The Defense Department said it’s still unable to track its nearly trillion-dollar budget but remains on track to pass an audit by 2028.
Published Nov. 19, 2024 Adam Zaki
In what would be a CFO’s worst nightmare, the Department of Defense (DoD) has failed its seventh audit in a row since its first in 2018. While the consequences of audit failures have caused major issues for private businesses, the country’s largest government agency, which has a 2024 budget of $824 billion — a $26.8 billion increase from 2023 — has been given until 2028 to account for its spending. In the latest audit of the 28 reporting entities audited within the DoD:
- Nine received an unmodified opinion
- Fifteen received disclaimers
- One received a qualified opinion
- Three opinions remain pending
Of the 15 disclaimers, insufficient information about the accounts was the primary reason. The agency is walking a fine line under federal law, as the CFO Act of 1990 requires all federal agencies in the executive branch to prepare auditable financial statements and undergo audits.
It’s possible that continued financial disarray could undermine public confidence and affect the department’s ability to allocate resources effectively, potentially impacting U.S. military readiness. During a press conference last week, Michael McCord, the DoD comptroller and CFO, acknowledged public concerns about his team’s challenges but said progress toward the 2028 goal is improving.
“This result was not a surprise, and I know that on the surface it doesn’t sound like we’re making progress. However, that is not the case,” said McCord. “I believe the department has turned a corner in its understanding of the challenges and more importantly, in addressing those challenges, momentum is on our side.”
The DoD’s fiscal performance is an outlier. Most federal agencies, excluding the DoD and the Department of Education, comply with the CFO Act and receive clean or qualified opinions in their audits. Critics argue the DoD’s vast and complex financial system contributes to these challenges. Still, a lack of accountability also raises concerns about the department’s capacity to manage such a substantial portion of the federal budget.
U.S. fiscal spending 2024
The federal government’s fiscal year runs from Oct. 1 to Sept. 30. Not listed is a line item of “other” totaling $311,000,000,000.
Social Security
$1,460,000,000,000
Healthcare
$912,000,000,000
Net interest payments
$882,000,000,000
*National defense
$874,000,000,000
Income security
$671,000,000,000
Veteran’s benefits and services
$325,000,000,000
Education
$305,000,000,000
Transportation
$137,000,000,000
*This figure is higher than the DoD’s budget because it encompasses things like overseas contingency operations and defense-related spending in other federal departments.
Source: Department of Treasury/Visual CapitalistGet the dataCreated with Datawrapper
Though the CFO Act does not require an unmodified opinion from an audit, the DoD, whose spending is surpassed only by Social Security, healthcare and net interest on the national debt, has been given a timetable of fewer than four more years by Congress to secure an unmodified audit opinion by fiscal 2028. Currently, the Pentagon’s success rate is 32%.
Failure to meet the 2028 deadline could have serious consequences, including intensified congressional oversight, reduced discretionary spending or stricter budgetary controls on defense allocations. Even areas of the DoD’s audit spending could come into question, as the latest audit was conducted by teams of independent public accountants and the Office of Inspector General within the DoD and cost taxpayers a whopping $178 million.
As President-elect Donald Trump and his administration push to promote efficiency within federal jobs while reducing government spending, the DoD’s slow progress toward financial accountability may face increased scrutiny by the chief executive and his team, as well as within future budget allocation decisions by Congress if they begin factoring in financial decision-making and fiscal responsibility to budget approvals.