DoD awards contracts for its first large-scale financial audit

This week, the Pentagon awarded a series of contracts to outside accounting firms to begin the widest-ranging series of external financial audits in the department’s history.

To be clear, DoD knows quite well that it still can’t receive a clean financial opinion on its entire consolidated financial statement — the only cabinet- level department still in that camp — but the contract awards show that financial managers think they’ve got a decent shot at passing muster with auditors on a key subset: the schedule of budgetary activity (SBA) for all of the military services.

The Marine Corps paved the way by receiving a clean opinion on its 2012 SBA audit after several years of trying. DoD hopes to do the same in the three other military services by the end of 2015 via three new contracts in which outside auditors will examine their books.

  • Ernst & Young will audit the Air Force. Cost: $14,402,567
  • Cotton & Company will audit the Navy. Cost: $9,945,932
  • KPMG will audit the Army. Cost: $13,011,077

An SBA audit is not the whole tamale — it examines only whether the military can sufficiently document the money it received via general fund appropriations and the money it spent in any given budget year. And it’s a scaled-back version of DoD’s previous goal to perform a more ambitious audit known as a schedule of budgetary resources by 2014. The Pentagon eventually abandoned that plan as unworkable because it would have required pulling together documentary evidence from past years when DoD financial management systems were in worse shape than they are now.

But DoD nonetheless believes the SBA audits, which it expects to wrap up by next November, represent progress toward its latest congressional mandate: a full audit of all of the department’s books by 2017.

“There is much left to be done, but this level of rigor will help the department focus on those areas that require the most attention,” the Pentagon said in a statement. “The awarding of these contracts is another milestone towards the department’s ultimate goal.” Subsequent contracts will be required as the scope of coverage expands to meet this goal.

This post is part of Jared Serbu’s Inside the DoD Reporter’s Notebook feature. Read more from this edition of Jared’s Notebook.