(Bloomberg) Word that the U.S. Marine Corps had passed an audit of its books was such a cause for celebration that a ceremony was staged last year in a Pentagon hall usually reserved to honor battlefield bravery.

“I know that it might seem a bit unusual to be in the Hall of Heroes to honor a bookkeeping accomplishment,” then-Defense Secretary Chuck Hagel said. “But, damn, this is an accomplishment!”

Now, that first “clean” audit by a U.S. military service—one found to be fair and accurate according to generally accepted accounting principles—has been called into question in a report by the Government Accountability Office.

The Pentagon inspector general, who conducted the audit, “did not perform sufficient procedures, under professional standards, and consequently did not obtain sufficient, appropriate” evidence to “support the audit opinion,” the nonpartisan GAO said.

The Defense Department, dependent on different sets of books kept by the military services and scores of specialized agencies, has struggled to meet a 1990 law requiring federal agencies to pass annual audits like those routinely conducted by businesses.

The GAO report, released Monday after it was obtained by Bloomberg News, is a setback in efforts toward a full audit of agencies that together were authorized to spend more than $581 billion in fiscal 2014.

The Marine Corps “schedule of budgetary activity,” which was for fiscal 2012, wasn’t thoroughly evaluated by the inspector general for the completeness of reported transactions, according to the report. Nor did the inspector general sufficiently question the reliability of information from other Pentagon agencies that fed into the statement or whether budget activity was recorded in the proper period, the GAO said.

Field Auditors
GAO investigators said they uncovered “numerous e-mail communications” between field auditors for the Office of the Inspector General and Washington superiors before the clean audit opinion was issued “that indicate there was a disagreement” about “whether there was sufficient, appropriate audit evidence to support an unqualified (‘clean’) audit opinion.”

“The e-mails also showed that OIG management instructed the audit team that a decision was made that the Marines ‘earned’ an unqualified opinion and that the documentation needed to be updated to support the clean opinion,” according to the report.

Inspector General
On March 23, the Pentagon inspector general withdrew its unqualified opinion backing the Marine Corps audit, citing new information about additional transactions it said weren’t included in the GAO review.

In a lengthy rebuttal to the GAO report, Daniel Blair, the Defense Department’s deputy inspector general for auditing, disputed most of the agency’s findings, saying that, “in our professional judgment” the audit “was performed in accordance with applicable audit standards.”

Blair said that each area of the audit “requires a significant level of professional judgment” that was exercised during the evaluation of more than 5,600 transactions “to determine whether they were properly recorded” in the Marine statement.

The IG’s conclusion also “was supported by over 12,000 documents, e-mails, position papers and auditor workpapers that were provided to GAO,” Blair said.

The GAO’s concerns prompted the Pentagon inspector general to revise its procedures for audits of budget statements still under way, Blair said.

Pentagon officials said in October that most of the military services’ and Defense Department civilian agencies’ primary budget accounts were ready for their first full financial audits. At least eight audits of financial statements are in progress, including those of the Army, Navy, Air Force, Army Corps of Engineers, Defense Health Agency and Military Retirement Fund.

The GAO review was sought by Senator Tom Carper, a Delaware Democrat who’s followed the issue for years. He was joined by Senator Ron Johnson, a Wisconsin Republican who heads the Homeland Security Committee, and Senate Armed Services Committee Chairman John McCain of Arizona.

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