Pentagon Comptroller Michael McCord provides testimony in March 2024 at a House hearing on the Defense Department budget. (Chad J. McNeeley/Defense Department)
WASHINGTON — The Pentagon once again was unable to provide auditors with all the needed financial documentation to account for the massive amounts of money that flows through its coffers every year.
It was the seventh consecutive year that the federal government’s largest agency failed to account for all its spending to satisfy the annual audit. The Pentagon has never passed the audit, which only have been required since 2018. The agency is the only Cabinet-level department that has never earned a clean financial report.
“This was not a surprise and I know that on the surface it doesn’t sound like we are making progress,” Pentagon Comptroller Michael McCord told reporters on Friday. “I do not say we failed. We have about half clean opinions. We have half that are not clean opinions.”
Hundreds of independent auditors go through the Pentagon’s books each year to determine whether it can account for the money it’s given and how effectively the military is spending it. There are three possible audit ratings — an unqualified opinion, a qualified opinion and a disclaimer of opinion.
The Defense Department said 1,700 auditors worked on the 2024 audit, which cost about $178 million. In 2023, 1,600 auditors examined the Pentagon’s books at a cost of $187 million. The Pentagon has an overall budget exceeding $800 billion.
The audit, which is the overall accounting of the Defense Department, gave a disclaimer of opinion, which means the Pentagon couldn’t give auditors enough financial data to allow them to form an opinion. An unqualified, or “clean,” opinion is the highest possible rating and a qualified opinion is an acceptable rating. Both mean auditors were given enough information to make a complete judgment.
Of the 28 reporting entities with the Defense Department undergoing standalone financial statement audits, nine received an unqualified audit opinion, one received a qualified opinion, 15 received disclaimers and three opinions remain pending.
The Marine Corps in February became the first military branch to pass a financial audit. McCord said the department expects the service to do so again, but the Marines are one of three opinions pending more testing.
“I assess that the [Defense Department] continues to make progress toward the congressional goal for achieving an [unqualified] audit opinion in [fiscal 2028],” he said.
In fiscal 2024, the Defense Threat Reduction Agency, a combat support agency that works to reduce the threat of weapons of mass destruction, achieved an unqualified opinion in just its second year of doing a standalone audit.
McCord said Friday that significant progress was made across five areas in 2024: addressing material weaknesses, demonstrated improvements in system controls, “moving the needle” on physical assets, leadership engagement and use of data analytics.
Among those accomplishments includes eight Defense Department reporting entities that closed or downgraded a material weakness, meaning they corrected deficiencies in internal financial controls, he said. This includes the Army’s general fund, the Navy’s working capital fund and the Air Force’s general fund.
“This means that the Army, the Navy, the Marine Corps, the Air Force and [the Defense Information Systems Agency] have gotten their house in order on all their funding, or cash, as some people might think of it,” McCord said. “For context, the department has improved from less than 7% to over 82% of its funding being free of material weaknesses since I returned to this job (in June 2021).”
The Government Accountability Office published a report in September that the Defense Department has not yet achieved a clean audit opinion, but found the department’s financial statement audits and related efforts have caused a range of financial and operational results.
“However, [the Defense Department’s] collection of this information is limited and does not collect all available information on audit outcomes,” according to the report.
The GAO recommended the defense secretary should ensure the Pentagon comptroller considers opportunities to collect and share additional information on financial and operational results and lessons learned from audit remediation efforts.
McCord, who was also the Pentagon comptroller during former President Barack Obama’s administration, said he believes the 2028 goal — mandated by the 2024 National Defense Authorization Act, which sets policies and spending priorities for the Pentagon — is achievable but recognizes picking up the pace will be the key.
“We have to keep getting better and faster to make that deadline,” he said as President Joe Biden’s administration transitions out of office. “If you are halfway and you’ve got to get the other half in three or four years, you know that tells you you’re going to have to make enormous progress.”
