DDAAC welcomes Senate oversight of DoD audit initiative

February 26, 2018

The citizens of the United States deserve a sincere, high-priority initiative elevating the quality of accounting, internal controls, and financial reporting in the Department of Defense (DoD).

DoD recently launched an initiative it called the first “department wide” financial audit in its history. DoD plans to spend almost a billion dollars on this effort in the current fiscal year.

This may be the first audit of this type. But it is far from the first audit. DoD’s Inspector General has delivered a disclaimer of opinion on DoD’s annual agency-wide financial statements for over 20 years. Auditors issue a disclaimer of opinion when they are unable to form an opinion on the financial statements, usually because of material weaknesses like the lack of records, audit trials, and poor internal controls.

In turn, the Government Accountability Office (GAO) has delivered a disclaimer of opinion on the financial statements for the consolidated United States Government every year since the late 1990s. The GAO regularly cites material weaknesses in Defense Department accounting and internal control procedures as a main reason for this disclaimer opinion – which arrives every year despite years of legislation and spending targeted to fix the problems.

DoD has had over 20 years to comply with the Federal Financial Management Improvement Act of 1996. DoD messaging about the ‘new’ audit risks leaving citizens uninformed if not misled about the history. This matters for understanding the magnitude of the task that lies ahead.

As monumental as that task is, however, we fully support a genuine, full-scale but cost-effective team effort undertaking this initiative. With respect to cost-effectiveness, we take note of Congressional leaders like Sen. Charles Grassley (IA) and his concern about the expense of undertaking a comprehensive initiative before focusing resources on fixing fundamental internal control and information management problems first.

In that spirit, we welcome and appreciate Senate Budget Committee chairman Sen. Mike Enzi’s (WY) recent letter to Defense Secretary James Mattis. Sen. Enzi’s requests reflect a valuable effort to obtain information for Congress to make its own determination of the cost-effectiveness of this new effort. We also appreciate Sen. Enzi’s statement that responses to this request for information “will be crucial to continued congressional support of the audit.” We look forward to monitoring and evaluating that assessment in the weeks and months ahead.

To assist the Pentagon in making progress towards a clean audit, Congress, the President, and the DoD should set clear benchmarks for reaching specified goals. Rushing towards a full audit without attending to these building blocks could be exorbitantly expensive, and could even postpone the day when the Pentagon gets its books fully in order.  We welcome Sen. Enzi’s recent letter as a valuable contribution to the process.

Our national security depends critically on sound financial management, which promotes the productive and cost-effective utilization of scarce taxpayer resources. Efficient defense spending supports national security. Inefficient defense spending does not.

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