Defense Secretary Leon Panetta

Defense Secretary Leon Panetta Manuel Balce Ceneta/AP

Pentagon showing only modest progress toward clean books

Deputy inspector general tells conference that 2014 auditability goal is at risk.

The Defense Department is at “considerable risk” of not meeting its internal goal of a clean budgetary statement by 2014 and fulfilling Congress’s mandate of auditable financial statements by 2017, a key auditor said on Tuesday.

Dan Blair, the Defense Department’s deputy inspector general for auditing, said that despite the Pentagon’s quest to get a handle on the billions of dollars it disburses, officials lack “certainty that they are paying the right person the right amount at the right point in time.” There is progress in applying new requirements, Blair said, “but the progress is difficult to see and slow,” he said at a conference on governmental accounting and auditing put on by the American Institute of Certified Public Accountants.

Though the Pentagon’s management of financial statements has been on the Government Accountability Office’s high-risk list since the 1990s, a push to harmonize procedures for documenting spending at a huge and decentralized set of Defense sub-units has risen on the agenda in the past year since Defense Secretary Leon Panetta made it a special priority.

That “change in tone at the top,” said Asif Kahn, director of financial management and assurance at the GAO, has “reset” the department’s bid to achieve a qualified audit. But Defense still faces challenges, Kahn said, such as “resolving weaknesses in internal controls over financial management,” maintaining a competent workforce, establishing an oversight and accountability mechanism, implementing the needed information technology systems and elevating the authority of a chief management officer.

The department, which is focused first on achieving an auditable Statement of Budgetary Resources by 2014, must run what amounts to “a big checking account with thousands of people being able to write checks,” Blair said. Capturing an “auditable universe” within it will require effective reconciliation between a general ledger and subsidiary ledgers. But schedule delays in implementing shared enterprise resource planning programs, along with inconsistent controls and unreliable data that require “manual intervention to get them into a usable format,” combine to make it tough to keep the project on track, he said.

Mark Easton, deputy chief financial officer at the Pentagon, pointed to the vast amounts of money involved -- the $645 billion defense budget is larger than the economies of all but 25 countries, he said-- along with the diversified missions within his department. “A sailor on a ship knows the name of his captain but doesn’t know the deputy chief financial officer at the Pentagon,” he said.

Easton voiced optimism that commanders are working toward “operational readiness as well as business readiness” and that his team is applying strategic guidance to the force structure to better document property and the spending of funds. About 14 percent of Pentagon projects are ready for audit and 85 percent are in preparation, he said.

The goal is to combine short and long-term strategies over three years, “to walk and chew gum at the same time” by building in the habits of proper business processes while doing the day-to-day work, he said. “It’s not an exam you cram for,” Easton said.

Though the Pentagon does not need new incentives for progress, he said -- citing Panetta’s public commitment to saving taxpayer dollars in the current budget crisis -- he “appreciates” the attention given to the auditability challenge by Sen. Tom Coburn, R-Okla., and several other senators, who introduced the Audit the Pentagon Act. Rep. Mike Conoway, R-Texas, who serves on the Armed Services Committee, is pleased with progress, Easton added.

Easton stressed the importance of spreading the message about auditability, a point seconded by Blair, who said he was asked about it recently when he visited the Marines’ Camp Leatherneck in Afghanistan. “It has to be done correctly over there as well as here or there’s a downstream effect on the process,” he said. “But if you get a good process, the financial statement will come as natural byproduct.”

Blair said he’s looking forward to being the first to sign a clean Defense Department opinion in 2017.

NEXT STORY: Leading Through a Loss

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