June 24, 2018

The Defense Logistics Agency Be Like, “Accounting? What’s Accounting?”

department-of-defense-audit

Occasionally I will see something charged on my credit card that I don’t remember. I rack my brain. Sometimes I start to think maybe someone’s stolen my card number. But, more often than not is a charge from an obscure parking meter or something similarly mysterious that I didn’t commit to memory. The credit card statement description is never helpful for those types of charges. When it’s for $3.75, it’s not a big deal. But it’s a little scary when it’s a big number. What if it was a number with oh, say, eight zeros?

Before we get to the case of the unaccounted for $800 million, let me remind you that the Department of Defense (DoD) is conducting their first agency-wide audit. It’s an overwhelming task, and it’s expected to be quite the spectacle.

As a follow-up to my last post on the topic, we reached out to Christopher Sherwood, a Department of Defense spokesman, to determine which firms would be participating and were told:

The DoD will have over 24 standalone audits conducted by CPA firms that perform audit and assurance services in the federal government space such as KPMG, Ernst & Young [EY], Kearney & Co. and Cotton & Company. The DoD OIG will perform the Department-wide consolidated audit to summarize all results and conclusions.

As he indicated, EY is in on the action and Politico broke the story yesterday that the firm “found that the Defense Logistics Agency (DLA) failed to properly document more than $800 million in construction projects, just one of a series of examples where it lacks a paper trail for millions of dollars in property and equipment.”

You’re probably wondering who these DLA knuckleheads are. I know I was. They’ve sure got some ‘splainin to do.

Apparently:

The DLA serves as the Walmart of the military, with 25,000 employees who process roughly 100,000 orders a day on behalf of the Army, Navy, Air Force, Marine Corps and a host of other federal agencies — for everything from poultry to pharmaceuticals, precious metals and aircraft parts.

EY was told not even try to “reconcile balances from its general ledger with the Treasury Department” because, well, it didn’t. Maybe they are just making up numbers? It seems like it since the DLA didn’t have sufficient documentation (or any at all) for some projects. Findings like this would make shareholders run for the hills. But, taxpayers? We’re chill.

But, the disturbing part about all of it is that no one is that surprised, not even the agency itself. DLA told Politico in a statement that:

DLA is the first of its size and complexity in the Department of Defense to undergo an audit so we did not anticipate achieving a ‘clean’ audit opinion in the initial cycles… The key is to use auditor feedback to focus our remediation efforts and corrective action plans, and maximize the value from the audits. That’s what we’re doing now.

I’m sure there will be more schadenfreude as other firms issue their findings as the year goes on.

And, hey, if you want in on the action, it looks like some of the firms are hiring in this area. KPMG’s Federal Advisory Services Team hosted an invitation-only recruiting event in support of career opportunities in Audit Readiness to support NAVY and other DoD engagements in DC a little over a week ago. It said that positions were “immediately available” and were “anticipated areas of growth.”

Area for growth. No kidding. Get a red pen and buckle up for a bumpy ride.

Image: iStock/useng

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