Each year the Inspector General’s Office is required, by law, to produce a report on the Top DoD Management Challenges. This annual statement summarizes what the Inspector General considers the most serious challenges facing the Defense Agency.
The report is intended to provide Congress and US Military leaders an independent assessment of the top management and performance challenges currently confronting the DoD.
DoD Audit Priorities
Government Contractors would be wise to take note of this Inspector General report. One area of particular interest for contractors is the section on the DoD Audit Priorities. It’s in this section that the Secretary of Defense outlines the continued focus of the Financial Statement priorities with emphasis on these six material weaknesses:
- Information Technology
- Real Property
- Inventory and Related Property
- Government Property in the Possession of Contractors
- Fund Balance With Treasury
- Financial Reporting Internal Controls
Our interest and expertise on this blog is clearly focused on Inventory and Related Property and the Government Property in the Possession of Contractors.
Inventory and Related Property
The report states that “In FY 2019, auditors found that numerous DoD Components lacked policies, procedures, controls, oversight, and documentation related to providing assurance over the existence, completeness, and valuation of inventory.”
Assurance of existence, completeness and valuation of inventory is a critical element of this full financial audit. It requires strict adoption of the IUID policy and the use of automatic data capture — via IUID and RFID — in order to achieve full accountability.
The other element that needs to be acknowledged here is the reporting of this asset data. The tracking of lifecycle changes – from asset creation to disposition – and the timely reporting to the appropriate government systems is critical.
Government Property in the Possession of Contractors
Government property can be directly acquired by a contractor or furnished by the Government to fulfill their contractual obligations. The management of Government property has been identified as a material weakness for the DoD for a number of years and continues to gain more and more attention.
The Inspector General reports that “The DoD lacks the policies, controls, oversight, and documentation required to accurately report its property in the possession of contractors.“
The accountability and visibility of Government property is clearly a large concern for the Defense agency. The Inspector General mentions reviewing policies and procedures, as well as, incorporating contract terms and conditions to improve accountability. The IG also mentions a concerted effort to physically count, record and baseline the property in the possession of contractors.
All of this amounts to a continued focus on Government property management — identifying, marking, tracking and reporting of asset lifecycle events.
The 2021 Defense Audit
This Inspector General’s report is not news for most Defense contractors. But, the report does provide insight into the DoD Audit priorities and reinforces their audit objectives in FY 2021 and moving forward.
It is clear, at least from this document, that the 2021 Defense Audit priorities will be centered around those 6 major material weaknesses (bulleted above). Which solidifies that Inventory and Related Property as well as Government Property in the Possession of Contractors are primary concerns for the Department of Defense.
Defense Contractors who are obligated to manage Government property need a modern Government Property Management System to maintain the necessary accountability and achieve sustained audit readiness. Contractors that are still managing their property with a spreadsheet, as well as those not taking advantage of automated data capture, would be wise to acknowledge that time is running out. Those days are numbered (if they’re not already in the past).
A2B Tracking has been offering solutions for marking, tracking and reporting critical assets and inventory for government agencies and commercial organizations for over 25 years. Please reach out and speak with one of our Government Property experts to see if we can support your program in 2021.
