DoW Financial Statement Audit Explained

Each year, the DoW releases its financial statements for both the whole Department and some individual Components. The DoW OIG audits or oversees the audits of these statements to make sure the financial information is accurate and prepared according to accounting standards. 

Figure 1: DoW Statistics, FY 2025

Why Do Audits Matter?

The audits help verify that the DoW uses taxpayer funds responsibly.  They help confirm that spending is tied to real mission needs, accurately recorded, and proper.  Audits also help ensure the DoW's financial statements are clear and reliable.  If a DoW Component does not have strong processes to track how funds are spent, confidence in its reporting can suffer.  Audit findings point out gaps in controls, processes, and asset management.  The DoW then uses these findings to create corrective action plans and improve its financial operations.

What Do We Audit?

We audit what the DoW owns, owes, and receives.  The DoW pays the salaries of service members and civilians, operates facilities around the world, and has a tremendous amount of physical assets.  It also receives nearly a trillion in funding from Congress each year and tracks these funds through more than 426 financial systems.  This makes the DoW’s financial statements and the audit very complex.

Read the Recent Reports

Financial statements are an essential tool for the public to understand the financial health of the DoW. These statements provide details about the DoW’s assets, liabilities, program costs, and the resources entrusted to it. There are four financial statements described below.

Balance Sheet

What the DoW owns (assets) and owes (liabilities) as of September 30th. The difference between assets and liabilities is the DOW's net position.

Statement of Net Costs

How much it cost to run the DoW in the fiscal year. The goal is to show the cost of major programs that the DoW supports with tax dollars.

Statement of Changes in Net Position

How and why the DoW's overall financial position changed. Receiving appropriations from Congress increases the DoW's net position, while the use of those appropriations decreases the net position.

Statement of Budgetary Resources

How the DoW used the budget authority Congress gave it. This statement is unique to the government and shows what funds the DoD received through appropriations or collections, how much was spent (outlays), and what remained (unobligated balances).

NOTE: The financial statements include note disclosures that provide context for the numbers.  The note disclosures help tell the full story.  The notes help make sure that what you see on the financial statements is not only accurate, but also understandable, transparent, and useful.  They turn financial data into information you can trust and act on.

 

Some DoW Components must prepare individual financial statements, while others are rolled directly into the DoW Agency-Wide Financial Statements.  The Agency-Wide statements combine financial activity for all DoW Components.  The Office of Management and Budget (OMB) and DoW determine whether certain components must prepare individual financial statements. 

The preparation process is shown below.  Auditors begin reviewing financial data before this process begins and review the financial data throughout the process, ultimately issuing an opinion on how the statements are presented. 
  

 

Internal controls are the foundation for ensuring the DoW uses taxpayer dollars responsibly, protects government assets, and produces information that is reliable.  They are a system of “checks and balances” for day‑to‑day management that involve:

  • Setting the right tone and expectations for integrity and ethical behavior.
  • Identifying risks (like fraud, improper payments, or cybersecurity threats).
  • Designing control activities—like approvals, reviews, data checks, and secure access—to keep risks in check.
  • Communicating clearly so people know their responsibilities.
  • Monitoring performance and fixing problems quickly.

Part of the financial statement audits are assessing the DoW’s internal controls. 

Why Do Internal Controls Matter?

Protect Taxpayer Dollars

They are the first line of defense against waste, fraud, and abuse, ensuring assets are not lost, misused, or stolen.

Improve the Accuracy of Financial Reporting

They help ensure data is complete, accurate, and properly recorded, giving Congress and DoW leadership reliable information to make decisions.

Strengthen Compliance with Laws and Regulations

They help ensure agencies meet Congressional and other requirements.

Support Effective and Efficient Operations

They help agencies be agile and adapt to evolving demands and risks.

Build Public Trust

When they are strong, the public can have greater confidence that programs are managed properly and dollars are spent as intended.

Department of War

The Secretary of War and the Under Secretary of War (Comptroller)/Chief Financial Officer are ultimately responsible for the Department’s financial statements.  Senior leaders establish a “tone at the top” by emphasizing the importance of financial management in the DoW and creating a culture aimed at producing high-quality financial data. 

Many organizations contribute to the DoW’s financial management environment.  Effective financial management must include both senior leader and individual contributor focus and accountability to ensure success. 

DoW Financial Management Environment

DoW OIG

Federal law (31 U.S.C. § 3521) requires the DoW OIG, or an independent auditor selected by the DoW OIG, to audit the DoW financial statements.  The DoW OIG is ultimately responsible for ensuring the DoW’s financial statements are audited and that the audit complies with auditing standards.  The DoW OIG performs work directly or oversees the work of the independent auditors, known as independent public accounting firms.   On a yearly basis, the Department’s financial statement audits require more than 1,500 auditors. 

Beginning in FY 2027, the DoW OIG will contract with an independent public accounting firm to conduct the Department’s financial statement audit. The DoW OIG will oversee that work. 

Legal Requirements and Other Guidance

The Chief Financial Officers Act of 1990 required the DoW’s first financial statements.  The FY 2024 National Defense Authorization Act (NDAA) requires the DoW to obtain a clean audit opinion for FY 2028.  The types of audit opinions are defined in the Audit Results Defined tab.  

Requirement Description or Activity
CFO Act of 1990   (Public Law 101-576)  Requires the head of each executive agency to prepare financial statements and have those financial statements annually audited by the agency’s Inspector General (IG) or an independent auditor selected by the IG. 

FY 2010 NDAA 

(Public Law 111-84,  
Section 1003) 

Requires the DoD Chief Management Officer and Under Secretary of Defense (Comptroller)/Chief Financial Officer, DoD, to develop and maintain the Financial Improvement and Audit Readiness (FIAR) plan and to submit semi-annual updates to congress on the implementation of the plan. 

FY 2014 NDAA 

(Public Law 113-66,  
Section 1003) 

Requires the Secretary of Defense to ensure that a full scope financial statement audit is performed for FY 2018.  Updated the requirements for the FIAR plan to include specific actions to be taken and the costs associated with ensuring that the financial statements of the DoD are validated as ready for audit no later than September 30, 2017. 

FY 2016 NDAA 

(Public Law 114-92,  
Section 1005) 

Requires the OIG contract for and oversee audits of DoD components that are identified by OMB.  Requires that the selection of Independent Public Accountants be based on their qualifications, independence, and capacity to conduct these audits in accordance with generally accepted government auditing standards 

FY 2024 NDAA  

(Public Law 118-31,  
Section 1005) 

Requires the Secretary of Defense to ensure that the department has received an unqualified (clean) opinion on the DoD financial statements by December 31, 2028. 

OMB Bulletin No. 24-02 

Implements the audit provisions of the CFO Act of 1990.  Identifies the DoD as requiring an audit.  Requires IGs to oversee the audits in accordance with FAM Section 670. 

FAM 670 

States that the IG retains oversight responsibility of IPAs hired to perform financial statement audits. 

Legend: CFO = Chief Financial Officers; FAM = Financial Audit Manual (developed by the Government Accountability Office and the Council of the Inspectors General on Integrity and Efficiency); IPA = Independent Public Accounting firm; NDAA = National Defense Authorization Act; OMB = Office of Management and Budget 

Audit Opinions

A financial statement audit is an independent check of an organization's financial statements at a specific point in time to confirm they are accurate and complete and comply with accounting standards.  Auditors develop procedures to test the financial statements and use their conclusions to determine the audit opinion.  An auditor can provide four types of audit opinions.

Audit Deficiencies

The auditors categorize problems identified in the financial statements as shown in the following figure.

In FY 2025, the DoW OIG issued a disclaimer of opinion on the DoW Agency-Wide Financial Statements for the eighth consecutive year. This means that the DoW could not provide sufficient evidence for the auditors to conclude that the financial statements were fairly presented in accordance with accounting principles.  

Audit Opinions Based on Percentage of Assets

The following graphic shows the overall opinions as of FY 2025, based on the DoW’s asset ownership percentage.  The individual funds are called reporting entities.  Although some reporting entities earned unmodified (clean) opinions in FY 2025, larger reporting entities have more of an impact on the overall result of the audit.  A few large entities received disclaimers of opinion, which contributed to the overall disclaimer of opinion for the Agency-Wide Financial Statements.

 

Notices of Findings and Recommendations

The audits identified problems that were reported to DoW management as notices of findings and recommendations (NFRs).  In 2025, auditors issued 2,485 NFRs to DoW management.  The NFRs are generally not publicly posted. 

Material Weakness
Description
FY 2025 Status
Financial Management Systems Modernization
The DoW maintained financial management systems that did not comply with applicable accounting standards. Therefore, the DoW did not maintain compliant systems or produce a complete and accurate list of financial management systems in accordance with the FFMIA.
Repeat
Configuration Management
The DoW lacked necessary configuration management internal controls within financial management systems. This lack of controls contributed to the risk of unauthorized or inappropriate changes to financial management systems.
Repeat
Security Management
The DoW lacked proper security management controls over financial management systems. This lack of controls contributed to increased risk that the confidentiality, integrity, and availability of systems data will not be maintained.
Repeat
Access Controls
The DoW lacked sufficient access controls over financial management systems to ensure proper user access and timely access removal. Insufficient policies, procedures, and processes escalated the likelihood of unauthorized, excessive, or inappropriate system access.
Repeat
Segregation of Duties
The DoW had an absence of proper segregation of duties internal controls over financial management systems. Therefore, this lack of controls could result in unauthorized access to financial data and affect the confidentiality and integrity of financial management systems.
Repeat
Interface Controls
The DoW lacked sufficient interface controls to ensure the timely reconciliation of data and correction of errors. Therefore, the risk exists that financial system data are incomplete or inaccurate.
Repeat
Universe of Transactions
The DoW was unable to provide a full transaction-level population to support line items, and it lacked the necessary documentation required to reconcile trial balance data. As a result, the DoW could not verify the completeness and accuracy of financial statement data, increasing the risk of misstated financial statement amounts.
Repeat
Fund Balance with Treasury
The DoW did not perform a complete and accurate Fund Balance with Treasury reconciliation resulting in an increased risk the financial statements may be materially misstated.
Repeat
Inventory and Stockpile Materials
The DoW did not account for or value Inventory and Stockpile Materials in accordance with accounting standards. Therefore, the DoW could not substantiate the existence, completeness, and valuation of Inventory and Stockpile Material accounts on the DoW’s Consolidated Balance Sheet.
Repeat
Operating Materials and Supplies
The DoW did not follow applicable guidance when accounting for, valuing, or substantiating Operating Materials and Supplies. Therefore, the DoW could not support the existence and completeness of Operating Materials and Supplies reported on the financial statements.
Repeat
General Property, Plant, and Equipment
The DoW did not follow applicable guidance when reporting, valuing, or developing procedures for General Property, Plant, and Equipment. Therefore, the DoW could not substantiate the existence and completeness of General Property, Plant, and Equipment reported on the financial statements.
Repeat
Real Property
The DoW lacked proper internal controls to substantiate the existence, completeness, and valuation of real property. As a result, real property assets were unsupported, and the real property balance reported within General Property, Plant, and Equipment may have been materially misstated.
Repeat
Government Property in the Possession of Contractors
The DoW was unable to reconcile GPIPC amounts to the appropriate accountable property system of record or substantiate the existence, completeness, valuation, presentation, or disclosure of GPIPC reported, which led to the potential misstatement of GPIPC.
Repeat
Joint Strike Fighter Program
The DoW omitted JSF Program assets from its FY 2025 financial statements due to the DoW’s inability to obtain accurate and reliable data surrounding JSF Program government property. Due to the omission of this information, the financial statements were materially misstated and incomplete.
Repeat
Accounts Payable
The DoW did not maintain supporting documentation for or ensure the accurate reporting of Accounts Payable liabilities in accordance with applicable accounting standards, which contributed to the increased risk of material misstatement of Accounts Payable reported in the financial statements.
Repeat
Environmental and Disposal Liabilities
The DoW did not follow applicable guidance available on the estimation of Environmental and Disposal Liabilities, including not reporting or documenting present and future costs within Environmental and Disposal Liabilities or sufficiently supporting assessments of environmental sites. Therefore, Environmental and Disposal Liabilities and related balances may have been incompletely or inaccurately reported on the financial statements.
Repeat
Leases
The DoW did not implement policies or procedures or identify or disclose all leases in accordance with standards. As a result of the lack of recognition and disclosure, the financial statements may be materially misstated.
Repeat
Unsupported Accounting Adjustments
The DoW lacked internal controls to ensure that accounting adjustments were valid, complete, and accurately recorded in its accounting systems or that they were properly reviewed, approved, and supported. Therefore, the financial statements were at risk of being materially misstated.
Repeat
Intragovernmental Transactions and Intradepartmental Eliminations
The DoW did not have effective internal controls to capture all trading partner information necessary for reconciling transactions and elimination entries. Therefore, intragovernmental adjustments and eliminations were incomplete, inaccurate, and unsupported, risking materially misstated balances.
Repeat
Gross Costs
The DoW did not have appropriate procedures or internal controls in place to ensure the accurate recording, reconciliation, or validation of Gross Costs, nor did its financial systems adequately track Gross Costs in accordance with standards. As a result, the DoW did not have reliable financial information, increasing the risk of material misstatement.
Repeat
Earned Revenue
The DoW did not have adequate procedures or internal controls to accurately record Earned Revenue in accordance with standards. As a result, the DoW did not have reliable financial information to properly report earned revenue, possibly misstating the financial statements.
Repeat
Reconciliation of Net Cost of Operations to Outlays
The DoW lacked policies and procedures necessary to reconcile differences between budgetary and proprietary data. As a result, the DoW financial statements may not accurately reflect the DoW’s financial position and may be materially misstated.
Repeat
Budgetary Resources
The DoW lacked effective controls to ensure that DoW Components prepared, accounted for, and reconciled their budgetary resources in accordance with standards. The DoW’s inability to monitor the status of budgetary resources created potential for Antideficiency Act violations and increased risk that the financial statements may be misstated.
Repeat
Service Organizations
The DoW did not adequately monitor the use of service organizations or implement and assess complementary user entity controls. These control deficiencies increased the risk that the DoW financial statements were misstated.
Repeat
Component Entity-Level Controls
The DoW Components lacked effectively designed and implemented internal controls at the entity level to prevent or detect identified material misstatements, which increased the risk that the financial statements were misstated.
Repeat
DoW-Wide Oversight and Monitoring
The DoW lacked adequate oversight of financial management activities for amounts reported within the DoW Component Level Accounts and misreported $18.9 billion in unspent funds as spent. As a result of the lack of internal controls over financial reporting, there was an increased risk that the DoW financial statements were materially misstated.
Repeat

Audit Opinions from 1991 through 2025

 

 

Material Weaknesses since FY 2018

 
  • Office of Inspector General, United States Department of War, 4800 Mark Center Drive, Alexandria, VA 22350-1500