Why Can’t the Pentagon’s Army of Budget Bean Counters Shoot Straight?

The travel card failure is just one example of why the Pentagon has never passed an annual financial audit. Since the 1990s, every federal agency has been subject to audits, but the Pentagon refused to conduct any until 2018. With its shoddy bookkeeping, uncounted inventories, and efforts to improve doomed by non-compliance, it has flunked every audit since. The situation is so tangled that when Defense Secretary Pete Hegseth vowed that the Pentagon would finally earn auditors’ approval, the earliest he could promise a passing grade was 2028. There’s skepticism that the situation could be turned around even by then.

The Pentagon has never faced consequences for failing an audit, though 80% of voters say that it should have to earn a thumbs up in the yearly accounting review before getting a budget increase. Nonetheless, its budget has risen every year since 2015.

The Pentagon’s accounting mess reflects financial disorder widespread in the executive branch. In what has become an almost annual event, the Government Accountability Office reported last month that it “was unable to provide an opinion on the reliability of the federal government’s consolidated financial statements for fiscal year 2024 and 2023.” As it has in previous cycles, it stressed “the need to address serious deficiencies in federal financial management and address the federal government’s unsustainable long-term fiscal path.”

Related: DOGE's Key Revelation Is a Maze Made Impervious to Reform 

This is the chaos facing Elon Musk and his Department of Government Efficiency. Though Musk and his team have been tasked with scrutinizing all aspects of government spending, the Defense Department likely presents the DOGE team with its toughest test. The Pentagon provides a number of unique challenges: It’s gargantuan – a $850 billion proposed budget for 2025 ranks it second-highest among Cabinet-level agencies; its systems are outdated; it has little incentive to correct its problems; and its dealings involve countless outside contractors, among them two of Musk’s companies, Tesla and SpaceX.

As audits show, the Defense Department’s fiscal shortcomings were myriad and sprawling in Fiscal Year 2024. Researchers at government budget watchdog OpenTheBooks found that accounting in 15 of the Pentagon’s 28 financial subcomponents – departments within the agency such as the Special Operations Command and the Defense Advanced Research Projects Agency, or DARPA – whose ledgers are individually audited – received “disclaimers,” meaning that their accounting wasn’t up to snuff. That’s 68% of the Pentagon budget failing the financial test. The remaining 13 agencies received “unqualified,” or positive, audit opinions or had yet to file reports. 

In 2024, there were 28 material weaknesses listed in the Pentagon audit, the same number as in 2023 and an increase from 20 material weaknesses in 2018, when audits began. A material weakness is an issue with a company’s accounting so severe that it could lead to mistakes on its financial statements. The audits of the Pentagon’s subcomponents showed at least 140 material weaknesses combined in 2023, according to research by the fiscal watchdog group OpenTheBooks. That marked a slight improvement from the 156 material weaknesses in 2018, but the Navy and the Army both had more material weaknesses in 2023 than in 2018. 

A major headache is the Defense Department’s $4.1 trillion of assets, including cash, buildings, investments and inventory — everything from tanks to tubas for the marching band. That’s 72% of government assets, located in a multitude of locations around the globe. The latest accounting audit, for FY 2024, found snafus everywhere. For example, it lists 21 different ways the Army lost control of its $20 billion of inventory, including a failure to even choose anyone to keep an eye on it. Inventory glitches were just one of nearly two dozen problem areas that auditors identified in the Army’s accounting alone. 

The struggle to manage these assets is pervasive. The Army, Navy, and Air Force all hold inventory themselves and use storage facilities at third-party sites. But managers couldn’t say where some of the third parties were located or how the inventory was being used.

In several instances, the Air Force’s inventory records conflicted with the Defense Logistics Agency, which was holding assets for the Air Force. Rather than figuring out where the missing inventory went, managers simply adjusted their records without logic or explanation, the audits said.

The Navy hasn’t been counting its inventory at all. Its Working Capital Fund owns roughly 900,000 items stored across 2,500 locations and multiple countries. The inventory is required to be accounted annually, but it isn’t.

While the Defense Department develops weapons like the F-35 fighter jet, which is expected to be in use until 2070, its IT systems can be more evocative of the 1970s. It relies on those systems to produce financial statements, which are vulnerable to fraud and mistakes, according to auditors. Employees who left their jobs, even those who’d been fired, still had access to IT systems potentially containing confidential information. The Air Force didn’t even require employees to make complex passwords to log in to confidential government systems.

Auditors wrote that “weaknesses in such controls can compromise the integrity of sensitive data and increase the risk that such data may be inappropriately used and/or disclosed.”

The Pentagon is required to report its spending to the Treasury Department, which keeps track of how much money is left in its annual budget. But each year, the Treasury and the Pentagon disagree over how much is actually available to spend. Poor accounting makes it impossible to track. Treasury’s manuals warn that this “increases the risks of fraud and waste” and prevents Pentagon officials from monitoring their budget to ensure efficient spending.

In September 2023, the Defense Department had a Treasury balance of $768 billion – money that Congress authorized the Pentagon to spend and that’s been set aside until it does. But several agencies couldn’t say where the money they already spent had gone. The Special Operations Command alone recorded a $34 billion difference between its own spending records and the Treasury’s. 

To augment the Pentagon’s paper-and-pencil methods, the Navy hires groups such as the Defense and Finance Accounting Service to track its finances, but there’s little supervision. The DFAS left incomplete journal entries in the Navy’s books that haven’t been resolved.

Procurement isn’t much better. The Navy estimates its bulk spending when buying items, but those estimates appear to be inaccurate and “do not have adequate analysis” to support them, auditors said. There are systems in place to create accurate estimates; the rules just aren’t followed. 

Such flaws contribute to taxpayers getting overcharged by contractors. Recently Lockheed Martin, the biggest U.S. defense contractor, settled a $30 million lawsuit accusing it of ripping off the Pentagon for years on the F-35. Halliburton allegedly billed a Kuwait military base $16 million more than it should have for mess hall services. In 2015, the Army discovered that Lockheed Martin and its subcontractor, Boeing, were overcharging by 40% for Patriot PAC-3 missiles. Then there are the ridiculously clownish expenditures –$149,000 on soap dispensers and $14,000 toilet seats. 

Smaller contractors, too, have been gobbling up more than their fair share at the taxpayer trough. TransDigm Group has followed a business plan of buying small companies that are the exclusive manufacturers of certain aviation parts for the Defense Department, then taking advantage of their monopoly supplier status by jacking up prices as much as 4,000%. Though TransDigm executives have been hauled before Congress for periodic scoldings, they continue with business as usual because what they do is legal and the Pentagon needs their products. The company is a Wall Street darling; its stock has more than quadrupled since March 2020. Its co-founder, W. Nicholas Howley, received a prestigious leadership award in 2022. Forbes Magazine says he’s a billionaire. 

Then there’s the failure of Pentagon officials to use their Visa cards in a way that helps the accountants instead of giving them heartburn.

“Until the Government Travel Charge Card program is compliant with regulations and the DoD implements an effective oversight process, there will be missed opportunities to identify and mitigate misuse, abuse and potential fraud,” Pentagon Inspector General Robert P. Storch said on Jan. 21. “The DoD must take steps to ensure adherence to internal controls to be a good steward of taxpayer dollars.” 

Less than a week later, President Trump fired Storch and 16 other inspectors general who oversee other executive branch agencies. Storch is part of a group now suing for wrongful termination.

The Pentagon doesn’t appear to have a battle plan to turn around seven straight years of audit failures. Officials tend to repeat the notion that the department is making incremental progress. Congress threatens each year to take away part of its budget, such as with the Audit the Pentagon Act of 2023, but these bills rarely make progress. 

This is the context in which the world’s wealthiest man and his DOGE team will be asked to perform the long-awaited miracle of straightening out the Pentagon’s finances.