When Will We Finally Audit the Pentagon?
The Defense Department is the only federal agency that can’t produce a clean financial statement
In 1990, the U.S. Congress passed the Chief Financial Officers Act, which required every federal agency to be auditable. Since then every agency has complied — except for the Department of Defense.
Instead, there’s been a saga of audit-readiness plans and billions of dollars spent to upgrade out-of-date financial systems — plans and upgrades that, in 2010, the Government Accountability Office estimated wasted nearly $6 billion.
After significant pressure from Congress — particularly then-senator Tom Coburn, an Oklahoma Republican, and Sen. Joe Manchin, a West Virginia Democrat, then-secretary of defense Leon Panetta set a 2014 deadline for all the armed forces and the Defense Department as a whole to have auditable records of incoming budget resources, referred to as Statements of Budgetary Resources.
In its guidance to agencies on auditing SBRs, the GAO highlighted auditing SBRs as key to making sure that the Pentagon is spending money as authorized by Congress. “The SBR and related disclosures provide information about budgetary resources made available to an agency as well as the status of those resources at the end of the fiscal year,” the GAO stated.
Auditing the SBR, along with other budget information, “provides a means to help assess the reliability of budgetary data reported in the president’s budget.”
At the beginning of 2014, it looked like the Defense Department had made significant progress after the Department of Defense Inspector General gave the Marine Corps a clean audit opinion, making the Marine Corps the first and only branch of the military to receive an unqualified audit opinion.
But the DoD I.G. rescinded that opinion last spring. A Reuters investigation into that decision found that the I.G. leadership had pressured its auditors to support an outside accounting firm’s clean audit opinion, despite the auditors believing that the Marine Corps had actually not been qualified to receive it.
A subsequent review by the GAO also found the I.G.’s process for issuing that opinion was deeply flawed. In a floor speech on the GAO’s report, Sen. Chuck Grassley, an Iowa Republican, argued that the political pressure led to a process that rushed to declare victory without adequate documentation to show the clean audit opinion was “worth the paper it was written on.”
The Defense Department failed to meet its goal for 2014, and as it stands, no military component is likely to meet it in the next year. “I think we are on the right track,” Department of Defense comptroller Mike McCord said last winter. “[But] it will take a couple more years.”
Some members of Congress are sick of waiting. Both the Senate and the House have bipartisan bills that would hold the Department of Defense accountable for continuing to fail to be auditable. In the House, Rep. Barbara Lee, a California Democrat, and Texas Republican Michael Burgess have a bill that would reduce by five percent a federal agency’s discretionary budget authority for a fiscal year if that agency’s financial statement for the previous fiscal year cannot be audited by an external independent auditor.
In the Senate, Manchin, Oregon Democrat Ron Wyden, Republican Ted Cruz of Texas and Rand Paul, a Kentucky Republican, introduced legislation that could penalize the Department with the loss of reprogramming and transfer authority for funds if it is not audit-ready by 2017. Losing these authorities would deprive Pentagon of a beloved tool that allows the Defense Department to move money around, in-between congressional appropriations.
This legislation is a good step forward, but unless efforts to hold the Pentagon accountable become law, it’s unlikely that the largest government agency will be able to be audited any time soon.