How does the instability of the budgeting process by the U.S. government makes it more difficult for the U.S. military to produce a clean audit?

Question

“When it comes to the Pentagon audits, steady progress is the name of the game versus clean audits quickly,” said Mackenzie Eaglen, a senior fellow at the American Enterprise Institute. “Almost every year the Defense Department adds new sub-organizations to the list of clean audits, and this is the trend the Pentagon must stay on going forward.

Lawmakers have been pressing the Pentagon to produce a “clean” audit by 2027. But the Pentagon sought to put part of the blame on unreliable budgeting by lawmakers, saying that “Congress can further help by stabilizing the budget process and avoiding continuing resolutions and government shutdowns.” McCord said this would be the 14th year with the Pentagon funded by continuing resolutions. The most current stopgap proposal would provide funding for the Pentagon until Feb. 2.

Of the 29 Defense Department components undergoing standalone financial statement audits, seven received a clean audit opinion, and one received a qualified opinion. The results of the financial statement audits of the Marine Corps, the Defense Information Systems Agency Working Capital Fund, and the Pentagon’s Office of Inspector General are still pending, while the rest of the agencies all received disclaimers — financial audits that weren’t clean.

How does the instability of the budgeting process by the U.S. government makes it more difficult for the U.S. military to produce a clean audit? I was trying to understand why, because the article doesn't really say why it's harder to produce a clean audit under these circumstances. Is it because they need to get the money from other sources they won't disclose or is it purely administrative?

Answer 1

Theoretically - Muddled Permissions

The audit is about DoD proving it had permission from Congress to pay for all the things it did or purchased. If the rules change month by month, as the government lurches from Continuing Resolution to Continuing Resolution, each one slightly different in what it authorizes, it makes it more complicated to determine what DoD had permission for at any given time, and thus makes it harder to produce a clean audit.

A government shutdown is perhaps an easy example. When funding lapses during a government shutdown, all operations are supposed to stop except those deemed absolutely necessary. There are nearly 4 million uniformed and civilian DoD members, plus a huge number of contractors. DoD needs to make decisions about which are absolutely essential to operations, and then justify those decisions in an auditable fashion.

Imagine all the work that is wasted just accounting for who was in the office during a shutdown -- all of which could be avoided by passing a funding bill.

Reality - It's a Bear of an IT Problem

From a 2023 GAO report(1):

As we have previously reported, DOD did not originally design the systems environment that supports its business functions, including financial management, to support auditable financial reporting. Over the years, this systems environment has become overly complex and error prone, characterized by (1) little standardization across DOD, (2) multiple systems performing the same tasks, (3) the same data stored in multiple systems, and (4) personnel having to enter data manually into multiple systems.

Think about all the things DoD pays for: bullets for soldiers in a war zone, air fare for sailors flying commercial to training, moving trucks for personnel assigned to new duty stations, multi-billion dollar weapons platforms, maintenance, R&D programs, etc.

All these things have their own systems for tracking and accountability - but none of them were designed to provide accountability to the GAO! They were all designed so that the officer in charge of the system could do his or her job, which probably included financial oversight, but not on exactly the terms that the GAO expects.

These systems were later shoehorned into the role of providing support to the audit.

So DoD needs to find lots of money to re-design a bunch of IT systems that track spending, and standardize them to support the audit. This will undoubtably improve DoD operations, but given that DoD has spent much of the last 25 years at war, that simply hasn't been a priority.

1. GAO report name in case the link dies: DOD Financial Management: Efforts to Address Auditability and Systems Challenges Need to Continue

Answer 2

Question:

How does the instability of the budgeting process by the U.S. government makes it more difficult for the U.S. military to produce a clean audit?

I don't think that matters much. The pentagon get's the money. The US funds defense over the last six decades at roughly the next 10 greatest countries combined. Most of those countries strong U.S. allies. At times that number has been down to 6 or 8 of the next strongest countries, other times US defense spending has outpaced the rest of the world combined.

The problem with the U.S. military failing audits goes back as long as I can remember. Nothing new. I think currently they've failed 6 annual audits in a row.

Why? It's just a monster job to audit $3.8 trillion dollars in assets and $4 trillion in liability even with 1,600 auditors. that's about 30 sub-audits all of which must pass in order to pass the over-all audit. Typically, the US passes 7-8 of those sub audits out of 30, same as 2022. The failures are due to security levels surrounding various weapons programs, the unpredictable nature of defense efforts, cost overruns of large weapon systems, and the priority given to such publically released audits.