Breaking stovepipes, not checking boxes: DoD’s audit challenge

The Secretary of the Navy, the Hon. John C. Phelan, gives a speech over the pilot house 1MC to the crew of the world’s largest aircraft carrier, USS Gerald R. Ford (CVN 78), April 11, 2025. (U.S. Navy photo by Mass Communication Specialist 2nd Class Jacob Mattingly)

Secretary of the Navy John Phelan recently testified the Department of the Navy will achieve a clean audit under his leadership. If he intends to stay through this administration’s term, that pledge would sync up with the congressional requirement to deliver a clean audit by 2028. The pledge also demonstrates clear tone from the top, a consistent message that now extends across three administrations in a row.

For many years, such clear messaging was considered critical to move the audit. And certainly, the Marines achieved two clean opinions in a row — the first for a military service — because commandants made the audit their priority. But the Marines’ experience also demonstrated that progress depends not just on leaders of the big organizations, like the services or DoD itself. It also requires the support of leaders from functional communities too.

The audit remains difficult for DoD because passing it requires multiple communities to prioritize the audit over their other many and real concerns. Gaining broad-based support makes progress on the audit hard.

But it also points the way to why becoming auditable can make DoD better at its underlying mission — because it will require breaking down stovepipes between different communities.

To understand the audit, it’s first important to understand what receiving a clean opinion actually requires. Auditors are looking to track a dollar from congressional appropriations to:

• the organization the dollar was budgeted for;
• from that organization to the contract that awards the dollar to a company;
• from that award to receiving the part the company promised to provide;
• from receiving the part to paying the company the dollars it was promised;
• from paying the company to closing the contract;
• from closing the contract to keeping track of the part as it enters the logistics process;
• from the logistics process into the weapon the part was for;
• then recording when the weapon (and the part inside it) was used to kill a bad guy;
• And at all times through that process, reporting that dollar or what it bought accurately on its financial statements no matter what stage it was at.

The problem is, a different functional community owns each of those steps.

Congressional affairs worry about keeping Congress happy. Each organization worries about keeping their commander happy. The budget community cares about getting the dollar spent. Program managers care about getting an order on contract. The contracting community cares about having all the paperwork to prove they did the contract correctly. The logistics community cares how many parts it has on hand. The operators just want their weapon to work.

To track what they care about, each community built an electronic system that prioritizes their concern. Not surprisingly, those systems do not talk to each other very well. And since those systems mirror the priorities of the specific process they were built for, independent public auditors cannot track the dollar all the way through and cannot give DoD a clean opinion. (It also frustrates senior leaders responsible for actual operational outcome, because they have a hard time telling at which point in the process their intent got lost.)

For example, the undersecretary of defense for acquisition and sustainment is the principal DoD staff for three of the process steps listed above: program management, contracting, and logistics. It’s easy to see why that undersecretary gets focused on getting munitions produced at scale, fixing the F-35, or bringing new entrants into the industrial base. But until the undersecretary, those communities, and others prioritize audit as much as commandants, service secretaries, and secretaries of defense, DoD will not get a clean opinion.

And for the same reason, DoD will also be challenged to make progress on other long-known problems. Like how years of funding munitions at minimum sustaining rates left industry unready to ramp up production when the lessons from Ukraine became clear. Or how operators lament a strike fighter shortfall even as acquirers wrestle with contractors. Or continued frustration by potential new entrants into the industrial base. All of these are examples of problems in one community’s realm spilling over into another community and leading to suboptimal outcomes for DoD’s basic mission. As long as disconnected processes and systems stymie the audit, they will also stymie better problem solving across communities.

Secretary Phelan may find his greatest challenge is not those under his authority but those in OSD protecting the functional communities they are responsible for. If he can gain support from those colleagues, he may break down the stovepipes that have tormented operators who have long cared more about outcomes than processes.

No one should get hung up on administrative requirements and pursue the audit just for the audit’s sake. But the problems challenging DoD in getting a clean opinion are the same problems that keep it from doing as well as it could defending and advancing US national interests.

Russell Rumbaugh is a recognized expert on the institutions, processes, and budgets of US national security. He served as Assistant Secretary of the Navy for Financial Management and Comptroller.