The Atlanta Journal-Constitution
Pentagon receives failing grade after its first full financial audit
The Pentagon has released the results of its first full financial audit, and it received a failing grade. Only a handful of the Pentagon’s numerous agencies received a passing grade from auditors, and most of them were asked to fix various financial irregularities.
But the auditors’ report mainly drew attention to the sheer scale of the U.S. mili- tary’s massive bureaucracy and its sprawling collection of military assets, an arse- nal the audit valued at $2.7 trillion. Just counting those assets employed an army of 1,200 accountants who visited more than 600 locations, the Defense Department disclosed last week.
Congressional defense-spending watchdogs were unsurprised by the department’s compliance issues, noting that any organization’s first full evaluation should be expected to return some irregularities. Instead, oversight-minded lawmakers seemed disappointed that the report didn’t yield more results. They criticized the Pentagon’s apparent failure to develop a workable financial accounting system that can accurately keep track of its assets and liabilities.
The effort ate up more than $400 million. And auditors found that numerous back-office functions are insufficiently tracked, making it hard to monitor the flow of U.S. tax dollars in and out of the orga- nization or to assess all government assets held by private-sector contractors.
“It’s unacceptable that (the Pentagon) has spent over $400 million on an audit it knew would come back flawed,” Sen. Chuck Grassley, R-Iowa, said in a statement. “Without an accounting system that can provide usable data, an audit is useless and a waste of resources. How is it possible that the Pentagon is able to develop the most advanced weapons in the world but can’t produce a workable, reliable accounting system?”
Agencies that did pass the audit include the Defense Health Agency; the U.S. Army Corps of Engineers, Civil Works; the Military Retirement Fund; the Defense Health Agency — contract resources management; the Defense Contract Audit Agency; and the Defense Finance and Accounting Agency.
While the audit report did not call out specific instances of fraud, it did point to “significant information technology systems security issues” caused by very basic, nontechnical oversights like leaving departed employees’ IT permissions in place. The findings added to concerns raised last month by the Government Accountability Office (GAO), which noted that nearly every U.S. weapons system suffers from a “critical” cybersecurity vulnerability.
The audit identified 20 “material weaknesses,” or deficiencies in the department’s internal controls. Most of them did not find particular instances of fraud or mismanagement. Rather, auditors found that in many cases, the department is simply not tracking payments filtering in and out of its myriad agencies, leading auditors to question whether its financial statements are accurate.
Without going into specifics, the audit noted that the Defense Department had material financial management systems that did not comply with federal requirements, and that its agencies did not implement internal controls over their information technology environment that adequately deter waste, fraud and abuse.