New approach to the DoD’s long-troubled audit effort takes new shape

Terry Gerton Let’s talk about clean audits in DoD. Secretary Hegseth, in his testimony regarding the 2026 DoD budget, said he was committed to getting a clean audit in 2028. How is this administration taking on that challenge?

Rich Brady Well, first, this administration has been very consistent throughout the importance of a clean audit. In my first conversations with senior officials in the department, they said that a clean audit opinion was the number one priority, and it was far above all other priorities. I would say, second, that a lot of the senior officials coming into the department are coming from the private sector, and in the private sector, if you don’t have a clean audit opinion, somebody’s getting fired. So they came in looking around saying, wait, why don’t we have a clean audit opinion? What’s going on and why aren’t people, you know, being removed because of that? And so it’s an area that they’re familiar with, is operating in an organization that has a clean audit opinion because it gives you certain assurances of the data and information you’re receiving, not only from a financial standpoint, but an accountability standpoint, equipment standpoint, assets standpoint, all of those things. And then finally, I think this administration is looking at this as an opportunity for them to be the first one to achieve a clean audit opinion in the largest department in government.

Terry Gerton DoD has been through seven audits and has yet to get a clean opinion. They have 28, at least, material weaknesses. So they’re now laying out a financial audit readiness plan. What’s new about this plan?

Rich Brady There’s a couple things that are new about it. First, I would say there’s, as they’re calling it, ruthless prioritization. They’re focusing on really what matters, no longer trying to boil the ocean or looking at what they call the “chiclet chart” of all the 30-plus entities in the department that had to have a clean audit opinion, but focusing again on those issues that most materially impact the department from achieving that clean audit opinions. And one of the analogs they can look at is the Marine Corps success. So the Marine Corps just achieved their third clean audit opinion. And that was the strategy that the Marine Corps went about. So that would be kind of the first thing. The second is really tone at the top that, as you said, the secretary has been very vocal about the importance of this. The deputy secretary has as well. And so having that tone at the top across the organization that this is important to us really puts an emphasis on it all the way down to the lowest-level commands and throughout the defense agencies that this is an area that the department needs to be focused on and applying resources towards. And then finally, I’ll add they are in the process of establishing a Joint Task Force-Audit, which will be an organization headed by a two-star general. Our understanding is they’ve already selected that individual and they’re starting to put together their team that will assist the comptroller in going after problem areas that they see in the audit down in the service level or defense agency level or even at the department level. So in a sense, by establishing a JTF, you’re operationalizing the audit effort. Even in my time in the Marine Corps, when we would go out and talk audit to our commands, they would say, well, what does this have to do with us? Isn’t that a financial management thing? That’s something in your world. Well, it isn’t. It crosses the entire department, whether you’re working with logistics, supply, human resources, maintenance, operations. Everybody has to be a part of this. For it to be successful.

Terry Gerton The Marine Corps says one of the keys to its success in getting a clean audit was deploying an audit suitable financial management system. We hear OPM trying to get all of the federal agencies on the same HR system. We hear GSA trying to everybody on the acquisition system. Can DoD really get all of its sub-components on the financial system or is that even a thing?

Rich Brady I think in a perfect world, you know, if you were building the department from ground up, starting all over again, you would start with a single system. That’s obviously not where we’re at now. You’ve got not only the financial systems, but all the feeder systems that come into it. There is a concerted effort in consolidation. And I think if you talk to people in the department, they would say they’re not saying they’re going after a single-system solution, but they’re also not saying that also. There are multiple systems that are audit-compliant. The Marine Corps uses the Defense Agencies Initiative. The Navy uses Navy ERP. These are systems that audit compliant, so I think it’s really a question of, does the services or defense agencies have an audit compliance system? Let’s get them on that, and will that be sufficient for the department? I think at the end of the day, most people agree, as long as you’ve got standard data elements that can be aggregated at the departmental level and used for analysis and scenario-planning and forecasting and decision-making, then that’s sufficient. You don’t necessarily have to have everybody on the same system. But they one, have to be audit compliant and two, you have to be dealing with the same standard set of data elements.

Terry Gerton I’m speaking with Rich Brady. He’s CEO of the Society of Defense Financial Management. Rich, let’s change angles just a little bit, because members of Congress have been quite vocal in their concern about DoD’s inability to get a clean audit, and potentially threatening a withholding of funds until DoD makes some progress. How serious should DoD take that threat?

Rich Brady Well, I think you should always take that seriously. I think it’s important, again, from accountability to the taxpayer’s perspective. It’s about operational efficiency. It gets to modernizing financial systems and strengthening internal controls. All of those things are good. The Congress has actually gone back further than that, I believe, all the way back to 2012 or 2013, where they started kind of threatening to withhold funds. So, it’s clear this has been important to Congress for some time. It’s important to the department. I think one of the things that has changed is a shift from why do we need to achieve a clean audit opinion to how do we do it. Again, back to what we talked about, kind of operationalizing and setting that tone at the top that this is important for everybody within the department to get their hands around to prioritize in order to achieve. So I think in that sense, there is alignment now between the Congress and the department on achieving the clean audit opinion. That’s been said in the past number of times from the department perspective, like, well, we’re too big to audit, we’ve got too many assets, we’re operating worldwide, or we’ve even heard from the department, well just because we don’t have a clean audit doesn’t mean we don’t know where our stuff is or doesn’t mean we’re spending our money on it. Well, that’s exactly what it means. If you don’t a clean audit then you don’t know where your stuff is and you don’t know what you’re spending your money on. Those excuses just aren’t acceptable anymore. They’re not acceptable in the department and they haven’t been acceptable by Congress for a long time.

Terry Gerton All right, let’s put ourselves on the optimistic side of this question and assume that DoD actually does put all of this effort in and they get a clean opinion on their FY28 spending. How do they sustain that? Because getting to clean audit is one thing, sustaining that level of operations for the future is entirely something different.

Rich Brady That’s a great point. And they recognize that. It’s one thing to achieve the clean audit opinion, to push through. It is a whole other thing to sustain that. It’s not a one-time effort. You’ve got to be able to do it over and over again. It actually can become more difficult, because if you lose a clean audit opinion, that sends a certain message that you probably don’t want to send. Again, looking back at the Marine Corps, they’ve been able to achieve that clean audit opinion now three times in a row. It makes the investments on the sustainment side while maintaining the core elements that helped you achieve the clean audit opinion. There has been without question over the last decade or so a fair amount of audit fatigue that has set in. You know, as you work at something over time, you know, and you’re not getting the results you want, you wonder if the efforts are worth it. Likewise, once you achieve a clean audit, you can kind of hang up the mission accomplished sign and walk away. You can’t do that with an audit. So the people have to be in place. The systems have to be in place. The policies have to be in place and the resources have to be in place. So I think one of the key things you would want to look at after you achieve a clean audit opinion is, are financial resources sustained in in the budget to maintain that clean audit opinion?