Pentagon Undergoes an Audit (Maybe)

By Meyer Thalheimer

Last week, Pentagon officials announced that the Department of Defense (DoD) is about to begin its first ever agency-wide audit, claiming that audits will begin in 2018 and then will occur annually, with reports issued every November 15.

If this were to actually happen, it would be a milestone for the DoD, moving it into compliance with the Chief Financial Officers Act of 1990 for the first time. The act mandates that every federal agency pass annual audits beginning in 1992. The Pentagon has the largest discretionary budget of any U.S. agency, yet it has never been audited and cannot verify its financial records.

After years of the DoD failing to comply with this requirement, instead receiving an unbroken stream of “mañana,” Congress enshrined a new hard deadline in the 2009 National Defense Authorization Act, granting the department a seven-year reprieve from its audit requirement, but requiring progress on a complete audit to begin by September 30, 2017.

The last seven years have brought few changes. A 2016 report by the DoD’s inspector general found that the Army made $6.5 trillion in wrongful adjustments in accounting entries in 2015 alone. The report concluded that the adjustments rendered Army financial statements useless, as “managers could not rely on the data in their accounting systems when making management and resource decisions.”

Earlier this year, Senate Armed Services Committee Chairman John McCain (R-AZ) described the delay in audit-readiness as “a very public continuing failure for the Department of Defense, in large part due to the failure of senior management to make this a priority for the department and invest the necessary time and will to get it done.”

For years, all military annual reports have included a disclaimer that “the basic financial statements may have undetected misstatements that are both material and pervasive.”

Adding fuel to the fire, a Washington Post investigation in late 2016 found that the Pentagon had buried an internal study that revealed $125 billion in administrative waste out of fear Congress would use the study as a justification to slash the defense budget.

These financial practices have a real national security impact. Between 2003 and 2011, the Army lost track of $5.8 billion in supplies, and the inspector general claimed that the resulting losses of equipment “hindered their ability to train soldiers and respond to emergencies.”

Under pressure from then-Secretary of Defense Chuck Hagel, the Marine Corps rushed through a 2014 audit. As new information surfaced however, the inspector general was forced to withdraw his opinion that the audit was clean, and Senator Chuck Grassley (R-IA) declared the audit as “not worth the paper it was printed on.”

The colossal DoD budget should face real-world constraints. Every dollar unaccounted for or inefficiently spent is a dollar that is not spent enhancing U.S. capability in an increasingly hostile security environment of emerging threats or not strengthening our economy — itself a national security imperative. As Center Executive Director John Tierney wrote earlier this year, it’s not more spending that equals better security, it’s smarter spending.

An actual Pentagon audit would be a welcome step toward the enhanced accountability that could make smarter spending possible. But we will have to wait to see if the reality meets the promise.