{
  "id": "R46067",
  "type": "CRS Report",
  "typeId": "REPORTS",
  "number": "R46067",
  "active": true,
  "source": "EveryCRSReport.com",
  "versions": [
    {
      "source": "EveryCRSReport.com",
      "id": 610099,
      "date": "2019-11-27",
      "retrieved": "2019-12-13T15:09:43.621060",
      "title": "Department of Defense First Agency-wide Financial Audit (FY2018): Background and Issues for Congress",
      "summary": "The Chief Financial Officers Act of 1990 (CFO Act, P.L. 101-576) requires annual financial audits of federal agencies\u2019 financial statements to \u201cassure the issuance of reliable financial information ... deter fraud, waste and abuse of Government resources ... [and assist] the executive branch ... and Congress in the financing, management, and evaluation of Federal programs.\u201d Agency inspectors general (IGs) are responsible for the audits and may contract with one or more external auditors. Congressional interest in the Department of Defense\u2019s (DOD\u2019s) audits is especially acute because DOD\u2019s expenditures represent about half of federal discretionary spending and about 15% of total spending by the federal government. Also, DOD\u2019s financial management has been on the Government Accountability Office\u2019s high-risk list since 1995. Those on the high-risk list are considered more vulnerable to fraud, waste, abuse, and mismanagement.\nDOD completed its first-ever agency-wide financial audit in FY2018 and recently completed its FY2019 audit. As expected, DOD received an agency-wide disclaimer of opinion from the DOD IG in both audits\u2014meaning auditors could not express an opinion on the department\u2019s financial statements because the financial information was not sufficiently reliable. DOD has stated it could take up to 10 years to receive a clean audit opinion.\nSome reasons for a disclaimer of opinion can include inadequate internal controls (i.e., a series of integrated actions that management uses to guide operations), financial statements not conforming to Generally Accepted Accounting Principles (GAAP), insufficient property and inventory records, and financial management systems that do not provide sufficient evidence for the auditor to express an opinion.\nThe FY2018 audit included 2,358 notices of findings and recommendations (NFRs), which capture issues that require corrective action. Approximately 94% of the NFRs were related to three critical areas: financial management systems and information technology; financial reporting and DOD\u2019s fund balance with Treasury; and property. These NFRs resulted in 20 agency-wide material weaknesses and 129 component-level material weaknesses. All material weaknesses were related to issues with internal control. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting that results in a reasonable possibility that management will not prevent, or detect and correct, a material financial misstatement. Comprehensive data from the FY2019 audit are not currently available. However, DOD has announced that auditors validated that DOD had resolved over 550 findings, more than 23%, from the department\u2019s FY2018 audit and that the audits have helped DOD \u201ctarget and prioritize corrective actions as we strive to achieve an unmodified audit opinion.\u201d \nAfter describing what a financial audit entails, this report examines the FY2018 audit in detail and addresses several issues for Congress, including the audit\u2019s cost (approximately $413 million in FY2018) and the challenges the material weaknesses identified in the FY2018 audit may create for congressional oversight of DOD.",
      "type": "CRS Report",
      "typeId": "REPORTS",
      "active": true,
      "formats": [
        {
          "format": "HTML",
          "encoding": "utf-8",
          "url": "https://www.crs.gov/Reports/R46067",
          "sha1": "1a35df91369335ca32ad6356c4264a02cf5b4ba2",
          "filename": "files/20191127_R46067_1a35df91369335ca32ad6356c4264a02cf5b4ba2.html",
          "images": {
            "/products/Getimages/?directory=R/html/R46067_files&id=/0.png": "files/20191127_R46067_images_425a96a54d6b42b73578ab21bda6557d88c59f2e.png"
          }
        },
        {
          "format": "PDF",
          "encoding": null,
          "url": "https://www.crs.gov/Reports/pdf/R46067",
          "sha1": "78a7b2e4d15f4d3ee3067e9b9575adb332405a6e",
          "filename": "files/20191127_R46067_78a7b2e4d15f4d3ee3067e9b9575adb332405a6e.pdf",
          "images": {}
        }
      ],
      "topics": []
    }
  ],
  "topics": [
    "Economic Policy",
    "National Defense"
  ]
}