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Pentagon Backtracks on Goals for First Audit, GAO Says

The Pentagon has backtracked from a pledge to have all budgetary accounts ready by Sept. 30 for the initial step toward its first-ever full financial audit.

Then-Defense Secretary Leon Panetta pledged an “all-hands effort” in 2011 to prepare for evaluation a “Statement of Budgetary Resources” -- covering funds received, unspent, obligated or put under contract over several years -- by the end of this fiscal year so that an audit could begin in 2015.

Instead the Defense Department has decided to “narrow the scope” of the initial budgetary data to a one-year snapshot of spending and accounts covering about 77 percent of those funds, according to a report by the U.S. Government Accountability Office scheduled for release today.

The delay may further undercut public confidence in the department’s ability to manage billions of dollars effectively even as the military seeks permanent relief from the automatic budget cuts known as sequestration. The current efforts are focused on having the initial set of budget books ready to start an audit in fiscal 2015 and the rest by 2017.

“The Pentagon’s accounting system is a broken mess,” a new advocacy group, Audit The Pentagon, said in a posting on Facebook. “The Defense Department is the only major federal agency that cannot pass an audit -- and DoD has no serious target date to do so.”

The GAO, the watchdog agency for Congress, has criticized the department for its inability to properly account for an inventory that makes up 33 percent of the federal government and includes $1.3 trillion in property, plants and equipment. The Pentagon’s budget accounts for almost half of the discretionary spending that Congress approves annually.

Hagel’s Pledge

The new GAO report praised the Pentagon for committing “significant resources to improving funds controls for achieving sound financial management operations and audit readiness” and increasing the training of its workforce. Defense Secretary Chuck Hagel said on assuming office in 2013 that he was committed to Panetta’s initiative.

The narrowed scope of the initial data excludes all unspent funds previously appropriated by Congress “as well as information on the status and use of such funding in subsequent years,” the GAO said in its report for Senator Tom Carper, a Delaware Democrat who’s chairman of the Senate Homeland Security and Governmental Affairs committee.

Carper’s Criticism

“Federal agencies have been required to produce auditable financial statements since the mid-1990s,” Carper said in an opening statement prepared for a committee hearing today. “Unfortunately, nearly two decades later, the Department of Defense -- which spends more than $2 billion every day -- has yet to meet this obligation. In fact, its books are so bad that auditors cannot even attempt to perform a complete audit.”

Navy Commander William Urban, a spokesman for the Defense Department comptroller, said in an e-mail that the Pentagon “is not backing off the goal for a full audit of the Statement of Budgetary Resources.”

“About a year ago, we did modify our audit plan in order to pursue a cost-effective strategy as required by law,” Urban said. “Congress was informed of the change shortly after it was put in place.”

To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net

To contact the editors responsible for this story: John Walcott at jwalcott9@bloomberg.net Larry Liebert, Michael Shepard

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