Artificial intelligence, or “AI,” is transforming industries, and the Federal government is no exception. With new policies, increased oversight, and a push for automation, agencies are racing to harness AI’s potential while managing risk.
For the Department of Defense (DoD)—where financial management has long been a challenge—AI offers a path to greater efficiency, stronger audits, and streamlined operations. But innovation must be balanced with governance. This article explores how AI is reshaping government audit and what it means for the future of financial oversight.
CURRENT STATE OF AI IN THE GOVERNMENT
Executive Order 14179, released in January 2025, called for the creation of an AI Action Plan and sought input on policy actions to sustain U.S. dominance in the field of AI and encourage private sector AI innovation. Vice President Vance recently reiterated the importance of pro-growth AI policies to strengthen the U.S. economy. In early 2025, the Federal Chief Information Officer (CIO) reported that Federal agencies had more than doubled their AI use from 2023 to 2024, with 37 agencies providing over 1,700 cases of AI use in the government. 46% of those fall under “mission-enabling” administrative and IT functions, including financial management. About half of the use cases were solutions developed within the Federal government, implying a mix of both Federal as well as industry and academic expertise.
From data mismanagement to flawed products, AI implementation carries significant risk. Managing these risks is further complicated by stringent cybersecurity and compliance requirements. In early April 2025, the White House Office of Management and Budget (OMB) released Memorandums M-25-21 and M-25-22. The memos addresses these risks, requiring agencies to implement safeguards before deploying AI in Federal agencies.
The memos, which revise and build upon M-24-10 and M-24-18 from 2024, mandate that new AI-related contracts include cybersecurity and data protection requirements that align with existing government standards. M-25-21 requires all Federal agencies to retain or designate a Chief AI officer, and all CFO Act agencies are expected to create advancement and compliance strategies for AI within the next 180 days.
THE DOD’S PLAN FOR RISK MANAGEMENT
Generative AI has entered the Federal space amid increased focus on compliance and financial management transparency. This is nothing new: the Government Accountability Office (GAO) has put DoD Financial Management on GAO’s “High Risk List” every year since 1995. Despite ongoing improvement efforts, GAO’s 2025 report cited inadequate data controls, resource shortages, and outdated financial management systems as barriers to financial management discipline in the DoD. In 2025, GAO added DoD fraud risk management to the Department’s high-risk areas.
The DoD has recognized these challenges: The DoD’s FY 2025 Top Management and Performance Challenges, released by the DoD Office of the Inspector General (DoD OIG) in November 2024, names improving financial management as a top priority for the Department. Similarly, the DoD OIG’s FY 2025 Oversight Plan outlines continued and planned oversight projects for dozens of key programs, systems, and funds in 2025.
Despite these efforts, a department-wide audit remains a significant challenge. In FY 2023, the DoD received a disclaimer of opinion due to insufficient data for evaluation, remaining the only major Federal agency that has never received a clean audit opinion on its annual financial statements.
However, progress is evident: DoD leadership has met GAO recommendations, and in FY2023, the U.S. Marine Corps became the first military service to receive a clean audit opinion. In line with OMB Memo 24-02 “Audit Requirements for Federal Financial Statements” released in July 2024, the DoD announced in January its next department-wide audit for 2024 and 2025.
ENTER: AI
The FY2022-2026 DoD Financial Management Strategy, developed in response to GAO findings and aligned with the DoD OIG’s 2025 Oversight Plan, outlines strategic goals and measurements for financial management transformation. One strategic goal is to simplify and optimize the DoD’s end-to-end business environment, imploring the DoD to leverage innovative digital and automation solutions, such as machine learning, artificial intelligence, and other automation solutions to both streamline transaction processing while also improving their analytics and business environment.
The DoD has already demonstrated the potential of AI, machine learning, and other automated solutions. In FY 2022, the DoD estimated that robotic process automation (RPA) tools deployed by the U.S. Army and Navy saved over an estimated 240,000 labor hours. Other Federal agencies like the Federal Trade Commission (FTC) and the Internal Revenue Service (IRS) have also successfully implemented AI to address regulatory challenges and improve oversight.
INCREASED RISK, INCREASED GOVERNANCE
With greater AI adoption comes a heightened need for governance. Agencies must have full visibility into their AI usage, and Federal employees must be adequately trained to use AI tools effectively. OMB M-25-21 emphasizes the importance of establishing risk guardrails before scaling AI systems. The challenge for Federal agencies and the vendors that support them lies in balancing AI innovation with compliance requirements that do not exist in the private sector.
Despite these regulatory complexities, speed and scale are at the top of the DoD’s FM priorities. To achieve its objectives of improving decision-making and agility through enterprise data and automation, the Department is emphasizing standardization, process simplification, and automated controls to enhance transparency and auditability.
In this, the DoD identifies innovation is crucial, and investments should be made in new technologies that streamline financial operations and reduce manual, siloed efforts. By fostering a data-driven culture where real-time insights drive financial management strategy, the DoD aims to improve responsiveness, free up personnel for higher-value work, and strengthen mission readiness.
Ultimately, the key questions remain: Who can execute faster, more securely, and at scale? How can it be done efficiently and cost-effectively? The answer lies in first optimizing the operational environment, then strategically deploying innovative solutions.
CSCI IS A COMPLIANCE-DRIVEN, CLIENT-FOCUSED AI INTEGRATOR
For over two decades, CSCI has empowered Federal agencies to revolutionize their financial operations, seamlessly transitioning from outdated legacy systems to cutting-edge, modernized solutions fortified with robust internal controls. Our deep expertise in enterprise data management fuels smarter, data-driven financial decisions while ensuring unwavering compliance.
Dive into the future of Federal financial compliance, explore transformative AI use cases, and stay ahead of emerging tech trends—connect with CSCI today!