The DoD Office of the Inspector General (OIG) recently released the first section of their annual report: Part 1: Understanding the Results of the Audit of the FY2024 DOD Financial Statements This report provides an overview of the audit’s findings and highlights the importance of the audit.
2024 Defense Audit Results
As previously reported in this blog, The DoD released their 2024 DoD Audit Results on November 15, 2024. Once again, the Pentagon was unable to pass the Department-wide Audit, citing significant gaps in reporting that resulted in a disclaimer of opinion. This means that the DoD failed to provide sufficient information for auditors to form an accurate opinion.
Defense audits have been conducted annually for the past 7 years and yet despite making forward progress each year, the Pentagon has never achieved a passing grade. The DoD admits that there is significant work to be done and corrective action plans suggest that management does not expect to pass their audit until FY 2028.
Office of the Inspector General Report
Office of the Inspector General ReportInspector General Stebbins introduces this year’s report with an opening letter explaining it’s two-part structure:
Part one focuses on the definition of a financial statement audit, its importance and usefulness, and a summary of the DoD audit results.
Part two will provide more detailed information on the specific material weaknesses that DoD auditors identified during the financial statement audits and discuss the importance of efficient and effective operational and financial management.
Importance of the Defense Audit
This latest report reinforces the critical role of annual full financial audits. Make no mistake the DoD Audit is a massive undertaking. The Dept of Defense is one of the largest organizations in the world reporting over $4 Trillion in assets with 2.1 million Military service members and approximately 811,000 civilian employees. The scope of the audit is enormous and includes all mission critical items such as buildings, equipment, vehicles, planes, ships, computers and more. More than 1,700 auditors were involved in the 2024 audit.
Due to the sheer size of the DoD, it has a major impact on the Government‑Wide Financial Statements. The Defense audits enable Congress and the public to assess how the DoD spends its money and helps the DoD improve its operations. Furthermore, these audits drive improvements while reinforcing accountability and transparency.
Pentagon’s Commitment to Financial Improvement
One of the key takeaways of this report for the Defense Industry is that the Pentagon remains “fully committed to this important long‑term effort to improve the financial health of the DoD…”
Government Contractors should take note – Defense Audits are here to stay. Both Congress and DoD leadership are fully committed to achieving a clean audit opinion by 2028. This 2028 deadline is in reference to the National Defense Authorization Act (NDAA) which mandates a firm timeline of Dec. 31, 2028 for the DoD to achieve a clean audit opinion.
This Congressional deadline is sure to increase pressure on the entire Defense community and require accelerated progress in the coming years. It is safe to assume that moving forward, auditors will focus their attention on the 28 identified Material Weaknesses and require progress to be made in these areas.
Looking Ahead: Preparing for Part Two
It’s worth repeating that this report from the Inspector General is only Part One. It sets the stage for Part 2 that will provide more detailed information on the specific material weaknesses that auditors identified. Historically, the Pentagon has also identified Priority Areas that require special attention.
Most notably for the GovCon community, one particular priority area is – Government Property in the possession of Contractors. As the DoD continues its push toward financial accountability, contractors should expect heightened scrutiny in this area and take proactive steps to ensure compliance.
Stay tuned for further insights when Part Two of the OIG Report is released.
