DoD’s First Full Audit’s Just the Opening Shot

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They say that the first casualty of any conflict is the truth.

The Pentagon, which is getting within range of being a $2 billion-a-day operation and has more than $2 trillion dollars in assets and liabilities, is notably undergoing its first full financial audit. Decades of financial management problems have left the Department of Defense (DoD) as the only Federal department not to be fully audited since agencies were told to do so in the 1990s. Those problems have landed DoD financial management on the Government Accountability Office’s (GAO) High-Risk List every year since 1995.

To complete the long overdue assessment, which will be comprised of 24 individual audits, DoD has enlisted 1,200 auditors and said it will spend more than $900 million, counting the $367 million cost of the audit itself and an estimated $551 million in the costs of subsequent fixes.

But that will just be the beginning, because DoD admits that cleaning up its financial practices is far from a done deal. Last Stepember, Sec. James Mattis and Comptroller David Norquist told the DoD Inspector General’s Office that the department was ready for an audit, “it was not a certification that the DoD financial statements or components’ financial statements are reliable,” the inspector general (IG) notes in its report on DoD’s Top Management Challenges for fiscal 2018. Rather, they expected the audit to find problems and produce actionable feedback. Mattis has told Congress “it will take time for the DoD to go from being audited to passing an audit,” the IG’s report states.

Nevertheless, after more than 20 years of confounding attempts at audits, DoD now pledges it will be a yearly ritual, even with a target release date. “Beginning in 2018, our audits will occur annually, with reports issued Nov. 15,” Norquist said in announcing the start of the audit in December.

DoD has a lot of elements to clean up, because it has a lot to keep track of with its huge budget, workforce, and its daily transactions occurring around the world. The 2018 National Defense Authorization Act allocated nearly $700 billion for the department’s base budget and operations. DoD expenditures account for almost half of the Federal government’s discretionary spending and it holds more than 70 percent of the government’s physical assets, the IG notes.

The financial management shortcomings, which include a lack of internal controls and some slapdash record keeping, have produced unreliable financial information that not only has prevented audits, but undercuts the ability to develop and execute budgets. This hinders the “ability to see potential waste, mismanagement, and cost overruns when certain data is either untimely, unavailable, or inaccurate,” the report states, echoing the findings in an earlier assessment by GAO.

As part of the process, the IG recommends among other steps of doing away with a number of legacy systems and making sure that remaining systems interface with each other automatically, without requiring manual intervention. Essentially, DoD needs to modernize its financial management with steps including greater automation and most likely making use of recent advancements in artificial intelligence and machine learning for financial services.

For now, the audit begins the process of what figures to be a massive undertaking. “With consistent feedback from auditors, we can focus on improving the processes of our day-to-day work,” Norquist said. “Annual audits also ensure visibility over the quantity and quality of the equipment and supplies our troops use.”

Perhaps DoD going financially AWOL is soon to be a thing of the past?

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