The Defense Department continues it’s annual full financial Audit into fiscal year 2020. Last month, the DoD announced the 2019 Defense Audit results. For the second year in a row, the DoD officially failed the 2019 Audit; but, the Pentagon quickly reassured everyone that a clean opinion was not expected due to the size and scope of the effort.
In order to understand why audit failure is not surprising we need to set the stage and provide some perspective. This Department-wide full financial audit effort covers more than $2.9 Trillion in total assets and $2.8 trillion in liabilities, with 1,400 auditors, visiting over 600 sites around the world.
Auditors completed 24 stand-alone audits, in addition to the consolidated audit. They looked at buildings and property, military equipment, munitions and payment reports. The Department of Defense audit is massive.
This audit initiative is more than an investigation into accounting and record keeping. It’s a department-wide endeavor that requires accountability for all qualifying assets and inventory and maybe even more importantly to be able to verify the existence and completeness of that inventory. Meaning, not only do the auditors check the inventory books and recordkeeping but they also check the actual existence of that inventory.
The US Congress is holding the Defense Department accountable to achieve and sustain audit readiness for all qualifying assets and inventory. This means that a certain portion of DoD inventory qualifies for the need of a unique identifier (or an IUID) associated with each item. Furthermore, every IUID needs to be managed according to the Military Standard 130 and then also reported to the DoD Master database — the IUID Registry.
This audit readiness initiative applies to all the branches of the Military and, if it hasn’t already, will flow down to the contractors that support them. The DoD is an extraordinarily large and complex organization and achieving a clean audit opinion is not going to happen over night.
Still a long way to go
Still a long way to goIn a statement, acting inspector general Glenn Fine said the “Department of Defense has made progress in improving its financial management processes since the prior year audit, but much more progress is necessary. The Department of Defense still has a long way to go before it will be able to obtain a clean opinion.”
One thing is clear — the DoD is committed to this annual Audit process. DCMA Auditors will continue their investigations to the entire Defense community in 2020.
Government contractors need to take a proactive position on audit readiness and make sure that they have the business systems in place to support their efforts. Sustainable audit readiness takes time and significant effort for any organization to achieve. Making a commitment toward that goal well before an audit happens is the key to success.
For a more in-depth look at this Defense Audit topic download and read our 2019 Guide to Audit Readiness.
