NOVEMBER 18, 2024 – The Defense Department today released the results of its departmentwide fiscal year 2024 financial audit, the seventh such audit since 2018.
For this most-recent effort, the department’s inspector general provided an overall “disclaimer of opinion” on DOD financial statements, which means the department has not yet achieved a clean audit, said Mike McCord, the department’s chief financial officer.
Despite that result, McCord said the department has shown great improvement every year on departmentwide audits.
“I believe the department has turned a corner in its understanding of its challenges, and more importantly in addressing them,” said McCord. “Momentum is on our side, and throughout the department there is strong commitment — and belief in our ability — to achieve an unmodified audit opinion.”
For the seventh year in a row, the Department of Defense (DOD) has failed its annual financial statement audit, a massive undertaking meant to ensure accountability for its $3.8 trillion in assets and $4 trillion in liabilities.
Despite the setback, Pentagon officials highlighted incremental progress and reaffirmed their commitment to securing a clean audit opinion by 2028.
This year’s audit, like the six before it, exposed persistent challenges in the DOD’s financial management systems.
In total, the FY2024 overall DOD audit involved 28 different reporting entities each undergoing their own stand-alone financial statement audits.
Of those individual audits, nine entities achieved “unmodified audit opinions.” Results from three additional entities are still pending, but McCord said its expected that two of those will, as they did last year, also achieve unmodified audit opinions. If that happens, it will mean that eleven audits come back clean — one more than in fiscal year 2023.
This year, for the first time, the Defense Threat Reduction Agency achieved an unmodified audit opinion. This is only the second year DTRA has undergone a stand-alone audit, McCord said.
Also, as part of this year’s departmentwide audit, McCord said, one entity received a qualified opinion, while 15 other entities received disclaimers.
Of note, McCord said, are DOD’s efforts in closing or “downgrading” material weaknesses that show up in audits. The term “material weakness” in regard to an audit, he said, “roughly translates as concerns you must resolve to succeed.”
In particular, he said, Secretary of Defense Lloyd J. Austin III and the department have put an emphasis on eliminating material weakness related to the department’s fund balance with the Treasury.
“Fund balance with [the] Treasury is, in layperson terms, like balancing your checkbook,” McCord said. “Except I said we have 1,500 checkbooks with $850 billion in them. So, it’s a little more complicated than it might sound, but that’s basically what it is. It’s reconciling your version of all the money you have with [the Treasury Department’s] version of all the money you have in these 1,500 pots.”
In the FY2024 departmentwide audit, McCord said, eight DOD reporting entities closed or downgraded their fund balance with Treasury material weakness. Those include the Department of the Navy Working Capital Fund and the Department of the Air Force Working Capital Fund, both of which closed that material weakness.
The Department of the Army General Fund, Defense Advanced Research Projects Agency, Defense Information Systems Agency General Fund, DISA Working Capital Fund, the National Geospatial-Intelligence Agency and DTRA all downgraded their FBWT material weakness.
Congress has said the department must achieve an unmodified audit by fiscal year 2028, and McCord said the department has improved every year since the inception of the audit.
“On behalf of department senior management, I assess that DOD continues to make progress toward the congressional mandate for achieving an unmodified audit opinion in FY2028,” he said. “We were already halfway there last year in terms of assets under clean opinions. This year, the Defense Threat Reduction Agency … achieved an unmodified audit opinion in only its second year of doing a stand-alone audit.”
While the department has made progress every year, McCord said the speed of that improvement must accelerate if the department is to meet the 2028 goal set by Congress.
“We do have to … keep getting faster and keep getting better,” he said. “If you draw a trend line … back from when we started, from year one to year seven, I don’t think it’s going to show you’re getting there in time if you don’t continue to pick up the pace … and that’s happens with a lot of programs … there’s learning curves in building airplanes and there needs to be a learning curve here, too.”
Substantial work remains, McCord said. But he also said the department is on the right track to meeting the demands of Congress.
“[The] next couple of years will be critical time as the department works toward this 2028 mandate, which will require us to keep getting better and faster,” he said.
By C. Todd Lopez, DOD News