DOD Financial Management: Accelerated Timelines Needed to Address Long-standing Issues and Fraud Risk

Why GAO Did This Study

DOD is responsible for about half of the federal government’s discretionary spending and about 82 percent of the federal government’s total physical assets.

DOD obtaining a clean audit opinion is important to ensure that its financial statements and underlying financial management information are reliable for decision-making. DOD’s financial management and business systems modernization efforts have both been on GAO’s High-Risk List since 1995. DOD has taken steps over the last 30 years to improve these areas. However, the department needs to address pervasive weaknesses in its finances, fraud risk management, and IT acquisition management.

To help DOD improve its financial management, DOD’s auditors have issued thousands of notices of findings and recommendations and identified associated material weaknesses. DOD has taken important steps to address these findings and weaknesses but has faced challenges in meeting target remediation dates.

This testimony discusses (1) GAO’s high-risk areas of DOD financial management (including fraud risk management) and DOD business systems modernization; (2) DOD’s efforts to address audit findings and associated impediments; and (3) DOD’s progress, audit benefits, and next steps to achieving a clean audit opinion in 2028. This testimony is based on GAO work from 2020 through 2025 related to DOD financial management. Details on GAO’s methodology can be found in each of the reports cited in this statement.

What GAO Found

The Department of Defense (DOD) has made some progress in improving its financial management efforts. However, more remains to be done to address significant remaining issues and for DOD to realize its goal of achieving an unmodified (“clean”) audit opinion by the end of 2028. In February 2025, GAO found that DOD’s efforts to address its financial management and business systems modernization high-risk areas demonstrated leadership’s commitment to addressing them. However, GAO also found that other areas, such as action plans and demonstrating results, needed further attention. GAO also expanded the financial management high-risk area to include fraud risk management. For fiscal years 2017 through 2024, DOD reported about $10.8 billion in confirmed fraud. The full extent of fraud affecting DOD is not known but is potentially significant. Until DOD implements a comprehensive antifraud strategy that effectively aligns with leading practices, as GAO has recommended, its programs and significant expenditures will remain at substantial risk of fraud.

DOD has also taken steps to address audit findings in pursuit of its goal of achieving a clean audit opinion in 2028. These have included identifying priority areas and developing a strategy, plans, and roadmaps to systematically address major impediments. According to DOD, it is also studying lessons learned from the Marine Corps’ approach, which resulted in clean audit opinions for fiscal years 2023 and 2024. Nevertheless, the DOD Inspector General has identified 17 scope-limiting material weaknesses that are significant roadblocks to DOD’s clean audit opinion goal. DOD has developed a timeline for addressing these weaknesses (see figure).

DOD has made progress in addressing some of its scope-limiting material weaknesses. However, DOD needs to accelerate the pace at which it addresses these long-standing issues. DOD has also achieved a variety of benefits from its efforts to improve its financial management, including cost savings and avoidances and improvements to financial systems and data.

GAO has over 100 open recommendations aimed at improving DOD financial management. To make greater progress, DOD needs to address these open recommendations associated with, among other things, challenges DOD faces in meeting target remediation dates, addressing auditor-identified deficiencies, and improving efforts to manage fraud risk. Addressing these recommendations and the DOD Inspector General’s material weaknesses will help DOD achieve the benefits of a clean audit opinion and improved program integrity.

Access the report here.

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