The DoD released their annual department-wide Audit results for FY2022 last week and for the fifth consecutive year the Defense Department was unable to achieve a clean audit opinion.
Officially, the Inspector General issued a disclaimer of opinion on the Department’s FY 2022 consolidated financial statements. Which means the DoD did not pass the audit and were unable to account for more than half of their assets.
2022 Defense Audit Results
This result was expected by many in the Defense Industry and should not come as a big surprise to anyone. This full financial audit is massive in scope and accounts for more than $3.5 trillion worth of assets and involved over 1,600 auditors. Many in the industry have previously suggested that it will take a decade or more to achieve a clean audit opinion.
It’s important to note that the Pentagon is fully committed to these annual audits and have repeatedly referenced the value it brings to the business process and systems across the Department.
“I would prefer to see more progress, of course, but we are peeling off the layers,”
Mike McCord, Under Secretary of Defense, said.
By most accounts, the 2022 audit results did not change very much from previous year’s results. However, McCord did highlight some areas where progress has been made recently, notably there were gains in IT and improved technology like automated robots for warehouse picking.
Agency Financial Report
In conjunction with the announcement for the Audit results the US Defense Department also released its Agency Financial Report for FY2022. This 294-page report details the 2022 audit findings and provides a high-level overview of the DoD’s finances.
The Agency Report contains a section entitled Audit Priorities which states:
“The Department continues to address long-standing areas of material weaknesses including; Property in the Possession of Contractors, Real Property, Inventory, Operating Materials and Supplies and the Joint Strike Fighter Program.”
These priorities mentioned above are areas that the Department acknowledges need to be particularly addressed, monitored and improved.
Material Weaknesses
The Inspector General’s office also 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 areas of concern. In the table below are the Material Weaknesses as outlined in the FY2022 Agency Report.
Government Property in the Possession of Contractors
Government Property in the Possession of ContractorsDefense Contractors should take note that “Government Property in the Possession of Contractors” is one of the 28 Material Weakness – along with being identified as one of the Audit Priorities by the Department.
This clearly highlights the fact that the DoD believes that the management of Government Property by Defense contractors needs to be addressed and improved moving forward. It stands to reason that auditors will be specifically looking for and analyzing the accountability of Government property.
What it means for Contractors
Defense contractors who manage Government Property should be on high alert to position themselves favorably for a property audit. This includes making sure that they understand their contract obligations and that they are doing everything they can to stay in compliance. Program managers should review their procedures and internal business systems not only to make sure that procedures are documented appropriately; but, also to ensure they are in accordance with the contract obligations.
FAR 52.245-1 is the Government Property clause. It stipulates that Government contractors need to have a system of internal controls to manage Government property in its possession. Furthermore, understand that a Property Management system is one of the six key business systems for government contractors as stated in the Contractors Business Systems clause (DFARS 252.242-7005).
If your organization is relying on a spreadsheet (or similar homegrown solution) to manage Government property it would be prudent to investigate more robust solutions. There are a number of reasons why spreadsheets are inadequate here but, the biggest shortfall is that they can not utilize automated data capture systems and take advantage of improved speed and accuracy when performing inventories.
Modern Government Property Management
A modern Government Property Management system should support organizations with total IUID Compliance, advanced barcode and RFID to track assets through their entire lifecycle and provide automated data exchange (reporting via EDI) to government systems.
A2B Tracking’s Government Property Management solution provides contractors with an Asset Management system that meets all requirements of FAR 52.245-1 and provides critical support to pass DCMA property audits.
If you have questions on Government Property management and would like to speak with one of our experts please feel free to reach out to us here.
