Pentagon's First Departmentwide Audit Is a Major Milestone

Break out the champagne: Earlier this month, the Defense Department produced its first departmentwide financial statement audit. Ever. For an entity that traces its roots to 1789 and whose books have long been impenetrable to armies of auditors, even a failing grade is cause for positive recognition.

While the audit resulted in a disclaimer of opinion and showed multiple material weaknesses, it represents “a historic accomplishment and indicates our commitment to accountability and reform,” said Deputy Secretary of Defense Patrick Shanahan in a statement.

Auditors verified the quantity, location and condition of military equipment, real property and inventory; tested for vulnerabilities in business systems; and validated the accuracy of personnel records and actions, such as promotions and separations, the Pentagon said.

The department’s financial management has been on GAO’s high-risk list since 1995.

The audit, which was required by Congress in the 2010 National Defense Authorization Act, took a year to conduct and is perhaps the largest of its kind in history (so the Pentagon believes). It covered $2.7 trillion in assets and $2.6 trillion in liabilities for fiscal year 2018, requiring more than 1,200 auditors to conduct over 900 site visits at 600-plus locations.

Rep. Mac Thornberry, R-Texas, chairman of the House Armed Services Committee, said “Congress directed [Defense] to conduct this audit to better manage the resources we dedicate to national defense. The process is an opportunity to find problems and identify areas for future reform. As expected, this audit has uncovered a number of matters that Congress and the Pentagon must work together to address.”

Several Defense entities received “clean” audit opinions, including the Army Corps of Engineers' Civil Works division; Military Retirement Fund; Defense Health Agency Contract Resource Management division; Defense Contract Audit Agency; and Defense Finance and Accounting Services Working Capital Fund. Other entities received modified opinions, meaning that while they don’t comply with generally accepted accounting principles, their financial statements were fairly presented. Those entities included the Medicare-Eligible Retiree Health Care Fund and the Defense Commissary Agency.

Many others, including the Army, Navy and Air Force, received disclaimers.

“Bottom line,” wrote Defense Secretary James Mattis in a letter accompanying the report, “we are devoted to fixing every problem revealed by the first ever departmentwide audit, building trust in our compact with the American people.”