• Ready or Not: Auditors Descend on Department of Defense

    By | December 11, 2017

    It’s not as cool as a multi-ship C-17 formation dropping paratroopers as a part of a training exercise (like the one that everyone thought was a UFO on Saturday night). But, our profession’s only semi-equivalent — 2,400 red-pen wielding auditors — will infiltrate the Department of Defense (DoD) this month to kick butt and take names. They say it’s going to be a yearly audit with a November 15 issue date.

    We’ll see what damage we can cause. The DoD has never actually been audited. It’s just been a big ol’ elephant in the room for decades.

    But, the grace period is over. Now we have to brace ourselves for the mess. Even I’ve witnessed what I would consider “fraud, waste, and abuse,” as the military likes to call it. I’m sure there’s a reason we’ve turned a blind eye to this quagmire for so long. Taxpayers might not want to know.

    NPR reported:

    This summer, Norquist [Defense Department Comptroller / Chief Financial Officer] was asked by Defense News if the looming audit was “the biggest bugaboo of the job.”

    Norquist replied, “I don’t think of it as a bugaboo. I think of it as a great opportunity.”

    I appreciate his tenacity; someone has to take on the job since the DoD was federally mandated to be audit-ready by Sept. 30, 2017. But, bugaboo is putting it gently. This comptroller news release puts it into perspective:

    With more than $2.4 trillion in assets, this financial statement audit is one of the largest ever undertaken in history. The DoD OIG hired independent public accounting firms to conduct audits of individual components, as well as a Department-wide consolidated audit to summarize all results and conclusions. Beginning in 2018, our audits will occur annually, with reports issued November 15.

    Let’s at least learn from the mistakes Grant Thornton made during the Marine Corp audit:

    “The bottom line is GT did not adequately document or support their conclusion about” the reliability of the Marine Corps’ record-keeping, he wrote. The firm had not made sure that financial data in the Marine Corps’ computer systems was accurate, he said in the email, and the inspector general’s team had to do “compensating work” as a result.

    And who’s on the hook to deliver the final audit opinion for the agency-wide DoD audit?

    KPMG (Army), EY (Air Force), and Cotton and Company (Navy) had been tapped in the past for individual branch audits as they ramped up for the agency-wide shindig. But, Caleb speculated late last week that it might be PwC:

    Although PwC is fully committed to expanding its lucrative advisory business, the DoD is the type of crown jewel audit client the firm craves. By spinning off the government consulting arm, the firm would be able to pitch its services “with the full commitment to the integrity of the process” something-something.

    We’ve reached out to everyone we can think to get the dish on who it actually is… no comment yet from Norquist and friends, or the chief Pentagon spokesperson. We’ll report back if we hear anything definitive.

    And it does start to get a little more complicated with independence thrown into the mix. The Big 4 have been noodling in the federal services consulting for a while. Francine McKenna reminds of some of the history that may come into play when these decisions are being made:

    Whoever it is, I anticipate they have already started their security clearance processing for the couple thousand auditors. That always takes forever, and if they have any hope to issue a report by next November, there’s no time to lose. I can imagine the security clearance required to do an inventory count of the U.S.’ defensive stockpiles is rather excessive.

    • CHHanks

      A Dec 5 Bloomberg report ( https://about.bgov.com/blog… shows the DOD has spent over 800 million dollars on prime contracts for “auditing support” since FY 2013, with the amount rising steadily from $105.1 million in FY 2013 to $241 million in FY 2017. An estimate of what 2400 external auditors will cost in the current fiscal year (2018) would be: $100K times 2400 = another $240 million.

      Last September, Sen Chuck Grassley, a Republican member of the Senate Finance Committee, observed that the “DOD is big,big business for these auditing firms,” and predicted that the FY 2018 audit effort is “doomed to failure,” because he doesn’t believe (for good reason) that DOD business systems will be able to produce all the data auditors require before they will issue unqualified opinions that DOD’s FY 2018 financial statements (balance sheet and income statement) “fairly present” the dollar value of DOD’s assets, liabilities, and equity, and results of operations, in accordance with Generally Accepted Accounting Principles(GAAP) for the federal government as defined by the Federal Accounting Standards Advisory Board (FASAB).

      It all sounds pretty technical (and really expensive) doesn’t it?

      The real question Senator Grassley and Mr. Norquist both might want to consider is whether the long-standing requirement for the DOD to produce private-sector-style financial statements as if it were a business (which it isn’t) has ever really made sense. Other government agencies have produced such statements (the requirement to do so goes back to legislation passed in 1990) with no noticeable effect on either their effectiveness or efficiency. (Contrary to popular belief, financial statements aren’t designed to measure either of those things.)

      Meanwhile, though, the Big Four are all doing pretty well here, don’t you think?
      Indeed, Pricewaterhouse Coopers is exploring the sale of its government consulting practice so it can focus on its “growing business” auditing government agencies: https://www.reuters.com/art

      The Congress, the GAO, and DOD leaders are all being disingenuous when they allow the myth to persist in the public’s mind that a connection exists between the DOD’s financial statements and its effectiveness and efficiency in performing its national security mission.