As most military agencies fail annual audit, comptroller claims ‘steady progress’

WASHINGTON: The Pentagon’s fourth annual audit saw just eight of 24 military agencies likely to receive a clean financial bill of health, the same number as last year, signifying only incremental improvements and a long road ahead to the military-wide passing grade sought by good government groups and members of Congress.

Still, Mike McCord, the Pentagon comptroller, told press ahead of the audit’s release Monday night that the department is making “steady progress” towards its goal without taking any steps back year over year.

Of the 3,482 issues identified in last year’s audit, the department has remedied over 450 of them, or 13%; when the audit is fully finished, that number is expected to rise to 19%. That included addressing 49 of the 108 IT projects identified in last year’s audit, although McCord noted that handling IT issues remains a “primary challenge” for the department.

The offices that received “clean” audits were:

• The Military Retirement Fund
• The US Army Corps of Engineers – Civil Works
• Defense Health Agency – Contract Resource Management
• Defense Commissary Agency (DeCA)
• Defense Finance and Accounting Service Working Capital Fund
• The Defense Contract Audit Agency

In addition, two agencies — the DISA Working Capital Fund and the DoD Office of Inspector General — are expected to received unmodified opinions, but those audits have not been fully completed at this time.

McCord said that was his “understanding,” based on the information he had seen, that for the fourth straight year there were no cases of fraud or abuse uncovered by auditors.

A year ago, Thomas Harker, the acting comptroller, said that 2027 was the target timeline for when the Pentagon may be able to fully provide a clean audit. Asked about that, McCord was careful to avoid promising anything about that date.

“I think at this point, it’s a little premature to say that I know that [date] can be correct or incorrect. I haven’t found anything since I’ve been here that would make me say, that would make me back away from that date,” he said. But the fact that none of the three military departments have a clean audit means “we’re just not close enough, in my opinion, to say that I know for sure it’s going to be 2027 or it’s not. When we get to the point where we have more of these major building blocks that are in this stage — where, let’s say, two of them are unmodified and one of them is qualified — now we’re getting really close to where making a prediction of a timeline is probably a little more productive.

“So again, I’m not distancing myself from or questioning the timeline that people put out there the spring before I arrived, but I haven’t seen anything that would change my opinion of that,” he said. “But again, I think we’re also we need more information to get more precise on that.”

Savings and Costs

While stressing that the audit’s purpose is more about getting the department’s processes and financial house in order rather than finding old inventory hidden away, McCord did put forth a handful of examples of where the audit had direct benefits to the department.

In one case, he said, the Navy found roughly $960 million in material that had not been accounted for in the system — in essence, it was sitting in a warehouse and no one knew it existed or was able to be used.  Over the past two audits, he added, the Navy discovered $33.5 million in F-18 parts that were sitting unused and unknown. That equipment was put towards filling 189 requisition requests that had an estimated price tag of $28 million in new costs.

Similarly, $10 million in excess equipment for mine countermeasure ships was discovered, which filled over 2,000 requisition orders, saving some $4.8 million in new orders. In a less direct success story, the auditors found millions of dollars in the budget for the National Geospatial-Intelligence Agency that was not needed, and were able to redirect those funds to other agencies.

With those success stories in mind, however, there have been questions from some circles about whether the investment — roughly $1 billion per year, which includes the cost of fixing identified issues — in the audit process is actually worth the juice from the budgetary squeeze.

On that point, McCord was quick to point out it’s not an option to do the audit: Congress demands it by law. (That the Pentagon spent years ignoring the Hill’s requests for audits is no longer relevant; now that the process has been under way for years, it seems impossible to consider DoD leadership hitting pause without congressional direction.)

Ultimately, McCord said, the audit can’t be looked at purely from a dollars-in-and-dollars-out situation. Because the audit is also focused on processes and things like internal data security, there are unquantifiable returns.

“I don’t know that I would need to put a dollar figure on how much return I got in protecting a piece of information because it might be a disclosure, it might be a leak of personal, you know, proprietary information, might be a leak of, or a breach of, what’s called PPI, personal information about the millions of people that we have in our system. So there’s good reasons to protect the information we have,” McCord said.

The audit, he said, “has a much more fundamental purpose of having us be aware of our business, cleaning up our processes, reducing the number of systems that are vulnerable, reducing the number of systems that require updating. So it can save us money in ways that may or may not tie directly to the audit, but it’s, I think there’s broad buy in across the department that it’s worth doing.”