Pentagon Fails Audit of $3.8 Trillion in Military Assets for 6th Year in a Row

U.S. Secretary of Defense Lloyd Austin attends a press conference at State Department in Washington on April 11, 2023. Madalina Vasiliu/The Epoch Times

The Pentagon has failed for the sixth year in a row to get a passing grade on its accounting systems that track $3.8 trillion in military assets, an independent audit shows.

“Things are showing progress, but it’s not enough,” Mike McCord, the Defense Department’s (DOD’s) chief financial officer, told reporters at a Nov. 15 briefing.

Although the Pentagon is working to improve the health of its financial accounting systems, getting to the point at which it passes a department-wide audit could be years away, he said.

Seven of the DOD’s 29 sub-agencies got an “unmodified” or “clean” audit opinion in 2023, meaning a passing grade, per a Pentagon statement. That’s the same number as last year.

One other sub-agency received a “qualified” audit opinion in 2023, which is better than a fail but not good enough to pass.

The remaining 18 sub-agencies failed.

With this year’s failing grade, the DOD remains the only Cabinet-level department that has never managed to earn a clean financial report.

‘We Need to Do Better’

Despite failing the audit, the Pentagon stated that it managed to make some progress in some areas and that, at the very least, no new DOD-wide material weaknesses were found this year.

“We owe American taxpayers a clean and comprehensive financial bill of health,” Secretary of Defense Lloyd Austin wrote in a letter accompanying the auditors’ report. “We need to do better.”

He said getting to the point at which the Pentagon gets an overall passing grade on its accounting systems “will take time” and that “there are no easy solutions to audit success.”

All 29 of the Pentagon’s sub-agencies must pass for the overall audit to get approval.

Mr. Austin promised to “focus on resolving key issues” preventing a passing grade and pledged to “accelerate” the department’s “audit remediation” efforts.

Progress and Shortcomings

The Pentagon began auditing itself in 2018. It was the last department to do so after Congress mandated the practice across government agencies in 1990.

This year, in order to carry out the audit, 1,600 auditors conducted 700 site visits and assessed $3.8 trillion in assets and $4 trillion in liabilities, according to the Pentagon.

“Auditing the Department’s $3.8 trillion in assets and $4.0 trillion in liabilities is a massive undertaking,” Mr. McCord said in a statement.

He noted that the various changes and improvements that are being made “every day as a result of these audits positively affect every soldier, sailor, airman, marine, guardian, and DOD civilian.”

The Pentagon stated that it had made audit progress across five areas in 2023: workforce modernization, business operations, quality decision-making, reliable networks, and enhanced public confidence.

“For example, the Department of the Air Force has deployed a total of 65 [automated systems] saving approximately 429,000 labor hours and improving the auditability of business processes,” the Pentagon stated.

“The Department of the Navy reviewed $17 billion of unliquidated obligations, validating that 97 percent of the balances met audit requirements and uncovering $330 million available for deobligation.”

The Pentagon stated that it received positive audit opinions on 27 of 30 of its financial system examinations, with two opinions still pending.

Also, the Pentagon noted that it retired several “audit-relevant legacy systems” and “resolved three high priority improper payment programs” to reduce tax dollar waste.

“We are working hard to address audit findings as well as recommendations from the Government Accountability Office,” Mr. McCord said.

Earlier this year, the Government Accountability Office (GAO) issued a report in which it faulted the Pentagon for failing to manage its business and financial systems properly.

“DOD spends billions of dollars each year on its business and financial systems. However, its business systems modernization and financial management efforts have been on GAO’s High Risk List since 1995,” the GAO report reads. “These high-risk areas remain obstacles to DOD’s efforts to achieve an unmodified [clean] audit.”

GAO made nine recommendations, such as updating guidelines for the DOD and military departments on business and financial systems. It also suggested ensuring data reliability, offering guidance for sustained systems, and implementing a strategic workforce plan to address capability gaps.

Mr. McCord said the Pentagon was “making good progress” on the GAO recommendations, “resulting in meaningful benefits.”

“But we must do more, and we cannot do this alone,” he said.

The Pentagon has asked for help from Congress to streamline budget processes and update outdated rules and policies.

“This will result in total funds visibility and ultimately help us all deliver defense mission capabilities faster and with more agility,” the Pentagon said in a statement.

Criticism From Congress

Congress has become increasingly critical in recent years of the Pentagon’s failure to pass its audit.

Sen. Rand Paul (R-Ky.) said in a statement that the latest failure shows the need for more accountability at the Pentagon.

“The recent failure of the Pentagon’s 6TH audit couldn’t make it clearer that we need accountability & transparency,” he wrote on X, formerly known as Twitter. “It’s time to independently #AuditthePentagon. No institution is above scrutiny, especially the DoD [which has] the largest budget of ANY fed agency.”

Mr. Paul was one of the co-sponsors of the Audit the Pentagon Act, which would penalize any military component that fails the annual audits and force it to give up 1 percent of its budget.

Similar legislation has been introduced before but failed to pass.

“Last year, the DOD failed its fifth audit and was unable to account for over half of its assets,” a bipartisan group of senators said when they announced the bill in June.

Mr. Paul said at the time, “We need to ensure that our defense spending is accurate, accountable, and in the best interest of American Taxpayers.”

The GOP-led House Oversight Committee stated that the Pentagon’s inability to get a passing grade on its accounting systems undermines national security.

“DOD’s inability to adequately track assets risks our military readiness and represents a flagrant disregard for taxpayer funds, even as it receives nearly a trillion dollars annually,” the committee said in a statement.