Department of the Navy
Drive to Auditability
Presentation to the 2010 ASMC PDI
Mr. Dennis Taitano – DASN Financial Operations
2 June 2010
Agenda
• Everyone Contributes to Auditability
• Why is FIAR Important?
• DoD Challenges
• DoD FIAR Strategy and DON FIP Progress-to-Date
• Assertion and Audit Lessons Learned
• Summary
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Everyone Contributes to Auditability – Bottom Line Up Front
Essentially, auditability is:
•
Well-controlled business processes to satisfy:
–
–
•
Generally Accepted Accounting Principles (GAAP)
Compliance with Federal Financial Management Regulations (FMR, FFMIA,
FMFIA, etc.)
Ability to readily produce evidence (e.g. documentation, testing) to
support business transactions
Management
Assurance
(Internal)
3rd Party
Assessment
(External)
Financial Audit Readiness is presented through 5 Management Assertions:
1. Completeness: Are all assets and liabilities accounted for?
2. Rights and Obligations: Do we have ownership and control of assets (i.e. title), and are
liabilities our obligation?
3. Existence: Do all assets and liabilities in our records actually exist?
4. Valuation: Have we completely and accurately accumulated the appropriate costs of assets
and liabilities?
5. Presentation and Disclosure: Have we presented the transactions appropriately in our
financial statements?
Through our efforts to reach this goal, the outcome produced will be timely,
accurate, and reliable financial information.
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DoD Business “Control Continuum”
No Assurance
Qualified
Assurance
“Playground Rules”
Current
State
Reasonable
Assurance
Absolute
Assurance
Financial
Auditability
Nuclear
Reactor
Safety
FFMIA
Compliant
GAP
No Control
(Anything Goes!)
Complete
Control
“Closing the Gap” Will Mean:
• Controls that are in place and tested
• Improved operational efficiency
• More standard processes
• Reduced vulnerability to fraud/waste
• Implementing more capable systems
• Sustained public trust/confidence
4
Financial Improvement and Audit Readiness (FIAR)
Why is FIAR Important?
•
Comply with Laws:
- Laws require financial statement audits
•
Verify Correct Allocation of Funds:
- Verify that all resources are efficiently allocated to approved mission
priorities
•
Improve Mission Support:
- Provide better information for timely, informed decision-making
•
Increase Public Trust:
- Reassure the public that DoD is a good steward
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DoD Challenges
• Many diverse functional organizations must work together
• Lack of understanding relating to financial audit requirements
• Current business environment makes auditability hard to achieve
–
–
–
DoD systems are not integrated and/or manually intensive
Lack of processes standardization or embedded internal controls
Some systems do not collect or lack visibility of data at transaction level
• Lack of coordinated plans
–
Services pursuing different agendas at different pace
• Earlier focus was on information of limited value to management
New Approach Established in August 2009:
Focus on Improving Information We Use
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“It will take longer than we thought to become audit-ready.”
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New Approach
•
Focus on information DoD uses to manage
– Budgetary data
– Asset counts/location (existence and completeness)
•
Main emphasis: improve information
– Use audits to verify success or identify problems
– Focus on internal controls and source documentation
•
Lower priority for information not useful to managers
OSD/Services Developing Detailed Financial Improvement Plans
8
DON Financial Improvement Program Overview
•
DON FIP is a department-wide effort designed
to achieve the goal of DON reaching an audit
ready state
•
The program continues to drive toward more
effective business processes, with the focus
centered on effective internal control
implementation
•
DON FIP outcomes include:
– More accurate, timely, and reliable
information for decision making
– More confidence of DON’s effective
stewardship of taxpayer dollars
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DON FIP Accomplishments and Updates
•Accomplishments to Date:
Accomplishments
Environmental Liabilities –Weapons Systems (Ships, Submarines), DERP, OEL, BRAC
Cash and Other Monetary Assets
Contingent Legal Liabilities, Debt
•In Process Items:
In Process
Civilian Pay Assertion – currently under review by OSD(C) and DoDIG
Appropriations Received (Funds Receipt and Distribution) – pre-audit review by DoDIG
USMC Statement of Budgetary Resources – currently under audit
•Key Upcoming Milestones/Dates:
Event
Date
Transportation of People (TDY Travel) Assertion
9/30/2010
E&C Quick Wins (Ships and Submarines, Aircraft, Satellites, ICBMs) Assertion
9/30/2010
USMC SBR Audit Opinion
11/15/2010
Remediate control weaknesses for CivPay and Appropriations Received (FRD)
12/31/2010
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FIAR FY 11-16 Milestones - Audit Ready Assertion Dates
• Obligation Status - DON
•
•
•
Supply Orders (MILSTRIPs)
Contracts
Military Pay
• Funds Balance with Treasury (Outlays) - DON
Q3 FY11
Q4 FY11
Q4 FY12
Q4 FY12
• Statement of Budgetary Resources
•
•
•
DON (USMC already under audit)
Army
Air Force
Q1 FY13
Q1 FY15
Q4 FY16
• Mission Critical Asset Existence and Completeness
•
•
•
DON
Army
Air Force
Q2 FY15
Q3 FY15
Q4 FY16
We Will Seek Independent Validation for Some of These
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DON FIP Strategy - Management Challenges
Challenge
Implementing a Robust
Internal Control
Environment Across a
Large, Geographically
Dispersed Organization
Intra/Inter DoD Agency
Coordination
How We Are Responding
• Focusing on mitigating risk and meeting control objectives
• Defining key controls across business processes
• Integrating Audit Readiness with Change Management efforts
• Continuing to foster cooperative relationships with business partners
(e.g. DFAS, DLA, DCMA)
• Reaching outside of the FM community (e.g. Acquisition, Logistics)
• Working to adopt BTA standards and promote common business
processes and interoperability of data
Building and Sustaining
an Audit Readiness
Infrastructure
• Looking to standardize processes and internal controls to reduce
complexity, risk, cost of maintenance, and deploy new enterprise systems
(e.g. Navy ERP, FPPS)
• Promoting awareness and understanding of the importance and use
internal controls across the enterprise, while establishing accountability
• Developing an organized systemic means to periodically evaluate
operating effectiveness (OMB A-123 Appendix A - ICOFR)
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Lessons Learned: Assertion to Audit
Key Lessons Learned thus far can be grouped into four areas:
Financial Environment
“Know Your Environment”
•Understand the flow of events and transactions
from recognition through recording to reporting
•Reconciliation of: FBWT, UTB to ATB,
DOUnpaid to A/P, etc.
•Readily available source docs
•Standard internal controls,
systems, and processes improves
audit performance
Data Management
“Transmitting Timely and Accurate Information”
•Sample retrieval, submission, and tracking, as
well as follow-up question management
Pathway to Success
Human Resource
Management
“People Make the Difference”
•Quality people are needed in the
auditee organization as well as in the
external service providers
•Constant education of both auditor and
auditee
•Must have the “Will to Win” – Audit is
unrelenting
•DoD/DON information security
requirements
•Data requirements are large
and complex – requires constant
focus
Auditor-Auditee
Communication
“Simple in Concept… Monumental
in Execution”
•Know how to communicate with the auditor
•Assure clear understanding by all parties of
business activities
•We know our business better than anyone,
so be confident
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What is the Significance of These Dates?
1990
1996
2000
2007
2017
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Summary
• DoD’s financial management community is performing well
• DoD’s financial management health and capabilities are a
reflection of the business environment and key supporting
elements (i.e., people, processes, systems)
– Enterprise-wide changes in our business will be required to meet stakeholder
expectations
– Better integrated/more capable systems
– Standardized business processes which are periodically tested and measured
against efficiency, effectiveness and compliance criteria
• The Comptroller serves as a catalyst in strengthening the key
elements of our business…both inside and outside of the FM
“stovepipe.”
– We need to recapitalize our business infrastructure
Continue to build and strengthen the audit support infrastructure
today, to support the audit tomorrow.
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