Pentagon fails one audit after another: unable to account for $824B budget

The Pentagon tries to pass another audit and fails

We often hear that governments lose money or that countries spend taxpayers' money on other things. Many are disappointed that conflicts in the world and money spent on support for Ukraine, Israel, and other countries are only masking money lost from our wallets.

These claims become more real when we hear the news that the Pentagon failed to explain spending during an audit. This is the seventh time the government has failed an audit. The US Department of Defense tried during the annual audit, again resulting in a disclaimer^[1].

The federal government cannot properly explain the $824 billion budget. The disclaimer was expected since this is the seventh failure in a row. It is believed that next year's audit should end the same. The Pentagon promised to get it together and accurately account for the spending by 2028.

Last Friday's audits resulted in a disclaimer of opinion, which means auditors were provided with insufficient information to form an accurate opinion on these accounts. DOD reported 28 entities with standalone audits. Nine received the unmodified audit opinion, only one received a qualified opinion, and 15 received disclaimers. According to the Pentagon, three opinions remain pending^[2].

Progress is made despite failing 7th audit in a row

The nation's largest government agency cannot account for the budget, but officials stress that some progress has been made. The DOD technically got the disclaimer of option, which means they failed to provide particular information to auditors.

The goal is to earn an unmodified audit opinion or a clean audit, which means the financial statements are entirely accurate. The audit examined $3.8 trillion in assets and $4 trillion in liabilities. The failure raises severe concerns about the transparency and financial accountability of the department and even the country's overall government.

The Pentagon is now under growing pressure to fix its financial problems. The Under Secretary of Defense and Chief Financial Officer, Michael McCord, says the department is progressing slowly. He reaffirmed the goal of achieving a clean audit by 2028, as required by the 2024 National Defense Authorization Act.

This commitment comes after serious accounting errors were revealed earlier this year. The Pentagon found $2 billion in mistakes related to aid for Ukraine, bringing the total value of improperly tracked materials to $8.2 billion. These issues have sparked strong calls for reform and stricter oversight^[3].

Fixing the Pentagon’s financial issues will not be easy

Unfortunately, the U.S. Department of Defense has consistently failed its annual financial audits since they commenced in 2018. It seems there are ongoing challenges in financial management and accountability.

• It all started with the 2018 audit, the year the DoD failed its first-ever comprehensive audit. This audit covered $2.7 trillion in assets and $2.6 trillion in liabilities. Only five of the 21 individual audits received a passing grade. The audit cost approximately $1 billion, including $367 million for audit support and $551 million to address identified issues.
• Then came the year 2019. The clean audit opinion was also not achieved. Various weaknesses, like issues with financial reposting and information technology systems, were revealed. In 2020, the audit was failed again. Persistent deficiencies were noted in inventory management and financial reporting processes.
• The audit in 2021 identified ongoing issues with asset accountability and data reliability. The fifth failed audit in 2022 resulted in the department not accounting for more than 60% of its $3.5 trillion in assets^[4]. Last year, the audit covered $3.8 trillion in assets and $4 trillion in liabilities. The number of individual audits receiving passing grades remained stagnant compared to previous years.

The DoD has faced challenges in accurately accounting for its spending. While specific sums of unaccounted funds vary annually, the recurring audit failures underscore systemic issues in financial management that the department continues to address.

The department’s large and complicated structure makes change difficult. Resistance from within and the risks of integrating private-sector technologies into sensitive national security systems add further challenges. This is probably why this audit failed the seventh time in a row.

D. Trump plans to overhaul Pentagon spending

Bipartisan groups are working on plans to penalize military branches that fail to meet audit goals. Some proposals suggest cutting budgets for underperforming departments and returning the money to the Treasury to reduce the national deficit. Supporters of these ideas believe this will protect taxpayer money and rebuild public trust in government spending.

The Pentagon’s financial problems may become a key focus under Donald Trump’s next administration. Trump has announced plans to create a "Department of Government Efficiency." Elon Musk and Vivek Ramaswamy are expected to lead this effort to eliminate waste and modernize federal agencies, including the Department of Defense^[5].

Senator Rick Scott addressed the issue on his X account:

"The Department of Defense has once again failed to account for its MASSIVE taxpayer-funded budget of over $820 billion. If we want to be the most lethal and powerful fighting force on Earth, we not only need to fund defense but do so smartly. That is impossible when the DoD cannot tell anyone how it spends its nearly $1 TRILLION budget funded by American taxpayers. The U.S. federal government is now more than $36 TRILLION in debt – that’s $9 TRILLION more than when President Biden took office thanks to his addiction to reckless spending. It’s time for a reckoning, and I am confident that when President Trump takes office we will finally have accountability to the American taxpayer, and a lethal, not woke, military that terrifies our enemies and is respected by our allies. After years of the American people footing the bill for the mistakes and failures of the Biden-Harris administration, our government needs the wakeup call and that is what President Trump will soon deliver."

If Musk and Ramaswamy are appointed, they could play a big role in changing how the Pentagon manages its finances. Musk could push for advanced technologies like blockchain and artificial intelligence to improve financial tracking and audits. Ramaswamy, with his background in business, might bring a results-focused approach, emphasizing accountability and efficiency.

Musk’s involvement could also encourage partnerships between the government and private companies. These collaborations would aim to modernize outdated systems and reduce inefficiencies. The goal would be to ensure that resources are spent on critical defense needs instead of getting lost in bureaucracy.