KPMG is set to close its U.S. federal government audit business and reassign more than 450 employees following the loss of a Pentagon contract valued at roughly $60 million annually, according to a report from the Financial Times. The decision marks the end of nearly a decade of auditing the U.S. Army, which had been the firm's largest federal audit client.
Pentagon's Shift to Consolidated Audits
The Pentagon has mandated a clean audit of its financial statements by 2028, a goal it has failed to achieve since comprehensive reviews began in 2018. To accelerate progress, the Department of Defense last month announced a major overhaul of its financial reporting structure. It will bring in an independent public accounting firm to conduct consolidated audits of the Defense Working Capital Fund and agency-wide statements starting in fiscal 2027. This move effectively ends the previous practice of separate service-level audits, including those for the Army, which KPMG had handled.
Impact on KPMG's Federal Business
KPMG's Army audit contract had grown significantly over time. The Financial Times reported that KPMG received approximately $40 million per year for each of the last five Army audits. That figure jumped to $64 million annually after a new agreement was signed in October. The loss of this contract made KPMG's federal audit operation economically unsustainable. The firm is now unwinding its remaining contracts with other government agencies and expects to fully exit federal audit work by 2030. Some employees have already transitioned to other roles within the company, and more reassignments are planned as the firm's advisory and audit services in other areas expand.
Current Contract Obligations
Despite the wind-down, KPMG remains under contract to audit the Army General Fund's financial statements for the fiscal year ending September 30, 2026, as noted in a December 1 notice from the Pentagon inspector general. The firm's task is to assess whether the Army's financials comply with U.S. accounting standards. Meanwhile, EY continues to handle audits for the Air Force, Navy, and Marines, with only the Marines having received a clean audit opinion to date.
Pentagon's 2028 Target and Execution Risks
Defense Secretary Pete Hegseth told the Financial Times that the Pentagon is eliminating the "agency-by-agency opinions" approach and reducing the number of individual audits by about two-thirds. The goal is to streamline the process and achieve a clean audit by 2028. Pentagon Inspector General Platte B. Moring III described the new composite audit method as "meaningful progress" that also preserves the inspector general's independence. Deputy Comptroller Michael T. Powers added that the first step is securing a clean opinion on fiscal 2027 Working Capital Fund statements.
However, the Government Accountability Office has flagged persistent trouble spots. The Pentagon still struggles to prevent, detect, or correct major financial errors, and material weaknesses remain—issues significant enough to threaten accurate financial reporting. These challenges underscore the execution risk as the department pushes toward its 2028 deadline.
KPMG's Future in Federal Advisory
While KPMG is exiting federal audit work, it is not abandoning the government sector entirely. The firm's promotional materials continue to highlight finance-transformation and audit-readiness services tied to the Pentagon's 2028 goal. This advisory business may persist even as the audit line closes, offering a potential growth area for the firm.
KPMG described its exit as an "orderly, multiyear process," emphasizing that it is meeting all client and regulatory obligations. As demand for audit and advisory services rises, federal audit staff will be redeployed to other areas of the business. The move reflects a broader shift in the federal audit landscape as the Pentagon prioritizes efficiency and accountability.