KPMG is closing its US federal government audit operation after losing a key Pentagon contract worth $60m a year, the Financial Times (FT) has reported.
The accounting giant is also reallocating more than 450 staff into other roles within the firm.
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The Big Four firm has been responsible for auditing the US Army for almost ten years.
The Department of Defense now intends to bring in a different auditor to cover a wider share of the military’s financial reporting, against a backdrop of growing political pressure over the state of its books.
Despite conducting independent audits for eight years, the Pentagon has yet to secure a clean opinion.
Audit firms have repeatedly highlighted numerous material weaknesses in the systems used to monitor the department’s finances, with its 2026 budget put at around $840bn.
Lawmakers have given the defence department until 2028 to obtain a successful independent audit.
In response, defence secretary Pete Hegseth has launched a task force combining military leaders and private sector representatives to oversee the push towards that deadline.
Last month, the Pentagon moved to reshape its financial reporting structure, combining the army’s accounts with elements of the wider department.
Hegseth was quoted by FT as saying: “We’re ending the wasteful process of agency-by-agency opinions and slashing the number of disjointed separate audits by two-thirds.
“The mission is simple: break down bureaucratic barriers to get you, the taxpayer, concrete results.”
People with knowledge of the matter told the publication that the army represented the largest single contract within KPMG’s federal audit business. The firm is also in the process of running down other federal audit engagements.
Federal contracting records show the Army paid KPMG about $40m per year for each of the previous five audit cycles. That annual fee increased to $64m under a contract signed in October.
A KPMG factsheet stated that the firm’s federal audit arm oversaw the accounts of more cabinet‑level agencies than any competitor, naming the Departments of Justice, Energy, Labour and Transport, and the Treasury among its clients.
The firm had also been auditor to the Commerce and Homeland Security departments, but those assignments concluded earlier this year.
KPMG was quoted by FT as saying: “Over the past few years, KPMG has prioritised advisory services for the federal government.
“We are transitioning out of federal audit roles through an orderly, multiyear process, meeting all client and regulatory obligations.”
Recently, KPMG unveiled its plan to trim its audit partner ranks in the by 10%.
