Defense Department Fails Another Audit But Makes Progress

The Defense Department failed its fifth audit, failing to account for more than half of its assets, but the attempt is being considered as a “teachable moment,” according to the Defense Department’s chief financial officer.

Pentagon Comptroller Mike McCord told reporters on Tuesday that after 1,600 auditors sifted through DOD’s $3.5 trillion in assets and $3.7 trillion in liabilities, officials discovered that the department couldn’t account for roughly 61 percent of its assets.

McCord stated that the agency had made progress toward a “clean” audit in the last year, but later admitted that “we did not earn a ‘A.'”

“I would not say that we flunked. The process is important for us to do, and it is making us get better. It is not making us get better as fast as we want,” he said.

The outcome this year was not unexpected.

Since the early 1990s, federal law has required mandatory audits of all government agencies, and all but the Department of Defense have been able to meet that obligation since fiscal year 2013.

The department’s sheer size and scope — it accounts for more than half of US discretionary expenditure and has assets ranging from personnel and supplies to bases and weapons — makes auditing tough.

Defense authorities began scrutinizing DOD’s finances in December 2017, the first full audit of the organization in its history. That endeavor failed the following year, as well as the four that followed.

The agency had never anticipated to pass owing to accounting concerns that officials said would take years to resolve.

Due to a lack of accounting documents required to complete the evaluation, all five audits received a “disclaimer of opinion,” albeit there have been advances each time.

McCord, who served as Pentagon comptroller from 2009 to 2017 and again since June 2021, said the most recent audit necessitated 220 in-person site visits and 750 virtual site visits by Pentagon officials and workers from independent public accounting firms.

They discovered several new flaws in how the Department of Defense (DOD) accounts for its assets, which include nearly 2.9 million military personnel; equipment and weapons such as 19,700 aircraft and more than 290 ships; and physical items such as buildings, roads, and fences on 4,860 sites worldwide.

To divide the work, the agency conducts 27 separate, smaller audits before combining the data to get the big picture and avoid “having anything on a record that doesn’t exist in reality or having large inconsistencies.”

While McCord wants to focus on the progress in this year’s audit, he admits that “the progress is getting a little harder” since “much of the lower hanging fruit has been picked,” implying that the simpler concerns have already been weeded out.

He highlighted that Ukraine’s continuing conflict with Russia has been a “highly instructional moment for us on the audit,” as it helps them to envision the crucial necessity of exact tracking of weapons and equipment in the case of a conflict.

“That’s to me a really great example of why it matters to get this sort of thing right — of counting inventory, knowing where it is and knowing when it is [arriving],” McCord said.

“I’ve asked our people to imagine that was our folks, our men and women in uniform, who were up against it,” he added.

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