To reduce by 5 percent the discretionary budget authority of any Federal agency for a fiscal year if the financial statement of the agency for the previous fiscal year does not receive an unqualified audit opinion by an external independent auditor, and for other purposes.

Summary: Audit the Pentagon Act of 2012 - Requires, on March 2 of FY2013 and each subsequent fiscal year, a 5% reduction in the discretionary budget authority of a federal agency that is identified by the Director of the Office of Management and Budget (OMB) as required to have an audited financial statement: (1) that has not submitted a financial statement for the previous fiscal year, or (2) whose statement has not received either an unqualified or a qualified audit opinion by an independent external auditor. Excludes from such reduction accounts for military, reserve and National Guard personnel and the Defense Health Program account of the Department of Defense (DOD). Authorizes the President to waive a reduction in discretionary budget authority if such reduction would harm national security or members of the Armed Forces who are in combat.

Requires a report to Congress listing required DOD reports that would no longer be necessary if the financial statements of DOD were audited with an unqualified opinion or that interfere with DOD's capacity to achieve an audit of its financial statements with an unqualified opinion.

Expresses the sense of Congress that: (1) congressional defense committees and DOD should not endanger the nation's troops by reducing wounded warrior accounts or vital protection for members of the Armed Forces in harm's way, (2) the valuation of legacy assets by DOD should be simplified without compromising essential controls or generally accepted government auditing standards, and (3) this Act should not be construed to require or permit the declassification of accounting details about classified defense programs and DOD should ensure financial accountability in such programs.

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SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Audit the Pentagon Act of 2012''.

SEC. 2. PURPOSES.

    The purposes of this Act are as follows:
            (1) To strengthen American national security by ensuring 
        that--
                    (A) military planning, operations, weapons 
                development, and a long-term national security strategy 
                are connected to sound financial controls; and
                    (B) defense dollars are spent efficiently.
            (2) To instill a culture of accountability at the 
        Department of Defense that supports the vast majority of 
        dedicated members of the Armed Forces and civilians who want to 
        ensure proper accounting and prevent waste, fraud, and abuse.

SEC. 3. FINDINGS.

    Congress finds the following:
            (1) The 2011 Financial Report of the United States 
        Government found that 32 of 35 major Federal agencies received 
        clean audit opinions. Two more, the Department of Homeland 
        Security and the Department of State, received ``qualified'' 
        audit opinions but are making progress. Only the Department of 
        Defense had a ``disclaimer'' because it lacked any auditable 
        reporting or accounting available for independent review.
            (2) The financial management of the Department of Defense 
        has been on the ``High-Risk'' list of the Government 
        Accountability Office (GAO). The GAO found that the Department 
        is not consistently able to ``control costs; ensure basic 
        accountability; anticipate future costs and claims on the 
        budget; measure performance; maintain funds control; and 
        prevent and detect fraud, waste, and abuse''.
            (3) At a September 2010 hearing of the Senate, the 
        Government Accountability Office stated that past expenditures 
        by the Department of Defense of $5,800,000,000 to improve 
        financial information, and billions of dollars more of 
        anticipated expenditures on new information technology systems 
        for that purpose, may not suffice to achieve full audit 
        readiness of the financial statement of the Department. At that 
        hearing, the Government Accountability Office could not predict 
        when the Department would achieve full audit readiness of such 
        statements.
            (4) Section 9 of article 1 of the Constitution of the 
        United States requires all agencies of the Federal Government, 
        including the Department of Defense, to publish ``a regular 
        statement and account of the receipts and expenditures of all 
        public money''.
            (5) Section 303(d) of the Chief Financial Officers Act of 
        1990 (Public Law 101-576) required that financial statements be 
        prepared and independently audited for the Department of the 
        Army by March 31, 1992, and for the Department of the Air Force 
        by March 31, 1993. Neither the Department of the Army nor the 
        Department of the Air Force has complied.
            (6) Section 3515 of title 31, United States Code, requires 
        the agencies of the Federal Government, including the 
        Department of Defense, to present auditable financial 
        statements beginning not later than March 1, 1997. The 
        Department has not complied with this law.
            (7) The Federal Financial Management Improvement Act of 
        1996 (31 U.S.C. 3512 note) requires financial systems acquired 
        by the Federal Government, including the Department of Defense, 
        to be able to provide information to leaders to manage and 
        control the cost of government. The Department has not complied 
        with this law.
            (8) The National Defense Authorization Act for Fiscal Year 
        2002 (Public Law 107-107) requires the Secretary of Defense to 
        report to Congress annually on the reliability of the financial 
        statements of the Department of Defense, to minimize resources 
        spent on producing unreliable financial statements, and to use 
        resources saved to improve financial management policies, 
        procedures, and internal controls.
            (9) In 2005, the Department of Defense created a Financial 
        Improvement and Audit Readiness (FIAR) Plan, overseen by a 
        directorate within the office of the Under Secretary of Defense 
        (Comptroller), to improve Department business processes with 
        the goal of producing timely, reliable, and accurate financial 
        information that could generate an audit-ready annual financial 
        statement. In December 2005, that directorate, known as the 
        FIAR Directorate, issued the first of a series of semiannual 
        reports on the status of the Financial Improvement and Audit 
        Readiness Plan.
            (10) The National Defense Authorization Act for Fiscal Year 
        2010 (Public Law 111-84) requires regular status reports on the 
        Financial Improvement and Audit Readiness Plan described in 
        paragraph (9), and codified as a statutory requirement the goal 
        of the Plan in ensuring that Department of Defense financial 
        statements are validated as ready for audit not later than 
        September 30, 2017.

SEC. 4. SPENDING REDUCTIONS FOR AGENCIES WITHOUT CLEAN AUDITS.

    (a) Applicability.--
            (1) In general.--Subject to paragraph (2), this section 
        applies to each Federal agency identified by the Director of 
        the Office of Management and Budget as required to have an 
        audited financial statement under section 3515 of title 31, 
        United States Code.
            (2) Applicability to military departments and defense 
        agencies.--For purposes of paragraph (1), in the case of the 
        Department of Defense, each military department and each 
        Defense Agency shall be treated as a separate Federal agency.
    (b) Definitions.--In this section, the terms ``financial 
statement'' and ``external independent auditor'' have the same meanings 
as those terms have under section 3521(e) of title 31, United States 
Code.
    (c) Adjustments for Financial Accountability.--
            (1) On March 2 of fiscal year 2013 and each subsequent 
        fiscal year, the discretionary budget authority available for 
        each Federal agency for such fiscal year is adjusted as 
        provided in paragraph (2).
            (2) If a Federal agency has not submitted a financial 
        statement for the previous fiscal year, or if such financial 
        statement has not received either an unqualified or a qualified 
        audit opinion by an independent external auditor, the 
        discretionary budget authority available for the Federal agency 
        is reduced by 5 percent, with the reduction applied 
        proportionately to each account (other than an account listed 
        in subsection (d) or an account for which a waiver is made 
        under subsection (e)).
            (3) An amount equal to the total amount of any reduction 
        under paragraph (2) shall be retained in the general fund of 
        the Treasury for the purposes of deficit reduction.
    (d) Accounts Excluded.--The following accounts are excluded from 
any reductions referred to in subsection (c)(2):
            (1) Military personnel, reserve personnel, and National 
        Guard personnel accounts of the Department of Defense.
            (2) The Defense Health Program account of the Department of 
        Defense.
    (e) Waiver.--The President may waive subsection (c)(2) with respect 
to an account if the President certifies that applying the subsection 
to that account would harm national security or members of the Armed 
Forces who are in combat.
    (f) Report.--Not later than 60 days after an adjustment under 
subsection (c), the Director of the Office of Management and Budget 
shall submit to Congress a report describing the amount and account of 
each adjustment.

SEC. 5. REPORT ON DEPARTMENT OF DEFENSE REPORTING REQUIREMENTS.

    Not later than 180 days after the date of the enactment of this 
Act, the Under Secretary of Defense (Comptroller) shall submit to 
Congress a report setting forth the following:
            (1) A list of each report of the Department of Defense 
        required by law to be submitted to Congress which, in the 
        opinion of the Under Secretary, would no longer be necessary if 
        the financial statements of the Department of Defense were 
        audited with an unqualified opinion.
            (2) A list of each report of the Department required by law 
        to be submitted to Congress which, in the opinion of the Under 
        Secretary, interferes with the capacity of the Department to 
        achieve an audit of the financial statements of the Department 
        with an unqualified opinion.

SEC. 6. SENSE OF CONGRESS.

    It is the sense of Congress that--
            (1) as the overall defense budget is cut, congressional 
        defense committees and the Department of Defense should not 
        endanger the Nation's troops by reducing wounded warrior 
        accounts or vital protection (such as body armor) for members 
        of the Armed Forces in harm's way;
            (2) the valuation of legacy assets by the Department of 
        Defense should be simplified without compromising essential 
        controls or generally accepted government auditing standards; 
        and
            (3) nothing in this Act should be construed to require or 
        permit the declassification of accounting details about 
        classified defense programs, and, as required by law, the 
        Department of Defense should ensure financial accountability in 
        such programs using proven practices, including using auditors 
        with security clearances.