Pentagon fails sixth audit, with number of passing grades stagnant

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WASHINGTON — For the sixth year in a row, the Pentagon failed its annual audit.

The result is not a surprise. The Department of Defense’s assets are vast and decentralized, amounting to $3.8 trillion alongside $4 trillion in liabilities. These are located in all 50 states and more than 4,500 sites around the world.

Since the Pentagon began auditing itself in 2018 — the last department to do so after Congress required the practice across the government in 1990 — it’s solved some of its easiest accounting problems. Now change each year is more incremental.

If there’s change at all, that is — last year, auditors only rated seven of the nearly 30 sub-audits as clean. This year too there were seven.

One other was rated as “qualified,” the next step down in accounting jargon. Three more audits are still ongoing. The remaining 18 were given failing grades.

Pentagon officials have tried to reassure the public there is progress, despite the same topline rating. Speaking to reporters this week, Comptroller Mike McCord pointed to three areas.

The first is movement toward a resolved fund balance with the Treasury Department, meaning the two departments are getting closer to matching their ledgers. This consistency helps prevent fraud.

The second is the increasing use of automated programs, or bots, for rote tasks, freeing up accountants’ time for more important work. McCord said that in the Navy and Air Force alone, the use of bots saved around 600,000 hours.

The last is more relevant to the battlefield. Since Russia invaded Ukraine in early 2022, the U.S. Defense Department has put a magnifying glass to its stockpiles while offering support. That effort proved useful when war began between Israel and Hamas this October. When Israel asked the U.S. for aid, McCord said, the U.S. knew what it had, where the capabilities were and what condition they were in.

“The Ukraine experience informed the Israeli one because there was already a lot of good practice built up,” he said.

Smaller successes aside, audits are still pass-fail tests and the Pentagon continues to fail, McCord acknowledged.

A full half of the Defense Department’s assets still don’t meet auditing standards. The Pentagon resolved around 500 Notifications of Findings and Recommendations, or specific problems found in last year’s audit, McCord said. At the same time, he said, there were 2,500 more NFRs identified this year, a total that includes new and recurring issues.

“It’s not enough,” McCord said. “The secretary [of defense] feels that we need to be doing better at this and moving faster.”

There is just under $5 billion worth of U.S. stockpiles that can still be sent to assist Kyiv, McCord said. At a Pentagon briefing last week, spokeswoman Sabrina Singh said there was $1 billion remaining to replenish those stocks.

The drawdown money leftover is itself the product of an accounting error. Earlier this year, Pentagon officials realized they had often been valuing the aid sent to Ukraine at its sticker cost rather than factoring in age — the equivalent of an insurance company reimbursing a totaled car at its original purchase price rather than its value at the time of a crash.

The funding vehicles being used to aid Israel in its war against Hamas are far different, in part because Israel has a large defense-industrial base and decades-long relationships with American arms manufacturers. But the road to keep funding them without more money approved by Congress is narrow, McCord said

“The running room we have to actually help Israel is much more constrained [than it is for Ukraine] because we don’t have any action by Congress yet,” he said.

Meanwhile, on Capitol Hill, the Pentagon’s inability to get a passing grade continues to draw lawmakers’ ire. This summer, House Republicans held a hearing focused on the auditing failures.

This week, the House passed a continuing resolution to keep the government funded through early next year. The Pentagon has said such temporary spending bills make its accounting process more difficult.

Noah Robertson is the Pentagon reporter at Defense News. He previously covered national security for the Christian Science Monitor. He holds a bachelor’s degree in English and government from the College of William & Mary in his hometown of Williamsburg, Virginia.

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