Each year, the federal government publishes audited consolidated financial statements. And for more than 20 years now, the Government Accountability Office has issued a “disclaimer” on these statements. This is because auditors lack sufficient audit evidence to certify whether the statements are presented fairly and in accordance with generally accepted accounting principles. The main reason for this disclaimer? The terrible accounting systems and processes in the Department of Defense.
The Pentagon must prioritize improving its accounting and financial management capacity to instill greater confidence in the way it manages taxpayer resources. While Defense has made progress in this direction, there is still a long way to go. Last year, for example, the number of departmental entities that have obtained an opinion on their financial statements has increased, but the number of significant control weaknesses identified has continued to increase.
While obtaining an unqualified opinion on the department’s consolidated financial statements is a laudable goal, it is only part of the equation. The ultimate goal is to increase the timeliness, completeness, integrity and usefulness of overall financial and management information to improve Defense operations. You shouldn’t just try to get good marks on just one annual financial report.
It is a vast, deep, stimulating and continuous mission. Therefore, we are proposing a fundamental step in the quest for lasting success.
Three years after the Pentagon underwent its first comprehensive, department-wide audit, a review of basic academic requirements at military service academies suggests they lack sufficient emphasis on basic economics, accounting, public finance, financial management and other key management principles and practices.
Given the importance of good financial management for the integrity and efficiency of military operations, service academies should work together to develop a required core course in basic economics and public finance. The aim should be to inspire future department heads to be concerned with managing resources in a way that will maximize the economy and efficiency of defense spending.
The new foundation course would provide a solid interdisciplinary foundation for future senior leaders. It could be called “The Economics of National Security”. This course would provide basic lessons on microeconomics, macroeconomics, accounting, finance, procurement / contracting practices, human capital policies, information systems, applicable constitutional provisions and other relevant topics. . It should also include historical lessons on the contribution of public finances to the success (and failure) of past nations and great powers.
This foundational course should be required for any student to graduate. Communities of academics and practitioners could be recruited for the mission, and other Defense educational institutions, such as the National Defense University, could provide additional compulsory postgraduate courses for selected personnel. .
We believe that the development of compulsory core economics and public finance courses in all military academies can help increase esprit de corps and respect for those responsible for the stewardship of ministry resources. The initiative would emphasize the relevance of the mission and provide more advanced accounting and finance training opportunities to selected officers. Given the evolving security threats and the country’s current unsustainable fiscal trajectory, now is the time to act.
Bill Bergman is Research Director at Truth in Accounting. David Walker is a former Comptroller General of the United States.