The Department of Defense (DOD) has once again failed its financial audit for the sixth consecutive year, revealing persistent challenges in managing its vast assets and liabilities. According to Michael McCord, the Pentagon’s comptroller, the DOD holds $3.8 trillion in assets and $4 trillion in liabilities, making it one of the largest and most complex financial entities in the world.
The annual financial audit involves the DOD Office of the Inspector General and independent accounting firms scrutinizing the department’s finances, breaking it down into 29 components. This year, the audit process included 700 site visits by 1,600 auditors, with the results highlighting significant shortcomings.
Out of the 29 components, only seven passed inspection with a “clean” audit, while three inspections remain incomplete. The Medicare-Eligible Retiree Health Care Fund received a “qualified opinion,” indicating material misstatements in its financial statements. Alarmingly, the remaining 18 components, including the National Security Agency and the Defense Advanced Research Projects Agency, failed the audit.
This outcome is nearly identical to the previous year, raising concerns about the DOD’s ability to address and rectify financial discrepancies effectively. Despite the recurring failures, the department attempts to spin the results as “incremental progress” toward the goal of a “clean audit.” However, the limited success in passing only a quarter of its programs’ finances suggests significant challenges in financial management.
The optimism expressed by the DOD officials is met with skepticism, considering the magnitude of the department’s assets, which amount to trillions of dollars, and an annual budget exceeding $800 billion. Critics argue that an agency of such scale should demonstrate more robust financial accountability and transparency.
The DOD’s first attempt at a financial audit was announced in December 2017 after more than two decades of stonewalling. The Chief Financial Officers Act of 1990 mandated federal agencies to prepare annual financial reports, a requirement the DOD ignored for years. Even when the DOD finally conducted its first audit, it failed, with only five out of 21 components passing inspection.
Since then, the department has failed each subsequent audit, with auditors identifying numerous deficiencies that needed addressing. Critics attribute the ongoing failures to outdated systems, bureaucratic inefficiencies, and the sheer size of the defense apparatus.
While the DOD insists on its commitment to improvement and learning from each audit, the persistent failures raise questions about the effectiveness of internal controls and the need for significant restructuring within the department to ensure proper financial management. As the DOD continues to grapple with financial accountability, calls for increased transparency and oversight gain momentum.