Pentagon IG Offers Details of Biggest Audit Ever

The acting watchdog for the Defense Department offered fresh details and guarded optimism on the likelihood of success in the record-size departmentwide audit the Pentagon has embarked upon.

Performing a “full-scope audit” of a department with a $600 billion operating budget and $2.4 trillion in assets, said Glenn Fine on Sunday on WJLA-TV’s “Government Matters,” does not “mean they will get a clean audit or unmodified opinion” when the first report is due in November. “But as long as there is progress moving forward, it will have important implications for the management of the department.”

The December announcement by Pentagon Comptroller David Norquist that the IG was assigning 1,200 auditors and independent public accounting firms was the culmination of decades of frustration and a congressionally mandated goal of creating auditable financial statements. And though lawmakers of both parties had backed legislation requiring such an audit, some in the auditing field worry that the effort—slated to cost $847 million—is too expensive.

The financial statement audit coordinated by the IG’s office will involve 24 stand-alone audits of every component, Fine said, citing the Army, Air Force, Navy and Marine Corps as well as the Defense Contract Audit Agency, the Defense Information Systems Agency and the Defense Health Agency. The IG will create a “centralized database for visibility” so chief financial officers have all the notices of findings and can correct deficiencies and make improvements that will “lead to better decisions” while assuring the public that the department knows where the spending is going and combatting waste fraud and abuse, he added.

The departmentwide audit will be an annual rather than a one-time effort, and it is “important to sustain the intention,” he said, despite the cost involved. “You have buy-in from the leadership,” from Defense Secretary Jim Mattis, Deputy Secretary Patrick Shanahan, and Norquist. “They will make it clear to others that it is important for them to cooperate and make this a priority.”

Norquist, a former Homeland Security Department chief financial officer who committed to a Defense audit during his May confirmation hearing, told reporters at a Dec. 7 news conference that “with consistent feedback from auditors, we can focus on improving our day-to-day work and processes. Annual audits also ensure visibility over the quantity and quality of the equipment and support -- supplies our troops use.”

The announcement was welcomed by lawmakers of both parties who had long pushed legislation for such an audit. “The department charged with carrying out our greatest constitutional responsibility has set the lowest possible standard for accountability,” said Sen. Rand Paul, R-Ky. “I applaud President Trump’s administration for changing this course, and I will keep working to ensure this is only the start of reform.”

Sen. Ron Wyden, D-Ore., thanked the 49,113 people who signed his petition demanding an audit of the Pentagon, weaving the issue into the ongoing debate over the fiscal 2018 governmentwide funding bill. “In September, the Pentagon escaped budget cuts—while Meals on Wheels and the National Parks budgets were slashed,” he said. “The Senate voted to increase military spending by an extra $80 billion a year, resulting in a $700 billion Department of Defense budget. I was one of only eight members of the Senate who voted NO on this bill. Why? One of the reasons was because we don’t know where this money goes since the Pentagon has NEVER had an audit.”

Also enthusiastic was Rep. Barbara Lee, D-Texas, who said, “It is disgraceful that Congress has poured trillions upon trillions of taxpayer dollars into an agency that refuses even the most basic measure of accountability. It is my hope that this audit, which was mandated by law in the Chief Financial Officers Act of 1990, will help rein in bloated Pentagon spending and ensure our security investments are smart and effective.”

Another longtime supporter is Rep. Mike Burgess, R-Texas, who noted in his year-end report that “multi-year reports will allow comparison on the DoD’s progress towards a verifiable audit and keep them accountable in working toward complying with the law.”

Former Defense Comptroller Robert Hale told Government Executive that "getting auditors in there will speed the process, but it’s very expensive.” His team under the Obama administration “took a chunk of the apple,” in working toward auditable statements from individual services or components. “Now they’re trying to eat the whole apple.”

Hale, now a senior adviser at Booz Allen Hamilton, stressed that he respects Norquist, adding, “It sounds like a reasonable step to me, though no one expects auditable financial statements for a while. It will be years.”

Jack Armstrong, who spent three decades auditing for the Pentagon IG, noted the high price tag and the fact that the Government Accountability Office already has an important role in auditing Defense. “There will certainly be some informational value, but how much?” he told Government Executive. “There is a risk of higher political pressure on the DOD Inspector General, given the magnitude and cost of the effort. In turn, there could also be a risk that the DOD IG delivers not a disclaimer of opinion, but an adverse opinion.”

An essay decrying “The Pentagon’s Unaffordable Audit” appeared in late December in the National Interest, written by retired Army Lt. Gen. Tom Spoehr, now a defense analyst at the conservative Heritage Foundation. “Financial audits are not the best tools for discovering inefficiencies, waste or fraud,” he wrote in praising the goal if not the Defense Department’s methods.  “For those purposes, there are far better methods such as zero-based budgeting, contract or waste audits, strong management and continuous process-improvement techniques. Indeed, the few U.S. companies that don’t have to undergo a financial audit usually avoid it, since it usually does not result in significant reductions in waste or fraud compared to the costs involved.”

Grover Norquist, the advocate for cutting taxes and brother of the Defense comptroller who has been pushing the Pentagon audit, said the only question that lawmakers had for David Norquist was whether such an audit would actually happen. “It’s an annual check-up” that encourages best practices, he told Government Executive. “It’s not enough for the base commander to know he has a truck—the people at the Pentagon have to know, too.”

Every year, a cybersecurity salesman will come in and tell Defense it has to have a new product, Grover Norquist added, “Without an audit every year, no one checks” whether that is true.