The Defense Department made progress toward a “clean audit,” but not as much as officials hoped.
“The results of the fifth annual DOD-wide financial audit will be a disclaimer of opinion for DOD as a whole,” Michael J. McCord, the undersecretary of defense (comptroller)/chief financial officer, said. “This is the same as last year and … not unexpected. We did expect this disclaimer, but we will also sustain all of our prior year positive opinions, which cover approximately 39 percent of our assets.”
The annual audit is a huge undertaking with independent accountants looking at a department with $3.5 trillion in assets.
The audit looks at every aspect of the department — an organization of about 2.9 million people with one of the federal government’s largest portfolios of real property. There are more than 643,900 assets — buildings, structures, utilities, roads and fences and more — located on over 4,860 sites worldwide as of the beginning of fiscal year 2022, officials said.
When officials say worldwide, this means assets in all 50 states, the District of Columbia, seven U.S. territories and more than 40 foreign countries. All told this encompasses nearly 25.8 million acres.
And it is more than that: DOD operates one of the largest health care systems in the United States providing medical benefits to more than 9.6 million active duty personnel, military retirees and their families across the U.S and overseas.
Bases, posts and stations are the equivalent of small towns across the globe with police, hospitals, grocery stores, schools, transportation systems and housing.
All this is covered by the audit.
The results released by the DOD Inspector General today is a conglomeration of 27 different entities in the department — the services, DOD agencies and several other smaller funds and entities within the department. The IG consolidates those 27 audits.
Seven components sustained unmodified audit opinions — clean audits — on their fiscal 2022 audits, McCord said. These are: the Military Retirement Fund, the Defense Commissary Agency, the Defense Contract Audit Agency, the Defense Finance and Accounting Service, the U.S. Army Corps of Engineers — Civil Works, the National Reconnaissance Office and the Defense Health Agency — Contract Resource Management.
In addition, the Medicare-Eligible Retiree Health Care Fund received a qualified opinion. Another positive in the process is military pay and civilian pay. “Both of these processes received unmodified opinions again this year,” McCord said. “I highlight these because although we have a lot of work to do, the one thing that we have to make sure we do first is [take] care of people.”
The military and civilian pay, the unmodified opinion on the military retirement fund and the military retiree health care fund show the emphasis is in the right place. “You have this kind of concentration of higher performance on the pay and benefits side which is important,” he said.
McCord would not give a date for when he believes the department, as a whole, will receive a clean audit, but he does believe the process will speed up given some of the changes that have been made and will be made.
One change has been the effort to modernize the workforce, McCord said. Agencies are employing robotic process automation efforts to reduce manual tasks, allowing financial managers to focus on more complex issues. DOD has deployed 607 “bots,” with 54 percent aligning to financial management processes and 20 percent directly supporting compliance or audit response, officials said. The Defense Finance and Accounting Service deployed 52 “bots” for 48 new-use cases and projects saving approximately 128,045 hours or an estimated $4.2 million in cost savings.
The department is stressing improved business operations. The Air Force, for example, corrected approximately $5.2 billion in historical variances on its equipment and accumulated depreciation general ledger accounts. This increases visibility and allows for greater control and oversight of military equipment financial transactions.
Changes also mean better data for quality decision-making. The Defense Logistics Agency completed a 100 percent physical inventory, establishing beginning balances and item counts for stockpile inventory. That, plus other corrective actions, has allowed DLA to sustain an inventory accuracy at 98 percent or greater, which supports decision-making at all the military services.
The agencies are also moving to more reliable networks. In fiscal 2022 the Navy decommissioned three audit-relevant legacy systems, migrating data and users across three commands to modern systems. Overall, the Navy has decommissioned 11 legacy systems.
“I would prefer to see more progress, of course, but we are peeling off the layers,” McCord said. The easy corrections — the so-called “low-hanging fruit” — are behind the effort now. The problems confronting auditors and managers are harder “and the progress is getting harder, too,” the undersecretary said. “As we move forward, we have to continue to focus on leadership and collaboration across DOD to solve these more difficult challenges. Because we all have this role to play in support of the DOD strategic management plan.”