DoD targets 2028 for first audit of clean financial statements

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Pentagon financial executives have said they are making significant progress towards obtaining an unequivocal audit opinion. So much so, in fact, that they’re now ready to project a tentative timeline for when that happens: 2028.

Testifying before the House Armed Services Committee last week, defense officials stressed that the 2028 date was by no means a sure thing, nor was it chosen out of the blue. This coincides with the current schedule of DoD officials to complete the implementation of corrective action plans to address the material weaknesses identified by the first audits.

And Douglas Glenn, DoD’s deputy chief financial officer, said the department is reasonably confident that after three years of large-scale financial audits, officials now know where the main problems lie.

“I am delighted to say that last year’s audit did not introduce any new [material weaknesses]. Unfortunately, it takes a bit of explanation, ”he said. “Our total number of material weaknesses has increased, but that’s only because the DoD Inspector General expanded a material weakness from the previous year into four categories. So I hope – I really hope and I believe we all have financial problems on the table.

Specifically, the IG highlighted 26 distinct material weaknesses in the fiscal year 2020 audit. The previous year’s audit had a catch-all material weakness relating to financial information systems, but the auditors decided that ‘it made more sense to describe these issues in more detail. These four “new” weaknesses are legacy systems, configuration management and security management, access controls and segregation of duties.

And the new wording illustrates how outdated information technology plays a role in DoD’s auditability issues. Of the more than 3,500 separate auditors’ findings in 2020, about half were for IT.

Glenn said there are currently around 400 IT systems that manage financial data across the department, and modernizing and consolidating them is a big challenge.

“We understand very well that less IT systems equals less cost and less cyber vulnerability. But it’s not like these 400 systems only capture financial information. They have financial information, along with other reasons and value propositions, so it’s not as simple as putting them all in one financial system, ”he said. “Plus people hate new systems – they love the systems we’re trying to take down. You need to tell them exactly where they need to go and how to replace this feature, and you need to hold them accountable for the downgrade. So we run these quarterly meetings jointly with the CIO, CFO and services and we say, “Okay, what systems are there, where are you going to migrate and when are you going to do it? “

Of course, not all of the remaining DoD issues are IT related.

A recently discovered example, added to the list of significant weaknesses in 2019, concerns the department’s management of the F-35 program. More than three million government-owned assets for the F-35 – worth over $ 2 billion – are completely untraceable, at least as far as the DoD’s financial statements go.

“While the planes themselves are all on maintenance logs and being audited, parts and equipment unfortunately do not appear on departmental declarations, and therefore are not subject to audit.” Glenn said. “But now we’re counting all the stuff that’s out there. It’s about three-quarters complete the last time I audited, and we’re moving it into an accounting ownership system that we’re going to go through auditing procedures. We’re going to get the results, we’re going to put corrective action plans against those results, and we’re going to hold ourselves accountable for the progress.

But DoD officials say they’re making progress in other areas as well, and findings from the first few years of audits have helped focus their efforts.

In the Navy, for example the Navy, liability for property has been an area of ​​major interest. The audit helped the department realize that they had millions of assets in their inventory that they were simply unaware of from a business perspective.

Acting Navy Controller Alaleh Jenkins said the actions the service had to take to help resolve the property issues identified by the audit led to the discovery of more than $ 3 billion in spare parts until now.

“At the local level, we had visibility, but it was not in a system of ownership,” she said. “We therefore made it available to respond to open requests. We had examples where we had planes to [Naval Air Station] Lemoore was waiting for parts and pieces, and by identifying the warehouses of, say, the F-18 landing gear, we were able to set that up and get the planes fixed and flown.

Defense officials are also quick to point out that parts of the ministry already have clear opinions. Eight separate DoD entities obtained unmodified opinions; in total, Glenn said, these entities are responsible for more than a third of the department’s assets.

“The annual audit regime has put the department on an irreversible path in support of business reform, strengthening accountability to taxpayers and directly contributing to better military readiness,” he said. “We continue to equip staff with the resources and tools to respond to audit requests and correct our audit findings. I suspect we all look forward to the day when we find out on the evening news or on our way home that, for the first time in history, the US government has been granted an unequivocal audit opinion. “


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