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DOD Leaders Target Audit Readiness at Town Hall

By Cheryl Pellerin
American Forces Press Service

WASHINGTON, May 24, 2012 – In the Defense Department’s congressionally mandated effort to become audit ready, DOD leaders yesterday told senior government executives the Pentagon must manage its books as tightly as it manages operational missions.

In a recorded video message, Defense Secretary Leon E. Panetta addressed the more than 240 senior executives who attended in person and another 270 who joined the town hall online or watched on the Pentagon Channel.

Deputy Defense Secretary Ashton B. Carter and DOD Comptroller Robert F. Hale led the hour-long meeting.

“DOD, I'm sorry to say, is the only major federal agency that cannot pass an audit today. I intend to change that but to do that I need your help,” Panetta said.

In the coming weeks, Panetta said, department executives “will hear more about audit readiness, and your commanders and managers will receive a checklist to help meet this challenge.”

All key personnel “need to be involved in meeting the checklist requirements, not just comptrollers, not just resource managers,” the secretary added.

“Our effort to become audit ready must be a department-wide priority,” he said.

The National Defense Authorization Act for fiscal 2010 requires the financial statements of DOD -- one of the world’s largest and most complex organizations -- to be validated as ready for audit by Sept. 30, 2017.

For more than a decade, DOD has rated high on the Government Accountability Office list of programs and operations that are vulnerable to waste, fraud, abuse and mismanagement because of deficiencies in financial management processes.

Carter said DOD is “committed to … achieving audit readiness in our budget statement by 2014, to achieving full audit readiness by 2017, and to achieving a number of interim goals that we set for ourselves at a Deputy’s Management Action Group a few months ago.”

The department has put aside resources to make the timeline possible, he added.

“This is not free and we understand that,” the deputy secretary said. “We will fund independent audits as needed in addition and we’ve established a governance process to achieve our objectives.”

Education efforts such as the town hall meeting and the audit checklist for managers are important, Carter said, “because we’re trying to [reach] people who don’t do this for a living but who are necessary to execution to do what they need to do in many hundreds of locations at many hundreds of command levels.”

The leadership “can’t just stand up here and ask that it be so; it has to perfuse the institution,” he added. “But I don’t have any doubt we can succeed [and] I think we’re on the right path to do so.”.

During the town hall, Hale explained the mechanics of DOD’s auditability aims in plain language.

“Although the specifics are arcane, basically an audit wants you to demonstrate that the transactions in our financial system are accurate to a material degree,” he said.

“If it is an invoice we’re paying, [auditors] are going to want to see the invoice, they’re going to want to see a contract that says [we] agreed to buy that and the invoice should be traceable to the contract. And they’re going to want to see a receiving report or some indication that we actually got that stuff,” the comptroller said.

DOD’s problem is not that its managers aren’t keeping such records, he added.

“We do 170 million accounting transactions a year in the Department of Defense,” Hale said, noting that auditors must be able to examine samples of the transactions and make sure they can be documented.

“They come in and take a sample -- it’s a small sample but it’s certainly thousands and it could be tens of thousands, and then they want us to demonstrate this information for each transaction,” he said.

Such an audit process can become overwhelming if there is no system in place for storing data in a way that makes it accessible, the comptroller said.

Believing that transactions are correct is not good enough, Hale added.

“We’re going to have to sample those systems and be sure we can produce that documentation reasonably quickly when an auditor asks us for it, and that’s true in acquisition and logistics and all the areas where we work,” he said.

“I don’t think our records are terrible,” Hale added. “I think if they were we’d have far-reaching problems, but I do think we’re not able to demonstrate that and it is corrosive of public confidence in us and we need to do it.”

In his video message, Panetta agreed.

“This is the right thing to do for all of us at DOD,” the defense secretary said, “so that we can help the American people ensure that we're spending their dollars right.”


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Leon E. Panetta
Ashton B. Carter
Robert F. Hale

Related Sites:
Financial Improvement and Audit Readiness

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