Pentagon Flunks Sixth Audit In A Row


For the sixth year in a row, the Department of Defense (DOD) has failed a self-audit of 29 standalone entities controlling $3.8 trillion in assets and responsible for $4 trillion in liabilities. Seven of the 29 audited entities achieved a passing score. The Medicare-Eligible Retiree Health Care Fund received a “qualified opinion” indicting auditor found “misstatements” (if you do this when talking to an FBI agent you go to prison) that allegedly did not change the bottom line. Three audits are still in progress. The remaining 18 failed, including money sumps like the Defense Advanced Research Projects Agency and National Security Agency.

The National Defense Authorization Act for Fiscal Year 1990 required DOD to conduct financial audits. This provision is called the Chief Financial Officers Act of 1990. The legislation required DOD, as well as all federal departments and agencies to produce audited statements. In 2018, the Pentagon finally complied, probably around the time that the staffers responsible for drafting the FY90 legislation began to prepare for retirement.

It didn’t work out as expected for an agency that had not been audited in 1787. According to the Congressional Research Service despite almost two decades of advanced notice, “DOD was given a disclaimer opinion, meaning auditors were unable to express an opinion about the financial statements, because the financial data was not sufficient.” The Pentagon was angry. Patrick Shanahan, the Deputy Secretary of Defense, fell to his knees, and wailed, “We have failed the audit.” We never expected to pass the audit.” Okay, so I lied when I said DOD was upset.

The pressure to excel was relentless. Pentagon Comptroller Mike McCord, when asked in 2021 about his predecessor’s predictions that DOD would be audited by 2027, replied: “We’re not close enough to say I know for certain that it will be 2027, or not.”

In fairness, the audit is not strictly a dollars-in-dollars-out affair, though that gets most of the focus. The Navy found nearly $1 billion in spare parts that it did not know it had. The audit includes a section on how DOD implements security and efficiency systems. This part of the audit is not given much attention, because it’s hard to get people to understand the importance and value of billing and cybersecurity.

Simple. We are fast approaching the 30th Anniversary of the DOD’s requirement to submit its programs for audit, even if they have not passed. Nobody cares. Audits will not result in anyone being fired at DOD. The top guy makes it irrelevant when he says “We might be there in five more years.” It is an act of malfeasance that Congress continues to fund DOD slavishly and rewards it with budget increases, without knowing what’s going on. At a budget hearing, when was the last instance a senator or representative requested that a major combatant commander or service chief explain how they planned to pass an audit?

It will be a bulls**t rule until high-ranking employees find themselves in danger of losing their jobs because they failed an audit. This is a requirement that produces a press statement that no one reads. If you’re not going to fire people for failing an audit, then why spend hundreds of millions on a farce that is a joke?