Memo Published May 12, 2026 · 6 minute read
Pentagon Procurement: Big Spending, Bigger Vulnerabilities
The Department of Defense (DOD) spends money at a scale few institutions in the world can match, obligating roughly $445 billion in fiscal year 2024 alone through its procurement system. That system funds everything from next-generation weapons to routine support services. But it also represents one of the federal government’s largest exposures to waste, fraud, and abuse. At a time when President Trump is requesting the largest defense budget in history—$1.5 trillion—the Pentagon’s inability to manage the ample funds it already receives raises serious concerns.1
Years of warnings from inspectors general, the Government Accountability Office (GAO), and other watchdogs have pointed to persistent weaknesses in DOD’s contracting practices. While fraud cases continue to be uncovered, they offer only a partial picture. It is likely that program integrity risks are significantly underreported, raising a more troubling question: how much is slipping through the cracks?
This memo examines challenges surrounding defense procurement and what can be done to address them. It lays out key facts about DOD’s current program integrity challenges, assesses ongoing efforts to improve the contracting system, and highlights concrete steps policymakers can take to strengthen oversight. The central challenge is not just catching fraud after it happens—it is fixing the systemic vulnerabilities that allow it to happen at scale.
This report is part of a program-by-program series looking at program integrity issues throughout the federal budget—efforts that cut back on waste and fraud and make sure government programs work. For more information, visit our series page here.
Fast Facts: Defense & Program Integrity
- Big Dollars: DOD obligated about $445 billion in FY 2024 to contracts for goods and services, including weapons systems and support services.2 This was roughly 54% of its overall budget that year.3
- High Risk: Watchdogs have criticized DOD for its lack of a robust fraud risk management program. For example, GAO has included defense fraud risk management on its High Risk List, which identifies the federal programs most vulnerable to fraud, waste, and abuse.4
- Underreported Fraud: DOD reported almost $11 billion in confirmed fraud over seven years, an amount that reflects a small fraction of DOD's potential fraud exposure.5
- Real-World Consequences: Procurement failures have led to defective parts, bribery, and major delays.6 In FY 2025, the Department of Justice secured nearly $634 million in DOD-related False Claims Act settlements, including several cases involving false and inflated cost and pricing data for critical defense systems.7
- Failure: As a Cabinet-level agency, the DOD has failed its last eight audits.8
Existing Defense Program Integrity Efforts
The Department of Defense has a number of ongoing efforts to cut back on waste and fraud and make sure government programs work. These include:
Risk Management: DOD has taken initial steps to implement a department-wide fraud risk management program. The approach aligns with practices in GAO's Framework for Managing Fraud Risks in Federal Programs, which is a good start. The Office of Management and Budget requires agencies to implement leading practices from the framework.
Specifically, DOD has designated the Office of the Under Secretary of Defense (Comptroller) to oversee fraud risk management and lead a Fraud Reduction Task Force.9 It requires military departments and component agencies to identify and report fraud risks, and supports them with guidance, tools, and training.10 DOD has also established a Confirmed Fraud Working Group of military criminal investigative organizations to identify root causes of fraud and capture lessons learned.11
The Comptroller, Inspector General, and CAPE: DOD has a comptroller that oversees financial management, including funds used for procurement and contracting activities.12 DOD’s Inspector General conducts investigations to detect fraud, waste, and abuse across defense programs, including procurement and contracting.13 Finally, the Office of Cost Assessment and Program Evaluation (CAPE) is responsible for reviewing whether the government is paying honest and reasonable prices for purchases.14
President Trump’s efforts for the “Department of War”: Beating a familiar drum, the Trump administration claims it’s reducing waste, fraud, and abuse in defense spending by tackling diversity, equity, and inclusion and other so-called “woke” issues.15 This is not directly fraud in any form, but a political determination of waste. Cracking down on purported wokeness would do little to tackle the real and very costly types of fraud to which defense procurement remains susceptible. The Trump administration has also tried to advance deregulatory reforms to acquisition.16 Finally, last year’s One Big Beautiful Bill Act included nearly $1 billion for AI tools within the DOD, including $200 million earmarked for financial audit capabilities.17
Audits and Fraud
To better illustrate the issues at stake, GAO and outside watchdog groups have outlined egregious cases of defense procurement fraud and mismanagement.18 For example:
- A shell company fraudulently provided defective parts to DOD, leading to the grounding of 47 fighter aircraft.19
- A contractor bribed officials for classified information and preferential treatment, ultimately defrauding DOD of tens of millions of dollars.20
- The Air Force’s Advanced Pilot Trainer program is more than 10 years behind schedule.21
And these examples are just the tip of the iceberg.
It’s clear that DOD needs a sustained effort to prevent, detect, and respond to fraud. Leadership has not demonstrated a strong commitment and should act in key areas identified by GAO, including improving organizational culture and data analytics capabilities.22 Some congressional watchdogs have also focused on weak financial audit capabilities as they demand more accountability from DOD.
Pentagon Audits: Since 2018, DOD annually audits its spending. But it is the only Cabinet-level department that has never earned a clean financial report. The latest audit (for FY 2025) identified 26 material weaknesses—severe control issues that could lead to a significant misstatement in financial reports—and two significant deficiencies. These weaknesses include things like the inability to verify assets within the Joint Strike Fighter program and broad failures in managing $4.6-$4.7 trillion in assets such as military equipment and property.23 Audits can also help identify billions of dollars of assets that DOD did not know existed.24
The so-called “Audit the Pentagon” legislation, led by Senators Bernie Sanders (I-VT) and Chuck Grassley (R-IA), threatens spending cuts unless the DOD Comptroller can certify to Congress that each DOD component has “achieved an unqualified opinion” on its full financial statements (i.e., account for all its assets).25 Concerned members of Congress point to an accounting error in 2023 that resulted in the DOD sending $6 billion more to Ukraine than needed.26 DOD leadership has set a new goal of 2028 for a clean audit.27
Fraud Deterrence: A clean audit is a worthwhile goal, but the government must also do more to deter fraud in the defense industry. This starts with more vigorously prosecuting fraud and punishing the contractors that engage in it. However, like major government health care programs that are frequent targets for bad actors, DOD should also take steps to proactively deter contractors who exploit loopholes in the procurement system. The Atlantic Diving Supply case illustrates the problems associated with only relying on the criminal justice system: the company allegedly used affiliates, partnerships, and opaque ownership structures to exploit small business contracting rules and win billions in contracts reserved for disadvantaged firms. Despite years of fraud allegations, whistleblower claims, and tens of millions of dollars in settlements, it continued receiving major Pentagon contracts without criminal prosecution or suspension.28
