Calls Grow for Pentagon Audit
Back in February 2006, “The Pentagon’s Broken Book-keeping” discussed the depth of the problems inherent in trying to audit that organization. It’s not that the US Department of Defense fails audits. The problem is more fundamental: it is not currently possible to audit it, and any comprehensive audit would be a first-ever event in modern times.
This topic can seem trivial, but the Pentagon’s accounting problems are not limited to issues of day to day functioning. They also go right to the heart of the American political system’s ability to properly evaluate and learn from procurement decisions over the long term.
On June 18/09, U.S. Senators John McCain (R-AZ), Dr. Tom Coburn (R-OK), and Chuck Grassley (R-IA) introduced bill S.1287, the Department of Defense Financial Accountability Act of 2009, which sets a progressive deadlines for the Department of Defense to undergo a complete audit of its financial statements. DID offers more information about the bill, and excerpts from a special supplement to the Pentagon’s FY 2010 budget documents…
a Franklin Spinney slide
(click to view larger)
As Sen. McCain noted in his floor speech introducing the bill:
“This has been a problem for decades. In 1975, the Army disclosed that it had spent $225 million over its budget because of a serious breakdown in its accounting and financial management reporting system. For fiscal year 1986, the Navy failed to disclose $58 million in real property, $1.7 billion in guaranteed loans, and data on operating leases on ships. According to the Government Accountability Office, between 1970 and 1980, the Air Force incurred numerous over obligations… DoD has repeatedly promised Congress that it would fix the problem. In 1999 and 2000, then-DoD Comptroller William Lynn testified before Congress that financial management reform was his highest priority. In fact, Mr. Lynn’s successor, Dov Zakheim, set a deadline to have the Department of Defense audit ready by 2007. Under DoD’s latest Financial Improvement and Audit Readiness Plan, that deadline is now 2017.
I want to recognize that the Department has tried, with varying degrees of effort, to improve financial management, but DoD auditors and GAO continue to report significant weaknesses.”
The bill does set a series of progressive deadlines for compliance and validated readiness for an audit, as follows:
- Sept 30/19: FY 2017 and FY 2018 audits due for all branches
- Sept 30/18: Department of Navy and Air Force audits due
- Sept 30/17: All DoD validated as ready for audit; subsequent years must be ready one year after the fiscal year closes, so Sept 30/19 will also feature the FY 2018 audit.
- March 31/17: Department of the Army with respect to operating material and supplies
- Sept 30/16: Department of the Air Force, all.
- March 31/16: Department of the Navy with respect to operating material and supplies
- March 31/17: Department of the Army with respect to inventory
- March 31/16: Department of the Navy, all.
- March 31/16: Department of the Air Force with respect to military equipment
- Sept 30/15: Department of the Air Force with respect to real property. Defense Logistics Agency with respect to inventory.
- March 31/15: Defense Logistics Agency with respect to real property
- Sept 30/14: Department of the Navy with respect to military equipment. Department of the Air Force with respect to real property.
- March 31/14: Department of the Navy with respect to real property
- Dec 31/13: Department of the Army with respect to military equipment, real property, and environmental liabilities. Department of the Navy with respect to inventory.
- Dec 31/11: Department of the Air Force with respect to environmental liabilities
- Dec 31/10: Department of the Navy with respect to the fund balance with the Treasury
- Sept 30/10: Department of the Army with respect to the fund balance with the Treasury
- March 31/10: Department of the Navy with respect to environmental liabilities
At present, The FY 2010 Budget Request Summary Justification’s Special Topics section stated that the Army Corps of Engineers has achieved clean opinions on all of its financial statements, and the Marine Corps is nearly ready for an audit of its Statement of Budgetary Resources. The have also been some successes since 2001. Of 116 managers’ internal control weaknesses identified in 2001, 99 have been eliminated. Over this period, the Defense Finance (DFAS) and Accounting Service reduced personnel work years 30% and annual cost of operations by 15%; and since 2001, efforts by the Services and the DFAS have avoided $335 million in overdue interest penalties while doubling the dollar amounts of payments processed. Nevertheless:
“New systems, such as the ERPs planned by the department and agencies, are notoriously difficult to install successfully. There will also be major problems associated with cleaning up and reconfiguring data so that it can be processed by the new systems. For these reasons, DoD has a long way to go before integrated financial systems are deployed throughout the organization.
Also, while progress has been made toward improving financial information and thereby achieving clean audits, the hardest problems still remain to be solved. Notably, the largest organizations in the DoD, including all three of the Military Departments, have yet to achieve improvements in financial information and processes sufficient to warrant asking for an audit. Given the scope and complexity of these organizations, it will be many years before they will have achieved enough progress to achieve unqualified audit opinions on all of their financial statements. In light of these challenges, DoD is currently reassessing its audit strategy with the goal of focusing its improvement efforts on those categories of financial information that are most used to manage the Department activities.”
From McCain’s floor speech introducing S.1287:
…[This bill’s] deadlines [match] DoD’s current Financial Improvement and Audit Readiness Plan. It has been 19 years since the CFO Act was passed requiring DoD and other departments to have an audit. It will be 2019 – nearly 30 years after the passage of the CFO Act – before the Department of Defense is able to get an audit opinion, if we hold them to their current timeline. If we do not, this may never happen.”
Perhaps. The question is one of consequences. Under the bill as it stands, failure to achieve any of these targets simply means that the Secretary of Defense, or a service chief, must submit a written statement to Congress within 30 days explaining why they didn’t meet the date, what they plan to do about it, and promising a new date.
A bill with dates in it may focus the mind, and impose a priority structure on current efforts. Can a bill without meaningful consequences in it meaningfully change the Pentagon’s progress toward a long-sought goal?
Time will tell.
Additional Readings
- GovTrack – S. 1287: Department of Defense Financial Accountability Act of 2009
- US Department of Defense Comptroller – DoD FY 2010 Budget Request Summary Justification: Special Topics [PDF]
- Sen. McCain (June 18/09) – McCain, Coburn, and Grassley call for Department of Defense Audit
- Congressional Record, via GovTrack (June 18/09) – Statements on introduced bills and joint resolutions. Includes the text of S.1287, and the speech by Sen. McCain
- Portfolio.com (May 2008) – The Pentagon’s $1 Trillion Problem
- DID (Feb 28/06) – The Pentagon’s Broken Book-keeping
- The News & Observer (Feb 12/06) – Pentagon’s messy books defy auditors
- US House of Representatives Committee on Government Reform: Subcommittee on National Security, Veterans Affairs and International Relations (June 4/02, via D-N-I) – Statement by Franklin C. Spinney, ?Staff Analyst, Department of Defense
