Defense Department plagued by financial reporting issues that must be fixed to pass full audit: GAO

The Defense Department has been plagued by serious financial reporting issues that must be fixed for the agency to pass a full audit for the first time, the Government Accountability Office said in a new report.

"For the seventh consecutive year since the Department of Defense (DOD) was required to undergo full-scope audits, DOD received a disclaimer of opinion on its financial statement audit in fiscal year 2024, meaning DOD could not provide auditors with sufficient, appropriate evidence needed to support information in its financial statements due to ineffective systems and processes," the GAO reported this month.

The National Defense Authorization Act for fiscal 2024 requires the agency to "receive an unmodified (clean) audit opinion by December 31, 2028."

Despite the agency's failure to pass a full audit, Congress again raised defense spending in fiscal 2025 to nearly $900 billion. 

The defense budget could reach $1 trillion after an additional increase for fiscal 2026, based on President Donald Trump's budget request.

The Defense Department's Office of Inspector General identified 28 agency-wide "material weaknesses” in fiscal 2024 that have hindered "sustainable business processes and a functioning internal control environment" for its financial management operations.

GAO's latest review found that "several identified DOD-wide material weaknesses directly affected $2.1 trillion (50.3 percent) of DOD’s reported assets and $146.9 billion (3.4 percent) of its reported liabilities, indicating that there is an increased risk that these amounts are materially misstated."

The Government Finance Officers Association (GFOA) defines a material weakness as a "deficiency (or combination of deficiencies) in internal control, such that there is reasonable possibility that a material misstatement of an entity’s financial statements could occur that would not be prevented, or detected and corrected on a timely basis."

The federal watchdog noted that the Pentagon reported more than $4.1 trillion in assets on its balance sheet as of September 30, 2024. 

"DOD’s assets represent a significant portion of the federal government’s reported total assets. The ability to properly account for and report these assets would improve DOD’s ability to successfully carry out its mission and is critical to achieve an unmodified (clean) audit opinion," the GAO report reads.

The Defense Department is the only major federal agency that hasn't received a clean audit opinion on its financial statements. 

"This not only impedes DOD’s financial transparency but that of the U.S. government as a whole," the GAO said.