It is April 15, the deadline for Americans to pay taxes to the United States federal government. This annual drill is a hassle in the main, but one that cannot be ignored; failure to pay on time induces a quickly escalating series of penalties, and then interest on the penalties. As such, Tax Day can be an important forcing function for taxpayers to get their financial houses in order.
Part of this ordering is ensuring payment of the full amount of taxes owed as prescribed by federal tax law. Failure in this regard in can induce not just the penalties and interest, but also a financial audit courtesy of the Internal Revenue Service. Many taxpayers fear getting audited by the IRS and subjecting their entire financial lives to the full weight of government bureaucratic scrutiny. The auditing process is uncomfortable and intrusive by design: the United States government really does not cotton to tax fraud (at least at the individual taxpayer level), and the threat of audit is a powerful deterrent.
Thus, auditing serves as an important tool of domestic accountability. This particular accountability does not work both ways, of course. Although the federal government will audit taxpayers to determine whether they paid what they owed, the taxpayer has no direct recourse if the government fails to responsibly spend the taxes that it collects. The taxpayer cannot audit the government. Rather, the government audits itself. Unlike when an individual taxpayer fails an audit, however, there is not a penalty when the government fails one. In fact, the federal government fails its audits all the time, with the worst offender being the United States Department of Defense. DoD has never passed an audit. It is high time that it does.
DoD and Auditing
There are several reasons why the American taxpayer should be concerned about DoD having never passed an audit. Most obviously, defense spending is by far the largest consumer of US federal discretionary tax revenue, with total budget authorizations approaching $1 trillion annually. There is a multitude of contexts available to establish just how big this number is—almost 40 percent of all reported global military expenditures, more than the GDP of all but nineteen countries, or a stack of $100 bills that would be six hundred miles high, to list a few. Regardless of one’s choice of context, the pathways to potential fraud, waste, abuse, and corruption within the US defense budget are commensurably numerous. Additionally, the Department of Defense is the largest employer in the world (and thus the largest portion of the federal bureaucracy), which makes the pathways available to a large number of stakeholders. These two factors of scale—a lot of money and a lot of people—suggest a level of complexity in DoD operations where even expected waste—the literal costs of doing business—could total billions of dollars.
Those billions, of course, also do not account for any additional losses through fraud, abuse, or corruption. To be fair, the vast majority of Department of Defense employees have never been accused of financial malfeasance or are even in a position to commit financial crimes. But malign actors exist everywhere, and the sheer size of the defense budget in an audit-resistant bureaucratic environment can incentivize fraudulent or corrupt behavior. This is especially true for those who contract with DoD; every fiscal year sees hundreds of contract-related criminal cases, and DoD contracting has been on the Government Accountability Office’s “high-risk list” since 1992. Considering that this list is compiled by the supreme audit institution for the United States, placement on it carries a certain amount of infamy.
Contractor activity is inherently linked to the Defense Acquisition System, and the public consciousness about potential fraud, waste, abuse, or corruption in the defense budget is probably mostly associated with the procurement of weapons systems and other materiel. Although they might not be aware of the particulars of certain troubled procurement programs, many Americans almost assuredly have a sense of the very real dynamic that the Department of Defense has been getting less capability out the Defense Acquisition System over time at greater expense. The various pathologies and drivers for this dynamic are well documented, but probably beyond most people’s time and interest to fully understand. A simpler statement of the dynamic reveals what taxpayers should understand and demand auditing for: their dollar is not going as far as it has in the past to buy military readiness. While the American public may take comfort in the assumption that 40 percent of global military spending will buy all the military readiness that US national security interests need irrespective of high levels of waste or a dysfunctional acquisition system, this assumption is more fragile that it may initially seem. Purchasing power within a particular country’s defense industry is a more complete measure of military readiness than mere spending, and the United States’ presumed primary global competitor has more comparative purchasing power for new weapons systems and force modernization despite a smaller overall defense budget (owing mostly to vast differences in personnel and stationing costs).
One can dismiss DoD’s failing to pass an audit as a relatively minor failure of recordkeeping, with the detection of fraud, waste, abuse, and corruption being the purview of financial investigations, not audits. Technical distinctions aside, the layperson probably associates audits with an integrity function—again, the IRS leverages individual audits as a way to deter tax fraud—and even failures of recordkeeping should be cause for grave concern. If the Department of Defense cannot get the essentials of following the money right, then how can it ensure that the money is being spent how Congress authorized it to be? Or that the authorized, funded programs are doing what they are supposed to do? These latter two questions speak to efficiency in spending on top of financial integrity, and in its published accountability standards, the US federal government recognizes auditing’s role in tracking both. To wit, this dual role came out of the National Performance Review early in the administration of President Bill Clinton, which recommended that federal inspectors general—the executors of most enterprise-level audits and financial investigations in the US government—elevate internal controls and program performance auditing to the same priority level as traditional financial audits. In this context, separating audit failures from concerns about fraud, waste, abuse, and corruption seems willfully deceptive.
From the Halls of Montezuma, to the Black Ink in the Ledger
Although DoD has never passed an audit, one of the services recently did for the first time—the Marine Corps. The Marines are the third smallest of the US armed forces, and the bulk of their supporting establishment comes from the Navy, but neither of these factors should diminish the accomplishment. It is not as if the Marine Corps’s budget is aggregately small; the approximately $54 billion the service was appropriated in fiscal year 2023 is bigger than what the entire Department of Defense budget was in 1970. Moreover, passing the audit was extremely difficult, requiring a multi-year iterative effort with consistent command emphasis at all levels.
The Marine Corps’s emphasis on finally passing an audit was no doubt grounded in it being the right thing to do. But it also reflects a strategic consciousness of the current informational and political environments. Not only has the Department of Defense never passed an audit, but it did not even attempt one until 2018, despite full auditing being an annual statutory requirement of all federal departments and agencies since 1990. It took the implicit threat of loss of funding to get DoD to adjust its financial practices toward audit readiness, and the political pressure is unlikely to relax anytime soon given ongoing debates about the US military’s role as a global security guarantor and how to rein in the national debt. These debates could make the interservice competition for limited budget dollars even more intense than it has historically been, and the Marine Corps now has positional and narrative advantage for that competition since they can argue greater financial responsibility than the other services.
In addition to setting a marker that the other services would be well advised to catch up to, the Marine Corps’s success with its audit shows that it is achievable for DoD as a whole, and sooner than the timelines that the department has forecasted. The respective budgets of the other services are well within one order of magnitude of the Marine Corps’s, and so their passing an audit would not be exponentially more difficult. Once all the services pass an audit, then the aggregation at department level should follow readily. This argues against the belief that the Department of Defense is too big, too complex, or too far gone (with its almost $3 trillion in legacy assets) to make an audit feasible. Additionally, the relative success of the Special Inspector General for Afghanistan Reconstruction—which exhaustively audited and investigated programs that cost almost $2 trillion for the twenty years that the United States was involved in that country—shows what can be accomplished by the federal inspector general model when properly empowered and resourced.
The Department of Defense has confidently indicated that it will eventually pass an audit. Although the department has made progress since the first audit attempt in 2018, there are reasons to be skeptical that it is simply a matter of time. On the contrary, DoD passing an audit is foremost a matter of principle: the largest discretionary consumer of the American taxpayer’s dollar should not get a pass on accountability lest the whole idea of the domestic accountability be revealed as a conceit. On Tax Day in particular, the American taxpayer deserves better from the DoD. Let not another Tax Day pass without the principle being met.
Colonel Patrick Sullivan, PhD, is the director of the Modern War Institute at West Point.
The views expressed are those of the author and do not reflect the official position of the United States Military Academy, Department of the Army, or Department of Defense.
Image credit: Lisa Ferdinando, DoD