Senators Seek Pentagon Reassurance on Department’s Financial Audit

Acting Defense Secretary Patrick Shanahan speaks with the media as he waits for the arrival of NATO Secretary General Jens Stoltenberg at the Pentagon Jan. 28.

Acting Defense Secretary Patrick Shanahan speaks with the media as he waits for the arrival of NATO Secretary General Jens Stoltenberg at the Pentagon Jan. 28. Alex Brandon/AP

The bipartisan group is worried that the expanded duties of Defense CFO David Norquist could delay reports to Congress.

A bipartisan group of 26 members of the Senate Armed Services and Budget committees has written to acting Defense Secretary Patrick Shanahan expressing concerns that the expensive and unprecedented effort to audit the sprawling department is slipping down the priority list.

Led by Sens. David Perdue, R-Ga., and Angus King, I-Maine, the group wrote to Shanahan commending Pentagon Chief Financial Officer David Norquist’s work but suggested he may be stretched too thin since his elevation on Jan. 1 to acting deputy Defense secretary following the resignation of then-Secretary Jim Mattis in December.

The first installment of the Norquist-run, congressionally mandated review of Defense Department financial statements was released in November. It covered $2.7 trillion in assets and $2.6 trillion in liabilities for fiscal year 2018, requiring more than 1,200 outside auditors to conduct more than 900 site visits at 600-plus locations.

“This was a critical first step to bring greater transparency and accountability to the Pentagon; however, more progress must be made to reach a clean opinion,” the senators wrote, citing implications for national security. “Ultimately, because only five of the 24 individual audits conducted received a passing grade, it is imperative that subsequent, annual audits continue as planned to properly measure progress.”

The worry, they said, is that the department may fall behind on regular reporting to Congress. “Given the vast responsibilities of the deputy secretary of Defense role, including managing the Pentagon’s day-to-day business, it is important that the responsibility of overseeing the DOD audit is not in any way neglected.”

The letter was dated Jan. 30, the day that an update on corrective actions taken after the first version of the audit was due as part of a timeline, the senators added, that includes coming deadlines in March and June.

A Pentagon spokesman did not address queries by Government Executive, noting that it seldom issues statements on congressional correspondence.

On Jan. 9, the Pentagon’s inspector general issued an analysis of the audit’s November submission, stressing that “tone at the top” can make a difference in how much the department’s employees take the audit’s follow-through seriously over the long term. “It is critical that the DOD and its components fix the weaknesses and deficiencies identified in the audit through the development, implementation, and monitoring of corrective action plans,” wrote the office led by acting IG Glenn Fine.

The watchdog noted, for example, that 70 “notices of findings and recommendations” were issued in fiscal 2018 in the area of inventory and property alone. “Auditors found that items selected for testing: had been moved or used, but were still in the inventory records; were found in the warehouse but not listed in the inventory records; were recorded as in good condition but were actually unserviceable; and did not have supporting documentation to demonstrate ownership.”

Comptroller Norquist acknowledged that property inventory was a problem.

In a Feb. 2 op-ed in Defense One, Rep. Rob Wittman, R-Va., portrayed the first installment as a mixed success. “While this audit highlighted several major areas of improvement, it found no evidence of fraud or major waste,” he wrote. “One of the audit’s most poignant findings was the extent of the messy and cluttered universe of defense transactions. This is due mostly to a fiscally decentralized environment and legions of nonstandard financial management business processes and systems.”

Robert Hale, the previous Pentagon comptroller now a senior adviser at Booz Allen Hamilton, told Government Executive that he supports Norquist’s and the department’s efforts. “I still strongly believe that DOD needs to pursue and eventually achieve auditable financials,” he said via email. “Public confidence is the main reason in my mind. I don’t think the public or Congress will ever believe that DOD is a good steward of public funds until it can pass an audit.”

But the problem, Hale added, will be demonstrating progress. “Norquist has said it may take 10 years to complete the audit journey. But if he cannot show demonstrable progress by the end of the first Trump term, I believe that DOD’s credibility will again be damaged.”

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