*As Prepared for Delivery*
Chairman Sessions, Ranking Member Mfume, and members of the subcommittee:
Thank you for inviting me to discuss the Office Inspector General’s role in auditing the DoD’s financial statements and the DoD’s efforts to obtain a clean audit opinion. It is my privilege to represent the dedicated oversight professionals who make up the DoD Office of Inspector General.
The financial statement audits performed or overseen by the Office of Inspector General are critically important for maintaining the public’s trust, ensuring accountability, and improving DoD operations. The 2025 financial statement audits are ongoing, so I cannot speak about their results, but I will focus on the previous 7 years, including FY 24.
As my prepared statement for the subcommittee, I provided part one of our annual report on understanding the results of the DoD financial statement audits. We plan to issue part two next month.
The annual reports explain the DoD’s responsibility to prepare auditable financial statements and establish internal controls and the link between financial management and operational readiness.
They also explain the DoD Office of the Inspector General’s responsibility to independently audit the DoD’s financial statements.
Fiscal year 24 marked the seventh full-scale audit of the DoD's financial statements and, for the seventh year, the audit resulted in a disclaimer of opinion on the DoD Agency-Wide Financial Statements.
But the disclaimer does not tell the whole story. The DoD Agency-Wide Financial Statements are a consolidation of financial statements and information from across the DoD. In addition to the agency-wide financial statement opinion, auditors issued opinions on individual reporting entities. In fiscal year 24, 11 reporting entities received clean opinions, 1 received a qualified opinion, and 12 received disclaimers of opinion.
The disclaimers of opinion were issued because those DoD entities continued to have unresolved accounting issues and material weaknesses.
When consolidated into the agency-wide financial statements, the entity-level deficiencies resulted in the Office of Inspector General identifying 28 agency-wide material weaknesses. However, individual reporting entities have made progress toward clean audit opinions.
In fact, the U.S. Marine Corps maintained its clean opinion, and the Defense Threat Reduction Agency and the Defense Logistics Agency obtained clean opinions. In addition, 14 entities either closed or downgraded at least one material weakness.
As individual reporting entities make progress, so will the DoD overall.
Today, I want to highlight three themes the Office of Inspector General has identified during the past 7 years of audit.
First, the DoD needs accountability at all levels for financial management. Senior leaders have set the right tone at the top. However, at the individual level, personnel do not consistently understand how the work they do impacts financial statements. For example, a sergeant focused on operational readiness in a warehouse may not grasp the financial impact of receiving and recording inventory or tracking customer orders and maintaining supporting documentation.
Second, the DoD has an extremely complex systems environment with over 4,700 systems. More than 400 of those systems are relevant to financial management which have at least 2,000 interfaces between them. Some of these systems have been in use since the 1950s. They are not always interoperable, meaning they cannot talk to each other. Many of them also require manual processes and do not have effective controls.
Third, the DoD’s policies and procedures for accounting do not consistently match the capabilities of its systems. When implementing new systems, DoD Components often do not change their policies or procedures to align with the system capabilities. Instead, Components modify the system to match their current procedures, negating the value of the system investment.
Addressing these weaknesses requires continued effort and significant coordination within and between each DoD entity.
The culture must continue to change so all personnel realize that financial management has a direct impact on operational readiness and is everyone’s business.
In conclusion, the DoD Office of Inspector General will continue to ensure the DoD receives full and fair audits of its financial statements. We will also continue to identify deficiencies and areas for improvement and provide actionable information and recommendations.
Our commitment to enhancing the DoD’s financial health through independent oversight remains steadfast.