The US Department of Defense (DoD) has completed its first-ever Department-wide, full financial statement audit covering $2.7 Trillion in assets for fiscal year 2018. The audit included all mission critical assets within the US military, including items such as buildings, equipment, vehicles, planes, ships, computers and more.
This full financial statement audit was carried out by more than 1,200 auditors over 900 site visits at more than 600 locations across the entire Department of Defense.
A Failed Audit
Officially, this year’s effort is considered a “failed” audit, as only 5 of the 21 individual audits received a fully passing grade. But department officials were quick to explain that given the size and scope of the project, there was never any expectation that the audit would be clean this first year.
Glenn Fine, the acting DoD Inspector General, said “This is the first year that the DoD has undergone a full financial statement audit, so it is not surprising that it did not obtain a clean opinion. However, the most important thing this year is not the opinion, but that the department takes the audit seriously and seeks to fix the identified deficiencies, which the department is doing,” Fine added. “This is an important, long-term effort, which we are committed to fully supporting.
This sentiment was reinforced by Pentagon’s Comptroller and CFO, David Norquist who said, “We didn’t pass. That’s the blunt and bottom line. We have issues and we’re gonna go fix them.”
Embracing the results
The DoD should be congratulated on completing this first-ever annual Audit. It was a massive undertaking that many critics suggested was not worth the cost. But, now that the first year has been completed and a base-line has been established the path forward is clear. Plans can now be put into place to address the obvious deficiencies and initiatives can be set into action to greatly improve the military.
Embracing the audit results and improving as we move forward is easier said than done. It will require a cultural shift and a heightened awareness — across the Defense Industry — for audit readiness.
FY2019 will be a challenging year. There will need to be an increased commitment towards audit preparation. And the real work of improving the accuracy of the DoD inventory needs to start now by developing systems to ensure that items are properly marked and reported to WAWF and then tracked and managed accordingly from cradle to grave.
Defense Contractors
The Defense Industry is watching these Audit proceedings very closely to gain insights and develop strategies on how to navigate this process. Contractors are aware that maintaining compliance to their contracts is critical — but, there is still some question as to what extent they will be held accountable.
Comptroller Norquist provided some insight last week to this point and commented that “What we found is the error rate in inventory held by contractors is higher than the inventory errors that we had in the services.
“I don’t know if this will show up in the report, but there’s a bigger challenge when it’s contractor-maintained inventory,” he added. “So yes, there’s going to be an effort with the contractors going forward, both on those responsible for systems and security as well as those responsible for working with us on inventory.”
Fiscal Year 2019 Defense Audit
The 2019 Fiscal Year is well under way for the DoD and there is no stopping this next round of audits. It is fair to say that the DCMA auditors will continue their investigations with equal — or even increased scrutiny this year. The Pentagon is looking at the FIAR Initiative as an opportunity to become more efficient and agile and recognize that this is a long term effort which will continue indefinitely.
Embracing the results of the first ever Defense Audit is clearly the only way to move forward. Defense contractors who are behind the curve on their Audit preparation and readiness plans need to work double-time to stay in compliance. Managing Government property has never been easy; but, now will come with increased scrutiny and increased expectations of inventory visibility and accountability.
If you haven’t taken a look at our 2018 Guide to Audit Readiness. Now is a good time.
Here is the official Department of Defense Press Release concerning the 2018 Audit Findings. The Office of Inspector General plans to release the full audit report in December.
