Pentagon fails 7th audit in a row but says progress made

The Pentagon on Friday failed its seventh audit in a row, with the nation's largest government agency still unable to fully account for its more than $824 billion budget, though officials stress they are making good progress toward a clean audit in 2028.

The Department of Defense technically earned a disclaimer of opinion, meaning it failed to provide sufficient information to auditors to form an accurate opinion.

The goal is to earn an unmodified audit opinion, or a clean audit that says the financial statements are accurate. A qualified opinion says there are omissions and concerns but the finances are generally reliable.

Under Secretary of Defense Comptroller and Chief Financial Officer Michael McCord said that despite the disclaimer of opinion, which he expected, the Defense Department "has turned a corner in its understanding of the depth and breadth of its challenges."

“Momentum is on our side, and throughout the Department there is strong commitment—and belief in our ability—to achieve an unmodified audit opinion," he said in a statement.

The Defense Department's report card as a whole is made up of 28 entities operating under the Pentagon that conducted independent audits.

Of those, nine received an unmodified audit opinion, one received a qualified opinion, 15 received disclaimers and three opinions remain pending. The Pentagon expects the final number of clean or qualified audits to be roughly around what it was last year.

The Pentagon has never passed an audit since the agency became legally obligated to carry them out in 2018. A major challenge in auditing remains a full accounting of the sheer number of systems the Defense Department employs.

The Pentagon said it is firmly committed to achieving a clean audit by 2028, as mandated by the 2024 National Defense Authorization Act.

At a Friday briefing with reporters, McCord explained the number of clean audits indicated progress and disputed the characterization that the Pentagon had failed another audit.

"I do not say we failed, as I said, we have about half clean opinions. We have half that are not clean opinions," he added. "So if someone had a report card that is half good and half not good, I don't know that you call the student or the report card a failure. We have a lot of work to do, but I think we're making progress."

He added that a 2028 clean audit was possible but the DoD would have to "make enormous progress" to get every agency over the line.

"Is 2028 achievable? I believe so," he said. "But we do have to keep getting faster and keep getting better."

The audit was conducted by independent auditors along with the DoD Office of the Inspector General.

Agencies that earned a clean audit include the Defense Commissary Agency, Defense Contract Audit Agency, Defense Finance and Accounting Service and Defense Health Agency.

The Defense Information Systems Agency, Military Retirement Fund, National Reconnaissance Office, and U.S. Army Corps of Engineers – Civil Works and the Defense Threat Reduction Agency also achieved a clean audit.

Eight agencies also closed or downgraded their material weakness associated with their fund balance with the Treasury Department, meaning they have accurately balanced their spending with money held in a government account or achieved a positive report on tracking it.

Those agencies were the financial management systems for the Army, Navy, Air Force, along with the Defense Information Systems Agency, Defense Threat Reduction Agency, the Defense Advanced Research Projects Agency, and the National Geospatial-Intelligence Agency.

McCord likened the correction of material weaknesses to balancing a checkbook, and said it was "the biggest sign of progress" toward clean audits across the Pentagon.

He added the Pentagon has improved from less than 7 percent to more than 82 percent of its funding being free of material weaknesses since 2021.

"This now means that the Army, the Navy, the Marine Corps, the Air Force have gotten their house in order on all of their funding, or cash," he said.

The Pentagon is continuing to work toward a clean audit through modernizing the workforce, improving financial data systems and increasing interoperability between systems.

The goal of a clean audit in 2028 means the Pentagon will have to pass on its strategy to the incoming Trump administration, but McCord said he was hopeful they "can keep a lot of that continuity of the strategy" he has seen in the past.

"Our strongest path forward is to keep a lot of continuity in what we're doing," he said, saying it was "not a classic political" issue between administrations. "There's different ways to get at solving that problem, but there's not different ways to define the problem."

This year, the audit cost the Defense Department $178 million and involved some 1,700 auditors.