The Pentagon Has Never Passed An Audit. Some Senators Want To Change That

When the Pentagon launched its first-ever independent financial audit back in 2017, backers of accountability in government welcomed it as a major step for a department with a track record of financial boondoggles.

But the Defense Department failed that audit – and the next two as well. Now lawmakers are introducing a bipartisan bill that would impose a penalty for any part of the department, including the military, that fails to undergo a "clean" audit.

"The Pentagon and the military industrial complex have been plagued by a massive amount of waste, fraud and financial mismanagement for decades. That is absolutely unacceptable," said Sen. Bernie Sanders, I-Vt., who co-sponsored the bill with Sen. Chuck Grassley, R-Iowa, along with Sens. Ron Wyden, D-Ore., and Mike Lee, R-Utah.

Despite having trillions of dollars in assets and receiving hundreds of billions in federal dollars annually, the department has never detailed its assets and liabilities in a given year. For the past three financial years, the Defense Department's audit has resulted in a "Disclaimer of Opinion," meaning the auditor didn't get enough accounting records to form an assessment.

The new legislation, the Audit the Pentagon Act of 2021, would require any component of the Defense Department that fails to pass a clean audit to forfeit 1% of its budget back to the Treasury, to be applied against the federal deficit. The bill is slated to be introduced Wednesday.

In the lawmakers' eyes, the Pentagon's inability to go through a successful independent audit is a major reason why the Defense Department has for years been associated with financial blunders and abuses. The Pentagon is expected to receive $740 billion in the current financial year, they note – but it hasn't been able to account for where all of its money goes.

"It's absolutely insane, and I think it would shock a lot of people," a senior aide to Sanders said in a background interview that was conducted shortly before the legislation was formally introduced. The aide spoke only on background to provide details about pending legislation.

The Pentagon blames some of the delay on is massive size: Its auditing process actually requires 24 stand-alone audits covering all the reporting entities in the DoD, along with a consolidated audit. The audits are performed by independent public accounting firms as well as the Department of Defense Inspector General.

But critics note that all federal agencies, including the Pentagon, have been under the same requirement to undergo an independent financial audit since the early 1990s. Every other federal department has satisfied audit requirements since fiscal 2013, when the Department of Homeland Security had its first clean audit.

"We've seen example after example of excessive and inefficient spending by the Pentagon, and every dollar squandered is a dollar not being used to support our men and women in uniform," Grassley said in a statement. "After 30 years to get ready, this bill pushes the Defense Department to finally achieve a clean annual audit – a requirement that every other federal agency is held to."

Examples of the problems abound, making it very difficult for Congress to conduct oversight of the largest recipient of federal discretionary spending.

"Right now, the Pentagon can't even tell you where all of its buildings are located in the United States," the senior aide to Sanders said.

Another big issue is that the Pentagon hasn't been able to say how many contractors and subcontractors it employs. In 2018, it emerged that the Pentagon's Defense Logistics Agency did not have a paper trail for more than $800 million in construction projects.

A failed audit from one recent year "uncovered a warehouse full of aircraft parts for planes that haven't been used in over a decade," the Sanders aide said.

And then there's the F-35, the notoriously expensive and controversial joint strike fighter jet. Despite costing more than $1.7 trillion in its estimated life cycle, attempts to audit the program have run into major hurdles.

As of this year, only a fraction of the Defense Department's many components have been able to meet the auditing requirements.

In its most recent audit report, the Pentagon said that its "target date to achieve the desired end state" — in other words, to pass an overall audit – won't come until as late as the 2028 financial year, based on when it says it can carry out corrective actions that are listed in the report.

The department says it's trying to improve, and its leaders say they're learning from each failed attempt. In fact, they say, they haven't been expecting to pass an audit by now, because of the complexity of the Defense Department.

"Though the [most recent] audit resulted in a Disclaimer of Opinion and identified material weaknesses, these were expected steps in our ongoing journey toward achieving full auditability and an unmodified audit opinion," then-Deputy Secretary of Defense David L. Norquist said when the most recent audit report was released, in November.

"The Department's leadership fully expected these results," the Defense Department said in that report, saying other large federal agencies have faced similar problems in their first years of undergoing a financial audit.

As for the mammoth size of the Defense Department, the senior Sanders aide notes that the Department of Health and Human Services, itself a very large part of the federal government, has now undergone a clean audit for 22 years in a row.

The legislation's supporters wield a great deal of clout in Congress: Sanders is the chairman of the Budget Committee, of which Grassley is a member. And Wyden chairs the Finance Committee, in addition to also being on the budget panel.

As for when — or if — it might become law, the bill's future most likely lies in being included in the next National Defense Authorization Act, which is expected to be taken up this fall.

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