A new bill introduced in the Senate would create “new incentives and enforcement mechanisms to force the Pentagon the pass an audit,” according to Sen. Tom Coburn (R-OK), the bill’s principal sponsor. The “Audit the Pentagon Act” (S.3487) will, according to Coburn, “help the pentagon to help itself.”
Coburn, along with co-sponsors Sen. Kelly Ayotte (R-NH), Sen. Chuck Grassley (R-IA), Sen. Rand Paul (R-KY), Sen. Ron Johnson (R-WI), Sen. John Cornyn (R-TX), Sen. Scott Brown (R-MA), and Sen. Claire McCaskill (D-MO) have all been critical of what they see as DoD’s inability to achieve a clean audit.
Secretary of Defense Leon Panetta has directed the department to achieve full audit readiness by 2017. Testifying before Sen. McCaskill’s Senate Armed Services Subcommittee on Readiness and Management Support in April Robert Hale, DoD’s Comptroller and Chief Financial Officer, said DoD is on the right track to improve financial operations. Under Secretary Panetta’s leadership, Hale told the Subcommittee, “auditability is now a goal that every commander, every manager, and every functional specialist must understand and embrace.”
Nevertheless, the bill’s sponsors believe that DoD needs additional enforcement mechanisms and incentives to achieve its auditability goals.
The bill would create new incentives to encourage DoD and the Military Departments to achieve its auditability goals. If a Military Department achieves an audit with an unqualified opinion after FY2013, the thresholds for reprogramming actions not requiring prior approval would automatically increase by: $60 million for a procurement program; $30 million for a R&D program; $45 million for an O&M budget activity; and $30 million for a Military Personnel budget activity.
If a Military Department achieved an audit with an unqualified opinion the bill would relieve it of having to submit semi-annual report on the status of the implementation by the Department of Defense of the Financial Improvement and Audit Readiness Plan and the annual report on the reliability of the Department of Defense financial statements
The bill creates new accountability and enforcement mechanisms for achieving a clean audit.
Under the bill, if DoD fails to obtain an unqualified opinion of its FY2014 Statement of Budgetary Resources, future nominees for the office of the Under Secretary of Defense (Comptroller) or a Military Service Assistant Secretary for Financial Management must have served as the Chief Financial Officer (CFO) of a federal or state agency or a public company that received an unqualified opinion of its financial statements during the individual’s service at the agency or company.
If a Military Department does not receive an unqualified opinion of its FY2017 financial statements, it would lose the special authority increasing reprogramming thresholds provided in the bill. In addition, the Military Department could not spend funds on any acquisition program for any activity beyond the technology development phase (Milestone B).
Failure to achieve an unqualified opinion of DoD’s FY2017 financial statements would also trigger changes that broaden responsibilities and powers of DoD’s Chief Management Officer to, as the bill’s sponsors describe, “fix the Pentagon’s finances and IT problems.
And, in another significant administrative move, the bill would transfer jurisdiction of the Defense Finance and Accounting Service (DFAS) to the Department of the Treasury. Under this proposed transfer DFAS would be administered by Treasury’s Financial Management Service.
This law offers DOD’s leaders the opportunity to do something courageous to help end the “auditability wars” between Congress and the Department of Defense.
If Senator Coburn’s bill becomes law, in response to Section 5, Paragraph (2), Comptroller Hale should send a report to Congress stating that because budgetary accounting and financial accounting are different, the legal requirement to produce private-sector-style balance sheets and income statements as required by financial accounting is interfering with the Department’s ability and capacity to do budgetary accounting able to produce, by the end of FY 2014, audit-ready Statements of Budgetary Resources able to win unqualified opinions from auditors.
For obvious credibility reasons (given all that’s been said and done), Under Secretary Hale, Deputy Secretary Carter, and Secretary Panetta would be well advised to enlist the help and support of the Chief Executives of the four major audit and accounting firms in the United States (PricewaterhouseCoopers, Ernst&Young, Deloitte, and KPMG) before taking this action.
As professional accountants, the Big Four CEOs will understand the difference between private-sector financial accounting and public-sector budgetary accounting, and, as the heads of the largest and most prestigious accounting firms in the world, The Big Four CEOs could send a very powerful message to Congress by throwing their weight behind the idea that good public-sector budgetary accounting is what the DOD needs, not private-sector-style financial accounting.
I doubt this argument would carry much weight with Congress because the rest of the federal government has successfully met the requirement of the law.
As one executive at one of the agencies that has “met the law” memorably observed four years ago (when asked in a government-wide AGA survey about his agency’s financial statements and the unqualified opinions they were getting):
“We’re getting A’s on our tests and not learning anything.”
(See page 5 at http://www.agacgfm.org/AGA/Documents/Research/cfosurvey2008-1-.pdf)
It’s also worth noting that of the 35 reporting agencies/activities that are doing financial reporting, while it’s true most have succeeded on an agency basis in meeting the law, the ones that have not (i.e., haven’t achieved unqualified opinions on their statements) are the big agencies/activities where most of the money’s going (DOD, Homeland Security, State, and the Social Insurance programs at HHS), so if things are weighted by the mony that’s being spent, it is not the case that “most of the government” has successfully met the requirements of the law.
And one other note: There is some interesting new commentary worth reading on the Coburn bill at:
http://pogoblog.typepad.com/pogo/2012/08/audit-the-pentagon-pogo-applauds-new-bipartisan-initiative-.html
As one executive at one of the agencies that has “met the law” memorably observed four years ago (when asked in a government-wide AGA survey about his agency’s financial statements and the unqualified opinions they were getting):
“We’re getting A’s on our tests and not learning anything.” (See page 5 at http://www.agacgfm.org/AGA/Documents/Research/cfosurvey2008-1-.pdf)
It’s also worth noting that of the 35 reporting agencies/activities that are doing financial reporting, while it’s true most have succeeded on an agency basis in meeting the law, the ones that have not (i.e., haven’t achieved unqualified opinions on their statements) are the big agencies/activities where most of the money’s going (DOD, Homeland Security, State, and the Social Insurance programs at HHS), so if things are weighted by the money that’s being spent, it is not the case that most of the government has successfully met the requirements of the law.
And one other note: There is some interesting new commentary worth reading on the Coburn bill at:
http://pogoblog.typepad.com/pogo/2012/08/audit-the-pentagon-pogo-applauds-new-bipartisan-initiative-.html
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Are any of the 3000+ people who have viewed this discussion congressional staffers working on this issue?
If so, can any of you comment on the prospects for new thinking in the Congress on these issues?