Pentagon Expects to Fail Another Audit, But Says Progress Made

The Pentagon expects to fail its third attempt at a clean financial audit, but officials say the progress made could save taxpayers hundreds of millions of dollars.

“We remain committed to sustain this effort and demonstrating greater progress each year until the department receives and sustains…clean audit opinions,” said Thomas Harker, who is the Navy’s top budget official but is also performing the duties of Defense Department comptroller — a position that has been without a Senate-confirmed political appointee since July 2019.

But Harker doesn’t expect the Pentagon to achieve a clean audit until 2027. He called that reasonable for a complex organization with $2.9 trillion in assets.

“This is something that's never been done for an entity of the size and complexity of the Department of Defense,” he said during a Monday briefing at the Pentagon.

The fiscal 2020 audit is actually a collection of 24 audits of individual defense agencies. These are being conducted by public accounting firms at a total cost of $203 million. But operational changes driven by the audit’s finding are expected to save the Pentagon hundreds of millions of dollars.

“When we look at the return on investment for the process improvements that we're making, around accountability for property accountability, for inventory, that type of thing, we've identified more than $700 million in savings based on these process improvements,” Harker said.

The overall audit effort is run by the office of the Pentagon inspector general, which expects to issue its final report by March. Harker said that seven of the 24 audited agencies are expected to pass, the same number as last year.

“Our goal is to get a clean financial statement audit opinion for the Department of Defense as a whole,” Harker said. “We believe that the best path to accomplish that is to conduct standalone audits on each of our services and defense agencies. We've been clear that this is a journey that will require a sustained effort over several years.”

The coronavirus pandemic complicated this year’s audit, preventing auditors from traveling and conducting tests, Harker said.

Auditing the Defense Information Security Agency’s “working capital fund” — which is still not finished — has "resulted in several operational improvements, such as decreasing the time required to deliver property to their customers, improving the accuracy of their property records and improve[ing] the accuracy of their financial statements," he said.

The Marine Corps “made a ton of progress," Harker said, but fell short of a clean audit, largely because of COVID-19.