The US Congress is holding the Defense Department accountable to perform a full financial department-wide Defense Audit each and every year.
This Financial Improvement and Audit Readiness (or FIAR) Initiative has been in the works for more than ten years in a quest to improve accountability. After years of working towards this audit readiness objective the DoD completed its first full financial Defense Audit in 2018.
The 2018 Defense Audit was arguably the largest audit in history. It was a massive undertaking that included all mission critical items such as buildings, equipment, vehicles, planes, ships, computers and more.
This full-scope audit encompassed over $2 Trillion in assets and nearly 3 million employees across the entire the US military. It was carried out by more than 1,200 auditors with over 900 site visits and at more than 600 locations across the entire Department of Defense.
Financial and Physical Property Audit
It’s important to understand, that this Defense Audit is more than an investigation into accounting and record keeping. It’s a department-wide endeavor that demands accountability for all qualifying assets and inventory.
Furthermore, auditors were required to take it one step further and verify the actual physical existence and completeness of that inventory. Also referred to as an investigation from floor to book and book to floor. A book-to-floor inspection means that items reported on the accountable property system of record exist. A floor-to-book inspection means that items that exist have been recorded in that system of record.
A Failed 2018 Audit Result
Officially, the 2018 Audit opinion was 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,”.
2019 Defense Audit
2019 will be a challenging year for the Defense Industry. 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.
To be clear, the 2019 Defense Audit is underway. In January, former DoD Comptroller David Norquist spoke to a group of defense experts and reporters at the Center for the National Interest in Washington
“We have already started the second audit of the Department’s financial statement … And we will keep doing this year after year, because the accountability is worth it,” he added.
What this means for 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.
Developing an audit preparation plan for any organization requires significant research and careful deliberation. However, this does not mean that you can’t get started with some basic preparation steps.
Guide to Audit Readiness
In today’s Defense Audit era, if you are a Government Contractor you need to integrate Audit Readiness into your day-to-day activity and create a culture within your organization to make it sustainable.
The 2019 Guide to Audit Readiness contains valuable insights into how to prepare for and develop an audit readiness program. This new Guide is designed to get you up to date on the recent Defense Audit situation and help your organization develop a plan to be prepared.
Download the 2019 Guide to Audit Readiness
