The Department of Defense (DoD) fiscal year 2023 audit of the Department's consolidated financial statements resulted in a disclaimer of opinion. Of the 29 Components undergoing standalone financial statement audits, seven received an unmodified audit opinion, and one received a qualified opinion. The results of the financial statement audits of the U.S. Marine Corps, the Defense Information Systems Agency Working Capital Fund, and the DoD Office of Inspector General are still pending. All other DoD Components undergoing a standalone audit received disclaimers of opinion. The audits resulted in the consolidation of two DoD-wide material weaknesses into one, and the separation of one DoD-wide material weakness into two. No new DoD-wide material weaknesses were reported resulting in no net change in the number of material weaknesses.
The Department took a major step toward resolving its Fund Balance with Treasury material weakness, a Secretary of Defense audit priority area. The Air Force General Fund closed its Fund Balance with Treasury material weakness, making it the first Service to remediate this foundational issue on one of its financial statements. Army Working Capital Fund and Navy General Fund both downgraded their Fund Balance with Treasury material weakness. Importantly, the substantial progress made by the Services shows that by naming DoD-wide priority areas, concentrating efforts, and setting and monitoring metrics, we are collectively having a meaningful effect.
"Auditing the Department's $3.8 trillion in assets and $4.0 trillion in liabilities is a massive undertaking," said Michael McCord, the DoD Under Secretary of Defense and Chief Financial Officer, "but the improvements and changes we are making every day as a result of these audits positively affect every soldier, sailor, airman, marine, guardian, and DoD civilian."
The Department measures audit progress across five areas: Workforce Modernization, Business Operations, Quality Decision-Making, Reliable Networks, and Enhanced Public Confidence. For example, the Department of the Air Force has deployed a total of 65 bots saving approximately 429,000 labor hours and improving the auditability of business processes. The auditors for the Army tested its construction-in-progress monitoring control and found no unresolved transactions in the clearing account. The Department of the Navy reviewed $17 billion of unliquidated obligations, validating that 97 percent of the balances met audit requirements and uncovering $330 million available for deobligation. And the Department retired 10 audit-relevant legacy systems, 3 of which were accounting systems used by multiple Components. The Department received positive (unmodified or qualified) audit opinions on 27 of 30 of its financial system examinations, with 2 opinions still pending.
The Department successfully resolved three high priority improper payment programs in FY 2023 by reducing monetary losses and restructuring programs to better align with program objectives. Furthermore, the Department prevented other programs from becoming a high priority program in FY 2024 by continued efforts to identify root causes; focus on controls that detect and prevent overpayments; implement or reinforce applicable processes and procedures; and train staff on travel policy guidance and best practices.
"We are working hard to address audit findings as well as recommendations from the Government Accountability Office. The Components are making good progress resulting in meaningful benefits, but we must do more, and we cannot do this alone," McCord said. He emphasized actions DoD leaders have taken to accelerate audit progress and called on Congress and defense industry partners to do more to help, including:
- On October 13, 2023, the Secretary of Defense issued a memorandum to the Secretaries of the Military Departments and Principal Staff Assistants emphasizing and reinforcing expectations for supporting the DoD financial statement audits, including actions necessary to implement and report on recommendations provided by the Government Accountability Office for achieving an unmodified audit opinion.
- The Planning, Programming, Budget, and Execution process requires collaboration across DoD's planners and programmers, the DoD financial management community, DoD leadership, the Office of Management and Budget, and Congress to ensure alignment of priorities and resources. Congress can help us to optimize our budget to execution by enabling us to refine our process to reduce outdated regulations and policies and streamline end-to-end standard capabilities. This will result in total funds visibility and ultimately help us all deliver defense mission capabilities faster and with more agility.
- Congress can further help by stabilizing the budget process and avoiding continuing resolutions and government shutdowns; ensuring timely continuity and confirmation of leadership; providing adequate and consistent resources for replacing DoD legacy systems; aligning regulatory guidance to DoD-specific financial reporting challenges; and advocating for continued support of the financial statement audits.
- Defense industry partners can help by introducing innovative, time-saving enterprise solutions; bringing property in the possession of contractors into audit compliance; providing transparency into the location and condition of DoD assets; providing compliant, innovative, and affordable enterprise solutions; and supporting audit progress by complying timely with all audit requirements and requests.
