IG Audit Finds Persistent Gaps in Pentagon Tracking of Contractor-Held Government Property

Watchdog warns ineffective remediation steps threaten DOD’s ability to produce accurate financial statements and meet its FY2028 audit goals.

A new watchdog audit warns that the Pentagon still lacks reliable accountability for government property in the possession of contractors (GPIPC) — a long-standing material weakness that jeopardizes accurate financial reporting and could slow the Defense Department’s path to a clean audit opinion.

The Department of Defense Office of Inspector General (DOD OIG) released a report-in-brief on Monday documenting significant shortcomings in the Pentagon’s efforts to fix its GPIPC tracking systems. The review evaluated the effectiveness of DOD’s corrective action plan to remediate its financial statement material weakness — and concluded that current actions are “ineffective.”

GPIPC includes government-owned equipment — from aircraft components to specialized tools — furnished to contractors or acquired by vendors under DOD contracts. These items remain federal assets even while used in commercial facilities.

Corrective Actions Fell Short, Watchdog Says

According to the audit, DOD’s Acquisition & Sustainment (A&S) office and the Comptroller/Chief Financial Officer failed to enforce the use of the Department’s Government Furnished Property (GFP) Module, the primary tool designed to capture and reconcile GPIPC assets.

Auditors also found that many DOD components have not updated their Accountable Property Systems of Record (APSRs) to interface with the GFP Module — leaving inventory records fragmented, inconsistent, and vulnerable to errors.

“The unremedied GPIPC material weaknesses within the DOD components hurt the DOD agency-wide financial statements,” the audit states. “The inability to accurately account for GPIPC will continue to impede the DOD’s ability to achieve an unmodified audit opinion by FY 2028.”

The IG emphasized that accurate financial statements are more than compliance benchmarks — they directly affect Congress’s ability to oversee defense spending, identify risks in IT and logistics systems, and curb waste or abuse.

Recommendations to Pentagon Leadership

The OIG is urging Pentagon leadership to:

• Issue mandatory guidance directing all components to use the GFP Module.
• Support agencies in integrating their APSRs with the module.
• Enhance oversight of how GPIPC data is reconciled, validated, and reported.

The watchdog also noted that this initial report contains limited detail. A full audit report — including specific recommendations and DOD’s formal responses — is forthcoming.

Pentagon Response Pending

A spokesperson for the DOD OIG told 'TELL IT LIKE IT IS' Defense News that a full, detailed report is “on the horizon” and will include the Pentagon’s official reactions. DOD public affairs did not immediately respond to requests for comment.

The findings come as the Pentagon continues to struggle with inventory accuracy and asset visibility — systemic issues that remain a significant barrier to achieving its long-delayed goal of a clean audit opinion.

With FY2028 approaching, the watchdog’s latest review signals that the Pentagon’s financial modernization effort may face more turbulence unless leadership enforces greater compliance across its components.

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-- By James W. Thomas

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