FM on FIAR! Gulf Coast Professional Development Seminar

1. FM on FIAR! Gulf Coast Professional Development Seminar 8 March 2012 Ms. Becky Allen Director, Audit Readiness SAF/FMPA 1

2. SECDEF on Audit Readiness “One key to making a budget work in any fiscal environment, but especially now will be streamlining overhead, eliminating waste, and improving our business practices—ensuring that we are operating in a common sense, accountable, and modern business environment” “All hands” effort across DoD Accelerate SBR audit readiness from 2017 to 2014 Plan in 60 days 2-Letter tiger team

3. It’s Real FIAR! VCSAF says… • “This is a an enterprise-wide effort that demands the determined commitment of leadership” • “…improve our audit readiness plans, identifying opportunities to accelerate work and transition from headquarters to base-level activities” • “…we are counting on you to assist in process reviews, respond to audit requests, and lead these critical efforts” “Air Force leadership is committed to achieving audit readiness and we are counting on you to assist in process reviews, respond to audit requests and lead these critical efforts.” General Breedlove and Ms Conaton 3

4. Input CORONA slide 4

5. What is FIAR? What does FIAR mean to you? What is the AF strategy for FIAR? What is the status AF FIAR efforts? What are the FIAR challenges? “Your FIAR’d” examples How you can help put out the FIAR? “FIAR” Truck Example (time permitting) What’s on FIAR? 5

6. Today: - “I spent all of my budget” - “I got more money to fund additional requirements” - “My systems track spending (obligations) but lack an audit trail” What is FIAR? FIAR Tomorrow: - “I spent my budget on these things and could also fund these requirements” - Documentation to support my obligations is available and the audit trail exists Standard Processes: efficient…consistent approach…shorter learning curve….customer is happy…the auditor is happy Internal Controls: separation of duties…mitigate fraud, waste and abuse…safeguard funds Audit Trail: know where the money is…decision support….efficient use of funds….CC happy Compliant Systems: Necessary to achieve standard processes, internal controls and an audit trail Auditable Financial Statements will: Increase credibility with Congress, auditors, and taxpayers by proving the AF spends the money in the manner that was intended Give CC confidence funds were used in the most effective manner to support the warfighter 6

7. Four Wave Strategy for FIAR Wave 1: • Focus on the flow of money from receipt by SAF to distribution down to the MAJCOMs • Includes all appropriations for the current fiscal year • Asserted as audit ready Sep 2010 Wave 3: • Accountability for the assets and supplies • Air Force can account for all of the assets/supplies that are reported in the system of record for a particular end-item (e.g. aircraft in REMIS) and that the entire universe of those items reside in the system of record • Conduct inventories on a regular basis Wave 4: • Air Force has an audit trail to prove the valuations of assets, no matter when they were purchased • Successful completion will allow the Air Force to successfully undergo full‐scope financial statement audits Wave 2: • Life-cycle of funds (commit, obligate, spend) • Audit trail for all funds • Performed testing of the internal controls to ensure minimal risk to misstatement • Tested and reconcile d starting and ending balances

8. What Does FIAR Mean To… • Articulate policies and processes properly • Provide opportunities to enhance audit readiness understanding (e.g. training) • Ensure systems are CFO Compliant and provide clear audit trail • Implement and monitor FIAR strategy and progress • Liaise with DoD • Communicate with MAJCOMs SAF/HAF Level • Enforce data standardization • MAJCOM unique policies are clearly defined and CFO Compliant • Provide training to maintain the FIAR vigilance • Serve as the MAJCOM liaison to SAF and base-level • Support process improvement, pre-audit and audit activities • Communicate with Bases • Know what you spent, know what you bought….and be able to prove it MAJCOM Level • Input transactions properly • Follow up and track documents to support audit trail • Be on the look out for negative trends • “Purpose, Time, and Amount” used to certify funds • Work closely with DFAS • Promote the message of audit readiness to individuals • Understand “How you fit into the big picture” Base Level Every job, at every level, in FM impacts the Financial Statements….YOU Matter!!! 8

9. Resource Advisors (RAs)Ignite the FIAR! • The whole process starts with RAs • Initiate purchases and are most knowledgeable about them • Accurate and timely recording of commitments • RAs must ensure • Financial transactions are recorded in the current period and the related economic events occurred in the same period • Critical for RAs to follow through • Obligations of funds is important; but proper liquidation when transactions are completed is just as important • Properly recording the transaction in the system is important…and worth saying twice!  RAs are link between commanders and financial statements…the FIAR starts with them!

10. RA’s Must… Ensure proper controls exist and are enforced that illustrate: Recorded obligations represent valid orders, contracts, or other events that will require future payment Obligations are recorded in bulk amounts and supported by binding agreements Obligations are properly liquidated when transactions are completed Transactions are recorded in the current period and the related economic events occurred in the same period All obligations incurred are properly recorded Obligations are recorded at the proper amounts Lifecycle management of funds execution Work Open Document Listing/Tri-annual Review

11. Functional Impact to FIAR Approach AUDIT READY Air Force Audit Readiness will take an enterprise effort 11

12. What does FIAR Mean Outside FM?

13. FIAR Methodology 3.0 Evaluation 5.0 Validation 1.0 Discovery 4.0 Assertion 2.0 Corrective Action 6.0 Audit Phases Assertion Documentation Review Engage Auditor Statement to Process Analysis Test Design Audit-Ready Environment Compile Process, Control & System Documentation Decide Support Audit Assertion Examination Compile Supporting Documentation Prioritize Develop Corrective Actions Key Tasks Auditor Issues Report Assess & Test Controls Resource Evaluate Supporting Documentation Execute Note: The gray boxes are key tasks that must be repeated on a continuous basis as they are key in achieving and maintaining auditability and reliable financial information . Red text is changes to May 2010 FIAR Guidance

14. AF Wave 1 and Wave 2 SBR Assessable Units • Budget Authority • Resources - Appropriations, Allotments, Apportionments, Nonexpenditure Transfers, Rescissions • Status of Resources – Unobligated Apportioned and Unavailable • Reimbursements • Incorporates spending authority, offsetting collections and any outlays associated with the reimbursable process • Obligations • Encompasses the entire budget execution process • Impacts anyone that receives, commits and obligates AF funds • Outlays • Covers the payment process to liquidate an obligation • Impacts anyone that obligates AF funds 14 14

15. Existence & Completeness • Two of the four financial assertions that auditors will test in Wave 3 • Other two are Rights and Presentation & Disclosure • Focus is on Mission Critical Assets (MCA) • Military Equipment • Real Property • Inventory (WCF) • Operating Materials and Supplies (OM&S) • General Equipment • Direct impact to the Balance Sheet

16. Existence & Completeness • Connects to SBR processes from acceptance of the item (i.e. WAWF) • Add item into accountable property system of record (ASPR) • Conduct annual physical inventories (except Real Property every 5 years) • Ensure inventories are conducted and documented • Inventory sheets must be signed and dated • Reconcile physical inventories to ASPR at local and enterprise level • Proper Use of key data fields • Item identifier, asset type, item description, operational status, condition code, date placed-in-service or transfer, inventory date

17. Audit Readiness Status a/o 2/24/12 17

18. SBR Assessable Units and Milestones to Audit Readiness

19. E&C Assessable Units and Milestones to Audit Readiness

20. Challenges to Meet Our Goal • Effective communication within FM and other functional communities on how they can help • Illustrating how everyone fits into the “big picture” • Translating this “foreign language” into action and results • 2014 is just around the corner and FY 2017 is not that far beyond that…Time is of the essence • Educating Key Stakeholders….Why this matters • Efficient use of funds and resources • Credibility will help support need for additional funding • Enhanced decision support to fund operational needs • Systems limitations This Is Not Just An FM Initiative – It Will Take the Entire AF Enterprise 20

21. Lead FIAR efforts within your unit and spread the word at every opportunity….be a “FIARMAN” Follow the document retention policy (e.g. pay related documents stored for 6 yrs and 3 months); as well as within other Comptroller offices and functional communities on base Take the MIC Program seriously….effective internal controls are critical success factors to audit readiness Work with your functional counterparts and show them how they fit into the “big picture” Participate on Assessable Unit Teams Functional knowledge resides outside “the Beltway” (e.g. MilPay, GAFS-BL, local purchases, etc.) How You Can Help… Right Now Business events create financial transactions and impact audit readiness 21

22. Examples of Where You Can Assist AF Audit Readiness 22

23. Examples of Where You Can Assist AF Audit Readiness 23

24. Examples of Where You Can Assist AF Audit Readiness 24

25. Examples of Where You Can Assist AF Audit Readiness 25

26. Examples of Where You Can Assist AF Audit Readiness 26

27. References • Hyperlinks • FIAR/FIP CoP • December 2011 OUSD(C) FIAR Guidance • November 2011 FIAR Plan Status Report • AF Business Rules on the FIP/FIAR CoP (Under Revision) • Documents Mention/Discussed • Joint USM and Vice Chief Memo • Mandatory Document Number Construct Memo • USD(C) Priority Memo • USD(AT&L) Memo • FIAR Info to MAJCOM FM’s 27

28. Backup 28

29. You’re FIAR’D!!!Here are some examples.

30. FIAR Truck Example 30

31. Purchase of an FIAR Truck –Impact to Audit Readiness Example follows the purchase of a “FIAR” truck at base-level Understand, fire trucks are not procured at base-level; however: Everyone can relate to a fire truck They are found on every base Meet capitalization threshold Accountability takes place at base-level Interchange fire truck with any capital asset (over $20K) purchased (i.e. generator, utility truck, etc.) for applicability Financial impacts are the same Accountable Property System of Record could be different Process steps are similar for the purchase of goods and services, but these costs are not capitalized on the balance sheet

32. Planning and Requirement Development Phase Step 1: Business Case Analysis – Base needs a Fire Truck (Asset) AIR FORCE INSTRUCTION 63-101: ACQUISITION AND SUSTAINMENT LIFE CYCLE MANAGEMENT Step 2: Justification and Report Generation Information is input into Financial Information Resource System (FIRST) Budget is prepared in Automated Budget Interactive Data Environment System (ABIDES) Budget is approved by Congress Budget is signed by President Air Force Receives Current Budget in ABIDES No Impact to AF Financial Statements….Yet

33. Budget Execution – Funds Receipt Step 3: Funding is received Treasury issues funding warrants to Air Force SAF/FMB transfers information from ABIDES into the Automated Funds Management (AFM) system for distribution to the MAJCOMs AFM information is transferred to the Air Force accounting system General Accounting & Finance System – Re-host (GAFS-R) Financial Statement Impact Air Force must satisfy the Key Control Objective (KCO) in order to become audit ready: Appropriation transactions (or other forms of budget authority): Recorded appropriation (or other forms of budget authority) is the same as the appropriation or other legislation, was made available for obligation (including restrictions on amount, purpose & timing) and pertains to the entity (Dept of the Air Force) • 3. Budget Authority • A. Appropriation

34. Budget Execution – Funds Distribution Step 4: Distribution to MAJCOM Funding Authorization Document (FAD) is transferred to MAJCOM through AFM and is converted into Excel or loaded into FMSuite for allotment to bases The standardized AFM document ID is one of key requirements for an audit trail, this allows the Air Force to reconcile the fund distribution balance Funding is recorded with the proper appropriation symbol (ex. 3080 - Other Procurement, Air Force) Financial Statement Impact Air Force must satisfy the KCO in order to become audit ready: Recorded apportionments agree with the OMB apportionments and the total amount apportioned does not exceed the total amount appropriated • 9. Unobligated Balance • A. Apportioned

35. Procure to Pay – Requisitioning and Sourcing Step 5: Request for Procurement The Base prepares a purchase request in the Automated Business Services System (ABSS) Common forms are Form 36 (Purchase Request), AF Form 9 (Purchase Request), and AF Form 185 (Project Order) Financial Services Office (FSO) ensures a Program Summary Record (PSR) matches the Long Line of Accounting (LOA) on the purchase order and it exists in General Accounting and Finance System - Base Level (GAFS-BL) system FSO checks the availability of funding to support request, this is done by entering the purchase request amount into the GAFS-BL utilizing the PSR as a commitment (C) of funds Detailed contract information is interfaced from MOCAS into GAFS-BL to record the Commitment (C) No Direct Financial Statement Impact However there is a risk within this step – if the FSO does not validate the availability of funding it could create an Anti-Deficiency Act (ADA) violation

36. Procure to Pay – Contracting and Purchasing Step 6A: Contract for Procurement The accounting record update allows the funds certifier to certify and release the purchase request to the contracting officer for procurement action, the funds certification data is sent via ABSS to contracting The contracting officer (CO) receives the request, completes the acquisition process and prepares a contract incorporating all the data entered by the requestor CO prepares the contract in Standard Procurement System (SPS) In the course of finalizing the details of the contract, it is reviewed by legal, Defense Contract Management Agency (DCMA), and the vendor Once the contract is awarded copies are distributed - Electronic image (PDF) is sent to the vendor, DCMA and the originating financial specialist via e-mail Detailed contract information is interfaced from SPS into Mechanization Of Contract Administration Services (MOCAS) NOTE: For this example, MOCAS used; however most base level folks are familiar with IAPS and probably use this system for most purchases

37. Procure to Pay – Contracting and Purchasing Step 6B: Purchasing of Asset The associated GAFS-BL Document Summary Record (DSR) is used to match the incoming obligation transactions against the purchase request document number (Step 5) – Commitment to Obligation (C to O) this is simultaneous with contracting (Step 6A), once the contract is awarded Financial Statement Impact Air Force must satisfy the KCO in order to become audit ready: Obligations represent valid orders that will require future payment Obligations are for the same purpose for which the appropriation was made 8. Obligations Incurred A. Direct

38. Procure to Pay – Receipt and Acceptance Step 7: Receipt of Asset The Base receives the Fire Truck from the vendor, examines the asset, accepts the asset received and creates a receiving document On-line Vehicle Integrated Management System (OLVIMS) reportable vehicles include fire fighting and base maintenance vehicles/ equipment of commercial or military design The Base’s Vehicle Fleet Manager (VFM) or Vehicle Management Superintendent (VMS) takes delivery of the asset on behalf of the Air Force The VFM completes a receipt/acceptance report (DD250) which is forwarded to Defense Finance and Accounting Service (DFAS) through Wide Area Work Flow (WAWF) DFAS vendor pay receipt/acceptance data is interfaced from WAWF or input manually into MOCAS Receipt/Acceptance data flows electronically from MOCAS into GAFS-BL booking the Accounts Payable

39. Procure to Pay – Receipt and Acceptance Step 7: Receipt of Asset Financial Statement Impact Statement of Budgetary Resources (SBR) Air Force must satisfy the KCO in order to become audit ready: Obligations are recorded in the proper period Balance Sheet (BS) Air Force must satisfy the KCO in order to become audit ready: Obligations are recorded in the proper period 18. Obligated Balance, net, end of period A. Unpaid Obligations 4. Accounts Payable

40. Procure to Pay – Invoice and Distribution Step 8A: Process Invoice & Matching and Distribution DFAS conducts a three-way matching of the documentations provided (contract, receiving report and invoice) DFAS Vendor Pay personnel verify that the invoice meets proper invoice requirements and that the vendor is actively registered in Central Contractor Registration (CCR) and Corporate Electronic Funds Transfer (CEFT) The invoice is also verified against the contract to determine if the charges are correct If all of the necessary documentation exists, DFAS processes the disbursement in Centralized Disbursing System (CDS) The payment process begins when DFAS receives a demand for payment however payment is not made until the receipt of a DD250 or any other approved receipt & acceptance document is in DFAS possession either electronically via WAWF or manually submitted (mailed or faxed) CDS generates check issue and Electronic Fund Transfer (EFT) files and interfaces the associated accountability data to GAFS-R

41. Procure to Pay – Invoice and Distribution Step 8A: Process Invoice & Matching and Distribution Financial Statement Impact Statement of Budgetary Resources (SBR) Air Force must satisfy the KCO in order to become audit ready: Outlay, collection and receipt transactions represent valid, authorized transactions and pertain to the entity Balance Sheet (BS) Air Force must satisfy the KCO in order to become audit ready: Outlays are for the purposes for which the appropriation was provided and in an amount not exceeded the obligation, as adjusted, authorizing the outlay (supports ADA) 19. Outlays • Assets • Intragovernmental • Fund Balance w/Treasury

42. Acquire to Retire – Place into Service Step 8B: Place into Service The receiving activity is required to produce a receiving report upon receipt and acceptance of the Fire Truck Upon receipt the base level personnel, VFM, forwards a copy of the DD 250 to DFAS for processing The VFM enters all applicable data to include UIUD, serial number, and placed into service date into OLVIMS Asset information is ultimately passed to AFEMS, the Accountable Property System of Record (APSR) Bases set and implement local guidance in the form of Operating Instruction (OIs) in accordance with (IAW) AFI 33-360, Publications and Forms Management for reporting on inventory reconciliation Upon notification that the reconciliation is complete, the VMS begins the process of collecting cost and entering value for newly procured assets as well as any “child” assets into OLVIMS Financial Triggers: (+) Receipt of Newly Procured Equipment

43. Acquire to Retire – Place into Service Step 8B: Place into Service Financial Statement Impact Statement of Budgetary Resources (SBR) No Impact Balance Sheet (BS) Air Force must satisfy the KCO in order to become audit ready: Ensure recorded assets exist at a given date Ensure recorded assets at a given date, are supported by appropriate detailed records that are accurately summarized and reconciled to the account balance Ensure recorded assets are owned by the entity. The entity has rights to the recorded asset at a given date • Assets • Property Plant and Equipment

44. Acquire to Retire – Monitor Assets Step 9: Asset Accountability Reconciliation Base level personnel are required to perform periodic inventory of on hand PP&E, and perform a reconciliation of the inventory results against the information recorded in OLVIMS Any discrepancies that are noted between the asset inventory and the records in OLVIMS are reported to the base level VFM A discrepancy report is prepared detailing the differences between the results of the inventory and the records in OLVIMS Base level VMS updates the records in OLVIMS to reflect the results of the inventory Maintaining the results of the current and last inventory is critical for Existence and Completeness assertions Step 10: Asset Maintenance/Modification Maintenance and modification requirements for assets are established by VFM and VMS using the AIR FORCE INSTRUCTION 23-302 Material Management VEHICLE MANAGEMENT Asset modifications that meet the capitalization threshold ($20K) are identified and added to OLVIMS VMS enter “child” assets and applicable value in OLVIMS (capitalized modifications applied dependant upon total asset valuation after modifications are complete) Proper recording of modifications (cost, date of modification, etc.) is important to full financial statement audit readiness

45. Acquire to Retire – Monitor Assets Step 12: Asset Depreciation Asset depreciation calculations are programmed to occur automatically in AFEMS At the end of each month current total PP&E asset value (which represents the net updates for new receipts and adjustments from inventory reconciliations) accumulated depreciation and summarized transactional data is forwarded from OLVIMS to GAFS-R for use in the financial reporting process Critical to ensure placed in service date, acquisition cost, useful life fields are accurate and match the information on the supporting documentation (DD250 and invoice) Financial Triggers: (+)Asset Found During Inventory (-) Asset Lost During Inventory (-) Depreciation (+/-) Modifications

46. Acquire to Retire – Disposition of Assets Step 13: Asset Disposition (1) Disposition Authority (USCENTAF AOR Only). Deployed sites do not have local authority to salvage vehicles disposition decisions will be made by the MAJCOM. To request salvage instructions units need to submit an AFTO Form 91, Limited Technical Inspection-Motor Vehicle, to CENTAF-AUAB (2) Defense Reutilization and Marketing Service (DRMS) Procedures. Contact Regional or Zone DRMS Manager for processing guidance after a vehicle has been approved for DRMS. If DRMS representation is not able to assist with disposal, the MAJCOM or NAF Vehicle Management Staffs will direct disposal IAW DOD 4160.21-M, Defense Materiel Disposition Manual, Chapter 8, Abandonment or Destruction (A/D) Disposal summarized transactional data is forwarded from OLVIMS to SBSS-ILS to AFEMS to GAFS-R for use in the financial reporting process Critical to maintain supporting documentation of the asset disposal (sale of asset, destruction, etc.) for Existence and Completeness Asset records in OLVIMS must be updated within 30 days of disposal of the vehicle Financial Triggers: (-) Disposal

47. Incorporates an “enterprise-wide” approach SAF/FM and SAF/USM responsible for audit readiness Governance structure in place to enforce accountability Includes redefined Assessable & Sub-assessable units for the SBR Establishes “firm” milestone dates for E&C assertions with the functional communities Spends least amount of time in Discovery in order to move to corrective action sooner, given the tight timeline Assesses financial and mixed feeder systems to ensure IT General and Application controls are tested and effective Incorporates MAJCOM and base-level personnel – this is where the audit will go when we are under audit Assumes higher level of risk to meet audit readiness by FY14 Air Force Strategy 47

48. Table below contains overarching risks the Air Force identified that may impede the ability to achieve the accelerated plan Audit Readiness Risks 48

49. Required Assertion Work Products

50. Key Control Objectives • Objectives that capture the outcomes needed to achieve proper financial reporting and serve as a point against which the effectiveness of financial controls can be evaluated • Effective internal controls mitigate risks and provide assurance that financial information is properly and accurately recorded and reported • Critical to successful financial statement audits. KCOs do the following: • Ensures key risks are mitigated during audit readiness efforts • Ensures internal controls are aligned with financial statement assertions • During Evaluation & Discovery activities, assessing internal controls is a prerequisite 50