The Department of Defense is still struggling to account for its finances. The department once again failed its annual audit into its expenditures and assets. This markets the seventh straight year of failures. The Department of Defense has not passed one of the mandatory audits since they were implemented in 2018.
Michael McCord, Under Secretary of Defense (Comptroller) and Chief Financial Officer, announced the latest failure on Friday, Nov. 15, saying the result was “expected.” According to McCord, the overall audit earned a “disclaimer of opinion,” meaning that the Department of Defense failed to provide enough information for auditors to reach a precise and accurate verdict on the finances. In fact, of the 28 separate entities audited, 15 of them all received disclaimers.
Despite a lack of information to get the full picture, hundreds of people worked to get an understanding of where the military is financially. The process involved approximately 1,700 independent auditors and cost $178 million. That itself is more efficient than last year, which saw 1,600 auditors and cost $187 million. This year’s process examined $4.1 trillion in assets and $4.3 trillion in liabilities. Of the 28 entities audited (not counting those that received disclaimers), nine received unqualified opinions (meaning they had “clean” audits), one had a qualified opinion and three are pending.
The good news is that one more entity earned a clean audit than last year, bringing the total to nine. That’s still less than a third of the overall entities being examined. Despite that, McCord said that the Department of Defense is making progress.
“Momentum is on our side and throughout the department. There is a strong commitment and belief in our ability to achieve an unmodified opinion on behalf of the department’s senior management,” McCord told reporters on Friday. “I assess that [Department of Defense] continues to make progress toward the Congressional mandate for achieving an unmodified audit opinion.”
In 2020, the Pentagon said that it likely wouldn’t be until 2027 that the department passed an audit. The 2024 National Defense Authorization Act mandates that the Department of Defense must reach a clean audit by 2028.
The seventh failed audit comes as the military’s budget continues to increase year over year; the department has more than $824 billion in expenditures.
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The newest entity to get a clean audit was the Defense Threat Reduction Agency. Others included the Defense Health Agency, Military Retirement Fund, National Reconnaissance Office, and the U.S. Army Corps of Engineers – Civil Works. Outside of that, McCord pointed to internal improvements. Eight of the 28 entities individually audited were able to fully resolve, or at least correct, some of the issues found by previous audits in its funds balance with the Treasury Department.
In February, the U.S. Marine Corps passed its audit for the previous fiscal year, becoming the first branch of the military to do so.
The three entities still undergoing review are the Marine Corps, along with the Defense Logistics Agency’s National Defense Stockpile Transaction Fund, and the Office of Inspector General.
The major issue overall, McCord highlighted, is accounting for the department’s physical assets and property. That remains a hurdle, even as the Department of Defense gets better on accounting for its funds.
Speaking to reporters on Friday, McCord looked at the hurdles the Pentagon faces over the next four years to pass its audit. Although the military still struggles to account for its funds and assets, it is clear what the major milestones will be. McCord said that the “biggest part of what remains is the Department of the Air Force, the Department of the Navy, separate from the Marine Corps and the Department of the Army, without all three of those turning green, it is mathematically impossible for the Department to have a clean opinion.”
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