Defense Department Fails Its Second Audit, Yet Is Making Progress

The Pentagon on Friday announced that it had failed its financial audit for the second year in a row, although the department showed it is making progress.

The Defense Department’s fiscal 2019 audit—its second ever—covered over $2.9 trillion in assets and $2.8 trillion in liabilities. Of the 24 individual audits, the department-wide mark is composed of: six components that received an unmodified opinion, one that received a qualified opinion, three that are pending and the remainder with a disclaimer of opinion, meaning the auditors could not obtain appropriate evidence to make a decision. This is “consistent with the experiences of other large and complex federal agencies during their initial years under financial statement audit,” according to the audit.

"We made progress in our priority areas while focusing on the importance of sustainable solutions," said Elaine McCusker, the Pentagon’s acting comptroller. "But as expected, we will receive an overall disclaimer again this year," which means the results did not come back clean.  

The department said it sustained the achievements noted in the 2018 audit, the first time the agency was audit-ready since Congress made government audits a requirement in 1990. These successes included: no evidence of fraud, no major issues with payments to civilian or military members and “existence and completeness of major military equipment.”

It also said the department closed more than 550 of the issues raised in the previous audit, which was 23% of the findings. McCusker said that was “solid progress for our first year.” However, auditors issued over 1,300 new Notices of Findings and Recommendations and the department expects to receive more as the auditors finish their reviews.

“Auditor findings and recommendations help [Defense Department] leaders prioritize improvements, drive efficiencies, identify issues with systems, measure progress, and inform business reform efforts,” the audit report stated. “The outcomes of the audit remediation efforts will include greater financial data integrity, better support for the warfighter, and increased transparency for Congress and the American people.”

Some highlights in the report included:

• Auditors found the Army’s IT application controls over the Logistics Modernization Program system to be effective and no exceptions were noted in auditor testing;
• The Navy completed a full inventory of real property assets resulting in a 98% accuracy rate; and, 
• The Air Force completed floor-to-book and book-to-floor inventories of over 96% of its buildings. 

More than 1,400 auditors conducted over 600 site visits for the fiscal 2019 audit and tested systems and record-keeping protocol for weapons, military personnel and property. Deputy Defense Secretary David Norquist will discuss the findings at a Senate hearing on Wednesday. The watchdog Truth in Accounting found in the first audit there was a wide variation in performance among the Pentagon’s entities. Bill Bergman, Truth in Accounting director of research, told Government Executive his organization plans review this audit as well. 

“Department of Defense has made progress in improving its financial management processes since the prior year audit, but much more progress is necessary,” said acting Defense Inspector General Glenn Fine in a statement, DefenseNews reported. “The Department of Defense still has a long way to go before it will be able to obtain a clean opinion.”