Though the Defense Department failed to meet a key Sept. 30 deadline of achieving audit readiness for years-long budget activity documents, the Pentagon believes it has made “great progress.”
Approximately 91 percent of fiscal year 2015 is under independent audit, the office of Pentagon comptroller Mike McCord said in DoD’s November Financial Improvement and Audit Readiness (FIAR) plan status report. DoD said this is a tremendous accomplishment and the funds that will be under audit represent most of the financial information reported in the statement of budgetary resources (SBR). 
A SBR includes, among other things: beginning balances, current-year transactions and transactions from prior years that were executed in the current year, according to a DoD statement. A shorter-term audit timeframe, known as a schedule of budgetary activity (SBA), contains only the current-year activity that would be included in the SBR.
DoD said in the FIAR that lessons learned from the FY ’15 audits will be invaluable in helping it meet its goal of validating full financial statement audit readiness by Sept. 30, 2017, which is less than three years away. DoD said it has expanded its priorities from budgetary data to all financial transactions.
DoD in December awarded contracts to three public accounting firms to conduct SBA audits for the services. The Air Force contract was awarded to Ernst & Young, Cotton & Company received the Navy contract while the Army contract was awarded to KPMG. DoD spokesman Cmdr. Bill Urban said Thursday the firms began these SBA audits in January and final audit results are not expected until November.
Congress over the years in authorization acts directed DoD to produce auditable financial statements. Some lawmakers have not been happy with DoD’s progress, or lack of progress, toward producing auditable books. Retired Sen. Tom Coburn (R-Okla.) was a frequent critic and introduced a bill in September 2013 that established rewards if DoD met timelines, or consequences if it didn’t.
Coburn’s bill, co-authored by Sen. Joe Manchin (D-W.Va.), provided $8 billion in additional reprogramming authority pursuant to general transfer authority if DoD produced an audit with an unqualified opinion for any fiscal year after 2015. It also provided penalties if DoD failed to meet those timelines, including imposing a chief management officer (CMO) as what would be the third-highest-ranking position in the entire Pentagon. It also proposed moving the Defense Finance and Accounting Service (DFAS) over to the Treasury Department, preventing major weapon systems from moving beyond Milestone B approval and eliminating the $8 billion in reprogramming authority as other consequences.
Congress’ most recent effort to have DoD produce clean financial statements came Wednesday from Manchin and Sens. Ron Wyden (D-Ore.), Ted Cruz (R-Texas) and Rand Paul (R-Ky.). The bill is almost the exact same bill as the one Coburn introduced in 2013. Cruz is on the Senate Armed Services Committee (SASC).
A pair of experts from leading Washington think tanks believe Congress’ all-or-nothing approach to forcing the DoD to audit its books is short-sighted. Raymond DuBois, a senior adviser at the Center for Strategic and International Studies (CSIS) in downtown Washington, believes it would be better for DoD to pick a few smaller agencies, like the Defense Logistics Agency (DLA), and start auditing their books before attempting to audit the entire Pentagon, which proposed FY ’16 budget of $585 billion.
“Telling the (comptroller) ‘I want auditable books for the entire Department,’ is like asking to solve world hunger,” DuBois said, metaphorically. “Start with something digestible.”
The Pentagon has achieved audit success with the Marine Corps, the smallest of the four services. DoD said the Marine Corps in December 2013 was granted an unqualified favorable audit for its current-year budget, the first audit of any kind for the services.
Brookings Institute Senior Fellow Michael O’Hanlon said Thursday DoD should keep track of its money better by reducing the amount of paperwork required, especially by contractors, to compete for DoD service or weapon production contracts.
“I’d rather have two competitors so that DoD can decide what’s the right price, not (have it) based on who can document their expenses more exactly, but who makes the better product,” O’Hanlon said. “Let the free market do the accounting for you.”