Pentagon audit a great step forward as long as there is oversight
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Pop quiz: what is the largest financial institution in the world? Perhaps the World Bank, Berkshire Hathaway, or the International Monetary Fund? Or none of the above?

If you guessed the United States government, you’d be right. The biggest recipient of our government’s funds is, by far, the Department of Defense, with annual budget of $600 billion and assets totaling more than $2 trillion. And the department has never been fully audited, so America’s taxpayers do not have a clear idea about where all that money is going.

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However, U.S. Defense Secretary James MattisJames Norman MattisHillicon Valley — Presented by AT&T — Facebook bug exposed photos of up to 6.8M users | Canada warns Trump not to intervene in Huawei case | Tech giant accused of providing cybersecurity to terror groups Canada warns Trump: Huawei extradition shouldn't be ‘politicized’ Overnight Defense: Pompeo downplays split over Saudi Arabia | Priebus tapped for Navy after Mattis recommendation | North Korea reportedly evading US sanctions MORE and Defense Undersecretary and Comptroller David Norquist are changing the way the government does business by formally beginning a complete audit process earlier this year.

Because of the enormity of this budget, Norquist estimates the audit itself will cost a hefty $367 million, including $181 million in outside auditor contracts this year alone. On top of that, the Department of Defense (DOD) expects to spend another $551 million to fix the problems identified by the auditors.

“I anticipate the audit process will uncover many places where our controls or processes are broken,” Norquist told the Senate Budget Committee during a March 7 hearing. “There will be unpleasant surprises. Some of these problems may also prove frustratingly difficult to fix. But the alternative is to operate in ignorance of the challenge and miss the opportunity to reform.”

For more than two decades, other federal agencies have been audited and the clear majority of them have received “clean opinions.” In 2017, only the Department of Housing and Urban Development, the Railroad Retirement Board and the Defense Department received a disclaimer of opinion from the Government Accountability Office. A disclaimer means that auditors were unable to assess the entity’s finances because of material weaknesses, such as lack of records, audit trials and poor internal controls.

Congressional leaders have been hounding the DoD about its finances for years. Sen. Ron WydenRonald (Ron) Lee WydenHillicon Valley — Presented by AT&T — New momentum for privacy legislation | YouTube purges spam videos | Apple plans B Austin campus | Iranian hackers targeted Treasury officials | FEC to let lawmakers use campaign funds for cyber FEC votes to allow lawmakers to use campaign funds for personal cybersecurity Senate votes to overturn IRS guidance limiting donor disclosure MORE (D-Ore.) for one defended a “no” vote on 2017 military appropriations with a warning that “we don’t know where this money goes since the Pentagon has NEVER had an audit.”

Auditing the Department of Defense is a massive challenge, which is why Truth in Accounting has established the Defense Department Accounting Advisory Council (DDAAC). The council’s core mission is to help citizens stay current on DOD accounting and financial reporting issues, as well as to catalyze DOD transparency, accuracy, timeliness and compliance with generally accepted accounting principles and federal fiscal law. While this audit will have significant fiscal ramifications for the way American tax dollars are spent, it will also play an important role in our overall national security strategy.

Although the goal is an audit with a clean opinion in 2018, it is unlikely the Defense Department will be able to overcome major impediments in the next few years, much less in just one. In fact, many department leaders argue that while a clean opinion remains the goal, the real process value is based on the continuous transformation that an audit will stimulate and the oversight it will provide.

Therefore, reasonable accomplishments in the process should be outlined and praised as they are achieved. The DDAAC’s financial and military advisors hope that these milestones might include: 

  1. An initial analysis of each division’s audit readiness, including clearly identifying current internal control deficiencies and weaknesses;
  2. Preparation of a transformation plan to address issues identified;
  3. Development and implementation of a strategy for presenting and mobilizing support for the transformation plan; and
  4. Implementation and the monitoring of the progress of the transformation plan. 

Achieving these measures of success will require a true commitment from the Department of Defense leadership, as well as cooperation and encouragement from Capitol Hill and the administration. Thus far, senior lawmakers have signaled that Congress intends to play a constructive role in the process.

Chairman of the Senate Budget Committee Mike EnziMichael (Mike) Bradley EnziAmerica needs more accountants in Congress GOP nerves on edge after Sinema takes lead over McSally Jockeying already stepping up in House leadership fights MORE (R-Wyo.) addressed the DoD audit at a hearing this month, and in a February letter addressed to Secretary Jim Mattis.

“A successful Pentagon audit will require sustained congressional oversight and a renewed commitment to accountability at the department,” Enzi told his Budget Committee colleagues. “Gaining insight into which problems the Pentagon is fixing and why will motivate Congress to continue supporting the audit.” Sen. Chuck GrassleyCharles (Chuck) Ernest GrassleyThe Year Ahead: Tough tests loom for Trump trade agenda Senate heads toward floor fight on criminal justice bill Top security officials issue stark warning of Chinese espionage efforts MORE (R-Iowa), a senior member of the Finance and Budget committees, has been tirelessly working on the issue for years.

The United States is lucky to have these watchdogs in Congress monitoring and evaluating the Pentagon’s audit efforts in the weeks and months ahead. Our national security depends on sound financial management that promotes the most efficient and effective use of tax dollars. Congressional oversight will also provide taxpayers with clear, understandable and reliable financial information from their government, with the Defense Department leading the list.

Sheila Weinberg, CPA, is a founding member of the Defense Department Accounting Advisory Council. With membership hailing from military, civilian and non-profit backgrounds, the Council monitors the DoD audit process and educates the public about budgeting and accounting policies.