Lawmakers are increasing pressure on the Pentagon over its inability to pass a full audit, with new legislation that provides a mix of incentives, penalties, and new investments in automation and artificial intelligence (AI).
The Defense Department (DOD) – rebranded as the War Department by the Trump administration – has failed every audit since launching its first agency-wide review in 2018. Under the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2024, the DOD must receive an unmodified (clean) audit opinion by December 31, 2028, or face a 1.5% cancellation of certain unobligated funds.
The latest legislative effort comes from Sen. Joni Ernst, R-Iowa, who introduced the Reviewing Every Check and Each Invoice Purchasing Troops’ Supplies Act (RECEIPTS Act). This bill would allocate funds for the deployment of use of AI to audit its financial books. If passed, the bill would authorize $150 million for automation and AI to speed up audits and another $150 million to replace outdated business systems and improve accuracy.
If the Pentagon fails its 2028 audit, the bill proposes penalties, including transferring the Defense Finance and Accounting Service’s non-defense functions to another provider within the government. It would also require future financial leaders at the Pentagon to meet higher qualifications, such as certification as public accountants with prior experience in organizations that have passed clean audits.
However, if the department passes its 2028 audit, the bill provides the Pentagon with greater budget flexibility, allowing the defense secretary to transfer up to $10 billion or 1% of the total budget in the following year. The bill would also eliminate several longstanding audit-related reporting requirements if the Pentagon successfully completes a clean audit.
Ernst is not alone in pushing for a clean audit through legislative measures. Two other bipartisan bills have been introduced in Congress, though none have been enacted into law.
In 2023, Sen. Bernie Sanders, I-Vt., and Sen. Chuck Grassley, R-Iowa, introduced the Audit the Pentagon Act, which would require the Pentagon to return 1% of its budget to the Treasury if it fails to pass an audit. Most recently, Reps. Mark Pocan, D-Wis., and Andy Biggs, R-Ariz., have pushed a similar bill, the Audit the Pentagon Act of 2026, which calls for 0.5% cuts after the first failed audit and 1% in subsequent years, with exceptions for personnel and healthcare funding.
DOD works toward a clean audit by 2028
Secretary of Defense Pete Hegseth emphasized the importance of a clean audit during a House Appropriations Committee hearing in June 2025, stating that the DOD “will improve our processes and controls to make better financial decisions. And we will understand where every taxpayer dollar goes and why.”
“This is what it will take to rebuild our military and exactly what we will do,” Hegseth said.
To reach this goal, the DOD outlined a strategy in its FY 2026 budget, focusing on modernizing financial systems and improving data accuracy.
The DOD Consolidated Audit Strategy includes several initiatives aimed at improving efficiency and accountability. These include replacing outdated systems with auditable enterprise resource planning systems. Another significant focus is automating fraud detection and inventory management.