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Will the Pentagon Ever Be Able to Be Audited?

The Department of Defense remains the only federal agency that can’t get a clean audit opinion on its Statement of Budgetary Resources

Audit Required Graphic

In 1990 Congress passed the Chief Financial Officers Act, which required every federal agency to be auditable. Since then every agency has complied—except for the Department of Defense. Instead, there’s been a saga of audit readiness plans and billions spent to upgrade out-of-date financial systems—plans and upgrades the Government Accountability Office (GAO) estimated in 2010 wasted nearly $6 billion. After significant pressure from Congress, particularly then-Senator Tom Coburn (R-OK) and Senator Joe Manchin (D-WV), then-Secretary of Defense Leon Panetta set a 2014 deadline for all components and the DoD as a whole to have auditable records of incoming budget resources, referred to as Statements of Budgetary Resources (SBR).

In its guidance to agencies on auditing SBRs, the GAO highlighted auditing SBRs as key to making sure that the Pentagon is spending money as authorized by Congress. “The SBR and related disclosures provide information about budgetary resources made available to an agency as well as the status of those resources at the end of the fiscal year,” said the GAO. Auditing the SBR, along with other budget information, “provides a means to help assess the reliability of budgetary data reported in the President's Budget.”

At the beginning of 2014 it looked like the Department had made significant progress after the Department of Defense Inspector General (DoD IG) gave the Marine Corps a clean audit opinion, making the Marine Corps the first and only branch of the military to receive an unqualified audit opinion. But the DoD IG rescinded that opinion last spring. A Reuters investigation into that decision found that IG leadership had pressured its auditors to support an outside accounting firm’s clean audit opinion, despite the auditors believing that the Marine Corps had actually not been qualified to receive it. A subsequent review by the GAO also found the IG’s process for issuing that opinion was deeply flawed. In a Floor speech on the GAO’s report, Senator Chuck Grassley (R-IA) argued that the political pressure led to a process that rushed to declare victory without adequate documentation to show the clean audit opinion was “worth the paper it was written on.”

The Department failed to meet its goal for 2014, and as it stands, no DoD component is likely to meet it in the next year. “I think we are on the right track,” DoD Comptroller Mike McCord said last winter. “[But] it will take a couple more years.”

Some in Congress are sick of waiting. Both the Senate and the House have bipartisan bills that would hold the Department of Defense accountable for continuing to fail to be auditable. In the House, Representatives Barbara Lee (D-CA) and Michael Burgess (R-TX) have a bill, H.R. 942, that would reduce by .5 percent a federal agency’s discretionary budget authority for a fiscal year if that agency’s financial statement for the previous fiscal year cannot be audited by an external independent auditor.  In the Senate, Senators Joe Manchin (D-WV), Ron Wyden (D-OR), Ted Cruz (R-TX), and Rand Paul (R-KY) introduced legislation, S. 327, that could penalize the Department with the loss of reprograming and transfer authority for funds if it not audit-ready by 2017. Losing these authorities would deprive DoD of a beloved tool because it allows the Department to move money around in between congressional appropriations.

This legislation is a good step forward, but unless efforts to hold the Pentagon accountable become law it’s unlikely that the largest government agency will be able to be audited any time soon.

Photograph of Mandy Smithberger

By: Mandy Smithberger, Director, CDI Straus Military Reform Project

Mandy Smithberger is the Director of the Straus Military Reform Project at the Center for Defense Information at the Project On Government Oversight.

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