The Pentagon can’t account for 6%5 of its assets.

DoD Fails Audit, Sees Ukraine as ‘Teachable Moment’ in Accountability

Joe Gould / Defense News

WASHINGTON (November 16, 2022) ― As the Pentagon racked up its fifth comprehensive audit failure, its chief financial officer on Tuesday said Ukraine’s fight against Russia offers a “teachable moment” for the U.S. military to accurately tally its weapons and property.

In a call with reporters to release the results of the audit, Defense Department Comptroller Mike McCord said he told Pentagon personnel to envision U.S. troops in the position of their Ukrainian counterparts — dependent on precise tracking of their arsenals.

“To me its a really great example of why it matters to get this sort of thing right, of counting inventory, knowing where it is and knowing when it is [arriving],” McCord said.

“The process over many years,” McCord said of the audit, “should be helping us make sure that we don’t have the kind of problems of having something on our records that doesn’t exist in reality or having a having big discrepancies.”

Accurate inventories help the military avoid buying things it already has and ensure items are where troops need them, he noted.

The legally required audit has helped the Pentagon shore up gaps in cybersecurity, find lost inventory, and spurred it to consolidate and modernize its accounting systems. This year, the Defense Logistics Agency, which manages millions of items, accomplished its first complete inventory, McCord said.

But he added that the DoD is still struggling with how it values its inventory and how to account for government property that’s in the possession of contractors ― particularly with the F-35 Joint Strike Fighter, which is mostly built using a government-owned plant run by Lockheed Martin.

What Did the Audit Find?
The audit, which covered the department’s $3.5 trillion in assets and $3.7 trillion in liabilities, involved 1,600 auditors conducting 220 in-person site visits and 750 virtual site visits. The Pentagon inspector general and independent public accounting firms performed the audit, which was expected to cost $218 million this year.

The 27 individual audits that comprise the effort yielded nine clean opinions, one modified opinion and disclaimers for the rest, which McCord said was on par with last year’s results. The number of the DoD’s material weaknesses also stayed steady at 28.

“I would say we failed to get an ‘A,’ ” McCord said. “I would not say that we flunked. The process is important for us to do, and it is making us get better. It is not making us get better as fast as we want.”

The Pentagon launched its first-ever independent financial audit in 2017 and has yet to pass one. Observers have said that process could mirror the 10-year climb the Department of Homeland Security took, and achieve a clean audit in 2027.

McCord said he and other Pentagon leaders would have preferred to see more progress this year, but noted the department has addressed most of the easier problems, leaving successive audits to spotlight more difficult ones.

McCord credited the DoD’s broader use of Advana, its big-data platform for advanced analytics and the growing use of automated processes, or bots. More than half of its 607 bots are deployed to perform financial management processes.

Both represent an “undeniable trend,” but because leaders and the workforce may be unfamiliar with them, they’re also a “cultural issue” for the DoD to overcome, he said.

Stephen Losey contributed to this report.

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