Is the Defense Department too big to audit?
The Defense Department spends nearly $2 billion a day and represents a third of the total assets reported by the federal government. And yet, there are still serious questions about whether the department can get its financial records ready to undergo an independent audit.
Since 2011, DOD has been focusing its efforts and spending millions trying simply to get its financial systems and records ready for an audit. The department faces a statutory deadline of Sept. 30, 2014, to certify that its Statement of Budgetary Resources is ready. Likewise, DOD must certify that all of its financial statements are audit ready by 2017.
But continued problems with enterprise resource planning systems, data quality and the inability of senior Pentagon officials to document critical financial transactions, such as obligations, has led some in Congress to challenge the DOD’s strategy and call for an immediate, departmentwide audit.
“Audit readiness shouldn’t be a goal; it should be a requirement,” Sen. Ron Johnson, R-Wis., said at a Senate Armed Services Committee hearing today on improving DOD financial management. “Why don’t we just start conducting audits? I do not see how spending money on an audit to determine how bad you really are is a waste of money. Why don’t we just start auditing?”
The department has suffered for decades from an inability to understand its internal cash flow and document precisely how much money it spends and on what. With nearly $700 billion in budget authority, DOD has wasted hundreds of millions on programs that have gone over budget and on large purchases of spare parts the military services didn’t need.
The line of questioning pursued by Johnson and Sen. Tom Carper, D-Del., the committee chairman, goes to the heart of the DOD strategy — getting its financial house close enough to being in order so it stands a chance of receiving a clean audit. But the Pentagon’s financial books, and more specifically the IT systems used for managing those books, have been in shambles for the better part of the last 20 years.
Many of the ERP systems the department is now trying to fix and upgrade were never designed to handle financial data. The result has been inaccurate data, missing historical data and a negative impact on DOD’s ability to plan strategically.
“This is an unacceptable situation,” Carper said, blaming pervasive financial management deficiencies for DOD’s situation and pledging to hold senior leaders accountable.
Pentagon Comptroller Robert Hale said he believes the department is on track to meet the 2017 deadline to achieve audit readiness for all of its financial statements. But the fast-approaching 2014 deadline to ready the Statement of Budgetary Resources may be a different story.
“It’s too early to know for sure. We’re still in the process of remediation,” Hale said, referring to the process of fixing various ERP systems to improve data accuracy and accessibility.
“We will meet the great majority of them,” he said. “There may be a few that aren’t. I think we’ll get there for most. I expect a good chance that all four of the military services will declare audit readiness; that’s 80 percent of our budget.”
When asked why the department has focused so heavily on preparing for an audit instead of simply conducting one and using the results to improve management, Hale said it would be a waste of taxpayer money without any real benefit to the department.
“You know what you get out of it? A lot of management pressure to actually get [a successful audit] done,” Johnson countered.
Johnson pointed to Wal-Mart, which records $450 billion per year in revenue and manages pay and benefits for 2.2 million employees, but still manages to go through successful audits. “What is different about the Defense Department?” he asked.
Sen. Jon Tester, D-Mont., offered an answer.
“Maybe DOD has gotten too big to audit,” he suggested. “I don’t know how we got here, but we have to get this fixed. If we are here next year or the year after….there’s going to be some ramifications to that.”
“We’re not too big to do it,” Hale said. “Size makes it harder, but we’re not too big. There was never a coherent plan in the department. We now have a plan, we have resources set aside and senior leadership attention.”