audit readiness in dod - washington-asmc national capital ... · o standard process documentation...

DoD Audit Readiness

Progress

Washington-ASMC NCR PDI

March 10, 2016

v8

Mark Easton, Deputy Chief Financial Officer

Alaleh Jenkins, Assistant Deputy Chief Financial Officer

2

Agenda

• The Department’s Financial Audit Requirement & Approach

– History of Audit Efforts to Date

– Clear Strategy and Priorities

– Where Are We Now?

– Increased Congressional Visibility

– National Defense Authorization Act (NDAA) Audit Readiness Progress Rankings

• Current Status

– Fiscal Year (FY) 2015 General Funds (GF) Under Audit

– FY 2015 Schedule of Budgetary Activity (SBA) Audit Results

– Remaining Challenges

• Path to the Initial FY 2018 Full Financial Statement Audit

– FY 2016 GF Projected to Be Under Audit

– Strategy for 2016-2017: Move the Big Rocks

– Audit Readiness Validation Timeline for Critical Capability Areas

– Oversight of the Fourth Estate Driving Progress and Consistency

– DoD-Wide Initiatives

• Your Role: How You Can Be Prepared

• Final Thoughts

The Department’s Financial Audit

Requirement & Approach

3

4

History of Audit Efforts to Date

The Department’s Financial Audit Requirement and Approach

FIAR Office

Established

2005

1994

Initial Priorities

Established

2009

Pre-2009

Audit emphasis

largely within only the

comptroller organizations

Post-2009

Audit efforts involve

all functional areas

enterprise-wideInitial DoD

Efforts Begin

5



FIAR Office

Established

2005

1994

Initial Priorities

Established

2009

Pre-2009

Audit emphasis



Post-2009




Efforts Begin

2014

FY 2014 Statutory Direction

Achieve Audit Readiness

of General Fund Statement of

Budgetary Resources (SBR)





6



FIAR Office

Established

2005

1994

Initial Priorities

Established

Pre-2009

Audit emphasis



Post-2009




Efforts Begin

The Climb from SBA to

Full Financial Statement

Audit Will Be Steep2017 FY 2017 Statutory Direction

Achieve Full

Agency Financial Statement

Audit Readiness


Achieve Full

Agency Financial Statement

Audit Readiness

2014









2009

7

Clear Strategy and Priorities

DoD’s FIAR strategy balances the need to achieve short-term accomplishments

(Waves 1 and 2) against the long-term goal of achieving an unqualified opinion

on the Department’s full financial statements (Wave 4)

• Includes four prioritized waves to achieve and sustain audit readiness

• Initial waves’ focus on information management actually uses and generates

enterprise-wide support

• Incrementally builds audit infrastructure for increased scope

2012 2014 2016 2017


• Seven Defense Agencies continued to sustain full financial audits in FY 2015

• Military Services and seven additional defense agencies were under SBA

audits / examinations in FY 2015

• Beginning in FY 2016 – Sustain and expand audit coverage:

DLA and DISA to go through Full Financial Statement Audits

• Developing corrective action plans for SBA audit findings and tracking

progress

• Implementing a risk-based approach for remaining financial statements;

measuring progress in high-risk areas for each component

Where Are We Now?


Detailed information is contained in the November 2015 FIAR Plan Status Report at

http://comptroller.defense.gov/Portals/45/documents/fiar/FIAR_Plan_November_2015.pdf8

Key National Defense Authorization Act (NDAA) Provisions

NDAA for FY 2010 Requires DoD financial statements to be validated

as ready for audit by the end of FY 2017

NDAA for FY 2014 Establishes the timeline for a full audit of the

FY 2018 full financial statement

NDAA for FY 2015 Senate Armed Service Committee report requires

DoD to submit an annual report to Congress on the

aggregate funding included in the Schedule of

Budgetary Activity

NDAA for FY 2016 Requires a report to Congress ranking the Military

Departments and other defense organizations on

their progress toward achieving auditable

Statements of Budgetary Resources

Increased Congressional Visibility

9


NDAA Audit Readiness Progress Rankings


Tier &

Rank

Statement of Budgetary Resources

(SBR) Auditability Ranking

Existence & Completeness

(E&C) Auditability Ranking

Full Financial Statement

Auditability Ranking

Tie

r 1

1 Marine Corps – GF Army – GF Marine Corps – GF

2 Air Force – GF Navy – GF Army – WCF

3 Army – GF Air Force – GF Air Force – GF

4 Army – WCF Marine Corps – GF Army – GF

5 Navy – GF Army – WCF Navy – GF

6 Air Force – WCF Department of the Navy WCF (incl USMC – WCF) Air Force – WCF

7 Department of the Navy WCF (incl USMC – WCF) Air Force – WCF Department of the Navy WCF (incl USMC – WCF)

Tie

r 2

1 Defense Information Systems Agency – WCF Defense Logistics Agency – Strategic Materials Defense Information Systems Agency – WCF

2 Defense Information Systems Agency – GF Defense Logistics Agency – WCF Defense Information Systems Agency – GF

3 Defense Logistics Agency – Strategic Materials Defense Logistics Agency – GF Defense Logistics Agency – Strategic Materials

4 Defense Logistics Agency – WCF Defense Information Systems Agency – WCF Defense Logistics Agency – WCF

5 Defense Logistics Agency – GF Defense Information Systems Agency – GF Defense Logistics Agency – GF

6 Defense Health Program (incl DHA and SMAs) Defense Health Program (incl DHA and SMAs) Defense Health Program (incl DHA and SMAs)

7 U.S. Transportation Command U.S. Special Operations Command U.S. Special Operations Command

8 U.S. Special Operations Command U.S. Transportation Command U.S. Transportation Command

Tie

r 3

1 Missile Defense Agency Chemical Biological Defense Program Defense Advanced Research Projects Agency

2 Defense Advanced Research Projects Agency Defense Security Cooperation Agency Chemical Biological Defense Program

3 Chemical Biological Defense Program Defense Advanced Research Projects Agency Missile Defense Agency

4 Defense Threat Reduction Agency Defense Contract Management Agency Defense Contract Management Agency

5 DoD Education Activity Missile Defense Agency Defense Threat Reduction Agency

6 Defense Contract Management Agency Defense Threat Reduction Agency Defense Security Cooperation Agency

7 Office of the Chairman of the Joint Chiefs of Staff Office of the Chairman of the Joint Chiefs of Staff Office of the Chairman of the Joint Chiefs of Staff

8 Defense Security Cooperation Agency Washington Headquarters Services DoD Education Activity

9 Washington Headquarters Services DoD Education Activity Washington Headquarters Services

Current Status

11

ODOs (TI-97)

$137.57B (14.4%)

Full Financial

Statements

Marine Corps (TI-17)

$28.17B (2.9%)

GF (SBA)

ODOs (TI-97)

$31.40B (3.3%)

Performing Audit

Readiness

Activities

ODOs (TI-97)

$64.83B (6.7%)

Undergoing

Examination

Air Force (TI-57)

$188.51B (19.7%)

GF (SBA)

FY 2015 General Funds Under Audit

12

Current Status

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

Army (TI-21)

$240.80B (25.2%)

GF (SBA)

Navy (TI-17)

$181.66B (19.0%)

GF (SBA)

$957.12 Billion Total Under Audit

Key Themes of the FY 2015 Audits Results – Critical Issues Exist

• Incomplete universe of transactions, and General Ledger/Feeder system

reconciliations

• Insufficient information technology controls, for both the reporting entity and

Service Providers

• DoD-wide issues (e.g., Fund Balance with Treasury differences, Journal Vouchers

for Eliminations and Accruals)

• Lack of control operating effectiveness and centralized document repository

Key Takeaways

• A positive opinion was not expected

• The experience implemented a financial management discipline as the “new norm,”

not just preparation for audit

• Prioritizing and tracking corrective action plans (CAPs) is imperative, as is

validating that the CAP addresses the root cause of the notice of finding and

recommendation

FY 2015 SBA Audit Results

Current Status

As with many first year audits, the audit opinion will not be positive.

It is expected that it will be several years before DoD achieves a positive

SBA audit opinion, but SBR opinions should follow directly.13

This Journey Will Take Time and Resources

• Resources are necessary to support

and sustain audits, and remediate

audit findings

• Legacy environment is stove-piped,

complex, non-standard, and

decentralized, making audits difficult

and highly inefficient

• Migrating to a new control environment

will take time, but it will enhance

auditability successes and efficiencies

Examples of Specific Challenges

• Universe of transactions (21 general ledger systems, 600 feeder systems)

• Defense-wide shared appropriation (TI-97), to include use of sub-allotments o Lack of visibility of transactions at the Component level hinders proper reconciliation of cash

Funds Balance with Treasury auditable

o Poses challenge for a complete universe of transactions

• Valuation of Property (and establishing policies that are cost-effective)

Remaining Challenges

14

Current Status

Path to the Initial FY 2018

Full Financial Statement Audit

15

FY 2016 General Funds Projected to Be Under Audit

16

Path to the Initial FY 2018 Full Financial Statement Audit

$673.35 Billion Projected Under Audit

Strategy for 2016-2017: Move the Big Rocks


Over the next two years, the Department will continue to expand the scope of audits while

sustaining a stronger, more disciplined environment, until full audit readiness is achieved.

OUSD(C) and DCMO are increasing pressure and visibility using FIAR Governance.17

Risk-Based Approach, Measuring Progress and Performing Control Testing,

Focused on Seven Critical Capability Areas:

• Universe of Transactions – Reconcile feeder

systems to general ledgers and retain underlying

detailed transactions

• Fund Balance with Treasury (FBWT) – Reconcile

FBWT and retain supporting documentation

• Journal Vouchers (JVs) – Validate that JVs are

supported and justified

• Open Obligations – Confirm that the balances are

valid and supported

• Existence, Completeness and Rights & Obligations of Assets – Validate that assets exist and

records are complete; verify ownership

• Valuation of Assets – Record assets at the correct amount

• Environmental and Disposal Liabilities – Implement a process for identifying, estimating and

recording the cleanup costs of hazardous waste

• Information Technology (IT) – Implement and validate IT controls (e.g., security, access control)

Audit Readiness Validation Timeline for Critical Capability Areas

18


Universe of Transactions*

Fund Balance with Treasury*

Journal Vouchers*

Open Obligations

Existence, Completeness, and

Rights - General Property, Plant,

and Equipment and Inventory and

Related Property*

Valuation - General Property,

Plant, and Equipment and

Inventory and Related Property*

Environmental Liabilities

* Linked to High Risk Areas

• Open

Obligations

• PP&E Valuation

Legend

Government Acquisition Cycle Begins for FY

2018 Full Financial Statement Audit

Activities Completed over Period

Feedback/Validation Received During SBA

Audit/Examination (where applicable )

Activities Completed by Date

Congressionally Mandated Audit Readiness

Date

Administration Change - Turn-Over Package

Examines:

• Budget Priorities, Property Priorities, and

Audit Infrastructure

• All JVs

IPA

/Co

nsu

ltan

t Fe

edb

ack/

Val

idat

ion

Co

mp

lete

• FY 15 SBA JVs

FY 2018 Full

Financial Statement Audit

FY 2016 SBA Audit

• SBA UT

• FY 16

SBA

FBWT

• FY 16

SBA JVs

• FY 15

SBA

FBWT

Audit Period

• FBWT

B/S

• SBR &

B/S UT

Reporting

Audit Period

• Environmental

Liabilities

• PP&E Existence

& Completeness

FY 2018FY 2017FY 2016FY 2015

2018

Q4

2015 2016 2017

Q1 Q4Q3Q2Q1Q4

FY 2015 SBA Audit

Q3Q2Q1Q4Q3

Audit

PeriodReporting

Q2

2

1

1 2

Oversight of Fourth Estate Drives Progress and Consistency

19


• Detailed implementation plans for the Fourth Estate have been developed

– Include critical path items and progress checks

– Address Fourth Estate-specific issues

o Universe of transactions solution

o DFAS & DCFO have established “tiger teams” (JVs, FBWT, PP&E)

o Standard process documentation (flowcharts, narrative, control matrices) have

been developed to drive consistency in processes

• Progress and Status Are Being Monitored by DCFO and ADCMO

– Will leverage FIAR Governance & the Defense Business Council to raise and address

DoD-wide issues

– Will continue to monitor results from SBA and Service Provider audits and exams

• ODCFO / FIAR will perform ongoing monthly testing

of SBA areas to sustain the audit momentum and

validate that CAPs are implemented

• ODCFO / FIAR continues engaging FASAB to

ensure policy changes / clarifications are

codified in Federal Accounting Standards

Audit Issues with DoD-Wide Impact

20


Examples of Where We Are Addressing Enterprise-Wide Dependencies

1Feeder System Reconciliations – Completeness can’t be proven without reconciliations to all material

feeder systems

2Material Unsupported Journal Vouchers (Eliminations) – JVs are automatic high risk area for auditors

subject to extensive testing.

3Fund Balance with Treasury Reconciliation – Completeness of Disbursements & Collections

4Service Provider Coordination – Service provider processes and systems that affect customer audit

readiness

5Government Furnished Equipment (GFE) / Contractor Acquired Property (CAP) – capitalization and

recording of these assets

6Go Forward Valuation of Property, Inventory & Related Property – proposing to FASAB cost-effective

methods for valuation of property

7DoD Policy Updates / FASAB Updates – Policy updates are needed to define our requirements for

supporting our beginning balances—necessary to move into a full financial statement audit

8Suspense Account – Completeness of Disbursements & Collections

9Estimation Models (Environmental Liabilities & Replacement Values) – Supports Valuation Baseline

Methodology & Support for Estimates

Your Role:

How You Can Be Prepared

21

Are You Prepared for the Game?

22

Your Role: How You Can Be Prepared

Legislators

Service

Provider

Policy

Setter

System

Owner

Process

Owner

FM

Leader

Who Are the Players?

FM Leaders, Functional Process Owners, Service Providers, System Owners, Policy Setters

(We need to share the ball [i.e., responsibilities and information])

Who is Watching in the Crowd?

Legislators, Regulators, Taxpayers (Who is holding us accountable?)

Who Are the Coaches?

CFO, DCFO, ADCFO (Providing and enforcing clear guidance, consistent strategy, and ongoing support)

Who Are the Referees?

DoD IG, GAO, IPA

(Ongoing audits are a reality,

set the discipline now)

Goal?

2018 Audit!!!!

Key Supporting Documentation and Controls


P

Travel Documentation

YOU ARE RESPONSIBLE for YOUR Processes, Key Supporting Documentation and Controls.

EVERYONE CONTRIBUTES TO THE ACCURACY AND RELIABILITY OF OUR FINANCIAL DATA!23

Maintain your travel request and

authorization

Maintain receipts (all lodging and

for expenses $75 or more)

Maintain signed voucher for travel

claims submitted in DTS (if entered

by someone other than yourself)

Maintain any other document

required to support claimed

reimbursement

Maintain copies of your

Government Travel Card training

certificates

P

Example:

Setting Expectations

24


• Auditor will interview

personnel and observe

operations

• Auditor will test account

balances and trace to

source

• All organizations,

locations, processes, and

systems may be subject

to audit

• Assign point personnel

for supporting

documentation

• Expect large sample sizes

for testing

• Provide correct audit

evidence in a timely

manner

• Be able to respond to

auditor’s questions

related to your processes,

key supporting

documentation and

controls

• Own your information, not

others. Do not provide

information on processes

you are not familiar with

or have no responsibility

over.

• Continually communicate

with audit liaisons and

your organizations

• Don’t assume auditors

know your business –

clear communication is

key

• Embrace feedback

Be

PreparedOwn Your

InformationCommunicate

Critical Success Factors

25


Tone From

the Top

Access to

Supporting

Documentation

Strong Audit

Infrastructure

• Well organized

Audit Support

Team

• Continual and

effective

communication

• Leadership’s

buy-in

• Stress

importance

• Emphasize

deadlines

• Correct, clear,

properly

documented,

and timely

• Auditor must be

able to follow

(Plain English)

26

Final Thoughts

Keys to Success

• Leadership

• Ownership

• IT Controls

• Sustainment

Stay Connected

Visit the FIAR websitehttp://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]

27

audit readiness in dod - washington-asmc national capital ... · o standard process documentation...

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