The Defense Department has never been able to achieve a clean audit. And now, Congress is pushing harder than ever on the Pentagon to pass their annual full financial statement audits. New legislation known as the Audit the Pentagon Act of 2021 was introduced this week that hopes to force the DoD to change that.
The bi-partisan legislation was co-sponsored by Senator Bernie Sanders, I-VT., and Senator Chuck Grassley, R-Iowa, along with Sens. Ron Wyden, D-Ore., and Mike Lee, R-Utah. As you might imagine this new legislation is getting significant media attention.
Audit the Pentagon Act
This new legislation would require the Defense Department to finally pass a full independent audit beginning in fiscal year 2022. Each year that military agencies fail to obtain a clean audit opinion, one percent of their budget will be returned to the Treasury.
“The time is long overdue for Congress to hold the Defense Department to the same level of accountability as the rest of the government. That is the very least we can do.” said Senator Sanders.
Supporters of this new legislation cite the fact that every other federal agency has been able to pass their audits. But unfortunately, the DoD Audit has resulted in a “Disclaimer of Opinion,” for the past three fiscal years, meaning the auditor didn’t get enough accounting records to form an assessment.
The Pentagon is expected to receive $740 billion in the current financial year, but lawmakers note that the DoD hasn’t been able to account for where all of its money goes.
“By requiring the DOD to achieve a clean audit opinion starting in FY22, this bill will provide needed transparency and accountability in its use of taxpayer dollars,” Senator Lee said.
What this means for Defense Contractors
The Audit the Pentagon Act should come as no huge surprise for the Defense Industry. Members of Congress have expressed frustration with the DoD’s inability to pass audits for years. However, what is notable is that this legislation seems to have strong support and will certainly put increased pressure on the Pentagon. Which will inevitably trickle down to the Defense Contractors.
Defense contractors need to understand that Government Property in the Possession of Contractors has been identified as one of the key Material Weaknesses in the last three Defense Audits. In looking at these Material Weaknesses for FY2020 the DoD identified 7 Priority Areas:
- Information Technology
- Inventory
- Real Property
- Government Property in the Possession of Contractors
- Joint Strike Fighter Program
- Fund Balance with Treasury
- Oversight and Monitoring
The above Priority list is taken directly from the Office of Inspector General report released earlier this year: Understanding the results of the Audit of the DOD FY2020 Financial Statements.
The pressure is on the DoD to achieve a clean audit opinion. The new Administration, Congress and the Pentagon will be looking for improvements in all 7 of these priority areas.
Government Property Management
It is safe to assume that Government Contractors need to take a close look at how they track, manage and report their government property.
FAR 52.245-1 stipulates that contractors need to have a system of internal controls to manage Government property in its possession. Furthermore, maintaining an adequate Government Property Management System is required per the Contractors Business Systems clause (DFARS 252.242-7005).
A2B Tracking’s Government Property Management solution supports contractors with an Asset Management system that meets all requirements of FAR 52.245-1.
Now is a good time to make certain that your internal business systems and procedures are in accordance with your contract obligations. Whether the Audit the Pentagon Act of 2021 passes through Congress or not there is sure to be increased focus on the accountability of government property.
