US Pentagon fails first-ever audit
The first-ever audit of the Pentagon has identified multiple issues resulting in a heavily qualified opinion of the financial management systems and information technology at the US Department of Defense (DOD), which says it plans to use the findings to improve its financial controls
16 Nov 2018
Legislation passed in 1990 requires all federal departments to undergo an audit, but the DOD has long claimed that getting a clear picture of its $2.7 trillion (£2.1 trillion) of spending on operations was too challenging given their complexity.
However, under pressure from the Trump administration and governance groups, a full-scope, department-wide, financial statement audit of the DOD has now taken place, with more than 1,200 auditors conducting over 900 site visits at over 600 locations and examining hundreds of thousands of items.
The DOD said auditors evaluated data for accuracy and completeness to verify counts, location and condition of military equipment, real property and inventory. Auditors also tested for security vulnerabilities in DOD business systems and validated the accuracy of personnel records and actions, such as promotions and separations.
The results show that while some DOD organisations received the highest rating of unmodified audit opinions, others received modified opinions, which means they do not comply with generally accepted accounting principles but financial statements are fairly presented.
There were also several departments where auditors raised a list of some 20 material weaknesses which could result in misstatements. The final report states these included ‘multiple material financial management systems that did not comply with federal management system requirements.’
Auditors also noted the DOD’s failure to implement internal controls over its information technology environment in order to deter waste, fraud and abuse. In addition the DOD lacked sufficient processes and internal controls to ensure transactions were properly logged and that the component financial statements required to produce an agency-wide report were accurate and complete.
In other criticisms, the auditors said for FY 2018 the DOD reported an accounts receivable balance of $5.7bn but lacked the controls to record, report or reconcile transactions that should be labelled as a receivable. Similarly, it could not provide assurance on $282bn of inventory nor on $759m of property, plant and equipment.
David Norquist, the DOD CFO, said: ‘As anticipated, our independent auditor, the DOD Office of Inspector General, issued a disclaimer of opinion as the result of the audit.
‘Though we were unable to achieve a clean (unmodified) opinion, the audit provides us with a powerful additional method to identify accounting and financial reporting issues as well as their root causes, target and develop corrective actions, prioritize business process reforms, and verify the proper remediation of audit findings.
‘To assist in driving change, we have established a department-wide database tool for use in capturing, prioritizing, and assigning responsibility for auditor findings and the related corrective action plans.
‘The wide visibility and use of this tool across the department will reduce duplication of efforts, facilitate the sharing of lessons learned and best practices, and help maintain accountability. The tool will also help us to track the number of auditor findings closed.’
Patrick Shanahan, deputy secretary of defense, said: ‘The release of the first-ever DOD audit is a historic accomplishment and indicates our commitment to accountability and reform. We conducted the audit to facilitate transparency with Congress and the American taxpayer and to determine corrective actions to instill long-term discipline.’
Report by Pat Sweet