U. S. Coast Guard:
Meeting Audit Readiness & Internal Control Challenges in a
Time of Transformational Change
RADM Robert S. Branham
USCG Chief Financial Officer
ASMC Washington Chapter Luncheon
16 July 2007
1
Agenda
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•
•
•
•
•
The Future: Organizational Transformation
Coast Guard Missions
Financial Issues: Audit Findings
Financial Strategy for Transformation & Audit Readiness
Supporting Mission Execution
Making Change Stick
2
A Day in the Life of the Coast Guard
• Video
3
The Future: Organizational Transformation
DOJ
DOD
DOS
Maritime
DHS
Shore
HR
Logistics
Deployable
Finance
Systems
State &
Local
Org Structures
4
United States Coast Guard
Current Organizational Alignment
Commandant
(CG-00)
Vice Commandant
(CG-09)
Atlantic Area
Pacific Area
Chief of Staff
(CG-01)
Districts
Mission Execution
Units
Asst. Comdt for
Human Resources
(CG-1)
Maintenance &
Logistics Command
Director of Governmental &
Public Affairs (CG-092)
Mission Support
Units
Asst. Comdt for
Intelligence &
Criminal
Investigations
(CG-2)
Asst. Comdt for
Current Operations
(CG-33)
Maintenance &
Logistics Command
Districts
Judge Advocate General &
Chief Counsel (CG-094)
Mission Execution
Units
Mission Support
Units
Asst. Comdt for
Operations
Asst. Comdt for
Engineering &
Logistics
Asst. Comdt for
Plans & Policy
Asst. Comdt for
C4IT
Asst. Comdt for
Resources
Asst. Comdt for
Acquisition
(CG-3)
(CG-4)
(CG-5)
(CG-6)
(CG-8)
(CG-9)
Asst. Comdt for
Operations
Planning
(CG-35)
Asst. Comdt for
Operations
Capabilities
(CG-37)
Deployable
Operations Group
(DOG)
Command Cadre and Staff
Directorates and below
Changes from previous state
Field Level C2 Nodes
5
Supporting Mission Execution
Commandant
(CG-00)
Pre-decisional
Judge Advocate
General and Chief
Counsel
Vice Commandant
(CG-09)
Director of
Governmental and
Public Affairs
Chief of Staff
to the Comdt
Asst. Comdt for Resources
Asst. Comdt for Intelligence
and Criminal Investigations
External
Coordination
(CG-8)
(CG-2)
Deputy Commandant for
Mission Support
(CG- 1/4/6/9)
Commander
Coast Guard Force Readiness
Command (FORCECOM)
Deputy Commandant for
Operations
(CG-3/5/7)
Chief
Human
Resources
Officer
Chief
Sustainment
Officer
Chief
Information
Officer
Chief
Acquisition
Officer
Asst. Comdt
for
Current
Operations
(CG-1)
(CG-4)
(CG-6)
(CG-9)
(CG-3)
Asst. Comdt for
Policy, Planning
& Intn’l Affairs
Asst. Comdt
for
Capabilities
Shore
Forces
Mgr
MPF
DOG
Commander
Coast Guard Operations
Command (OPCOM)
1-8 Staff
District XYZ
1-8 Staff
(CG-5)
(CG-7)
Sector XYZ
1-8 Staff
Command Cadre and Staff
Personnel/HR
Directorates and below
Changes from previous state
Field Level Command/Control Nodes
Force Provider/Staff
6
In the Words of our Commandant
• The World is Changing and America’s Coast Guard is
Changing;
• ….we are modernizing the Coast Guard;
• We have been running some parts of the Coast Guard like
a small business, when we are a Fortune 500 company;
• We need an integrated business system that aligns with
DHS systems and programs;
• We need to simplify the way we buy, track, maintain, and
dispose of our ships, aircraft, boats and equipment over
their entire life-span.
7
A Mind Map of Financial Problems
Appropriation
Budgetary
Accounting
Congress
Apportionment
Spent
Not Consumed
Allotments
OMB
AC&I
Suballotments
CG Budget
Process
Material
Weakness
PPAs
Allowance Fund
Codes
Admin Target Units
(50)
Program Elements
(3,000)
Transactions
Funds
Balance
with
Treasury
PP&E
OM&S
Allowances
Legend
External
Agency
Activity
FINANCIAL SYSTEMS SECURITY
Spent
Consumed
OE
UDOs
Other
Procurements
Not Spent
Consumed
Actuarial, Legal, & Other
Liabilities
Proprietary
Accounting
Financial
Reporting
Treasury Information Executive Repository
FINANCIAL MGMT OVERSIGHT
Intragov’t
Transactions
8
Root Causes
• IT Systems
 Not Integrated
 Not Capable
 Lack Internal Controls
• Policies




Not Compliant
Non-Existent
Unclear
Outdated
• Organizational Structure
 Does not facilitate effective
& efficient processes
• Processes
 Not Standardized
 Lack Internal Controls
 Overly Complex
• Organizational Culture
 Lack of
Individual/Organizational
Accountability
 Lack of Incentive to Use
Financial Information
• Human Capital
 Lack of comprehensive HR
Strategy
9
Financial Mgmt
Program
Mgmt
Congress Budget Act
CFO Act
DHS Fin Acct Act
FMFIA
GPRA ADA Econ Act Imp Ctrl Act
GAO IC Stds
ClingerCohen Act
OMB A-134
FAIR
OMB A-127
FASAB Statements
OMB A-76
GMRA
OMB A-50
OMB A-136
Prompt
Paymt Act
OMB PMA-PART
AGA-CEAR
FFMIA
Info Systems
Mgmt
OMB A-11
OMB A-123
IG Act
Budget Acct Proced Act
OMB A-25
Improper
Debt
Paymt Act Colln Act
Fed Mgmt Svc Guidance
FISMA
OMB A-130
DHS PMA
Scorecard
Mercatus 10
FLS
LIMS ?
AUXDATA
(OSC)
TAIT
WINS Remote
(includes DEEPWATER)
DAAS
(Utilities &
DEEPWATER)
POMS
Fedtraveler.com to replace
UTS Spring 2005 but
operated like Teserv.
Access to FPD
CAS, CIMS, MIR. TSA/FAM Transaction
Discrepancy Reports
NIPS
TSA/FAM Sunflower
Users
NIPS back
PESTrack
LFPS
ALMIS &
NESSS
Overlay
Data
YTA
Industrial
Fixed
TSA’s Sunflower
Assets
Checkfree® Inventory
CAS
TLC
UTS (PSC)
SFM
TAC
FPD (central)
AFC-56 Obligations
CIMS
Lockboxes
CTAP
PCA
NESSS
CARE
(ELC/Yard)
FEDEX
Treasury
CBS
CG
“Mobile server”
FPD to Go
CEDS
(e.g. fuel)
(LUFS//IBUDS/AFTS)
FLS
(PRs)
ACS
Accounting
(NAF)
VMS
FASER
TSA/FAM TEserv
Direct Access
DHS TIERS
CG Tiers
MPS
GOALS
(multiple
subsystems)
(payments)
via
ECS
CCR
WINS
Firepass
Treasury
NFC
In FY05
IPACs
(FTS; Vehicles)
USN property tracking
for cutter gun systems
FAA’s
CUPS
In FY04
Vendor
Queries
FAXs, Paper
Web invoices
HHG claims
Manual process
GSA Bills
TSA & FAM
users
IPPS
Or
HRMax
JUMPS
(PSC)
OGA electronic
Bills (e.g. DFAS;
GSA supply)
DOD Bills
(paper)
GEISVAN
CM Plus
ARMS
(OSC)
Fleet
(Bank One)
DHS
US Bank
Powertrack®
MISLE
Global
Freight
Management
11
CG Financial Management Vision
The USCG Office of the Chief Financial Officer (OCFO)
serves as trusted strategist & advisor to the Commandant
& provides the full range of financial services to optimize
mission execution through integrated business intelligence.
OCFO
Reputation
Finance Organization
12
FSTAR Roadmap
FY2007
Q1
Q2
Q3
FY2008
Q4
Q1
Q2
Q3
FY2009
Q4
FY08 Focus
FY07 Focus
Financial Reporting
Q2
Q3
Q4
T
Q1
Q2
Q3
Q4
CG
Owner
G
CG-8
Fund Balance w/ Treasury
G
Entity Level Controls
CG-8
CG-8
T
Policies & Procedures
Oversight
Actuarial Liabilities
(Pension)
CG-8
CG-1
Fin/Mixed IT Systems
CG-8
CG-6
Property, Plant, & Equip
CG-8
CG-4
Budgetary Accounting
T
Legal & Other Liabilities
Internal Control
HR Strategy
FY09 Focus
Q1
FY2010
G
CG-8
G
OGC
T
CG-8
CG-8
CG-1
TBD
Environmental Liabilities
CG-4
Operating Materials &
Supplies
T
CG-4
Actuarial Liabilities
(PCS & Medical)
CG-1
Centralized Fin Mgmt
CG-8
Change Mgmt
RED: Material Weakness
ORANGE: Significant Deficiency
YELLOW: Non-Compliant Area
BLUE: Strategic Initiative
TBD
CG-8
G = Global Pay System Requirement
T = Controls Testing Cycle Complete
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Making It All Work: Internal Controls
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•
•
•
DHS-wide effort
Documenting Key Processes
Testing Design & Operating Effectiveness of Key Controls
Building Support for the Commandant’s IC Assurance
Letter
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Supporting Mission Execution
Mission dictates Mission Support
Form follows Function
• Vision
• Strategy
•
•
•
•
WORK
Policy
Process
IT Systems
Org Structure
WORKPLACE
•
•
•
•
Function
Staffing
HR Strategy
Billet Map
WORKER
Set your People up for Success
15
High
The Commitment Curve
Ownership and Engagement
I accept ownership for the
outcomes of the Financial
Transformation.
COMMITMENT
Buy-In
This is the new
status quo.
Low
Awareness
I’ve heard of the
Financial
Transformation.
Status Quo
Blindness
What’s the Financial
Transformation?
General Understanding
I understand the basic
concepts of the Financial
Transformation.
Acceptance
I am willing to acquire skills
required to make the
Financial Transformation
successful.
Personal Understanding
I understand how the
Financial Transformation
impacts me & my job.
TIME
Vision
Adapted from: The Heart of Change, by John P. Kotter & Dan S. Cohen
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Lessons Learned
• Link financial management changes and transformation to
agency strategy and mission…..and ultimately mission
performance
• Link efforts to business process improvements
• Long term audit success depends on:
 Emphasizing internal controls
 Tackling root causes and not just symptoms
• Can’t succeed without people and systems in place.
• Need to proactively manage change
17
18
EXTRA SLIDES FOR POTENTIAL USE
(REPLACEMENT OR OTHERWISE)
19
Informed Decision-Making
Strategic
Planning
Performance
Reporting
Budget
Formulation
DECISIONMAKING
Budget
Execution
Performance
Planning
20
Top Ten List:
How to Get Into Trouble With the Auditors
10. Meeting the auditors on site with a team of armed
personnel
9. Insisting “internal control” is really just a state of mind.
8. Thinking PBC is just short for “peanut butter and cookies.”
7. Asking the auditors what they mean by “documentation.”
6. Accompanying the auditors on a physical inventory…..and
you get lost getting there.
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5.
4.
3.
2.
1.
Top Ten List:
How to Get Into Trouble With the Auditors
Having two sets of financial statements….and asking the
auditors to pick “whichever one they like best.”
“Balancing” your financial statements by adding a little bit
more here and there.
Posting a sign in your office that says “left is debit, right is
credit.”
Using the words “sort of” in your management letter.
Having a high speed, cross-cutting, emulsifying shredder
right next to the CFO’s desk.
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The Future: Organizational Transformation
• Focus on sustaining mission execution
• Three-pronged approach
 Shore-based operations
 Maritime operations
 Deployable operations
• Partner with other services & agencies to integrate efforts
• Reevaluate & realign our Mission Support system





Organizational structures
Human resources
Maintenance & logistics
Information Systems
Financial Management
23
Vision Elements: OCFO
OCFO
Reputation
Finance Organization
• Strategist: Principal advisor to
CG-00 for budget, finance, &
resource allocation to enable
informed business decisions
• Steward: Assuror of data
integrity/control in budget,
accounting, & financial
performance
24
Vision Elements: Finance Organization
OCFO
Reputation
Finance Organization
• Single agency ledger
• Robust internal control, financial
reporting, & analysis
• Integrated planning, budget, analysis,
& reporting
 Timely & useful financial information
• Full financial services for optimal
mission execution
• Minimal financial responsibilities at
operational units
• Ability to respond to contingency
operations with financial integrity
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Vision Elements: CG Reputation
OCFO
Reputation
Finance Organization
• Professional financial
management that matches our
operational reputation
• Consistently clean audit opinion
on financial statements & internal
controls over financial reporting
• A cadre of professional financial
managers supporting financial
credibility
26
Kotter and Cohen’s ‘Heart of Change’ Methodology
– An Approach for FSTAR Change Management
27