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Business Maverick

Pentagon fails its financial audit for the sixth consecutive year

Pentagon fails its financial audit for the sixth consecutive year
Chairman of the Joint Chiefs of Staff General Mark Milley testify before the Senate Armed Services Committee hearing on US President Biden's proposed budget request for FY2024 for the Department of Defense, on Capitol Hill in Washington, DC, USA, 28 March 2023. (Photo: EPA-EFE / Michael Reynolds)

The US Defense Department failed for the sixth consecutive year to score a clean financial audit, a goal routinely achieved annually by businesses that have a fraction of its $3.8-trillion in assets and $4-billion in liabilities. 

Pentagon officials nonetheless claimed significant progress in tracking its assets and correcting hundreds of deficiencies in its accounts.

The failure “is not a surprise,” Pentagon Comptroller Michael McCord told reporters at the Pentagon. “It certainly is not something that we say, ‘it doesn’t matter.’”

About 1,600 auditors and 700 site visits were needed to review the Defense Department’s business processes and activities. The Defense Department spent $187-million on the audit, a small slice of its $853-billion budget.

The Pentagon’s inspector general’s office has been overseeing the audit work, and the watchdog will issue its own findings.

‘Improvements, changes’

“Auditing the Department’s $3.8-trillion in assets and $4-trillion in liabilities is a massive undertaking,” McCord said in a news release. But he said “the improvements and changes we are making every day as a result of these audits positively affect” every military member and civilian employee.

Lawmakers have been pressing the Pentagon to produce a “clean” audit by 2027. But the Pentagon sought to put part of the blame on unreliable budgeting by lawmakers, saying that “Congress can further help by stabilising the budget process and avoiding continuing resolutions and government shutdowns.” McCord said this would be the 14th year with the Pentagon funded by continuing resolutions. The most current stopgap proposal would provide funding for the Pentagon until 2 February. 

Of the 29 Defense Department components undergoing standalone financial statement audits, seven received a clean audit opinion, and one received a qualified opinion. The results of the financial statement audits of the Marine Corps, the Defense Information Systems Agency Working Capital Fund, and the Pentagon’s Office of Inspector General are still pending, while the rest of the agencies all received disclaimers — financial audits that weren’t clean. 

“Failure” in audit lexicon means the review of the 29 defense units resulted in a “disclaimer of opinion.” Disclaimers are issued when auditors can’t form an opinion about the adequacy of the financial records based on a paucity of reliable data, not necessarily that there was a misuse or poor use of funds. 

One indication of progress is that no new Pentagon-wide material weaknesses were reported this time, the department said.

The agencies that received a clean audit are: the Military Retirement Fund, the Defense Commissary Agency, the Defense Contract Audit Agency, the DFAS Working Capital Fund, the US Army Corp of Engineers – Civil Works, the National Reconnaissance Office and the Defense Health Agency – Contract Resource Management.

The Defense Department identified and reviewed $621-million in payments subject to improper payment testing, which resulted in an estimated proper payment rate of 99.76% and $1.4-million in improper and unknown payments.

The department measures audit progress across five areas: workforce modernisation, business operations, quality decision-making, reliable networks, and enhanced public confidence. For example, the Air Force has deployed 65 bots saving approximately 429,000 labour hours and improving the ability to audit its business processes. Auditors for the Army tested its construction-in-progress monitoring control and found no unresolved transactions in the clearing account. 

The Navy reviewed $17-billion of unliquidated obligations, validating that 97% of the balances met audit requirements and uncovering an available $330-million, according to a news release.

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