KPMG exits U.S. federal audit business after losing Pentagon contract

KPMG is shutting down its U.S. federal government audit business after losing a $60 million-a-year Pentagon contract, and more than 450 employees will be redeployed as the firm exits a corner of the market that has long carried heavy scrutiny and thin margins. The U.S. Army had been KPMG’s largest single federal audit client, and the firm had handled the service’s work for nearly a decade before the Pentagon moved those responsibilities to another accounting firm.

The transition is being drawn out through 2030, suggesting an orderly retreat rather than a sudden break. But the message is blunt: one of the world’s biggest accounting firms no longer sees federal audit work as a business worth keeping, even as the Defense Department remains under intense pressure to prove it can account for hundreds of billions of dollars.

That pressure has only grown. The Defense Department’s fiscal 2024 audit was its seventh annual audit since 2018, and the agency again received a disclaimer of opinion on its departmentwide financial statements. The Pentagon’s own audit materials said nine reporting entities received unmodified opinions on their fiscal 2024 audits, but the larger department still fell short of a clean opinion.

The Government Accountability Office says the Defense Department is still the only major federal agency that has never achieved an unmodified, or clean, audit opinion. Federal law requires the department to get there by December 31, 2028. GAO has also estimated that retiring 89 outdated information systems could save the department a projected $760 million a year through fiscal 2029, showing how closely its audit failures are tied to deeper problems in systems, controls and basic financial visibility.

A March 2026 memorandum from the DoD Office of Inspector General and Pentagon officials outlined coordinated changes to financial statement presentation and the audit approach to support the fiscal 2028 objective. That kind of restructuring reflects the scale of the challenge, but it also highlights the limits of relying on outside firms to fix what is ultimately a bureaucratic and technological problem inside the department itself.

KPMG’s withdrawal is more than a contract loss. It points to a shrinking appetite among major firms for federal audit work that demands specialized expertise, invites political attention and often offers little reward relative to the risk. As the Pentagon narrows and reorganizes its audit regime, the government may find itself increasingly dependent on a smaller pool of auditors just as oversight needs are growing sharper.