Report Shows Wide Variation in Financial Management Across Defense Agencies

The Defense Department’s first-ever comprehensive audit shows great variation of performance among the Pentagon’s entities, according to a report released Tuesday by a watchdog group.

Truth in Accounting, which released the report, used seven criteria to evaluate how entities within Defense did on the audit, all of which had different weights: auditor’s opinion (35%), ability to access the entities’ annual financial report and auditor opinion (20%), Notices of Findings and Recommendations auditors issued to identify weaknesses (10%), number of re-issued notice of findings and recommendations (10%), weaknesses in internal control of financial reporting (10%), non-compliance with laws and regulations (10%) and how long after the fiscal year ending the auditor’s opinion letter was sent (5%). 

The report found that the four entities of Defense that had the best performance in its audit were: Military and Retirement Fund, Defense Finance and Accounting Service, Defense Contract Audit Agency and U.S. Army Corps of Engineers. 

Among the worst performing entities were the main branches of the military: Army, Navy, Air Force and Marines. “They are also among the largest entities, posing significant financial management challenges,” the report said. “But we believe good accounting systems are even more important for the large military branches, and challenge them to rise in the rankings next year.” 

The 2018 audit, released in November 2018, marked the first time the agency was audit-ready since Congress made government audits a requirement in 1990. According to the Defense Inspector General, this was one of the largest financial statement audits in history, with a total cost of about $413 million. 

Bill Bergman, director of research at Truth in Accounting, said the report took about two months and was designed to look at Defense entities that performed well, in addition to weaknesses. The group did not “just want to bang the drums on how bad it is,” Bergman said. 

TIA’s rankings show each department entity’s overall rating as well as marks in specific areas, so they know where improvement is needed. Bergman said he was surprised to see there “were some good performing entities.” Specifically, he noted, the Army Corps of Engineering. 

The watchdog report release coincides with the Senate Armed Services hearing Tuesday to examine the nomination of Mark Esper to be secretary of Defense. Bergman said he is interested to see if and how finances and auditability within the department are stressed during that hearing. “We believe it should be a high priority,” he said.