OPINION — “Because of the [Defense] Department’s global scale, we have three million people on our payrolls; a health-care system that serves more than nine million troops, retirees, and family members; and assets that are worth more than those of the ten largest U.S. companies combined.”
That was Defense Secretary Lloyd J. Austin in a message released November 15, along with the DoD Agency Financial Report for Fiscal Year (FY) 2023, a 318-page volume that focuses primarily on financial results of departmental audits and a discussion of performance results over the previous 12 months.
Austin said, “Achieving a Department-wide unmodified (clean) audit opinion will take time, but we are committed to reaching this milestone. We owe American taxpayers a clean and comprehensive financial bill of health.”
In reviewing the report, I was struck with the enormous size and operations of the Defense Department that we sometimes overlook, plus some specific activities that were worth publicizing.
Let’s start with size, pointing out first, as the report does: “The [Defense] Department is one of the Nation’s largest employers,” with approximately 1.3 million personnel on active duty, another nearly 800,000 military personnel serving in the National Guard and Reserve forces, and approximately 778,000 civilian employees.
In addition, DoD, according to the report, “manages one of the Federal Government’s largest portfolios of real property, with more than 667,760 assets (buildings; structures; and linear structures, such as utilities, roads, and fences) located on over 4,686 sites worldwide as of the beginning of FY 2023.”
DoD sites are located in all 50 states, the District of Columbia, seven U.S. territories, plus in more than 40 foreign countries. In total, the sites represent nearly 25.7 million acres. They vary in size, according to the report, “from military training ranges with over 3.4 million acres such as White Sands Missile Range, to single weather towers, power line supports, or navigational aids isolated on sites of less than one-hundredth (0.01) of an acre.”
It’s not just for the President anymore. Cipher Brief Subscriber+Members have access to their own Open Source Daily Brief, keeping you up to date on global events impacting national security. It pays to be a Subscriber+Member.
The report says, “Beyond their mission-specific areas (e.g., runways, training areas, and industrial complexes), DoD installations also contain many types of facilities supporting community operations similar to those found in municipalities or on university campuses, for example, public safety, hospital and medical, dining, and religious facilities; community support complexes; housing and dormitories; utility systems; and roadways).”
“Auditing the Department’s $3.8 trillion in assets and $4 trillion in liabilities is a massive undertaking,” according to Michael McCord, DoD’s Comptroller and Chief Financial Officer.
That $4 trillion of liabilities as of September 30, 2023, is comprised predominantly — actually 95.1 percent of it — by what’s payable in future Federal Employee and Veteran Benefits, which in turn, are backed by the full faith and credit of the U.S. Government, according to the report.
Some $2.2 trillion (55.7 percent) of the Defense Department’s liabilities were not covered by budgetary resources, but of this amount not covered by budgetary resources, $1.8 trillion (80.1 percent) was related to Unfunded Military Retirement Benefits to be funded in the future by the Treasury, the report says.
The Military Retirement Fund (MRF) receives income from three sources: normal cost payments from the Military Services; payments from the U.S. Treasury to amortize the unfunded liability; and investment income. The MRF made disbursements to approximately 2.379 million retirees and annuitants in September 2022, and is projected to remain solvent over the next 20-year period.
On the other side of the ledger, that asset figure is questioned by DoD Inspector General Robert Storch, whose outfit has done its own investigation of the FY 2023 Financial Statement and found some weaknesses and deficiencies.
In one small example, the DoD IG reported “the DoD uses thousands of [computer] systems, hundreds of which are relevant to internal controls over financial reporting…[and] are used to report data in the DoD component and Agency-Wide Financial Statements.” However, the DoD IG report said, they do not comply with required applicable Federal accounting standards and some are not to be replaced before 2031.
The IG report points out, as another example, that the costly F-35 Joint Strike Fighter multiservice, multinational, acquisition program has globally pooled inventory and support equipment being positioned around the world, but their audit could not verify the value of this property and thus, in the broadest sense, DoD’s assets are misstated.
While discretionary FY 2023 funding for the Defense Department that passed Congress was $851.7 billion, the real FY 2023 DoD spending figure was $1.093 trillion when you add in the $260.5 billion from Trust fund receipts and another $141 billion from Treasury’s annual contribution from on deposit investments for military retirement and health benefits.
Reading the FY2023 Financial Report, and understanding that fiscal 2023 ended this past September 30, you come across some interesting facts.
For example, the audits caused a reassessment of the Presidential drawdowns of military equipment supplied to Ukraine directly from U.S. stocks. What the audits found were inconsistencies in how the Military Departments [Army, Navy and Air Force] were valuing defense articles. As the report put it, “After a reassessment was conducted, it was concluded that the amounts for drawdowns directed during FY 2023 and FY 2022 were overvalued by $3.6 billion and $2.6 billion, respectively.”
As a result, the report said, “These overvaluations have since been corrected, resulting in the identification of $6.2 billion in remaining draw-down authority available for support to Ukraine.”
While some in Congress question the idea of climate change, the DoD sees climate change as having “the potential to disrupt DoD operations, pose danger to DoD property and personnel, and necessitates additional funding to support response and recovery efforts.”
Among the climate change items put into the FY 2024 budget now before Congress are $3.7 billion to install resiliency in military facilities to withstand harsh weather conditions and improve energy; $1.3 billion in science and technology investments, which include hybrid tactical vehicles and blended wing body aircraft, which have the potential to increase range and payload while improving efficiency; and even $54.6 million in contingency preparedness that includes incorporating climate risk scenarios in war games and other exercises.
The FY 2024 budget also contains $636 million to continue implementation of the recommendations of the Independent Review Commission on Sexual Assault including the professionalization of the response workforce to advance victim care and access to resources. Hiring is underway to build the initial 400-member Integrated Primary Prevention Workforce team. In the next five years, such teams are scheduled to become over 2,500 dedicated prevention personnel who will also enable service members who experience sexual harassment access to services including services from sexual assault victim advocates.
The FY 2023 report also described modernization of the DoD’s business processes as the annual audits mature. “Our workforce is building, deploying, and managing data analytics, robotic process automations or ‘bots,’ and other intelligent automation technology, such as machine learning to automate functions that would be cost-prohibitive when performed manually,” the report says.
Cipher Brief Subscriber+Members enjoy unlimited access to Cipher Brief content, including analysis with experts, private virtual briefings with experts, the M-F Open Source Report and the weekly Dead Drop – an insider look at the latest gossip in the national security space. It pays to be a Subscriber+Member.
For example, the Defense Logistics Agency has deployed 160 bots, 41 have undergone full cycle enhancements and 153 execute in an unattended manner. Therefore, they are projected to save over 288,000 hours annually of work previously done by persons. The Defense Finance and Accounting Service placed 90 bots to automate a wide variety of tasks with an estimated annual benefit of over $6 million. The Defense Information Systems Agency used bots to process nearly 46,000 transactions, saving an estimated 18,860 human labor hours.
The Navy expanded the Budget Execution Validation process and Commanders Enterprise Resource Management Council for monitoring the status of funds across the Navy Department. The new process identified root causes of unexpended funds, reviewed $17 billion in un-liquidated obligations, and uncovered $330 million available for de-obligation. In short, that’s appropriated money no longer needed for its original purpose. That’s near the approximate cost of a next generation logistic ship of which the Navy wants 24.
To help meet its audit needs, the Army has deployed the Global Combat Support System – Army (GCSS-A) which provides enterprise-wide visibility into various logistic areas. To get a sense of how large it is, one element of the system itself integrated about 40,000 local supply and logistics databases. A GAO study said one Army command “was able to analyze trends — such as demands and lead times for individual items — by accessing the near-real-time data from the new system. Prior to GCSS-A, the official stated, the command acquired performance data through a time-consuming process that involved data searches and individual phone calls.”
Overall, the Defense Department has completed its sixth annual consolidated financial statement audit using some 1,600 auditors and visits to nearly 700 sites. Of 29 standalone audits, seven were presented fairly and in accordance with “Generally Accepted Auditing Standards”; one received a qualified opinion (misstatements); and 18 received disclaimers of opinion, where the auditors found a lack of needed evidence. Three standalone audits remain to be completed.
Defense Comptroller McCord told reporters on November 15 that although DoD had closed some 490 issues raised from previous audits, some 2,500 new issues were raised by the 2023 audits.
“So, there is still a lot of [audit] work to do,” McCord said.
The Cipher Brief is committed to publishing a range of perspectives on national security issues submitted by deeply experienced national security professionals.
Opinions expressed are those of the author and do not represent the views or opinions of The Cipher Brief.
Have a perspective to share based on your experience in the national security field? Send it to [email protected] for publication consideration.
Read more expert-driven national security insights, perspective and analysis in The Cipher Brief
