Financial Improvement
and Audit Readiness
Where YOU Fit in the Quest for Auditability
Presented to the
2012 Washington-ASMC National Capital Region
Professional Development Institute
March 22, 2012
Agenda
• Strategic Alignment
• Financial Improvement and Audit Readiness (FIAR):
Background and Context
• Call to Action: 2014 Acceleration
• Implementing Secretary of Defense Guidance
• The People Factor
• Summary
2
DoD Financial Management is Aligned with Higher-Level Strategic Goals
Quadrennial Defense Review
Report (QDR)
February 2010
Prevail
Reform Agenda:
in today’s war
(1 of 4 “P’s”)
Increase efficiencies in
HQ and administrative
functions
Maintain
Reduce
a broad portfolio of
military capabilities
(1 of 7 guideposts)
the cost
of doing
business
Strengthen
Create
Strengthen
and right-size
the DoD total
workforce
agile business
operations that support
contingency missions
DoD
Financial
Management
Champion
Acquire
Ensure
a strong and capable
financial management
workforce
resources necessary
to meet national
defense objectives
the legal, effective,
and efficient use of
DoD resources
Strategic Goals
Sustaining U.S. Global Leadership:
Priorities for 21st Century Defense
January 2012
New Strategic Guidance
DoD Strategic
Management Plan
FY 2012-2013
Business Priorities
OUSD(C) Strategic
Management Plan
FY 2011-2017
Strategic
Management Goals
3
DoD Financial Management is Aligned with Higher-Level Strategic Goals
OUSD(C) Strategic
Management Plan
FY 2011-2017
Champion
Acquire
Ensure
a strong and capable
financial management
workforce
resources necessary
to meet national
defense objectives
the legal, effective,
and efficient use of
DoD resources
Changes Affecting
Everyone
Emerging FM
Certification
Program
Downward
Pressure on
DoD Top Line
Demands for
Financial
Auditability
Desired
Outcomes
The Right Skill
Sets and
Career
Framework
Getting More
out of the
Program to
Support
Mission
Confidence in
Public
Stewardship
and Improved
Efficiency
Strategic
Management Goals
4
FIAR: Why Important?
Background and Context
•
Comply with Laws:
Laws require financial statement audits
•
Verify Correct Allocation of Funds:
Verify that all resources are allocated to approved mission priorities in a
legal manner
•
Make Better Use of Resources:
Provide better information for timely, informed decision-making and
identify unused funds
•
Increase Public Trust:
Reassure the public and Congress that DoD is a good steward
DoD Only Federal Agency Without a Positive Audit Opinion…
“It is unacceptable”
5
Progress to Date
Several entities under audit or maintaining favorable opinions:
• U.S. Army Corps of Engineers (Civil Works)
• Several Defense Agencies and organizations
–
–
–
–
–
–
Defense Finance and Accounting Service (DFAS)
Defense Commissary Agency (DeCA)
Defense Contract Audit Agency (DCAA)
Defense Information Systems Agency (DISA) Working Capital Fund
Office of the Inspector General
TRICARE Management Activity – Contract Resource Management
• Trust funds (military retirement / retiree healthcare)
• U.S. Marine Corps Statement of Budgetary Resources (SBR)
under audit
Current Audit Activity Represents Only 15% of the Budget and
Many of the Biggest Tasks Lie Ahead
6
Streamlined FIAR Approach
Established August 2009
•
Focus on information DoD uses to manage
•
Main emphasis: Improve information
•
Seek cost-effective approach for lower priority information
•
This approach has created unified support for initiatives
•
Goal and Law: Auditable statements by 2017
– Budgetary data
– Asset counts / location (existence and completeness)
– Focus on internal controls and source documentation
– Use audits to verify success or identify problems
– Primarily historical valuations of assets
We Need to Move From Strategy to Tactical Execution
7
What Successful Audit Requires
Focus on Budget Statement
•
Doing the day-to-day job right is the starting point
•
Verify that each transaction is recorded and
supported
–
–
–
Invoice
Proof of receipt of goods / services
Contract
•
Verify “checkbook” balances with transaction-level
detail
•
Strong, consistent financial systems and
management controls reassure auditors and allow
limited sample sizes
8
DoD’s Current SBR Status
General Fund
Immaterial
1%
Under Audit
14%
Defense Agencies
(23%)
Preparing for Audit
85%
9
Call to Action
“It is unacceptable to me that the Department of Defense
cannot produce a financial statement that passes all financial
audit standards.”
“I’ve directed the Department
to cut in half the time it will take
to achieve audit readiness for
the Statement of Budgetary
Resources so that by 2014 we
will have the ability to conduct
a full-budget audit.”
Also:
• Increased effort on property accountability
• Review financial controls within 2 years
• Course-based certification for financial managers
10
FY 2013 Budget Themes
Supporting Defense Strategy
1. Making more disciplined use of Defense dollars
2. Applying strategic guidance to force structure and
investment
3. Ensuring the quality of the all-volunteer force
4. Fully supporting deployed warfighters
Recognition of Need for Increased Business Discipline
Sets the Right Tone for Financial Auditability
11
Need to Balance Short-Term Actions
with Long-Term Investments
Short Term Activity with Maximum “Concurrency”
• Evaluate business environment using testing
• Implement corrective actions
• Assert audit readiness
(FY12)
(FY13)
(FY14)
Long Term Investments Will Change How We Do Business
• Maintain ERP deployments
• Standardize processes
• Develop field level sustainment capability
• Implement professional training / certification program
Short Term Actions Will Get Us There…
Long Term Actions Will Keep Us There
12
Revised Systems Approach
• Continue to sustain systems modernization efforts
• Assess all material systems vs. FISCAM
• Ensure “target systems” compliant and evaluate
cost-effective “fixes” to legacies
• Implement necessary changes
• Include enterprise systems in SSAE-16 (“Service Provider”)
audits where possible
We Will No Longer Assume the Lack of Compliant Systems
Is a “Show Stopper”
13
Functional Engagement
• Acquisition and Logistics (OUSD(AT&L))
–
–
–
–
Accelerate performance of DLA inventory audits
Include FIAR reporting in Joint Logistics Board sessions
Ensure DCMA contract closeout timeline supports audit requirements
Serve as the Department’s lead for property existence & completeness initiative
Date
P
Apr 2012
Ongoing
Ongoing
• Personnel (OUSD(P&R))
– Review personnel policy and systems to ensure support for auditability
Oct 2012
• Information Technology (OSD CIO)
– Consolidate audit and system certification requirements
– Include audit requirements in policy associated with operating site certifications
– Include FIAR reporting in CIO executive agenda
Sep 2012
Sep 2012
Apr 2012
• Financial Advocacy (OUSD(C)/CFO)
– DFAS establish model for service provider audit readiness
– Functional advocacy for Defense Agencies (“4th Estate”)
– DCAA incurred cost audits support audit requirements
P
Ongoing
Mar 2014
Enterprise Functional Leadership Critical to Policy Direction and
DoD-wide Support of Audit Readiness
14
Field Commander Must Be
Fully Engaged
Specifically, Local Commanders Need to:
• Actively support Enterprise Resource Planning systems
• Ensure management controls in place and operating
–
–
Strong security controls on financial and feeder systems
Identify and test key process controls
• Monitor levels of business discipline and accountability by
asking questions such as:
– Are your contracts recorded accurately and timely?
– Are your financial obligations still valid?
– Are material receipts recorded accurately and timely?
– Are your financial decisions based on information in official systems?
– Can you rely upon internal control testing results to answer the questions above?
• Include audit readiness as part of command assessments
Field Commanders Are Key to Translating Strategy into Action
15
Applying Audit Lessons Learned
•
Addressing key audit requirements (“deal-breakers”)
up front
–
–
–
–
–
•
•
•
Provide a universe of transactions
Maintain an audit trail to source documents
Reconcile between systems
Reconcile Fund Balance with Treasury
Support journal vouchers and estimates
Re-evaluating shortcuts
Focusing on the right things (not everything)
Planning for logistics of audit support
Must Change and Sustain Changes to Day-to-Day Business
16
Implementing
Secretary Panetta’s Guidance
• Adjustments to prior Military Service projections for Budget
Statement
– Army moves up by 1 year
o Compresses period of change management
o Reduces timeframe for implementing corrective actions
o Requires modification of legacy military pay processes and systems
– Navy timeline remains stable and reduces risk
o Revisions to plan applying lessons from USMC experience
o Leverages process standardization and Navy ERP
– Air Force moves up 3 years
o Assumes highest risk due to previous reliance on replacement systems
o Emphasis on process controls using legacy systems
– Defense Agencies developing plans for rapid execution
– DFAS to accelerate system tests and support: Provides model for service providers
– OSD functional leadership engagement increasing
Greatly Increased Concurrent Activity
17
Oversight of Tactical Execution
• Sustaining and strengthening current oversight
– Monthly FIAR Committee reviews
– Quarterly FIAR Governance
• Addressing CFO reviews of progress with:
–
–
OSD functional leads (bimonthly)
Service Comptrollers (weekly / monthly)
• Convene sessions as required with:
– Deputy Secretary of Defense with CMOs / Vice Chiefs
– Secretary of Defense with Service Secretaries / Service
Chiefs
18
Emphasizing the Importance of
People to FIAR
Recognizing the importance of change management,
we are planning increased emphasis on:
•
•
Communication
Proposed DoD financial management certification
– Competency-based financial management courses with special
–
–
–
–
•
•
emphasis on audit readiness and decision support
Continuing professional development and leadership courses
Financial management work experience
Test-based certifications
Developmental assignments
Accountability and linkage to performance appraisals
Organizational evaluation of field activity contribution to
audit readiness
19
Summary
•
We have a plan for FIAR
– Focus first on information needed to manage
– Governance in place
– Resources in place
•
This plan will achieve state of audit readiness for initial
priorities by 2014
•
Need consistent senior leader involvement
•
Field commander and effective change management is
critical for:
–
–
–
–
Effective ERP deployments
Improved management and financial controls
Increased business discipline and culture change
Audit support
20
Backup
21
As of 3/6/12
Air Force Near-Term Plans
Tested
Corrected
Validated
Ready
P
6/30/12
12/31/12
5/31/12
TBD
TBD
P
3/15/12
9/30/12
Civilian Pay
3/31/12
7/30/12
6/30/13
Reimbursable Budget Authority
4/30/12
7/31/12
6/30/13
Military Pay
6/30/12
10/31/12
9/30/13
Reimbursable Orders
4/30/12
10/31/12
6/30/14
Net Outlays (Funds at Treasury)
8/31/12
9/30/13
6/30/14
Contracts (Major)
8/31/12
7/30/13
6/30/14
Contracts (Minor)
10/31/12
5/30/13
2/28/14
Supply Requisition (MILSTRIP)
10/31/12
3/31/13
1/31/14
Financial Reporting
2/28/13
8/30/13
6/30/14
Military Equipment
P
P
6/30/12
Supplies (Cruise Missiles & Aerial Targets/Drones)
P
P
6/30/12
Supplies (Missile Motors & Spare Engines)
P
P
9/30/12
Real Property
6/30/12
6/30/13
12/31/13
Supplies (Munitions)
12/31/13
2/28/14
12/31/14
Milestone
IT Systems
Testing and correcting systems to meet GAO audit manual criteria
AFM
[funds control and distribution]
GAFS
[general ledger – financial transaction detail]
Statement of Budgetary Resources
Testing and correcting controls and documentation to meet FIAR Guidance criteria
Funds Distribution to Base-level
Asset Existence and Completeness
Testing and correcting controls and records to meet FIAR Guidance criteria
Note:
Tested = Completion of discovery efforts; Corrected = Complete tests of corrective actions and assert audit ready;
Validated Ready = IG / IPA opinion on audit readiness assertion
22
As of 3/6/12
Verifying Progress – Air Force
Milestone
Responsible
Complete
Start Date
Party
Date
Verify using Independent Auditor
Net Outlays – Fund Balance with Treasury Reconciliation Process
Military Equipment, Cruise Missiles, Aerial Targets/Drones
Major Contract Pay – SIBRS MDAP Budget Report
DFAS
A4
FMP & AQSM
P
P
12/30/12
P
6/30/12
3/31/13
Validating internal controls on sample of 180 transactions
FMP/FMB
P
P
Identify and test sample transactions for balance testing
FMP/FMB
P
3/15/12
DFAS
P
4/30/12
Test Payroll accrual and General Ledger posting and reconciliations
DFAS
P
6/15/12
Payroll Calculation examination of controls over DCPS
DFAS
P
P
AFPC/DFAS
P
6/15/12
FMP/FMB
P
4/30/12
FMP
P
3/30/12
A1 & FMP
P
P
Verify using Air Force Audit Agency or FM&C
Fund Distribution to Base
Contracts (Major)
Complete reconciliation on 148 transactions for SIBRS MDAP
CivPay
Validate accuracy of Separated/Retired Employee Records
Reimbursable Authority
Reconcile a representative sample (app 4,000) documents to validate controls and
balances (Population app 62,000)
MilPay
Developing test plans
Verify using OUSD(C)
Audit goals in relevant SES Performance Plans
23
As of 3/6/12
Navy Near-Term Plans
Milestone
Tested
Corrected
Validated
Ready
IT Systems
Testing and correcting systems to meet GAO audit manual criteria
Navy – ERP
[general ledger – financial transaction detail]
8/2/12
3/31/13
9/30/13
NSIPS
[Military personnel system]
8/2/12
3/31/13
9/30/13
SLDCADA
[civilian time and attendance]
8/2/12
3/31/13
9/30/13
STARS
[DFAS general ledger – financial transaction detail]
8/2/12
3/31/13
9/30/13
P
P
P
Reimbursable Orders
2/2/12
6/30/12
12/31/12
Civilian Pay
2/2/12
6/30/12
12/31/12
Transportation of People (including PCS)
2/2/12
6/30/12
12/31/12
Supply Requisition (MILSTRIP)
3/28/12
9/30/12
3/31/13
Financial Reporting (Transaction Populations, Supported Entries, etc.)
4/2/12
9/30/12
3/31/13
Contracts (Major and Vendor Contracts)
5/10/12
12/31/12
6/30/13
Military Pay
8/2/12
3/31/13
9/30/13
Net Outlays (FBWT)
7/9/12
3/31/13
9/30/13
Military Equipment – Ships, Subs, Satellites, ICBMs
P
P
P
Military Equipment – Aircraft
P
P
6/30/12
Supplies (Ordnance)
P
P
7/31/12
Statement of Budgetary Resources
Testing and correcting controls and documentation to meet FIAR Guidance criteria
USMC
Asset Existence and Completeness
Testing and correcting controls and records to meet FIAR Guidance criteria
Note:
Tested = Completion of discovery efforts; Corrected = Complete tests of corrective actions and assert audit ready;
Validated Ready = IG / IPA opinion on audit readiness assertion
24
Verifying Progress – Navy
Milestone
Responsible
Start Date
Party
As of 3/6/12
Complete Date
Verify using Independent Auditor
USMC Statement of Budgetary Resources
Net Outlays - Reconciliation Process Examination
Military Equipment – Ships, Subs, Satellites, ICBMs
Military Equipment – Aircraft
Major Contract Pay – E2-D MDAP Budget Report Examination
USMC
DFAS
Various
NAVAIR
NAVAIR
P
3/31/13
P
P
2/28/12
3/31/12
9/30/13
P
6/30/12
6/30/12
BUPERS
HRSC
BUPERS
4/25/12
P
4/25/12
7/19/12
1/30/12
7/19/12
All Commands
All Commands
3/26/12
3/26/12
5/4/12
5/4/12
DFAS
DFAS
FMO
3/30/12
3/30/12
3/30/12
6/22/12
6/22/12
6/22/12
FMO & DFAS
1/24/12
3/29/12
FMO
2/15/12
3/20/12
FMO
P
P
Verify using Naval Audit Service or FM&C
Payroll
Trace Military personnel records from system to document
Trace hours for 250 employees from DCPS to T&A system
Reconcile pay system output to general ledger for one month
Minor Contract (Vendor) Pay
Trace 250 obligations from contract system to general ledger
Trace 250 WAWF receiving reports to posting in general ledger
FBWT
Trace 250 reconciling items to supporting documents
No material suspense account balances > 30 days at end of year
Complete Beginning Balance Materiality Analysis
Financial Reporting
Transaction Populations, Supported Journal Entries, Abnormal
Balances, and USSGL Posting Logic
Supply
Trace 250 receiving reports to ensure delivery reflected in general
ledger
Verify using OUSD(C)
Audit goals in relevant SES Performance Plans
25
Army Near-Term Plans
Milestone
Tested
As of 3/6/12
Corrected Validated
IT Systems
Testing and correcting systems to meet GAO audit manual criteria
GFEBS (ERP)
[general ledger – financial transaction detail]
3/31/12
5/31/12
12/31/12
GCSS-Army (ERP)
[general ledger /logistics– financial transaction detail]
6/30/12
12/31/12
12/31/13
LMP (ERP)
[general ledger /logistics– financial transaction detail]
12/31/12
6/30/13
12/31/13
ATAAPS
[civilian time and attendance]
P
12/31/12
6/30/13
P
6/30/12
12/31/12
P
6/30/12
12/31/12
Net Outlays - Automated FBWT Reconciliation Tool
1/31/13
2/28/13
3/31/13
GF SBR Exam #3 - All Army GF Activity at all GFEBS locations (Exam 2 processes
plus MOCAS, GCSS-Army)
12/31/12
6/30/13
12/31/13
GF SBR Assertion / Audit - All Army GF Activity (Exam 3 processes plus MILPAY)
3/31/13
9/30/13
6/30/14
Net Outlays (FBWT)
1/31/13
5/30/14
9/30/14
P
4/30/12
6/30/12
Real Property – 20 Installations
7/30/12
9/30/12
12/31/12
Military Equipment, General Equipment, OM&S – All assets
6/30/12
6/30/13
12/31/13
Real Property – All installations
3/31/13
3/31/14
9/30/14
Statement of Budgetary Resources
Testing and correcting controls and documentation to meet FIAR Guidance criteria
GF SBR Exam #2 - GFEBS Wave 1&2 Sites (9 installations / 18 resource
management offices and DFAS, 10 processes, GFEBS controls)
Processes: Funds Receipt, Distribution, & Monitoring; Reimbursables In-bound
& out-bound; TDY; PCS; Contracts; Civilian Pay; Misc. Payments; Government
Purchase Cards; Supply Requisitions; Financial Reporting
Asset Existence and Completeness
Testing and correcting controls and records to meet FIAR Guidance criteria
OM&S – Javelin, Hellfire, TOW missiles (16% of FY 2011 OM&S Value)
Training and Change Management-Continuous
Note:
Began Army-wide in Q2 FY 2011
Tested = Completion of discovery efforts; Corrected = Complete tests of corrective actions and assert audit ready;
Validated Ready = IG / IPA opinion on audit readiness assertion
26
As of 3/6/12
Verifying Progress – Army
Milestone
Responsible
Complete
Start Date
Party
Date
Verify using Independent Audit Firm
GF SBR Exam #1 - GFEBS Wave 1 Sites (5 processes)
GF SBR Exam #2 - GFEBS Wave 1&2 Sites (10 processes, GFEBS, DFAS)
FM&C
FM&C
P
7/1/12
P
12/31/12
GF SBR Exam #3 - All Army GF Activity in GFEBS (11 processes, GCSS-Army)
FM&C
2/1/13
7/31/13
OM&S E&C– Javelin, Hellfire, TOW Missiles
E&C of Real Property at 20 Installations
E&C of Military Equipment, General Equipment, & all OM&S
E&C of all Real Property
FM&C
FM&C
FM&C
FM&C
7/1/12
1/1/13
1/1/14
10/1/14
12/31/12
6/30/13
6/30/14
6/30/15
FFMIA Compliance of GFEBS
FM&C
P
P
FFMIA Compliance of GCSS-Army
FM&C
P
6/30/12
FFMIA Compliance of LMP
FM&C
P
9/30/12
FM&C
P
P
Verify using Army Audit Agency
Verify using OUSD(C)
Audit goals in all SES performance plans
27