Going All In on E&C Efforts: DoD's Existence & Completeness Initiative for Mission Critical Assets

1. Going All In... On E&C EffortsDoD’s Existence & Completeness Initiative for Mission Critical Assets

2. Property & Equipment PolicyWho we are: Office of the Under Secretary of Defense, Acquisition, Technology and Logistics (OUSD, AT&L) Acquisition Resources & Analysis (ARA) Property & Equipment Policy Office (P&E P) Mission: To establish policies and support business process development that enables military services and defense agencies to provide more accurate and reliable information to senior leaders to support management decisions at an enterprise level.

3. E&C “Fun” Fact • According to the FY 2010 DoD-wide financial audit report, what is the total acquisition amount reported for General Property Plant & Equipment ? $1.2 Trillion $596 Billion $822 Million $1.5 Billion

4. “Going All In” For E&C Efforts Existence Assertion • Physically Verified

5. “Going All In” For E&C Efforts Completeness Assertion • Recorded in APSR

6. “Going All In” For E&C Efforts Rights & Obligations Assertion DD250 Notional example Receiving Report Notional example

7. Comptroller Guidance – August 2009 Mr. Hale Memo

8. Why the Emphasis on Mission Critical Assets 1May 2011 Financial Improvement and Audit Readiness (FIAR) Plan Status Report p. I-3

9. ATL Aligns with Priorities – November 2009 Dr. Carter Memo

10. What’s In It For You

11. E&C “Fun” Fact • Military Equipment makes up approximately what percentage of total GPP&E for the Department of Defense? 50% 20% 30% 70%

12. Existence & Completeness “Quick Wins”

13. Components’ Quick Win E&C Selections

14. Objective: To demonstrate understanding of how the APSR relates to Financial Reporting and demonstrate key categorization of assets and their impact on financial reporting and property accountability From FIAR Guidance issued May 15, 2010

15. E&C Testing Framework A framework for Components to review the accountability process for mission-critical assets to determine: accurate records in the related APSR exist, records are complete and internal controls are designed and operating effectively.

16. Consider These Prior to Asserting to Audit Readiness • Relationship to financial statements • Demonstrate an understanding of financial reporting process in order to: • Ensure all material sub-processes addressed • Address all material risks of misstatement • Transaction or asset populations • Demonstrate ability to reconcile details to general ledger • Prove completeness of financial records • Ensure management testing covers complete population • IT Controls • Demonstrate effectiveness of system/application controls • In order to rely upon system generated reports/data • In order to rely upon embedded controls within systems/applications • Controls Testing • Demonstrate ability to rely on effective controls for high volume business areas • Avoid significant transaction testing at year-end • Capitalize on strong operationally controlled environment • Transaction Testing • Demonstrate ability to support balances/assets with business transactional detail

17. E & C Assertion Package • For E&C initiatives, each Component required to compile & submit Assertion Package • Component Financial Management organization asserts to: • Existence of assets recorded in APSR • Completion of APSR showing all assets • Rights to all assets shown in APSR • Management’s Assertions based on: • Understanding of processes, controls & risks • Access to asset universe as recorded in APSR • Physical asset verification • Review & evaluation of Source documentation • Systems reconciliation to Financial Statements

18. Assertion Package Submit

19. Assertion Package Guidance – Where to Go OUSD (AT&L) Property and Equipment Policy OUSD (Comptroller) Financial Improvement and Audit Readiness http://www.acq.osd.mil/pepolicy/general/reference_library.html Click on links under Existence & Completeness http://comptroller.defense.gov/FIAR/index.html Click on FIAR Guidance, May 2010 link

20. Path toward Audit Readiness

21. E&C “Fun” Fact • As of July 6, 2011, approximately how many Unique Item Identifiers (UIIs) have been loaded into the IUID Registry for Government Furnished Property (GFP)? A B C D 2.3 Million 450,000 1.2 Million 600,000

22. Government Furnished Property (GFP)

23. Government Furnished Property (GFP) * = Documented equals Cost Benefit Analysis (see DFARS 245 PGI for more details)

24. Government Furnished Property

25. GFP Material Weakness Declared - FY2011 • Material Weakness: • OSD declaring Department -wide Material Weakness in its annual Internal Control Statement of Assurance related to government furnished equipment (GFE): • Department lacks controls over government property provided on contract • Numerous audit reports highlight the lack of accountability for contract property • Problem: • Components do not have accountability over furnished equipment • Accountable Property Systems of Record (APSR) does not reflect government equipment on contract • Requests from government to contractors to create/validate legacy Government furnished equipment (GFE) items is uncoordinated and burdensome

26. Lessons Learned – So Far • FAR & DFARS do a good job of detailing process & requirements • Cost/Benefit Analysis must justify giving contractor equipment • Specific assets given to contractor must be individually listed & uniquely identified in contract • Contractor must have a controlled environment to fulfill stewardship responsibilities • Roles & Responsibilities are not clearly understood • Many “players” involved • Lots of “hand-offs” • Unclear responsibilities • Process gaps at the component level causing APSR not to reflect GFP • Accountable Property Officer (APO) is not part of communication chain for updates to GFP resulting in APSRs not being maintained. • IUID Registry not being properly populated

27. Corrective Action Plan – FY 2011 • FY2011 Q3 • OUSD(AT&L) provides auditable methodology for establishing legacy contract property accountable property records for execution by the Department • Purpose • Provide guidance on developing and validating a baseline for legacy serially- managed assets, i.e., GFE • Provide reasonable assurance of GFE records recorded in the APSR • Bring active contracts into compliance with Federal Acquisition Regulation (FAR) and Defense Federal Acquisition Regulation Supplement (DFARS) guidance • Improve accountability over GFE • Assure Audit Readiness • Amended contracts to serve as supporting documentation for management’s rights and obligations assertion

28. GFP Baseline Validation Methodology • Highlights: • Create Integrated Project Team to execute methodology (DCMA, DPAP, P&EPO, Contractors) • Use the IUID Registry to interface with contractors • Leverage DCMA’s Property Management System Analysis (PMSA) to validate data: • “Adequate” rating & “Low” risk = accept contractor data without any subsequent validation • “Inadequate” rating & “High” risk = perform wall to wall inventory to validate data • “Inadequate” rating & “Moderate” risk = evaluate Corrective Action Plan and use sampling techniques to validate data • Emphasize components to focus on improving current business processes to improve accountability for GFE going forward • Modify contracts to list GFE in possession of contractors to bring contracts into FAR, DFARS compliance • Amended contracts to serve as supporting documentation for government’s rights/obligations to equipment • Complies with Senior Leadership guidance

29. GFP Material Weakness and Corrective Action Plan • Other Associated Efforts • Air Force has declared GFE as a “material weakness” and initiated a Corrective Action Plan • Missile Defense Agency (MDA) will declare GFE as a “material weakness” in their FY2011 Statement of Assurance • DFARS cases underway to improve contractor reporting of GFE through the IUID Registry (GFP Module)

30. GFP Planned Corrective Actions–FY2012 & Beyond

31. E&C “Fun” Fact • The National Defense Authorization Act for Fiscal Year 2010 mandates DoD be audit ready by what date… A B C D September 2014 September 2017 September 2016 September 2020

32. Questions? Comments? Contact us at: Steve.Tkac@osd.mil Bobby.Garrett@ac-consulting.org For general questions and information, visit our website: http://www.acq.osd.mil/pepolicy/ Thank You!