Pentagon Progress in New Audit Undercut by Worsening Shortfalls
(Bloomberg) -- The U.S. Defense Department said its second consecutive financial audit documented incremental progress tracking $2.9 trillion in assets and correcting hundreds of serious deficiencies, but the department’s watchdog said there’s still too little information about how taxpayer money is spent.
Like last year, the latest review of the Pentagon’s books cost nearly $1 billion, including $500 million for remediation of existing deficiencies, $250 million for setting up the infrastructure to conduct audits and $195 million in auditor fees.
More than 1,400 auditors were deployed on the project to track spending on everything from F-35 jet parts to Navy real property, commissary operations and Army pay operations.
The audit founds no evidence of fraud or abuse and in many cases documented that serious deficiencies uncovered last year have been remedied, Pentagon officials said.
“We have made good solid progress and this is going to be something we are going to have to measure ourselves incrementally against,” Acting Comptroller Elaine McCusker told reporters on Thursday.
Rising Deficiency Reports
But the Pentagon’s Inspector General, which oversaw the work, cited major shortcomings. For instance, while nearly 550 issues highlighted for correction last year were addressed this year, approximately 1,800 deficiency reports from last year were reissued, and an additional 1,300 were created.
The inspector general also pointed out that there remain “insufficient policies, procedures, and internal controls for the acquisition, disposal, and inventory processes of government property in the possession of contractors.”
“While progress has been made, much more work is necessary for better financial management and a clean audit opinion,” according to a statement from Inspector General Glenn Fine. “It is clear that the road to a clean financial statement opinion for the DoD is a long-term effort.”
For the second consecutive year, the “working capital” and “general funds” of the Army, Navy, Marine Corps as well as the books of the Defense Logistics Agency, U.S. Special Operations Command and Transportation Command and Defense Health Program received “disclaimers of opinion” from auditors.
Disclaimers are issued when auditors can’t form an opinion about the adequacy of the financial records based on a paucity of reliable data. McCusker said that doesn’t imply misuse or poor use of funds.
“We know where we are spending our money” but “sometimes our documentation” is “just not where it needs to be,” she said.
Although it gets scant public attention compared with troop deployments, sexual assault statistics or major weapons programs, audits of financial statements can help the Pentagon more effectively manage its resources and operations and can help identify internal weaknesses that mask fraud and abuse.
Just completing a second year of 24 financial audits marks an achievement in its own right since for decades no major agency reviews were completed. It wasn’t until fiscal 2018, at the prodding of Congress and the General Accountability Office, that the Pentagon said it was ready for a full audit.
One clear highlight for the Pentagon: The $9 billion Military Retirement Fund will get its 24th unqualified, or clean, opinion, McCusker said.
Another major improvement from last year’s findings involved fixing deficiencies with Department of Defense information technology security, she said. Ninety-four percent of those reports were closed, she added.
Still, the inspector general said that among the examples of “material weaknesses” that remain from last year are those in information technology, including “inadequate controls over access, system changes, and security management of the IT systems.”
Material weaknesses are deficiencies or a combination of deficiencies in internal controls over financial reporting “that result in a reasonable possibility that management will not prevent, or detect and correct, a material misstatement in its financial statements in a timely manner,” the watchdog said.
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