DOD’s government property approach: reinventing the wheel by spinning it again

The Department of Defense (DOD) has a problem (30+ years in the making), which means it will likely become a contractor problem. DOD is the only federal executive agency that has not passed a financial statement audit.

Turns out, DOD can’t satisfy the auditors on its accounting for over $1 trillion of assets. Auditors like to physically verify what’s on the books and vice versa, but that seems to be an insurmountable challenge. A big chunk of DOD’s property resides in contractor possession (at least 11%[i] of the DOD assets administered by the Defense Contract Management Agency (DCMA)).

A contractor’s Government Property Management System (FAR 52.245-1) should provide DOD with the accountability and assurance necessary to satisfy its financial statement auditors. However, despite years of audit readiness efforts and numerous audits by property administrators and financial auditors, the DOD still can’t clear up the material weaknesses. DCMA’s reviews of contractor property management systems rarely uncover significant deficiencies, but it appears DOD will spin this wheel again and again hoping for a different outcome.

Back in December 2019, the Office of the Undersecretary of Defense for Acquisition and Sustainment issued a memo that brought contractors’ Government Property Systems back into the spotlight directing DCMA to “fix it.” DOD tasked DCMA with increasing scrutiny on specific aspects of Property Management System Assessments (PMSAs) using more stringent sampling and outcome guidelines.

Now, a mere six months later, DOD is saying the same thing, only louder and more broadly. DOD’s latest memo[ii], now aimed at all Defense Agencies, the DOD Inspector General, Military Departments, DOD field activities and others, takes an all-hands-on-deck approach to addressing DOD’s property-related material weaknesses. The memo directs Government personnel to improve internal controls over Government Property Management, and prescribes specific steps for Agencies and Departments to take to ensure that their inventory and accountability records reconcile to DOD financial statements (and vice versa). A part of that direction specifically calls for DOD personnel to: