McCain vows penalties if DoD doesn’t complete its first financial audit

The chairman of the Senate Armed Services Committee threatened on Tuesday to begin withholding funding authorization from Defense Department programs unless the department conducts a financial audit.

Sen. John McCain (R-Ariz.) told a panel of Pentagon political nominees that he had grown impatient with years of committee appearances by DoD confirmation seekers who had promised to conduct the department’s first audit, only to see delays in the department’s audit plan.

“We’re not going to do that anymore,” McCain said, adding that he was also contemplating legislation that would hold senior officials more accountable for cost overruns in major weapons systems.

“Unless we get this audit, this committee will start acting in ways that will force it. We will withhold acquisition and we will withhold authorization,” he said. “You cannot run an organization efficiently if you don’t know how much it costs. And frankly, you all have been getting away with it for years. So you’re warned. We want an audit. We want an audit.”

Advertisement

The Defense Department has already committed to beginning its first departmentwide audit during fiscal 2018, and a law in place since 2010 required it to be “audit ready” by Sept. 30, 2017.

Thomas Modley, President Donald Trump’s nominee to be undersecretary of the Navy, echoed that commitment on behalf of the Navy at the confirmation hearing Tuesday, saying Ernst & Young, the independent accounting firm the Navy has hired to perform the audit, has already completed a “substantial amount” of work in preparation.

“But I can tell you unequivocally, having not seen a single financial statement in the Navy in great detail, that they’re not going to pass this audit,” said Modley, who currently serves as a managing director for another auditing firm, PricewaterhouseCoopers. “However, there are lots of very important things that they can learn from this audit. And they just need to get on with it. And if confirmed, I will be watching this very, very carefully to understand that we’re learning the right lessons and that we’re focusing on the right things to fix.”

The Pentagon has suffered several setbacks over the past several years as it worked to get its books in audit-ready condition. It failed to meet an interim deadline in 2014 to prepare for an audit of a portion of its financial statements known as the statement of budgetary resources. And in 2015, DoD’s inspector general was forced to revoke the first clean audit opinion it had ever issued to a military component: a partial audit of the smallest DoD service, the Marine Corps.

McCain’s dissatisfaction on the audit question came amid broader critiques about what he said was a lack of accountability among Pentagon decision-makers, particularly with regard to major acquisition programs. At least $50 billion has been “wasted” on a host of programs in recent years, including the Army’s WIN-T and Future Combat Systems, and the F-35 fighter, he said.

He was particularly irked that no Navy officials had been fired over cost overruns involving the service’s newest aircraft carrier, the USS Gerald R. Ford.

“No one is being held responsible in the military industrial congressional complex. It’s got to stop,” he said. “And [Ranking Member Jack] Reed (D-R.I.) and I will be looking at legislation that requires people to be held responsible. When I go back to Arizona and say, ‘We wasted $2 billion on an aircraft carrier that we’re never going to retrieve and no one is being held responsible,’ my constituents are not very satisfied.”

James “Hondo” Geurts, the top acquisition official at U.S. Special Operations Command, who the president has nominated to be the assistant secretary of the Navy for research, development and acquisition, said he understood McCain’s frustration, and promised to drive more accountability into acquisition programs — at least the ones controlled by the Navy.

“I’ll be that accountable person,” he said. “And part of what I’ll be doing is pressing that accountability down to the program level. Your committee has done a lot of work in ensuring the service chiefs and all their subordinate commands are intimately involved as we’re building these acquisition programs to make sure what we’re fielding is relevant, meets the need, and is effective when it get there.  I think those elements can take what the Navy does well, in many cases, and allow it to do much better in the future.”