The Defense Department is one of the few federal agencies that cannot complete an audit. (Thomas Brown / Staff)
Defense Secretary Leon Panetta wants the Pentagon to complete a full audit of its budget by 2014, moving the deadline up by three years.
While this puts the pressure on the Pentagon to get its books in order, it is only one of four steps to completing a full financial audit.
Speaking before the House Armed Services Committee on Thursday, Panetta said the accelerated timeline would help Pentagon financial managers identify waste and track spending.
"Today I am announcing that I have directed the Department to cut in half the time it will take to achieve audit readiness for the Statement of Budgetary Resources, so that in 2014 we will have the ability to conduct a full budget audit," Panetta told lawmakers.
The Statement of Budgetary Resources shows the money in and out of the department, including what funds the department received, what was obligated, and what was spent in terms of checks written, Pentagon spokeswoman Lt. Col. Elizabeth Robbins said.
It does not include the much larger task of giving a market value to everything the Defense Department owns.
The other three parts of an audit are consolidated balances, changes in net position and net cost agency-wide, Robbins said. The Pentagon will still have until 2017 to complete these pieces of the audit.
The Defense Department is one of the few federal agencies that cannot complete an audit.
The Pentagon's latest status report on its Financial Improvement and Audit Readiness Plan — the effort to make DoD auditable by 2017 — said the vast majority of the department remains unauditable, although some small agencies are ready, and the Marine Corps by far the smallest and least complex of the military services, is likely to become the first major branch to join them.
Panetta said this is unacceptable and wants to see improved fiscal discipline.
"I have also directed increased emphasis on accountability and a full review of the Department's financial controls, with improvements put in place where needed," Panetta said.
Pentagon comptroller Robert Hale has 60 days to revise the Pentagon's current plan to meet these new goals.
To make the Pentagon ready for a financial audit is a Herculean task, partly due to the department's size and complexity, according to former defense officials.
Complicating matters, there are basic differences between how the government keeps its books and the way normal bookkeeping is done. Unlike private companies, which seek to put their money to most profitable use, the Pentagon strives merely to comply with the legislation that governs appropriations, Loren Thompson of the Lexington Institute said.
Over the summer, the House Armed Services Committee created a special panel to look closely at the DoD audit issue.
Many lawmakers have latched onto the Pentagon's inability to pass an audit as a way to make the department more efficient in light of upcoming budget cuts. However, most defense analysts agree that efficiencies alone will not generate the kind of budget savings needed.