 independent auditors and cost $178 million, but was actually more efficient than last year when 1,600 auditors went over the DoD’s finances costing $187 million.
The audit examined $4.1 trillion in assets and $4.3 trillion in liabilities. Yet, 15 of the 28 separate entities still received disclaimers.
“Of the 28 reporting entities undergoing standalone financial statement audits, 9 received an unmodified audit opinion, 1 received a qualified opinion, 15 received disclaimers, and 3 opinions remain pending. The Defense Threat Reduction Agency (DTRA) achieved an unmodified audit opinion in only its second year under standalone audit. The fiscal year (FY) 2023 U.S. Marine Corps’ unmodified opinion and the FY 2024 DTRA unmodified opinion are the first new financial statement opinions since FY 2020,” the DoD explained.
Progress was made as the DoD improved its financial management practices and increased transparency while closing the DoD-wide Contingent Legal Liabilities material weakness. The audit process also saw improvements in system controls, and was able to complete 27 system examinations and achieve 17 unmodified and 8 qualified opinions; while 2 examinations were adverse.
“The FY 2024 25 favorable opinions represent 93% of the examination opinions, an increase from the FY 2021 81% favorable examination opinions,” the Pentagon added.
A Clean Slate for the DoD
The goal of the DoD’s now annual process is to reach an unmodified audit opinion or a clean audit that confirms all of its financial statements are accurate. The challenge is the number of systems within the DoD.
“The path forward is clear,” McCord added, “significant work remains and challenges lie ahead, but our annual audit continues to be a catalyst for Department-wide financial management reform, resulting in greater financial integrity, transparency, and better-supported warfighters.”
McCord attributed the audit momentum to the tone-at-the-top, which he has emphasized, alongside Secretary of Defense Lloyd J. Austin III and Deputy Secretary Kathleen Hicks. The 2024 National Defense Authorization Act (NDAA) calls for the DoD to achieve a clean audit by 2028.
“The Department continues to need the sustained investment, senior leadership commitment, and the support of our partners in Congress, federal regulators, the audit community, and our military and civilian personnel to accomplish its audit goals,” said McCord. “An unmodified audit opinion has always been the Department’s primary financial management goal, and with their help, I know it is achievable.”
