ti-97 audit strategy and plan of execution - asmc audit strategy and plan of execution ......

Johanna Sears

PwC Public Sector in

support of FIAR Directorate,

Office of the Deputy Chief

Financial Officer, OUSD(C)

Mobola Kadiri

Assistant Director, FIAR

Directorate, Office of the

Deputy Chief Financial

Officer, OUSD(C)

TI-97 Audit Strategy

and Plan of Execution

American Society of Military Comptrollers (ASMC) – PDI

May 28, 2015

• TI-97 Audit Strategy

— Statutory Direction

— Senior Leadership Engagement

— DoD Financial Statements Overview

— Path to Full Financial Statement Audit

— DoD’s Consolidated Audit Strategy

— Categories of Reporting Entities

— Timeline to Move to Stand-Alone Audit or Examination

• TI-97 Plan of Execution

— TI-97 Audit Readiness Dealbreakers

— Audit & Examination Roles & Responsibilities

— Lessons Learned & Challenges

Agenda

2

3

Statutory Direction

The Chief Financial Officers (CFO) Act of 1990 requires federal agencies to

prepare annual financial statements, and the Government Management Reform

Act (GMRA) of 1994 requires the financial statements to be audited. In addition

to the CFO Act and GMRA, Congress legislated the following:

• Sec. 1003 of the National Defense Authorization Act (NDAA) for FY 2012

requires the plan to include the interim objectives and a schedule of milestones for

each Military Department and Defense Agency to support the goal established by

the Secretary of Defense that the SBR be validated for audit by not later than

September 30, 2014

• Sec. 1003 of the NDAA for FY 2010 requires the Department to develop and

maintain a plan that ensures DoD financial statements are validated as ready for

audit by not later than September 30, 2017


4

Statutory Direction


5

Senior Leadership Engagement

“ We will not let up until every Defense

organization has achieved the Secretary’s goal

and the congressional mandate for validated

full financial statement audit readiness by

September 20, 2017, and, ultimately, has

achieved a positive audit opinion.”

– Michael McCord, Under Secretary of Defense (Comptroller)/CFO


“ … It is not enough to simply tell taxpayers that

we’re spending their dollars responsibly. We

have to also show them, which is why good

cost accounting and financial auditability is so

important to me … it is time that DoD finally

lives up to its moral and legal obligation to be

accountable to those who pay its bills. ”

– Ash Carter, Secretary of Defense

Full financial auditability requires positive opinions on all four statements.

The SBA is a cost-effective way to evaluate readiness of processes and systems.6

Statement What does it provide?

Balance Sheet

Reporting Entity’s financial position as of the statement date

including assets, liabilities and the net position, which is the

difference between the assets and liabilities

Statement of Net CostNet cost is equal to the gross cost incurred by the Reporting

Entity less any exchange revenue earned from its activities

Statement of Changes in

Net Position

Presents the sum of the cumulative results of operations

since inception and unexpended appropriations provided to

the Reporting Entity that remain unused at the end of the

fiscal year

Statement of Budgetary

Resources (SBR)

Budgetary resources made available as well as their status

at the end of the period

Initial

Building

Block

Schedule of

Budgetary

Activity (SBA)

Current year budget data of the Statement of Budgetary

Resources (SBR)

DoD Financial Statements Overview


The Way Forward

• Validation / audits of current-year

budgetary activity in FY 2015, progressing

to full budgetary activity in FY 2016

• Shifting audit readiness focus to asset

valuation

• Achieving full financial statement audit by

FY 2018

Path to Full Financial Statement Audit

Building the Foundation

• Over 90% of General Fund current year

funds under audit

• Actively applying lessons learned

• Demonstrate the value of moving into audit

• Focused audit readiness efforts on the

existence and completeness of assets

• Started examinations on the existence and

completeness of assets

7


DoD’s Consolidated Audit Strategy

• DoD has developed a strategy to move to full financial statement audit by

FY 2018 in accordance with the NDAA for FY 2010

• The audit strategy builds on audit readiness momentum and demonstrates

interim progress toward the FY 2018 target using a phased approach

— Propose that audits of select reporting entities’ financial statements be

accelerated

— Other reporting entities will undergo progressively more complex examinations

• The phased approach will allow for continual growth and expansion of DoD’s

audit infrastructure to support the increasing number of audits

• Strategy assigns each of DoD’s reporting entities to one of four categories:

— OMB Designated Entity Audits

— DoD Designated Audits

— DoD Designated Examinations

— Remaining Defense Agencies, Organizations, and Funds (Not Material for

Audit)

8

The Resulting DoD Consolidated Financial Statement Audit Starting in FY

2018 Will Likely Be the Largest Financial Statement Audit Ever Performed8


U.S. Army Corps

of Engineers-

Civil Works (TI-96)

$28.73B (3.0%)

Full Financial

Statements

Military Retirement

Fund (TI-97)

$55.45B (5.8%)

Full Financial

Statements

Marine Corps (TI-17)

$28.17B (2.9%)

GF (SBA)

4th Estate (TI-97)

$137.57B (14.4%)

Full Financial Statements

4th Estate (TI-97)

$96.23B (10.0%)

Not Under Audit

• Payments to MRF

• DoD Component Level Accounts

• DHA, Contract Resource Management

• MERHCF (healthcare entitlement)

• Payment to MERHCF (healthcare)

• DCAA

• DeCA, General Fund

• Funds Provided by OSD to MilDeps

– DHA

– USSOCOM

• Foreign Allies Burden Sharing

• Defense Agencies

(e.g., DLA, MDA, DCMA, DISA)

• DoD Field Activities

(e.g., DHRA, DMA, DPAA, DTIC, DTSA, OEA)

• Other Defense Organizations

(e.g., DAU, DOT&E, NDU, OIG)

• Military Housing Privatization Initiative

• Other Trust Funds

FY 2014 Total Budgetary Resources

Army (TI-21)

$240.80B (25.2%)

GF (SBA)

Navy (TI-17)

$181.66B (19.0%)

GF (SBA)

Air Force (TI-57)

$188.51B (19.7%)

GF (SBA)

DoD’s Consolidated Audit Strategy


0.9 % Not Material for Audit3.6% DoD Designated Examinations

21.9% DoD Designated Audits

73.6% OMB Designated Entity Audits

Categories as Percentage of Total Budgetary Resources

10

• Department of the Army (GF and WCF)

• Department of the Navy (GF and WCF)

(includes Marine Corps GF and WCF)

• Department of the Air Force (GF and WCF)

• Military Retirement Fund (MRF) Trust Fund

• U.S. Army Corps of Engineers (USACE)–

Civil Works

• WHS (Pentagon admin)

• MDA (missile defense)

• DSCA (security cooperation)

• DoDEA (education)

• DARPA (R&D)

• Many others

• Defense Logistics Agency

• USTRANSCOM (transport)

• DISA (IT / communication)

• DHA (healthcare)

• USSOCOM (special ops)

• Others already under audit

Entities in red are currently under audit

Categories of Reporting Entities


• Categories of DoD Reporting Entities

— Based on analysis performed by the Office of the Under Secretary of Defense

(Comptroller), all of DoD’s reporting entities have been assigned to one of four

categories. All TI-97 reporting entities are included in one of four categories:

• OMB Designated Entity Audits

Approximately 73.6% of DoD total budgetary resources

• DoD Designated Audits


• DoD Designated Examinations


• Defense Agencies, Organizations, and Funds Not Material


11

Categories of Reporting Entities


• Which TI-97 Reporting Entities are in this Category?

— MRF Trust Fund and the Military Services’ Working Capital Funds

• Strategy from FY 2015 through FY 2017

— Entities currently under audit and receiving audit opinions (“do no harms”) will

continue undergoing audits of their full financial statements

— Entities not currently under audit will progressively move towards full financial

statement audit by undergoing audits of select financial statements and

examinations performed by Independent Public Accountants (IPAs)

• Role in DoD Consolidated Audit (Starting in FY 2018)

— These reporting entities will annually produce individual financial statements

that are audited by IPAs

12

Categories of Reporting Entities: OMB Designated Entity Audits

Strategy from FY 2015 to DoD Consolidated Audit



— TI-97 entities that have been identified as material by DoD management

based on a combination of quantitative and qualitative factors or that are

currently under audit

— DoD Component Level Accounts, MERHCF, DeCA, DFAS WCF, DLA,

TRANSCOM, DISA, Defense Health (including SMAs), SOCOM, DCAA


— Entities currently under audit and receiving audit opinions (“do no harms”) will

continue undergoing audits of their full financial statements

— Entities not currently under audit will undergo examinations performed by IPAs

to move progressively towards full financial statement audits


— As required by DoD management, these reporting entities will annually

produce individual financial statements that are audited by IPAs

13

Categories of Reporting Entities: DoD Designated Audits




— TI-97 entities that have been Identified as material by DoD management

based on a combination of quantitative and qualitative factors

— WHS, MDA, Other TI-97 Funds Provided to the Army, DSCA, DoDEA,

DARPA, CBDP, DTRA, DCMA, JCS


— Some of these entities will undergo examinations of select financial

statements performed by IPAs starting in FY 2015

— Some entities will undergo mock audits performed by the Office of the Under

Secretary of Defense (Comptroller) (OUSD(C)) in FY 2015 and move to

examinations performed by IPAs starting in FY 2016.


— These reporting entities will annually produce individual financial statements

and undergo examinations performed by IPAs

14

Categories of Reporting Entities: DoD Designated Examinations




— All remaining TI-97 entities not included in any of the first three categories

that—when aggregated—total less than 1% of the DoD’s total budgetary

resources

— These are the smallest TI-97 entities, such as DTIC, OEA, DSS, DoD OIG,

DLSA, and DPMO, along with various small trust funds, such as the DoD

Education Benefits Fund


— Entities will continue performing audit readiness activities, with a focus on:

(1) supporting the universe of accounting transaction details, (2)

reconciliations between accounting systems and feeder systems, and (3) the

reconciliation of Fund Balance with Treasury with U.S. Treasury records


— Entities will not produce individual financial statements

— When the DoD consolidated financial statement auditor performs any

additional audit work needed to issue an opinion on the DoD consolidated

financial statements, accounting transactions related to these reporting

entities could be sampled and tested15

Categories of Reporting Entities: Defense Agencies, Organizations, and Funds Not Material



• The five TI-97 reporting entities below will move towards stand-

alone financial statement audits.

Tier 2: Mid Cap

Reporting EntitiesFY 2015 FY 2016 FY 2017 FY 2018

FY 2019

Forward

DLAExamination – SBA

(General Funds)Annual Audits – Full Financial Statements

Defense Health Examination – SBA Annual Audits – Full Financial Statements

USSOCOM Examination – SBA Annual Audits – Full Financial Statements

DISAUndergoing Internal

ValidationAnnual Audits – Full Financial Statements

USTRANSCOMContinuing Audit

Readiness Activities

Examination – Full

Financial

Statements

Annual Audits – Full Financial Statements

The Defense Agencies already under audit are not included in this list. The Defense Agencies already undergoing financial statement audit will

continue to receive annual full financial statement audits.

16

Timeline to Move to Stand-Alone Audit


• The 10 TI-97 reporting entities below will move towards stand-

alone audit readiness examinations of their financial

statements.

Tier 3: Small Cap

Reporting EntitiesFY 2015 FY 2016 FY 2017 FY 2018

FY 2019

Forward

WHS Examination – SBA Annual Examinations – Full Financial Statements

MDA Examination – SBA Annual Examinations – Full Financial Statements

DSCA Mock Audit Annual Examinations – Full Financial Statements

DoDEA Mock Audit Annual Examinations – Full Financial Statements

Other TI-97 Funds Provided to the Army Mock Audit Annual Examinations – Full Financial Statements

DARPA Examination – SBA Annual Examinations – Full Financial Statements

ChemBio Examination – SBA Annual Examinations – Full Financial Statements

DTRA Examination – SBA Annual Examinations – Full Financial Statements

DCMA Mock Audit Annual Examinations – Full Financial Statements

JCS Mock Audit Annual Examinations – Full Financial Statements

17

Timeline to Move to Stand-Alone Examination


TI-97 Plan of Execution

18


19

• Fund Balance with Treasury

— Perform complete reconciliations for outlays, Fund Balance with Treasury, and

unobligated balances for all material active/expired appropriations

• Universe of Accounting Transactions

— Produce a universe of transactions reconciled to the financial statements

• Feeder System Reconciliations

— Perform complete reconciliations (including all controls in place to support,

age, and resolve differences) with all material financial systems

• Property Existence, Completeness, and Valuation

— Identify all historical property, establish historical property values, and develop

sustainable processes to identify and value property

• Environmental Liabilities Completeness and Valuation

— Identify and value all environmental liabilities

• Journal Vouchers

— Perform root cause analysis of Journal Vouchers, implement corrective

actions to address root causes, and implement processes and controls to

review, approve, and support remaining Journal Vouchers

TI-97 Audit Readiness Dealbreakers


20

• There are multiple challenges to accomplishing the critical path tasks.

• FIAR, in coordination with DFAS and the Reporting Entities, has established

initiatives, such as working groups and policy updates, to remediate these

challenges.

TI-97 Audit Readiness Dealbreakers:Challenges and Remediation Initiatives

Critical Path Tasks Challenges Initiatives

Fund Balance with

Treasury

• Difficult to identify and address

all the differences when

reconciling FBWT

• TI-97 Workstream

• Updated DoD policy

Universe of Accounting

Transactions

• Difficult to collect reconciled

data from over 20 accounting

systems and reconcile to

dozens of feeder systems


Feeder Systems

Reconciliations


Property Existence,

Completeness, and

Valuation

• Lack of established process to

value existing and future

property

• Property Working Groups

Environmental Liabilities

Completeness and

Valuation

• Lack of established process to

identify and value

environmental liabilities

• Environmental Liabilities

Working Group

Journal Vouchers • Lack of support for journal

vouchers made to accounting

records


21

WK 1 - Program

Integration (OUSD)

April 2015

TI-97

Consolidated

Audit Readiness

WK 2B – Reconciliations

(DFAS)

Schedule Performance Index

WK 2C – FBWT (Interim)

(DFAS)FBWT Unmatched Percentage


FBWT Reconciliation Workbook

WK 2D – System

Readiness (DFAS)Total OuSD FIAR System % Complete

Schedule Performance Index DFAFS

OUSD Non-DFAS Systems % Complete

WK 2E – Journal

Vouchers (DFAS) Site JV Reviews

Schedule Performance Index JV Training

WK 5 – Sensitive

Activities

(OUSD) Perf Metric #2 In Development

Perf Metric #1 In Development

WK 6 – Reimbursable*

(OUSD)




WK 2A – Universe of

Transaction (DFAS)

Feeder File ACL Scripting Status


Feeder File Receipt Status


(DFAS)/(OUSD) – Indicates WK Owner

% Completion of System Change Requests (SCRs)


# Accounting Systems Verified to DCD by DA



JV Tracking Sheet

TI-97 Audit Readiness Dealbreakers:TI-97 Workstreams


• Overview

— Financial and functional representatives developing solution to reconcile

FBWT and address DoD policy challenges

• Highlighted Accomplishments to Date

— Updated DoD policy to provide additional guidance on FBWT

reconciliations, such as:

Who is responsible for performing reconciliations and clearing differences

What detail should be included in the reconciliations

How often the reconciliations should be performed

— Defined the categories of FBWT differences that can occur when

reconciling the Department’s records to Treasury’s records

— Developed approach to address FBWT beginning balances

Roadmap Components/DFAS must follow to demonstrate ability to support

FBWT beginning balances

22

TI-97 Audit Readiness Dealbreakers:Fund Balance with Treasury


23

TI-97 Audit Readiness Dealbreakers:Universe of Transactions


• Reporting Entity’s financial statements will be supported by multiple universes of

accounting transactions and beginning balance details.

• Major Recent Accomplishments

— Formed Defense Agency Working Group for DCD/DCW data validation

Conducted demonstration on DCD/DCW UoT Design

Initial draft of Roles and Responsibilities

• Major Challenges and Impediments

— Expanded support for data validation Roles and Responsibilities

— Alignment of interface partners and DCD implementation schedules

— Balance available resources to support migration of Defense Agencies to DCD

— Sensitive Activities solution and integration of timeline

• Key Next Steps

— Decision on proposed Interface Implementation Schedule

— Completion of requirements review for 6 Interfaces targeted for 30 April

— Commence I&T development activities

— Solidify high level plans for Sensitive Activities

24

TI-97 Audit Readiness Dealbreakers:Feeder System Reconciliations


• Overview

— Each universe will be reconciled to the reporting entities’ accounting

system(s) and financial statements. Also, source transactions, which are

recorded in various feeder systems, will be reconciled to the universe of

accounting transactions and beginning balance details.

• Major Recent Accomplishments

— Completed a breakout of the 70 key elements to show usage

— Decision for way forward for Key Recons with Roles & Responsibilities

(R&R)

• Major Challenges and Impediments

— Sensitive Activity assessment impact

— Accounting General Ledgers Entitlement Data

— Obtaining a centralized Obligation Feeder Source

• Key Next Steps

— Continue to obtain, evaluate and program feeder files into T-Recs

— Coordinating SCR for IPAC Mega Wizard to include key recon data

elements


25

• Overview— Align with FIAR mission critical asset and liability categories

— Provide implementation guidance

— Include financial and functional representatives from OSD and material Components

• Highlighted Accomplishments to Date:

• Path Forward— Where appropriate, update the FMR and develop policy memos, implementation

guidance, and metrics to assess and monitor implementation

— Continue working new issues and vetting with IG, GAO, and FASAB

TI-97 Audit Readiness Dealbreakers:Property Existence, Completeness, and Valuation

Working Group Highlighted Accomplishments

Equipment • Developed a Department-wide strategy to establish an auditable equipment baseline

• Developed a methodology to sustain the valuation of equipment acquired through major programs

• Briefed to GAO and DoDIG

Real Property • Developed a GAAP compliant and implementable real property reporting policy and briefed the GAO

and DoDIG

• Established a GAAP compliant baseline valuation methodology and briefed to FASAB

Internal Use

Software

• Established a Department-wide definition of IUS that clarifies the accounting standards

• Developed an IUS data call survey to establish an initial population of IUS

Inventory and

Related Property

• Developed framework for Components to evaluate the capitalization or expense of OM&S

• Worked with FASAB on developing new OM&S valuation accounting guidance

Environmental

and Disposal

Liabilities

• Established a completeness methodology for liabilities not associated with DoD assets

• Established a program management cost allocation position for Defense Environmental Restoration

Program

• Developed documentation and reconciliation requirements for site level tracking

• High Level corrective action plans (CAPs) address NFRs for Unsupported JVs

from the Financial Reporting SSAE No. 16

— CAPs will be concurrently worked in 4 segments

1. JV Training

ECD: August 2014

Develop Training on supported JV concepts and requirements

Train workforce

Rebuild institutional knowledge through continuous required

training

2. JV Review

ECD: October 2015

Develop requirements for a properly prepared, reviewed, approved and supported JV Package

Perform Review and validate compliance

Provide timely feedback to Stakeholders

3. JV Customer Coordination

ECD: October 2015

Communicate Monthly/Quarterly with customers regarding

JVs impacting the financial reporting

process

Collaborate with customers to establish a review and approval

process

4. JV Root Cause Analysis and Remediation

ECD: September 2017

Review and analyze existing journal

vouchers to identify root cause

Identify and resolve system, process and

procedural deficiencies

Identify and recommend JVs for discontinuance

26

TI-97 Audit Readiness Dealbreakers:Journal Vouchers (JVs)


2727

Auditor

•External IPA / DoD IG

•Tasked with testing the Reporting Entity’s internal controls and transactions

•Makes requests of documentation to the Reporting Entity through the FIAR Audit Response Center (“ARC”) Tool

•Reviews documentation provided by the Reporting Entity

• Issues audit/examination report based upon the testing results

FIAR Audit Response

•FIAR Audit Response Team

• Interfaces with the Auditor and Reporting Entities and tracks issues and concerns

•Receives and documentation requests from the Auditor to the Reporting Entities

•Reviews documentation submitted by the Reporting Entities for completeness and approves delivery to the Auditor

•Verifies closure of documentation requests made by Auditor

•Coordinates meetings and develops briefings and reports status

•Post- Audit: Tracks Notice of Findings (NFRs) identified by the auditors and monitors progress made by the Reporting Entities/Service Providers on Corrective Action Plan (CAP) development and implementation.

Reporting

Entities

•TI-97 Defense Agencies

•Have infrastructure in place to respond to auditors (educate/prepare the field, have responsible parties ready and available to respond, and have a repository of key supporting documentation)

•Provides organizational and business process information to the Auditors (Walkthroughs)

•Gathers documentation requested by the Auditor and submits to the FIAR Audit Response Team for review.

•Coordinates requests required from Service Providers.

•Post- Audit: Develops Corrective Action Plans to implement solutions to remediate auditor-identified NFRs

Service Providers

•Service Providers

• Be available to Reporting Entities’ audits and examinations:

• Support documentation requests

•, Perform walkthroughs of business processes

• Support other follow-up action items needed by the Reporting Entities.

• Post- Audit: Coordinate with Reporting Entities to develop Corrective Action Plans to implement solutions to remediate auditor-identified NFRs

Audit & Examination Roles & Responsibilities


• Each TI-97 will have an assigned FIAR Audit Liaison POC. The POC:

— Is the go-to person for guidance for working with the Auditor

— Will be the intermediary between the Reporting Entity and Auditors:

Attend meetings (i.e. entrance conference, weekly/daily touch points,

walkthroughs, etc.)

Work with the Auditors to understand their timeline

— Will review submitted documentation for completeness(making sure it

relates to the Auditors’ request) prior to providing it to the Auditors Track

and monitor the delivery of requests within established timeframes

• FIAR Audit Response Center (ARC) Tool (“FIAR ARC Tool”)

— The FIAR ARC Tool is a SharePoint site to manage the workflow of Auditor

Requests

— All documentation requests and responses must be submitted through the

FIAR ARC Tool

— The FIAR Audit Response Support team will provide FIAR ARC Tool

training to each Defense Agency

28

Audit & Examination Roles & Responsibilities:

FIAR Audit Response/Liaison


• Lessons Learned:

— Importance of senior leadership commitment – Tone from the Top drives action

— Audit readiness is an “All Hands” effort

Process owners need to be engaged early in the process

Maintain continuous and effective communication across the enterprise

— Importance of infrastructure and dedicated resources necessary to support the audit

— Establish clear roles and responsibilities with Service Providers (i.e., DFAS)

— Maintain easy access to supporting documentation: where it is maintained and who

is responsible

— Compliance is critical – continued monitoring of compliance with policies and

procedures and retention of supporting documentation

• Challenges:

— Acquiring and sustaining sufficient resources

— Effective presentation of Universe of Transactions in a timely manner

— Disparate processes and information in legacy environment require manual

workarounds (data calls, reconciliations) that are labor intensive and difficult to

sustain

— Strengthening IT and business process controls is an All-Enterprise effort and must

continue to mature

29

Lessons Learned & Challenges


Stay Connected

• Visit the FIAR website – http://comptroller.defense.gov/FIAR.aspx

• Read the FIAR Plan Status Report– http://comptroller.defense.gov/FIAR/plan.aspx

• Subscribe to the DCFO’s ‘Defense Audit Readiness News’ – Join the distribution list by emailing

[email protected]

30

http://comptroller.defense.gov/FIAR.aspx

http://comptroller.defense.gov/FIAR/plan.aspx

mailto:[email protected]

ti-97 audit strategy and plan of execution - asmc audit strategy and plan of execution ......

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