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Hagel praises U.S. Marines' progress on readying accounts for audit

U.S. Defense Secretary Chuck Hagel attends at the annual Munich Security Conference February 1, 2014. REUTERS/Lukas Barth
U.S. Defense Secretary Chuck Hagel attends at the annual Munich Security Conference February 1, 2014. REUTERS/Lukas Barth

By David Alexander

WASHINGTON (Reuters) - Defense Secretary Chuck Hagel recognized the Marine Corps on Thursday for achieving a clean audit on a slice of its 2012 budget but acknowledged the Pentagon was "not where we need to be" as it works to reach full audit readiness by 2017.

The Marine Corps in December became the first military service to receive a clean audit, which was for the 2012 schedule of current-year budgetary activity. The schedule represents about 88 percent of the accounting needed for full audit readiness, a Pentagon spokesman said.

Congress has ordered the Pentagon to have the procedures in place for a full audit of its accounts by 2017, and Hagel has committed to achieving that goal.

As an intermediate step, the four service branches are supposed to have their schedule of current-year budgetary activity ready to be audited for the 2015 fiscal year, which begins October 1. That goal is seen as a significant step toward full audit readiness by 2017.

Officials are pushing for auditability of Pentagon accounts as part of an effort to eliminate waste and ensure that taxpayers have greater transparency about how their money is being spent.

The Defense Department is the only major U.S. government agency that has never had a clean audit opinion on its overall financial statements. A series of Reuters reports last year documented some of the impacts of the Pentagon's inability to audit its $500 billion budgets.

"I know we're not where we need to be yet, but we've come a long way. And I think it is appropriate that we recognize that progress," Hagel told Pentagon financial personnel at a ceremony in the department's Hall of Heroes, where Medal of Honor recipients are recognized.

He presented General John Paxton, the assistant commandant of the Marine Corps, with a plaque.

"I know that it might seem a bit unusual to be in the Hall of Heroes to honor a bookkeeping accomplishment," Hagel said to laughter, "but, damn, this is an accomplishment! And I think it deserves a Hall of Heroes recognition."

CRITICISM FROM INSPECTOR GENERAL

Just how far the Marines - and the Army, Navy and Air Force - have to go to achieve full auditability was suggested by the criticism contained in the audit memo sent to the Corps by the Inspector General's office, which conducted the examination.

While saying the schedule presented "fairly, in all material respects" the service's budgetary activity in 2012, auditors also pointed to a host of shortcomings, some of which could undermine the Marines' ability to obtain a clean audit of their balance sheet or other accounts in the future.

"Completing the audit of the schedule was a significant challenge," Assistant Inspector General Lorin Venable said in the memo. "Throughout the audit, the Marine Corps did not always provide timely, relevant and sufficient supporting documentation."

"The Marine Corps may have a problem sustaining the auditability of its schedule and future financial statements if it does not address and correct these inadequate processes," Venable said.

Officials said the criticisms made by the inspector general's office were typical for a service still working to achieve a full and complete audit, and that most audits, even very clean ones, include comments on concerns and shortcomings.

While it was the first clean audit by a military service branch, officials noted that Defense Department agencies, such as the Army Corps of Engineers, had received clean audits for several years in a row.

In 2012 about $153 billion of the Pentagon's $530 billion base budget was audited, a spokesman said. Audits covering about 88 percent of that spending received an unqualified opinion, or clean audit, while the rest received a qualified opinion.

Audits so far have been conducted on nearly $120 billion in 2013 Pentagon spending, with 93 percent receiving an unqualified opinion, the spokesman said.

(Reporting by David Alexander; Editing by Cynthia Osterman)

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