financial improvement and audit readiness - washington-asmc

Presented to the

2012 Washington-ASMC National Capital Region

Professional Development Institute

March 22, 2012

Financial Improvement

and Audit Readiness Where YOU Fit in the Quest for Auditability

Agenda

2

• 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

Champion a strong and capable

financial management

workforce

Acquire resources necessary

to meet national

defense objectives

Ensure the legal, effective,

and efficient use of

DoD resources

OUSD(C) Strategic

Management Plan

FY 2011-2017

Strategic

Management Goals

DoD Strategic

Management Plan

FY 2012-2013

Business Priorities

Quadrennial Defense Review

Report (QDR)

February 2010

Strategic Goals

3

Sustaining U.S. Global Leadership:

Priorities for 21st Century Defense

January 2012

New Strategic Guidance

Maintain a broad portfolio of

military capabilities

(1 of 7 guideposts)

Reduce the cost

of doing

business

Prevail in today’s war

(1 of 4 “P’s”)

Strengthen and right-size

the DoD total

workforce

Create agile business

operations that support

contingency missions

Strengthen

DoD

Financial

Management

Reform Agenda: Increase efficiencies in

HQ and administrative

functions

DoD Financial Management is Aligned with Higher-Level Strategic Goals

OUSD(C) Strategic

Management Plan

FY 2011-2017

Strategic

Management Goals

4

Champion a strong and capable

financial management

workforce

Acquire resources necessary

to meet national

defense objectives

Ensure the legal, effective,

and efficient use of

DoD resources

DoD Financial Management is Aligned with Higher-Level Strategic Goals

Changes Affecting

Everyone

The Right Skill

Sets and

Career

Framework

Getting More

out of the

Program to

Support

Mission

Confidence in

Public

Stewardship

and Improved

Efficiency

Desired

Outcomes

Emerging FM

Certification

Program

Downward

Pressure on

DoD Top Line

Demands for

Financial

Auditability

• 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

FIAR: Why Important?

5

DoD Only Federal Agency Without a Positive Audit Opinion…

“It is unacceptable”

Background and Context

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

6

Current Audit Activity Represents Only 15% of the Budget and

Many of the Biggest Tasks Lie Ahead

Progress to Date

• Focus on information DoD uses to manage – Budgetary data

– Asset counts / location (existence and completeness)

• Main emphasis: Improve information – Focus on internal controls and source documentation

– Use audits to verify success or identify problems

• Seek cost-effective approach for lower priority information – Primarily historical valuations of assets

• This approach has created unified support for initiatives

• Goal and Law: Auditable statements by 2017

Streamlined FIAR Approach

7

We Need to Move From Strategy to Tactical Execution

Established August 2009

Focus on Budget Statement

What Successful Audit Requires

8

• 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

9

Immaterial

1% Under Audit

14%

Defense Agencies

(23%)

Preparing for Audit

85%

DoD’s Current SBR Status General Fund

10

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

2. Applying strategic guidance to force structure and

investment

3. Ensuring the quality of the all-volunteer force

4. Fully supporting deployed warfighters

11

FY 2013 Budget Themes

Supporting Defense Strategy

1. Making more disciplined use of Defense dollars

Recognition of Need for Increased Business Discipline

Sets the Right Tone for Financial Auditability

Need to Balance Short-Term Actions

with Long-Term Investments

12

Short Term Activity with Maximum “Concurrency”

• Evaluate business environment using testing (FY12)

• Implement corrective actions (FY13)

• Assert audit readiness (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

• 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

13

Revised Systems Approach

We Will No Longer Assume the Lack of Compliant Systems

Is a “Show Stopper”

• Acquisition and Logistics (OUSD(AT&L)) Date – Accelerate performance of DLA inventory audits P

– Include FIAR reporting in Joint Logistics Board sessions Apr 2012

– Ensure DCMA contract closeout timeline supports audit requirements Ongoing

– Serve as the Department’s lead for property existence & completeness initiative 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 Sep 2012

– Include audit requirements in policy associated with operating site certifications Sep 2012

– Include FIAR reporting in CIO executive agenda Apr 2012

• Financial Advocacy (OUSD(C)/CFO) – DFAS establish model for service provider audit readiness P

– Functional advocacy for Defense Agencies (“4th Estate”) Ongoing

– DCAA incurred cost audits support audit requirements Mar 2014

Functional Engagement

14

Enterprise Functional Leadership Critical to Policy Direction and

DoD-wide Support of Audit Readiness

Field Commander Must Be

Fully Engaged

15

Field Commanders Are Key to Translating Strategy into Action

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

• 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

Applying Audit Lessons Learned

16

Must Change and Sustain Changes to Day-to-Day Business

Implementing

Secretary Panetta’s Guidance

17

Greatly Increased Concurrent Activity

• 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

• 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

Oversight of Tactical Execution

18

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

Emphasizing the Importance of

People to FIAR

19

• 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

Summary

21

Backup

22

Milestone Tested Corrected Validated

Ready

IT Systems Testing and correcting systems to meet GAO audit manual criteria

AFM [funds control and distribution] P 6/30/12 12/31/12

GAFS [general ledger – financial transaction detail] 5/31/12 TBD TBD

Statement of Budgetary Resources Testing and correcting controls and documentation to meet FIAR Guidance criteria

Funds Distribution to Base-level 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

Asset Existence and Completeness Testing and correcting controls and records to meet FIAR Guidance criteria

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

Air Force Near-Term Plans

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

As of 3/6/12

23

Milestone Responsible

Party Start Date

Complete

Date

Verify using Independent Auditor

Net Outlays – Fund Balance with Treasury Reconciliation Process DFAS P P

Military Equipment, Cruise Missiles, Aerial Targets/Drones A4 P 6/30/12

Major Contract Pay – SIBRS MDAP Budget Report FMP & AQSM 12/30/12 3/31/13

Verify using Air Force Audit Agency or FM&C

Fund Distribution to Base

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

Contracts (Major)

Complete reconciliation on 148 transactions for SIBRS MDAP DFAS P 4/30/12

CivPay

Test Payroll accrual and General Ledger posting and reconciliations DFAS P 6/15/12

Payroll Calculation examination of controls over DCPS DFAS P P

Validate accuracy of Separated/Retired Employee Records AFPC/DFAS P 6/15/12

Reimbursable Authority

Reconcile a representative sample (app 4,000) documents to validate controls and

balances (Population app 62,000) FMP/FMB P 4/30/12

MilPay

Developing test plans FMP P 3/30/12

Verify using OUSD(C)

Audit goals in relevant SES Performance Plans A1 & FMP P P

Verifying Progress – Air Force As of 3/6/12

24


Ready


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


USMC 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

Navy Near-Term Plans

Note: Tested = Completion of discovery efforts; Corrected = Complete tests of corrective actions and assert audit ready;


As of 3/6/12


Party Start Date Complete Date

Verify using Independent Auditor USMC Statement of Budgetary Resources USMC P 3/31/12

Net Outlays - Reconciliation Process Examination DFAS 3/31/13 9/30/13

Military Equipment – Ships, Subs, Satellites, ICBMs Various P P

Military Equipment – Aircraft NAVAIR P 6/30/12

Major Contract Pay – E2-D MDAP Budget Report Examination NAVAIR 2/28/12 6/30/12

Verify using Naval Audit Service or FM&C Payroll

Trace Military personnel records from system to document BUPERS 4/25/12 7/19/12

Trace hours for 250 employees from DCPS to T&A system HRSC P 1/30/12

Reconcile pay system output to general ledger for one month BUPERS 4/25/12 7/19/12

Minor Contract (Vendor) Pay

Trace 250 obligations from contract system to general ledger All Commands 3/26/12 5/4/12

Trace 250 WAWF receiving reports to posting in general ledger All Commands 3/26/12 5/4/12

FBWT

Trace 250 reconciling items to supporting documents DFAS 3/30/12 6/22/12

No material suspense account balances > 30 days at end of year DFAS 3/30/12 6/22/12

Complete Beginning Balance Materiality Analysis FMO 3/30/12 6/22/12

Financial Reporting

Transaction Populations, Supported Journal Entries, Abnormal

Balances, and USSGL Posting Logic FMO & DFAS 1/24/12 3/29/12

Supply

Trace 250 receiving reports to ensure delivery reflected in general

ledger FMO 2/15/12 3/20/12


Audit goals in relevant SES Performance Plans FMO P P

Verifying Progress – Navy

25

As of 3/6/12



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


GF SBR Exam #2 - GFEBS Wave 1&2 Sites (9 installations / 18 resource

management offices and DFAS, 10 processes, GFEBS controls) P 6/30/12 12/31/12

Processes: Funds Receipt, Distribution, & Monitoring; Reimbursables In-bound

& out-bound; TDY; PCS; Contracts; Civilian Pay; Misc. Payments; Government

Purchase Cards; Supply Requisitions; Financial Reporting

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


OM&S – Javelin, Hellfire, TOW missiles (16% of FY 2011 OM&S Value) 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

Training and Change Management-Continuous Began Army-wide in Q2 FY 2011

Army Near-Term Plans

26 Note: Tested = Completion of discovery efforts; Corrected = Complete tests of corrective actions and assert audit ready;


As of 3/6/12

Verifying Progress – Army

27


Party Start Date

Complete

Date

Verify using Independent Audit Firm

GF SBR Exam #1 - GFEBS Wave 1 Sites (5 processes) FM&C P P

GF SBR Exam #2 - GFEBS Wave 1&2 Sites (10 processes, GFEBS, DFAS) FM&C 7/1/12 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 FM&C 7/1/12 12/31/12

E&C of Real Property at 20 Installations FM&C 1/1/13 6/30/13

E&C of Military Equipment, General Equipment, & all OM&S FM&C 1/1/14 6/30/14

E&C of all Real Property FM&C 10/1/14 6/30/15

Verify using Army Audit Agency

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


Audit goals in all SES performance plans FM&C P P

As of 3/6/12

financial improvement and audit readiness - washington-asmc

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