Unsubstantiated Change Actions A 2013 Reuters investigation concluded that DFAS implements monthly "unsubstantiated change actions"—illegal, inaccurate "plugs"—that forcibly make DOD's books match Treasury's books. Reuters concluded: Fudging the accounts with false entries is standard operating procedure... Reuters has found that the Pentagon is largely incapable of keeping track of its vast stores of weapons, ammunition and other supplies; thus it continues to spend money on new supplies it doesn't need and on storing others long out of date. It has amassed a backlog of more than half a trillion dollars... [H]ow much of that money paid for actual goods and services delivered isn't known.
Audit In 1990, the U.S. Congress passed the Chief Financial Officers Act, which directed all federal departments and agencies to submit to annual audits. The DFAS is the lead Department of Defense unit in charge of auditing the U.S. military. Before the audit kicked off, the Pentagon spent tens of billions of dollars to upgrade its technology in preparation for the audit. Many of the new systems failed, however, as they were "either unable to perform all the jobs they were meant to do or scrapped altogether—only adding to the waste they were meant to stop," according to Reuters. According to contract announcements, substantial audit activity took place during fiscal years 2016–2018, with the DOD's first comprehensive audit concluding at the end of fiscal year 2018. Corporate accounting firms conducted the audit on behalf of the DFAS, with
Ernst & Young, Kearney & Co.,
KPMG, and
PwC prominent among them. Other firms, such as Cotton & Co.,
Deloitte, and Grant Thornton, provided audit readiness and financial improvement. According to the Pentagon, the DOD's first audit covered $2.7 trillion in assets and $2.6 trillion in liabilities. The DOD did not pass this first audit. Five of the twenty-one units received a passing grade (an 'unmodified opinion'), but the rest of the units failed.
David Norquist, the Pentagon’s
comptroller, estimated that this first audit cost close to $1 billion: $367 million for military infrastructure to support the audits and for the corporations conducting the audit, and $551 million to fix the problems identified in the audit. Investigative journalist
Dave Lindorff described the situation: the accounting firms eventually concluded that the department's "financial records were riddled with so many bookkeeping deficiencies, irregularities, and errors that a reliable audit was simply impossible." Deputy Secretary of Defense
Patrick Shanahan asserted, "We failed the audit, but we never expected to pass it." After the first audit was over, the DOD continued purchasing audit services from accounting firms, including from Ernst & Young, Kearney & Co., and KPMG. A few months after this audit, David Norquist—the man who, as the Pentagon's comptroller, oversaw the entire audit process—got promoted to Acting Deputy Secretary of Defense. Norquist is a former partner of Kearney & Co., one of the firms that conducted the audit. In January 2019, the U.S. Air Force contracted Diligent Consulting (San Antonio, TX) to realign "the fielding strategy to match the needs of individual units" and "incorporate two financial processes necessary to be compliant with Financial Improvement and Audit Readiness and the Federal Information System Controls Audit Manual." The DOD failed its second audit, though DOD officials insisted "progress" was being made. The DOD failed its third audit, with DOD officials urging patience, asserting that DOD will likely pass its audit sometime around the year 2027. As of fiscal year 2022, the DOD has still not passed its audit. ==Locations==