Auditors at the Department of Defense have provided a helpful blueprint for underachieving students everywhere: They may have failed the test, but they never expected to pass.
The results of the first ever department-wide audit, released in November, did not bode well for the Pentagon. Speaking to reporters on Nov. 15, Deputy Secretary of Defense Patrick Shanahan stated, “We failed the audit, but we never expected to pass it.”
Although a few areas, such as the Army Corps of Engineers, Defense Health Agency, and the Military Retirement Fund received a passing grade, the DoD met the ultra-low expectations it set for the audit. The inspection revealed “significant information technology systems security issues,” and 20 “material weaknesses” in internal controls. While the report did not identify specific instances of fraud, it revealed that the Pentagon does not adequately track the various payments it makes, bringing into question the veracity of financial statements.
The audit provided insight into multiple areas where the Pentagon can improve, including compliance with cybersecurity policies and improving inventory accuracy. While the DoD has already begun addressing some of the failures identified, spending approximately $559 million on fixes, it did not disclose how much money turned up missing.
Considering the figures involved ($2.7 trillion in assets, $2.6 trillion in liabilities, and a budget of $717 billion in fiscal 2019), that amount is likely to be substantial.
The DoD remains the sole federal agency that has not undergone a clean audit under the Chief Financial Officers Act of 1990, an astonishing double standard. It is not hard to imagine the apocalyptic rhetoric from members of Congress should any other federal agency demonstrate such fiscal ineptitude.
The necessity for the Pentagon to get its financial house in order is revealed on a regular basis. Approximately 17 percent of the federal government’s $4.1 trillion budget went to security spending in fiscal 2018, and numerous problems have cropped up in recent years.
A July 26, 2016, DoD inspector general report noted that the Defense Financing and Accounting Service, which provides payment for military and civilian personnel and retirees, could not adequately document $6.5 trillion worth of year-end adjustments to general fund transactions and data. The books are so bad that areas within the DoD have been on the Government Accountability Office’s list of programs at high risk for waste, fraud, abuse, and mismanagement since 1995.
The road to last month’s failed audit has been long and arduous.
In 2013, the Pentagon announced with much fanfare that the Marine Corps had become the first military service to attain a clean audit. Then-Secretary of Defense Chuck Hagel even held a ceremony on Feb. 6, 2014, stating, “I know that it might seem a bit unusual to be in the Hall of Heroes to honor a bookkeeping accomplishment, but, damn, this is an accomplishment!”
Damn, that celebration was short-lived. A July 30, 2015, GAO report stated that the DoD IG “did not perform sufficient procedures, under professional standards, and consequently did not obtain sufficient, appropriate audit evidence to support the audit opinion.” It remains to be seen whether the DoD-wide audit managed to avoid the catastrophic flaws that plagued the 2013 Marine Corps inspection.
The acquisition side of defense spending is also a mess and includes several infamous procurement disasters, such as the F-35 Joint Strike Fighter and the Littoral Combat Ship, that have long plagued the Pentagon. In addition, the DoD has become notorious for budgetary gimmicks, such as the Overseas Contingency Operations account, which was initially intended to cover the cost of wars, but ballooned into a slush fund for non-combat spending while bypassing budgetary restraints. Over the years, the OCO account grew to such an extent that it dwarfed the total amount appropriated for other federal agencies.
After the Pentagon’s most recent failure, it appears the DoD is still years away from passing a clean audit. The primary cause remains the consistent lack of pressure from members of Congress to hold the DoD accountable. Pentagon bookkeepers seem unlikely to re-enter the Hall of Heroes as long as this double standard exists.
Sean Kennedy is Director of Research for Citizens Against Government Waste.
