Pentagon FAILS Financial Audit (Uncut) 02-18-2025

SHOCKING: Pentagon FAILS Financial Audit as Pressure to Audit Defense Department Mounts

Welcome back everyone, welcome to World Affairs in Context. The Pentagon has once again failed its annual financial audit. As a former auditor myself, I reported on this last year here on my channel when they failed their 2023 financial audit.

Now once again, the shocking news is revealed and we find out that their 2024 financial statement audit did not go well. According to the official 2024 audit report that was issued by the Department of Defense Inspector General Office, on the financial statements. It further reads, As a result of unsupported beginning balances, which means that the auditors did not have any assurance whatsoever that the balances reported in the beginning of the year were correct.

Auditors could not confirm the completeness and accuracy of the amounts reported on the financial statements. Therefore, this increased the risk that the financial statements will be materially misstated. As a former auditor and as a CPA myself, this means that the financial statements could not be fully audited due to a lack of evidence supporting documentation such as expense reports, invoices, financial statements, lack of consistent reporting practices by the government, and a lack of compliance with all applicable laws and regulations.

And I will get into more details shortly in this video. In recent weeks, calls to audit the Pentagon have been gaining momentum. This is long overdue and it might be safe to say that just like with USAID covered operations and revelations that shocked all of us in recent weeks, there is no telling just what may be revealed if a competent independent audit is performed.

Musk and the Department of Government Efficiency are planning to investigate the Defense Department’s budget and to see why the Pentagon year after year, believe it or not, year after year consistently has not been able to pass a financial statement audit. This is a basic procedure and it really shouldn’t be an issue. Donald Trump said that he would consider cutting the defense budget in half once things quote, settle down with Russia and China.

That statement clearly contradicts comments made about investing in national security, of course. So while everything is still up in the air, auditing the Pentagon appears to be a logical next step after the USAID scandal. The Pentagon is notorious for failing every single one of its financial audits.

And of course, you won’t find, and I say this as a former financial statement auditor who’s been involved in many, many audits of publicly traded companies. You will not find a publicly traded company here in the United States that is as incapable as the Pentagon has been when it comes to transparent and honest reporting on its expenses. The audit results speak for themselves.

Now let’s get into the details of the Pentagon’s audit. The department completed its seventh annual consolidated financial statement audit, covering approximately $4.1 trillion, with a T, trillion dollars of the department’s total assets and $4.3 trillion in total liabilities. The audit comprised 28 standalone audits.

And so to put that simply, it means that it had 28 parts and they were conducted by independent public accounting firms and the Department of Defense Office of Inspector General. The DOD OIG issued a disclaimer of opinion on the department’s 2024 consolidated financial statements. This means attention it was unable to obtain sufficient and appropriate audit evidence on which to base an opinion.

Just a year prior to that, in 2023, if you’ve been following me for a while, Pentagon did not pass its annual audit as well. And I have an entire video on that with details. Pentagon did not pass its annual audit of $3.8 trillion back then.

There were significant errors and a lack of documentation that auditors issued negative opinions on back then, and now it’s happening again. What’s even more concerning here is that this was not the first time that it happened. Not following regulatory requirements and standard accounting practices essentially became a norm for the Pentagon since continued audit failures show a complete lack of accountability and responsibility.

Now, let’s get back to 2024 audit report. I want to show you several important details that you may want to know about. The audit report reads of the 28 reporting entities undergoing standalone financial statement audits, nine, only nine received an unmodified, which means clean or good audit opinion.

Three of them are still pending, which is extremely odd at this point in time. And listen to this, and 14 components received bad opinions. These are your disclaimers and qualified opinions.

If this was a public company, you would want to run, not just walk, but you would want to run away from this. You would not want to invest in a company like this because it means that they’re not following standard accounting practices. They don’t know what’s going on.

And frankly, you would have to question whether this is intentional or not. So if you had investments in such companies, you would need to cash out as soon as you can take that loss and just run away. In my 10 plus years of auditing Fortune 100 and Fortune 500 companies, I have not seen any publicly traded companies here in the United States.

We have a very, very regulated environment, but I have not seen a publicly traded company in the United States receive a disclaimer of opinion. And that is what Pentagon received back in 2023 and now again in 2024 for the 2024 fiscal year. It means auditors were effectively prevented from performing their audit procedures because the client, in our case, the Pentagon, failed to provide all necessary data and documentation.

Typically, a public company such as, let’s say, Microsoft or Nike or Apple, it pays millions of dollars for an annual audit. And it is an industry standard. That is not an exception.

The Department of Defense is no exception here as well. The DOD paid $187 million for its audit back in 2023. And that was actually a reduction from $218 million that the Pentagon paid in 2022 for its audit.

This is, of course, taxpayer money that is just being spent on meaningless procedures that everybody knows will result in a bad opinion. The auditors will say, look, we’re not even getting enough audit evidence to perform our procedures, but of course, we’ll take your millions. If this was a public company, I will say that once again, they would face serious issues with the SEC, the Securities and Exchange Commission, and other regulators.

But of course, the Pentagon has been given a free pass year after year. What’s really interesting is that on November the 15th, 2023, the Pentagon’s controller commented, if even one large component of DOD, such as a military department, does not have an unmodified opinion or a clean opinion, in other words, it’s mathematically impossible for the entire department to have one, he said. So given where we are, he says, this was not a surprise.

The controller is basically telling us, yeah, I’m not surprised that we keep failing our audit. And, you know, I do find the comment to be somewhat unusual for an accounting controller, for a finance controller, because his entire job is to ensure that the audit goes smoothly, that the auditors do receive what they want, because they’re not asking for anything unusual. Auditors typically ask for documentation that is basically a standard for any accounting and finance process.

So they’re not asking you to create anything, they’re just asking you to produce what you should already have available. And so, of course, that appears to be not the case here. Auditors basically wrote in their audit report that they were not able to even obtain the basics, the bare basics, to ensure that the opening balances were complete and accurate.

Yet this was allowed to go on year after year, and here we are in 2025, we just received those 2024 audit results, and we see that things aren’t really changing, that the Pentagon keeps failing its audit. According to an article that was published on Stars and Stripes, direct quote, the Pentagon has never passed the yearly audit. The first audit only became federally required in 2018, and the department has been trying to pass them every year since.

Additionally, there are claims that Congress is getting quite frustrated with these failed audits, as they should be. Yeah, I’m surprised it’s taking them this long, and Congress even made an attempt to start penalizing the Department of Defense for failing an audit. Congress has become increasingly critical of the Pentagon’s failed audits, and some lawmakers have even proposed punishment if the trend continues.

A bipartisan group of senators raised the Audit the Pentagon Act, which would penalize any military component that fails the annual audits and force it to surrender 1% of its budget. Lawmakers have previously but unsuccessfully attempted to pass similar legislature, however, as we know, nothing has transpired. Now, if you’ve been through a financial statement audit once, you know exactly, you know very well what to expect next year.

It’s fairly predictable, it’s very, very simple, so to say that the documentation wasn’t available is quite unusual, and that is never taken lightly, it’s never taken as an appropriate excuse in a public company environment. Those companies that you typically have in your 401k’s, publicly traded companies, this type of an excuse is never, ever acceptable. We don’t know what the reason is, of course, in this particular case, and I’m not going to assume, but I would expect auditors to be provided with all contracts, all expense reports, asset listings, sale listings, inventory listings at their first request.

Those are easy to produce, and there is absolutely nothing that auditors ask that is not already part of a standard finance and accounting set of procedures, as I mentioned previously. So, as I said, it is not clear what the reason is for yet another year of a failed audit. I think we all understand what the reason may be, but I don’t want to assume, and let’s just wait for USAID-style revelations, hopefully, at some point this year.

If you’re not familiar with how an independent audit works, by the way, here’s a quick background. An audit is performed by an independent public accounting firm. It covers financial statements, and it also covers controls over financial reporting, such as, for example, other appropriate approvals prior to military equipment being purchased or disposed of.

Is it purchased from a related company, a company that somebody’s family member may own, or was there a fair bidding process, as is the normal practice in government? So those are the type of things, among many, many others, that auditors verify. In this particular case, we’re being told, according to the official audit report, that auditors were not able to obtain the evidence. Typically, public companies are required to address issues identified by auditors.

Pentagon was given a free pass, so they spend millions of your tax dollars to pay for an audit report, to pay for an annual audit that they knew they would fail. Let me know what you think about this in the comments below. Feel free to share the video.

I think the more people know about this, the better. As always, thank you so much for watching. Thank you for joining me.

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