For the sixth year in a row, the Department of Defense (DOD) has failed a self-audit of 29 standalone entities controlling $3.8 trillion in assets and responsible for $4 trillion in liabilities. Seven of the 29 audited entities achieved a passing score. The Medicare-Eligible Retiree Health Care Fund received a “qualified opinion” indicting auditor found “misstatements” (if you do this when talking to an FBI agent you go to prison) that allegedly did not change the bottom line. Three audits are still in progress. The remaining 18 failed, including money sumps like the Defense Advanced Research Projects Agency and National Security Agency.
The National Defense Authorization Act (NDAA) for Fiscal Year 1990 established the requirement for DOD to undergo financial audits. The specific provision is the Chief Financial Officers (CFO) Act of 1990. This legislation mandated that DOD and all other federal departments and agencies produce audited financial statements. The Pentagon got around to complying in 2018, probably about the time the staffers who drafted the FY90 legislation were preparing for retirement.
As might be expected of an agency that hadn’t been audited since 1787, it didn’t go well. According to the Congressional Research Service, despite nearly two decades of advance notice, “DOD received a disclaimer of opinion—meaning auditors could not express an opinion on the financial statements because the financial information was not sufficiently reliable.” The Pentagon was upset. Deputy Secretary of Defense Patrick Shanahan fell to his knees and, through teary eyes, whimpered, “We failed the audit. But we never expected to pass it.” Okay, I lied about DOD being upset.
The pressure to excel became relentless. In 2021, Pentagon Comptroller Mike McCord was asked about his predecessor’s prediction that DOD would pass the audit by 2027; he replied, “We’re just not close enough, in my opinion, to say that I know for sure it’s going to be 2027 or it’s not.”
In fairness, the audit is not strictly a dollars-in-dollars-out affair, though that gets most of the focus. Like when the Navy discovered nearly $1 billion worth of spare parts it didn’t know it had. Part of the audit is how well DOD implements efficiencies and security systems. That side of the audit gets scant attention because it is hard to make people understand the importance of cybersecurity and billing systems.
The reason we are approaching the 30th anniversary of the requirement that DOD submit its programs to an audit without having passed is simple. No one cares. No one in DOD is going to get fired over an audit. When the top guy says, “We might get there in five years,” he effectively makes it unimportant. That Congress continues to slavishly fund DOD and reward it with budget increases without having a clue as to what is going on is malfeasance. When was the last time a senator or representative asked a service chief or major combatant commander to explain their plan for passing an audit at their budget hearing?
Until high-ranking people find their careers in jeopardy because of failing an audit, it will remain a bulls**t requirement that generates a press release that hardly anyone reads. And if you aren’t going to fire high-ranking people over failing an audit, why are you spending hundreds of millions of dollars to carry out a farce?