Pentagon, DHS Can’t Pass Audits

So what else is new?

A recent Associated Press story reports that neither the Department of Defense nor the Department of Homeland Security can pass a financial audit. Sadly, this is old news, especially for the Pentagon.

It’s not too surprising that DHS’s books are a mess. First, it’s a new federal agency, created by Congress in 2002. Second, homeland security funding has increased dramatically since the September 11 attacks, growing from $16 billion in 2000, to a request of $61 billion for Fiscal Year 2008, which begins on Oct. 1. And though the department’s budget is only about half of this total -- $30 billion in FY’08 (the $35 billion figure in the AP article is inaccurate) – DHS has to coordinate the homeland security-related activities of some forty other federal agencies. Yet as the AP story points out, DHS did pass its first audit in 2003, albeit with a number of disclaimers. But they’ve failed every audit since.

The situation at the Defense Department is much worse. According to the Government Accountability Office (GAO), the federal government’s auditing branch, the Pentagon has never successfully completed an audit. And this is despite the fact that during the 1990’s Congress passed several pieces of legislation requiring the Defense Department to make the changes in its accounting practices necessary to do so.

Since 1999 GAO has regularly produced and updated its “High Risk Series,” which “identif[ies] federal programs and operations that, in some cases, are high risk due to their greater vulnerabilities to fraud, waste, abuse, and mismanagement." Of the 26 federal programs identified as “High Risk” in GAO’s most recent (Jan. 2007) review, seven are related to the Department of Defense. One was related to DHS (although several others are connected to U.S. homeland security, such as protecting critical technologies related to U.S. security and federal oversight of food safety.)

Ironically, very few federal agencies or programs are identified by name in the high risk series. In addition to DoD and DHS you will find the FAA, Department of Energy, NASA, the IRS, and Medicaid and Medicare. Not Social Security. Not Transportation. Not Agriculture. Not Education.

Why is this a problem? Because the Pentagon and DHS, which the GAO identify as “high risk,” are also the fastest growing areas of federal spending, outside of Social Security. Funding for homeland security has quadrupled since Sept. 11, while the annual defense budget has grown by almost forty percent -- more than $120 billion – not including the $180 billion plus we spend on the wars in Iraq and Afghanistan.

As I said when I first wrote on this issue back in March 2000, “That a federal agency as large and diverse as the Department of Defense cannot account for each and every transaction is no surprise. What is disturbing is the magnitude and the duration of the problem. The Federal Financial Management Act of 1994 and additional laws passed in 1996 require the Defense Department to submit audited financial statements each year. Neither the Defense Department nor any of the individual services have done so as of yet. And as the [Defense Department Inspector General’s] report notes, ‘DoD does not expect to have systems necessary to meet these new requirements before the year 2003.’"

Apparently, despite Congress’s concerns, the situation Pentagon is unchanged seven years later, and DHS is following this dubious example. At a time of ballooning deficits, where every dollar spent on our security needs to count, there’s no accounting for what our government is doing.