Last week, the Pentagon released their annual department-wide Audit results for FY2023. For the sixth year in a row, the Defense Department was unable to achieve a clean audit opinion. Meaning that more than half of their assets did not meet auditing standards and the DoD did not pass the audit.

2023 DEFENSE AUDIT RESULTS

This result should not come as a big surprise to anyone in the Defense Industry. This full financial audit is massive in scope and accounts for more than $3.8 trillion worth of assets, required approximately 700 site visits and involved over 1,600 auditors. 

This Department-wide Audit has been a thorn in the side of the Pentagon for decades, going all the way back to the Chief Financial Officers Act of 1990. Since that time, the DoD has been the only federal agency unable to maintain transparent and accountable financial records. This inability to meet financial oversight standards has frustrated members of Congress and has brought increased pressure to the Pentagon.

Pentagon Comptroller, Mike McCord testified on Capitol Hill to say: 

“The Components are making good progress resulting in meaningful benefits, but we must do more.”

MATERIAL WEAKNESSES

The Inspector General’s office identified 28 Material Weaknesses in the Department’s financial statement reporting. These management-identified weaknesses are determined by assessing internal controls and are designed to highlight particular areas of concern. 

In the table below are the Material Weaknesses as outlined in the FY2023 Agency Report.

Government Property in the Possession of Contractors

It’s not surprising that once again Property in the Possession of Contractors has been identified as one of the 28 Material Weaknesses. The annual Defense Audit reported that  “Components cannot identify in their property and financial systems the government property that is in the possession of contractors.”

The Inspector General expanded on this Material Weakness to also provide Corrective Actions, as it relates to Property in the Possession of Contractors, as follows:

  • Develop policy supporting reporting and accountability of Government Furnished Property (GFP)
  • Develop data standards and automated solutions for reporting GFP.
  • Implementation of policy, data standards, and automated solutions by Components.

Defense Contractors should take note that the accountability of Government Furnished Property along with the automated reporting of GFP are under scrutiny. Defense contractors who manage Government Property should be on high alert to position themselves favorably for a property audit and make sure that they have modern, automated solutions to meet their contract requirements. 

GFP Module

The GFP Module, which is a Procurement Integrated Enterprise Environment (PIEE) application for both Defense Contractors and DoD personnel to use, is a key data source for all Government Furnished Property throughout the asset’s life cycle. It is the single system used for submission of GFP Attachments, shipments, receipts, updates and disposals

Ongoing improvements to the GFP Module continue to be made which have resulted in better GFP visibility and streamlined processes. The Pentagon recognizes the importance of the GFP Module and acknowledges it as a key application for contractors to use properly in compliance with their contracts.

Conclusion

In summary, the 2023 Defense Audit results are not surprising. The Pentagon has reiterated their commitment to the audit process and will continue to make improvements toward that goal. Of particular interest to this website, is the importance of the accountability of Government Property in the possession of contractors. The management and accountability of GFP needs to be addressed and improved for the Department of Defense to reach a clean audit opinion. Identified as one of the 28 Material Weaknesses, it stands to reason that auditors in 2024 and beyond, will be specifically looking for and analyzing the accountability of Government Property. 

Defense contractors would be wise to make sure that their procedures related to Government Property are updated accordingly. Furthermore, Property Managers should follow best practices by leveraging a modern Government Property Management system that provides automated reporting to the GFP Module and the IUID Registry.