2024 Defense Audit Results
By Peter Collins
Last week, the Department of Defense (DoD) released the results of their annual full financial statement audit. The Pentagon once again was unable to pass the Department-wide audit citing significant gaps in its ability to fully account for its spending.
The audit, which has been conducted annually since 2018, resulted in a disclaimer of opinion — meaning that it failed to provide sufficient information for auditors to form an accurate opinion. Despite making forward progress each year, the Pentagon has yet to achieve a passing grade.
The 2024 Defense audit involved approximately 1,700 auditors and cost about $178 million to complete. The DoD is one of the largest organizations in the world with an overall budget of more than $800 billion.
DoD has turned a corner…
Michael McCord, under secretary of Defense comptroller and chief financial officer, said that despite the disclaimer of opinion the Defense Department “has turned a corner in its understanding of the depth and breadth of its challenges.”
In last week’s press conference, Comptroller McCord told reporters that he was not surprised by the results, “I do not say we failed. We have about half clean opinions. We have half that are not clean opinions.”
This year’s audit encompassed 28 reporting entities:
- 9 entities received an unmodified opinion (clean audit)
- 1 entity received a qualified opinion
- 15 entities were issued disclaimers of opinion
- 3 opinions remain pending
Congressional Deadline: 2028
The 2024 National Defense Authorization Act (NDAA) is putting increased pressure on the Pentagon to get their finances in order. This congressional mandate is setting a goal for the DoD to receive a Department-wide unmodified audit opinion by December 31, 2028.
The Pentagon has made it very clear that they are firmly committed to achieving a clean audit by 2028. McCord expressed confidence in the Department’s ability to meet the congressional deadline, highlighting the importance of accelerating progress.
Similarly, Thomas Steffens, Senior Advisor in the Office of the Under Secretary of Defense (Comptroller) acknowledged that the timeline demands a more aggressive approach and will “require an acceleration in the Department’s strategy for audit…”. Steffens went further to explain “As the Department advances toward meeting this Congressional mandate, we continue to aggressively address the critical root causes of scope-limiting material weaknesses so we can further accelerate audit progress.”
The December 2028 timeline puts a definitive line in the sand for the Defense Industry and requires that the Department aggressively address the scope-limiting material weaknesses.
28 Material Weaknesses
The Pentagon’s progress remains hindered by 28 material weaknesses identified in its financial reporting. These weaknesses were consolidated into 10 “scope-limiting” priorities in an August 2024 report by the Inspector General entitled: Understanding the Results of the Audit of the FY 2023 DoD Financial Statements.
Taking this report at a high level, the Inspector General identified 28 Material Weaknesses in the Department’s financial reporting and then consolidated the weaknesses into 10 Scope-limiting priorities listed here:
The Aug. 2024 report acknowledges that these scope-limiting categories require special attention. Most notably for the GovCon community is that one of the highlighted scope-limiting material weaknesses is Government Property in Possession of Contractors (GPIPC).
“GPIPC continues to be an obstacle to success in the audit of the DoD financial statements… A common trend shows that the DoD Components lack adequate policies, procedures, controls, and supporting documentation over the acquisition, disposal, tracking, and inventory processes for GPIPC.”
This trend will not go away without significant effort. As you might expect, Government Property in the possession of Contractors was once again identified as a Material Weakness in the 2024 Defense audit results.
Conclusion
The management of Government Property in the Possession of Contractors is one of the top priority areas that is under the audit spotlight and will remain under scrutiny. As the December 2028 congressional mandate gets closer government contractors should expect increased accountability requirements and pressure to their property management practices
Organizations subject to FAR 52.245-1 should ensure that their internal controls and procedures are updated accordingly and compliant. Furthermore, Property Managers should follow best practices by leveraging a modern Government Property Management system that enables automated and error-free reporting to platforms such as PIEE, WAWF, GFP Module and the IUID Registry.
With the congressional mandate for a clean audit opinion by 2028, the DoD must overcome significant challenges in financial accountability. Government contractors play a critical role in this effort and should prepare for closer oversight by strengthening their compliance and property management systems.
