By Rebecca Shabad
The Pentagon has struggled for nearly 20 years to produce financial records that the government and outside groups can accurately audit, and appears to be unable to meet a goal of being fully auditable by September 2017.
“I think there are significant challenges in meeting the 2017 date,” said Asif Khan, the director of financial management and assurance at the Government Accountability Office (GAO).
“To be able to do a financial statement audit by that date, it’s going to be very difficult because of the sheer scale and resources required.”
Former Defense Sec. Leon Panetta set that goal in October 2011, and the Pentagon has made some progress.
In December, it expects to receive an award from Congress that will subsidize financial audits by an independent firm of the Air Force, Navy and Army, a defense spokesman told The Hill. The Marine Corps has already received a contract for one.
“We still have a lot of work left to do to be ready to audit all of our financial statements,” the defense official said. “It is an ambitious goal but we are committed to meeting it.”
The Pentagon has been under pressure for years to make its spending more transparent.
Audits of government agencies are an important tool in the budget process because they track how the funding appropriated by Congress is distributed.
It’s particularly important at the Pentagon — which accounts for more than half of the government’s discretionary spending.
Since 1997, the GAO has been required to audit the federal government’s consolidated financial statements, but the watchdog agency has repeatedly said its reviews of the Pentagon are not based on accurate data.
“It’s pretty clear…the amount that’s been appropriated by Congress. Those numbers are well known. How that appropriated money is apportioned and how the budget execution takes place, that’s where the process gets very fragmented,” Khan said.
In 1995, GAO rated the Pentagon’s financial management operations as “high risk.” The watchdog group warns the department is “severely hampered” by the lack of an accurate audit.
The Pentagon needs reliable data, the agency warns, in order to maintain accountability for all of its resources and to make sound budget-related decisions.
While an audit itself wouldn’t necessarily expose government corruption, GAO says the Pentagon will continue to be at high risk for waste, fraud, abuse and mismanagement.
The Defense Department blames old technology and the fact that all of the armed services have their own method of tracking their spending for some of its shortcomings.
Gordon Adams, an American University professor who dealt with the Pentagon’s audit problem while at the Office of Management and Budget in the 1990s, said the lack of a united financial system is a real problem.
“When I was at OMB in the ‘90s, we struggled with this question—how to whittle down the number of financial systems. Every service had an argument as to why their financial systems…shouldn’t be merged with anybody else,” Adams said.
“The big recommendation I would make is to break that logjam and integrate the financial systems so that you have consistent reporting data across services and across activities,” he added.
Another contributing factor is the Pentagon’s outdated technology, said Todd Harrison, senior fellow of defense studies at the Center for Strategic and Budgetary Assessments.
People at Air Force bases around the country, for example, closely track financial transactions — but that information doesn’t always get to the Pentagon’s comptroller who oversees the development and execution of the budget.
“The problem is when you send that data back to headquarters, the IT systems were built to aggregate all of the expense data in just a summary of data back to headquarters,” Harrison said. “Well, you can’t pass an audit with that because the auditors want to see traceability all the way from the top to the bottom and back.”
Harrison warned an audit wouldn’t expose much wasteful spending or fraud because accountability checks are already done by other parts of the Pentagon.
Republicans and Democrats on Capitol Hill have long complained about the Defense Department’s failure to balance its own books.
In fact, one group of lawmakers introduced legislation this year that would reduce the discretionary budget of any federal agency if it doesn’t receive an accurate audit by an independent group.
The bill was introduced by Reps. Barbara Lee (D-Calif.), Michael Burgess (R-Texas), Jan Schakowky (D-Ill.) and Dan Benishek (R-Mich), but hasn’t made it out of committee.
Harrison questions whether such a punishment would be effective.
If Congress wants to help the Pentagon speed up the audit process, Harrison said they should provide the department with a more stable budget.
Automatic budget cuts known as sequestration are causing a lot of uncertainty over the Pentagon’s funding, he said, and it’s distracting defense officials from taking on important projects like an audit.
“It’s that instability, it’s the uncertainty of what the budget will be this year, next year, two years into the future,” he said. “That’s forcing DoD to plan multiple alternatives to each budget request just to be prepared. It’s generating more workload for the same people who could be used to help get ready to pass an audit.”