Indianapolis Audit Readiness

1. Indianapolis Audit Readiness Bill Bergmeyer Director, AuRD-IN Defense Finance and Accounting Service March 2011 Integrity - Service - Innovation

2. Leadership Support and Visibility Integrity - Service - Innovation 3/17/2011 2

3. Audit Readiness Hierarchy Integrity - Service - Innovation

4. What is Audit Readiness? • Audit readiness is maintaining: • Effective business management systems • Effective financial, accounting, and IT internal controls • Sufficient, accessible, and current documentation • Audit readiness is achieved by day-to-day activities and is not a point-in-time action or event • Requires changes at the floor level • Build robust, quality oriented processes • Education and training • Independent examination • Primary sources of guidance/requirements: • OUSD(C) FIAR Guidance (May 2010) • SSAE 16 (April 2010) (Previously SAS 70) • GAO Financial Audit Manual (July 2008) Integrity - Service - Innovation 3/17/2011 4

5. FIAR Guidance - How We Will Get It Done* Utilizing a standard phased methodology, detailed guidance, and assistance from OUSD(C)/FIAR Seven Distinct Phases Defined Key Tasks and Outputs Key Control Objectivesand Key Supporting Documentation Standard Component Financial ImprovementPlans (FIPs) FIPs Maintained in Web-based Tool * source: Mark Easton’s Presentation at May 2010 ASMC PDI Collaboratively developed methodology, endorsed by the Audit Community.

6. DFAS Audit Readiness Support - Structure PDD (Mr. Gustafson) Audit Readiness Office (Ms. Stephenson) Deputy Ops (Mr. Turner) DFAS-JA DFAS-RO DFAS-CL DFAS-CO DFAS-IN AuR Team Al Siarkowski AuR Team AuR Team Jim Likes AuR Team Roy Higgins AuR Team Bill Bergmeyer Note: Limestone and Europe Audit Readiness staff will report directly to CO and RO Audit Readiness Teams, respectively. Integrity - Service - Innovation 3/17/2011 6

7. Indianapolis Site Audit Readiness Directorate Site Director Audit Readiness Directorate William Bergmeyer Audit Support Division Gene Kincy, Chief Audit Assertion Division Noah Sturgeon, Chief Authorized/On Board – 36/35 Audit Readiness for Army Customers Audit Liaison for Accounting and Finance Annual Statement of Assurance A-123, FMFIA , SAS70, SSAE16

8. Army Assessable Units Integrity - Service - Innovation

9. Army Assertion Schedule Integrity - Service - Innovation 3/17/2011 9

10. DFAS Lead Action • Perform Assertion Work for the Following Accessible Units: • Fund Balance With Treasury • GFEBS Cash Reconciliation Points • Accounts Receivable • Accounts Payable • Financial Reporting • Organized and Hosted Workshops with DFAS OPS • Developed Revised Process Maps & Narratives • Quantitative Drill Down Integrity - Service - Innovation

11. DFAS Support Role • Army Military Pay • Providing continuous support to OUSD(C) with documentation & data for the Statement of Budgetary Resources • Army Civilian Pay • Providing continuous support to OUSD(C) with documentation & data for the Statement of Budgetary Resources • Created DFAS-IN working group as a service provider working to achieve SSAE 16 assertion • Appropriations Received • Provide Subject Matter Expertise • Developed Revised SOPs • Follow Up Questions and Answers Integrity - Service - Innovation

12. Quantitative Drill Down – Level 1 Illustration • Start with DDRS AFS • Drill Down to Entity Code • Identify all Data Sources by Entity Code • Journal Vouchers; Adjustments • Data Call Entries • Drill Down into DDRS Budgetary • Identity & Evaluate all Non-feeder Data Sources • System Generated Adjustments (Monthly Roll; Current Adjustment; etc) • Data Call Entries • Reconciliation Adjustments • Identify all Feeder System Data Sources • Accounting Systems • Match System Feeds to DFAS Accountable Sites • Lowest Level of this Drill Down Becomes Foundation for Level 2 Drill Down Integrity - Service - Innovation

13. FBwT Cash Reconciliation Points GFEBS Daily Cash Balancing • Inbound DCAS files to GFEBS • Outbound GFEBS posting results to DCAS DCAS to HQARS • GFEBS Uncleared Report ADS to DCAS DCPS to GFEBS/ADS HQARS to DDRS DDRS/HQARS to Treasury GFEBS/ADS Integrity - Service - Innovation 3/17/2011 13

14. DFAS Audit Readiness Support Strategy – Roles & Responsibilities • Auditor Requirements • Auditors require a seamless and integrated audit trail that can be tracked from DoD Components to and from their Services Providers, such as DFAS • DoD Components rely on audit processes, controls, documentation, as well as systems that are owned and managed by both DFAS and the Component. • This shared DoD environment requires a clear definition of roles and responsibilities so that as an entire DoD team we can successfully support one another • DFAS Strategy – Through the Client Executives, establish Memoranda of Understanding with DoD Components for audit assertions and audit execution support roles and responsibilities • DFAS is a “service provider” as defined in Statement on Standards for Attestation Engagements (SSAE) 16 • Component requests for DFAS Support Integrity - Service - Innovation 14

15. DFAS Audit Readiness Support Strategy - Processes • Auditor Requirements - Auditors will require DoD Components and their Service Providers to produce process maps, narratives, control points, control testing, and risk management practices for each of its key processes impacting the financial statements. • DFAS Strategy - For every major accounting event identified within the Component’s Targeted Audit Assertion Area (Financial Statement, Line Item, Segment, etc.): • Ensure OMB A-123 Appendix A Process Flows (maps, narratives, controls, and risks) are current, complete and accurate • Ensure controls (KCOs) and risk are tested/assessed and documented at least annually • Validate financial reconciliations (e.g. budgetary to proprietary) are documented and adequately performed Integrity - Service - Innovation 15

16. DFAS Audit Readiness Support Strategy - Documentation • Auditor Requirements - The auditors will require DoD Components and their Service Providers to: • Produce data extracts containing a complete population of detailed transactions from which they will pull statistical samples • Prove the data extracts reconcile to the respective general ledger account balance(s) being audited • Provide valid supporting documentation within an agreed to timeframe for the auditors’ statistically sampled transactions • DFAS Strategy - For every major accounting event identified within the Component’s Targeted Audit Assertion Area (Financial Statement, Line Item, Segment, etc.): • Ensure Hard Copy/Electronic Audit-Ready Evidential Matter (KSDs) to support transactions and adjustments (JVs) are Readily Accessible • Assess current documentation processes/procedures/tools to determine best practices (e.g. Multiple System Support Tool) for use across DFAS Integrity - Service - Innovation 16

17. DFAS Audit Readiness Support Strategy - Systems • Auditor Requirements - Auditors will require full understanding of how Component and their Service Provider systems are utilized to support the processes being audited • DFAS Strategy - For every major accounting event identified within the Component’s Targeted Audit Assertion Area (Financial Statement, Line Item, Segment, etc.): • Ensure DFAS-owned systems are adequately documented (i.e. process maps, interfaces, recons, controls, systems documentation) to support customer audit readiness • Ensure DFAS-owned systems are FISCAM compliant • Ensure DFAS-owned systems can produce detailed transactions to support financial statement and general ledger balances Integrity - Service - Innovation 17

18. Any Questions Integrity - Service - Innovation