An underreported but long-awaited event begins at the Pentagon this month: Over 20 years after enactment of a law requiring the audit of federal agencies, the U.S. Department of Defense commenced its first full-scope financial statement audit.
For years, Congress has been adamant that it is high time for the DoD to go under audit. Under President Donald Trump and Secretary Jim Mattis’ leadership, the process has already begun. As Deputy Secretary of Defense Patrick Shanahan observed: “We have asked the American taxpayers to entrust us with over $600 billion each year. We should welcome the accountability.”
Accountability is what will drive us — getting the maximum value from every dollar entrusted to us. But auditing the Department of Defense is not a small matter. The consolidated DoD audit will be among the most complicated audits ever conducted, composed of 24 individual audits and an overarching DoD-consolidated audit. With over $2 trillion in assets and nearly 3 million employees, this is the biggest audit in history.
A full-scope audit is more than an investigation into accounting and financial record keeping. It will reach into every corner of the department. Many auditors are already at work. By spring, we will have over 1,200 auditors inspecting the Department of Defense from book to floor and floor to book. A book-to-floor inspection means that items reported on the accountable property system of record exist. A floor-to-book inspection means that items that exist have been recorded in that system of record. For example, if the Army is managing munitions at a munitions center, auditors should be able to clearly reconcile those munitions listed in the Army’s system of record with those munitions actually on hand. Our financial transactions and records will be thoroughly reviewed, and our inventories and accounting will be scrutinized. Deputy Secretary Shanahan has challenged our leadership to make a priority of correcting problems identified in the audits.
Being under audit will be our new normal at the DoD, an annual event with ongoing remediation and measured results. Although I do not anticipate a clean opinion initially, I do anticipate that the audit will help us to improve our financial management processes and direct our efforts to the highest-priority areas. Our leaders won’t need to guess whether a corrective action plan worked. During a subsequent audit, an independent public accounting firm will review the change and recheck the data. We will have independent confirmation. This allows leaders to improve processes and confidently move onto new issues, keeping the department on track as it moves toward a clean audit opinion. Our goal is to get closer to that opinion by resolving issues each and every year.
Because being audited is the DoD’s new normal, our new normal for business systems will evolve. We need systems that are auditable and data structures that comply with current accounting requirements. That may mean some new needs and expectations for business systems so that we can move away from workarounds and manual data calls.
Over time we will have a steady improvement in the accuracy and reliability of our business data. This is useful. However, it is the power of modern data analytics that will make this new information revolutionary. You have seen these changes in the private sector where audited and reliable data is the norm. The audit will drive the changes in data that are key to many of our reform initiatives.
In the end, it will be the combination of strong leadership, a professional workforce and trustworthy data resulting from audits that will help the department perform its most important mission: direct and timely support to our war-fighting soldiers, sailors, airmen and Marines.
David Norquist is the U.S. Defense Department’s comptroller and chief financial officer.