With trillions at play, Pentagon fails audit for sixth year in a row

WASHINGTON — For the sixth year in a row, the Pentagon has failed its annual audit, while contending it made incremental, year-over-year progress.

“Auditing the Department’s $3.8 trillion in assets and $4.0 trillion in liabilities is a massive undertaking… but the improvements and changes we are making every day as a result of these audits positively affect every soldier, sailor, airman, marine, guardian, and DoD civilian,” Michael McCord, the Department of Defense (DoD) Under Secretary of Defense and Chief Financial Officer, wrote in a statement Wednesday.

The department unveiled its latest audit on Wednesday and, similar to last year’s, it examined 29 standalone entities, from the Military Retirement Fund to different military agencies. Of those it gave only seven an “unmodified opinion,” or clean audit, in which auditors determined their financial statements were presented fairly and that they adhered to accounting principles.

Only one audit, the Medicare-Eligible Retiree Health Care Fund, received an “qualified opinion” this year, meaning auditors determined there were misstatements, or potentially undetected misstatements, but those did not adversely influence the financial statements. 

While there are still three outstanding audits not yet wrapped up, the DoD reported that the remaining 18 failed, including the Defense Advanced Research Projects Agency and National Security Agency.

“We are working hard to address audit findings as well as recommendations from the Government Accountability Office,” McCord wrote. “The components are making good progress resulting in meaningful benefits, but we must do more, and we cannot do this alone.” 

The department has now failed every audit since 2018, the year the first audit took place. The audit is conducted by the DoD’s Office of Inspector General along with an independent public accounting firm.

In 2020, then-Acting Comptroller Thomas Harker signaled that by 2027 the Pentagon could begin to pass its annual audit, an ascertain McCord previously stated might not be viable.

While there is a lot of heavy lifting to do to get to a clean audit, McCord noted several steps forward this year and outlined additional ones that can be taken to help achieve a passing grade.

Those additional steps include:

• An Oct. 13 memo from Dense Secretary Lloyd Austin to the service secretaries and principal staff assistants emphasizing and reinforcing expectations for supporting the DoD financial statement audits;
• More collaboration across DoD’s planners and programmers, the DoD financial management community, DoD leadership, the Office of Management and Budget, and Congress “to ensure alignment of priorities and resources;” 
• A call for lawmakers to pass annual budgets on time and avoid continuing resolutions and shutdowns; and 
• Asking defense contractors to pitch in by introducing “innovative, time-saving enterprise solutions,” and bringing their property into audit compliance.

The call for congressional help is a timely one, coming just hours after lawmakers agreed on a new continuing resolution that pushes the DoD’s budget battle to February next year — a regular source of frustration for senior Pentagon officials.