Tag Archives: DOD Audit Findings

How DOD Will Survive Its Next Audit



“The Defense Department famously completed — and failed — its first financial audit in 2018. The ordeal highlighted gaps and inefficiencies in the organization’s IT infrastructure, but it also served as a bastion for tech innovation.

Here’s what some of the Defense Department’s chief financial experts had to say about how they plan to survive DOD’s second audit and how using automation and robotics is easing the process”


Simply put, how do you all plan to pass the next audit for 2019?

Douglas Glenn, the Pentagon’s assistant deputy chief financial officer

Same way we did last year. We got through it last year — that’ll have been the hardest — we’re going to do it again next year. And you know, it’s that question of how do you eat an elephant? One bite at a time. So we just chip away at the NFRs [notices of findings and recommendations], which will lead to reducing the material weaknesses, which will lead to more clean opinions and we’ll get there.

Fredrick Carr, associate deputy assistant secretary for the Air Force

We’re more efficient now. The first full audit was in 2018. Getting all the documentation to the auditors, timely, entering all the PBCs [provided by client lists], that was really a ruckus. But we really learned from that. We put a tool in place — we don’t have any late PBCs now. That I think is the biggest piece. And we learned from the corrective actions, how to write them, getting at root costs.

Wesley Miller, the Army’s deputy assistant secretary for financial operations

With the Army, I don’t think we’re at a breakthrough point. We’re still focusing on the different types of audits that we’re performing — our working capital fund, our conventional ammo — and taking care of those particular items and then tackling the big general fund as of late.

Victoria Crouse, chief strategy officer for the U.S. Navy’s financial operations office

I think we’re open to any and all findings that we get from the auditors. We try to be pretty transparent on where we think some of our issues are. We’re getting some positive feedback on corrective actions that we’ve implemented. But they’re getting in some areas where they’re able to dig a little bit deeper than they did last year. It’s a continued learning experience, and we’ll go through that prioritization process again and just keep moving forward one step at a time.

All of you might have mentioned robotics during your presentations, how important is this? I know from the Army side, Army Futures Commander Gen. John Murray has talked about using artificial intelligence and automation to improve the Army’s budgeting process. Can you talk a bit about how that’s developing and how each of you is using robotic processes?

MILLER: Compare functions. You look for compare functions where you can take one item and have it do the checking. Rather than have someone swivel from one system to another system, you have the robot do the comparison function for you. We want to use a robot to look at individuals who are leaving the service and then comparing that back to individuals who are still remaining and have permissions remaining on the systems. Those are the types of functions that I see initially. They will grow bigger, become more complex after that.

CARR: Across the board, anything we see that is typically not high-value added and repeatable, we can program it. And our goal is to take all that stuff that’s low value added and see if we can add robotics to it and get it out of the hands of people manually processing. Because every time you have to put something in a system manually, it’s probably going to generate a DFAS [Defense Finance and Accounting Service] bill that’s manual — and that’s a huge cost. We can pay $34 for a transaction or we can use an electronic and do it for $2 or $3 a transaction. So that’s huge.

Any new areas for robotic processes that you’re looking into?

CARR: So the leave balance for our active duty military is the newest one. Being able to do that instead of having a person go in and see where did Airman Snuffy come back from leave because he didn’t clock back in. There’s no incentive to do that when you come back from leave because you’re back at work the next day. But it’s still in the system that way and it shows that you’re still gone. Well if robotics can take all that stuff and clean it up, then the [supervisor] doesn’t have to worry about that. It’s done.

Where’s the Navy on this?

CROUSE: We’re in the early stages. Similar to Air Force, we’re looking at any of those processes that are highly manual where we might have an opportunity to use robotics. One of the areas we’re looking at is retrieval of supporting documentation for the audit.

MILLER: And remember, what we’re attempting to do is open up more time for people to actually do analytical work. We don’t want them to get hung up on the … work of doing comparisons. We want them there to spend more time analyzing what’s behind, what the numbers mean.

Back to DOD, anything to add?

GLENN: There’s a positive ROI [return on investment] there. I forget the numbers, but we estimate that we’re saving more annually than we spend on it, just in the few that we’ve deployed at the office of the secretary level.

At the Pentagon, Fourth Estate level, are there any new areas that you’re looking to apply this sort of automation?

GLENN: We’d love to get into accelerating the de-obligation process and contract close out. I think almost every agency out there is wrestling with closing out old obligations and getting their contracting community to focus on that as opposed to getting new contracts out. So if we could deploy some robots to accelerate that closeout process, lift some of the burden off the contracting officers, it would be a win-win across the government.”


DOD Audit Uncovers Millions Of Dollars In Unaccounted-For Spare Parts

Image: Performcoat.com


“The Defense Department is just starting its second year of full-scale financial audits, and it’s likely to take many more before those efforts yield a clean opinion.

In the first year of the full-scope examination, auditors issued more than 170 separate findings and recommendations detailing the military services shortcomings in tracking their small-item inventory and real estate. “


“But the process is already having at least one beneficial effect: It’s pushed the military services to account for tens of millions of dollars in government property they’d lost track of.

David Norquist, DoD’s CFO and comptroller, said progress along those lines has already delivered concrete proof for why the audit is not merely a paperwork drill.

“We discovered there are certain facilities where what they thought they had in inventory did not match what they had in inventory. And if your responsibility is spare parts for airplanes, the accuracy of that inventory matters,” he told the Senate Armed Services Committee last week.

One example was how, at Utah’s Hill Air Force Base, a stockpile of missile motors was erroneously listed as unserviceable even though they were in perfectly good condition. Putting them back into circulation instead of ordering new ones saved the Air Force $53 million.

“In other places, if you go to Osan and Kadena [air bases in Japan], they had 14,000 munitions worth $2.2 billion, and 100 percent were accounted for — not a single exception,” Norquist said. “What we’ve learned is there are some places that are doing this quite well, and there are others where we need to help them fix their processes, but the commanders in the field recognize the direct connection to mission and readiness. They saw the tangible value, and I think as we move forward, the accuracy of the data and adopting more businesslike practices will be tremendously helpful.”

Facilities ‘no one knew existed’

Instances of bad or missing data about entire warehouses worth of parts came up more than once during the course of the 2019 audit.

Thomas Modly, the undersecretary of the Navy, said the Navy found something similar when its auditors began examining a facility in San Diego.

“When we went out and actually started counting inventory and understanding where our stuff was, they found a warehouse that no one knew existed, and it had $26 million worth of parts for the E-2 and the F-18,” he said. “It was not categorized. It did not sit on any inventory system that we had in the whole Department of the Navy. Once that was identified, we were able to requisition $19 million worth of parts to aircraft that were waiting for them and were down because we didn’t even know we had those parts. This is a serious problem for us that we really have to get after, because at the end of the day, it impacts our ability to perform the mission, and our costs.”

The DoD Inspector General reported similar issues in its summary of the 2019 audit findings. More than 100 Blackhawk helicopter blades that were listed as available for use, but that were actually damaged. Fuel injectors stored in warehouses with no documentation to show which military service owned them. Entire facilities that had been demolished years ago, but are still listed as active on the military’s property books.

The IG reported 20 overall material weaknesses after the first audit, and then refined the list down to six that auditors thought were most concerning. Two of the six had to do with property — one encompassed spare parts and other inventory, while the other dealt with bigger-ticket items like real estate.

“We’ve gone out and said, ‘Give us a list of a certain asset and how many you have and where they’re located.’ And when we go, we either find that they have more than they thought, or the ones on their lists don’t exist,” said Carmen Malone, the deputy assistant inspector general for audit. “If you have something in your inventory records that actually can’t be used, you’re not going to order something, because you think you already have it. From an inventory standpoint, that is a big deal.”

Malone said one of the reasons the IG considers the property issue so serious is that it has a direct bearing on military readiness.

“It’s not just from a financial statement standpoint,” she said. “We are out talking to the everyday operating people and making sure that they understand that what they do impacts not just the financial statements. This information will be used as a central location for decision makers across the department from a readiness and logistics standpoint as well. If the information is accurate for financial statements, it’s going to be accurate for the decision makers, which ultimately affects the operations and readiness of the department.”

At last week’s hearing, Norquist declined to predict when the department will finally earn a clean opinion on its full financial statement, but he said he expected that either the Army or the Marine Corps would pass an audit of a small portion of their individual statements — namely,  their working capital funds — within the “next couple years.”

But Modly said his department has major, systemic challenges it still needs to solve with its accounting systems before audit passage is a reasonable probability — at least on an ongoing, repeatable basis.

“We have nine current general ledger systems. They’re not connected, and they create all kinds of disparities in our ability to truly understand our financial information,” he said. “We have business systems that are even more complicated that require interfaces that cause breaks in data security. Because of all those problems, we’re doing a lot of estimating, a lot of hand-jamming of information that most modern industrial corporations never have to do. Most modern industrial corporations can push a button and generate a financial report. We are not even close to that, and we have to get better.”