A version of this story was originally published by The Center for Public Integrity, a nonprofit, nonpartisan investigative news organization in Washington, D.C.

The Secretary of Defense and his top aides made speeches and handed out awards when the department’s top auditor announced that the Marine Corps had successfully accounted for all the money it received and spent in 2012, marking a key milestone in the Pentagon’s quest to meet a congressionally imposed deadline for becoming fully auditable by 2017.

But the self-congratulations turned to embarrassment this March, when the auditors’ office suddenly reversed itself and withdrew its endorsement. No one said so at the time, but the Corps had not correctly accounted for roughly $800 million worth of transactions on its books, according to a report the independent Government Accountability Office (GAO) released Tuesday.

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Some of these errors were noticed before the department’s public celebration by a team of auditors in the Pentagon’s Office of Inspector General, who were supposed to act as watchdogs in the process. But the office’s management exerted undue influence on the team to approve the audit anyway, and it was approved over the team leaders’ opposition, according to the GAO report and a series of internal emails reviewed by the Center for Public Integrity.

Moreover, the shortcomings that specialists have identified in the Marine Corps’s accounting — undocumented transactions, unbalanced accounts, and unreliable methods of financial record-keeping — plague the Defense Department’s entire accounting apparatus, and threaten its ability to meet the 2017 deadline, according to the new GAO report.

“Defense dishes out over $500 billion a year yet still can’t tell the people where all the money is going,” complained Sen. Charles Grassley (R-Iowa) after reading a draft of the GAO report.

The Pentagon paid an independent accounting firm, Grant Thornton LLP, $32 million to audit the Marine Corps’ financial records, according to Grassley, and it supported the initial certification that the Marine Corps had properly accounted for its revenues and spending. It did not find any mistakes until a year later, according to Pentagon officials and the GAO report.

Michele Mazur, a spokeswoman for the firm, said by email, “We are confident that our work complied with all professional standards,” but declined to say if the firm will give its fee back.

The episode is the latest example of the Pentagon’s continuing inability to accurately track its hundreds of billions of dollars in revenues, assets, liabilities, and spending so it knows when funds are misspent — a requirement met years ago by every other federal agency.

In written comments included in the GAO report, Ann-Cecile McDermott, the Corps’s fiscal director, contested that the Corps could not provide support for certain transactions and disputed that “significant” weaknesses impair the Corps’s ability to produce reliable financial information. But she also acknowledged “much work remains.”

Mark Easton, the Pentagon’s deputy chief financial officer, did not contest any specific statements by the GAO but chastised the report’s authors for not recognizing “many of the corrections and improvements already made” by the Marine Corps, and for not “constructively” describing the value of the audit to the Marine Corps.

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