Army Audit Readiness Overview

1. Army Audit Readiness Overview March 15,2012 Office of the Assistant Secretary of the Army (Financial Management & Comptroller) (OASA(FM&C))

2. Why These Efforts • Under Secretary of Defense (Comptroller) priorities memorandum dated 11 August 2009 • Improve Statement of Budgetary Resources (SBR), which is the financial statement that includes status of budgetary resources, obligations, and outlays. • Verify the existence and completeness (E&C) (book-to-floor and floor-to-book) of mission critical assets, including general equipment, military equipment, real property, inventory, and missiles/ammunition • National Defense Authorization Act for FY2010 - P.L. 111-84 (Signed into law 28 October 2009) • Echoed priorities from USD(C) memo • Secretary of Defense directive on 13 October 2011: • Accelerate the SBR deadline to 2014 • Increase emphasis on E&C of assets • Ensure mandatory training for audit efforts • Establish a certification program for financial managers

3. A Priority at All Levels Congress, DoD, and Army leadership are focused on improving business processes and achieving auditable financial statements. A Major DoD Initiative "It is unacceptable to me that [DoD] cannot produce a financial statement that passes all financial audit standards. That will change. I have directed that this requirement be put in place as soon as possible." —Defense Secretary Leon Panetta Monitored by Congress and GAO “Currently, the Department of Defense is incapable of [producing auditable financial statements].” — Sen. Tom Carper (D-Del.) “Improvement needed in DOD components’ implementation of audit readiness efforts” — GAO Report 11-851 Implemented within the Army “The emphasis on audit readiness underscores the transformation in financial management across the Army enterprise.” — Assistant Secretary of the Army(FM&C) Dr. Mary Sally Matiella

4. We Are All Accountable… • …for managing the Army's dollars and resources. • You impact the Army’s financial statements anytime you: • Spend the Army’s dollars. • Manage financial or human resources. • Manage, move, or use assets or equipment. • Execute or monitor contracts. • Enter or certify time for payroll. • Conduct internal review activities.

5. The Current DoD Approach: FIAR Guidance The OUSD(C) FIAR Guidance provides a consistent DoD-wide plan for transforming the business environment and achieving audit readiness. Defines the Department’s goals, strategy, and methodology. Details roles and responsibilities. Details processes that should be used to achieve audit readiness. OUSD(C) is The Office of the Under Secretary of Defense (Comptroller). FIAR is Financial Improvement and Audit Readiness. FIAR Guidance can be found at http://comptroller.defense.gov/fiar/documents/FIAR_Guidance_2011.pdf

6. The Army Approach: Army FIP The Army Financial Improvement Plan (FIP) is aligned with OSD’s FIAR Guidance and directs Army’s current audit readiness efforts. Built Upon Three Pillars: Current focus areas: • Improve budget execution processes that affect the Statement of Budgetary Resources (SBR). • Verify the existence and completeness (E&C) of mission critical assets. • Maximize the investment in enterprise resource planning (ERP) systems. Leadership Focus Resources Robust Plan

7. Executing the Financial Improvement Plan (FIP) Priorities Actions Goals  Statement of Budgetary Resources (SBR) Army is Auditable • Funds Receipt, Distribution, and Monitoring • Contracts • TDY Travel • MOCAS • Miscellaneous Payments • Civilian Payroll • Reimbursable Transactions (MIPRs) • Military Payroll • Purchase Card Transactions • Supply Requisition • Assess documentation, processes, and internal controls • Implement corrective actions • Establish effective internal controls • Assess financial statement data for accuracy • Standard processes • Effective internal controls • Proper documentation • Accurate, timely, reliable and supportable financial data • Existence and Completeness (E&C) • Military Equipment (ME) • General Equipment (GE) • Operating Materials and Supplies (OM&S) • Real Property (RP) • Inventory • Enterprise Resource Planning (ERP) Systems • General Fund Enterprise Business System (GFEBS). • Global Combat Support System–Army (GCSS-A). • Logistics Modernization Program (LMP). • Integrated Personnel and Pay System–Army (IPPS-A). • Assess system controls. • Correct control deficiencies. Compliant Systems (FFMIA, FISCAM)

8. Completed: Received unqualified audit opinion on Appropriations Received in August 2011. Received qualified audit opinion on GFEBS Wave 1 installations in November 2011. Documented processes, conducted testing, and identified corrective actions at GFEBS Waves 1 & 2. Underway: Implementing corrective actions at GFEBS Waves 1 & 2 installations. Preparing for Exam #2 of GFEBS Waves 1 & 2, including GFEBS system controls (access, configurable/process, and interface controls). Documenting end-to-end processes, including DFAS. Discovery and evaluation of military pay. Providing corrective action training to Waves 3 – 8b Statement of Budgetary Resources (SBR) The SBR provides information on how budgetary resources were made available and how they were executed. • SBR sections: • Budgetary Resources Received • Status of Budgetary Resources • Change in Obligated Balance • Outlays • Processes examined: • Funds Receipt, Distribution, and Monitoring • Contracts • TDY Travel • PCS Travel • Reimbursable Transactions (MIPRs) • Civilian Payroll • Military Payroll • Miscellaneous Payments • Purchase Card Transactions • Supply Requisition • Other 7

9. Scheduled to begin July 2012. Covers GFEBS Wave 1 & 2 sites: Fort Benning (IMCOM and TRADOC) Fort Jackson (IMCOM and TRADOC) Fort Stewart (IMCOM and FORSCOM) Ft. Bragg (IMCOM and FORSCOM) Ft. Campbell (IMCOM and FORSCOM) Ft. Drum (IMCOM and FORSCOM) Ft. Polk (IMCOM and FORSCOM) Ft. Gordon (IMCOM and TRADOC) Ft. Rucker (IMCOM and TRADOC ) Includes 8 processes, including DFAS, and GFEBS controls SBR Exam 2 of GFEBS Wave 1&2 Sites 8

10. SBR Resources and Support • Internal Control Self Assessment Questionnaire. • Weekly Open Forum Office Hours. • JRP Guidance for GFEBS issued by FM&C January 2012. • Process-Specific Training: 9

11. Existence & Completeness (E&C) Overview • OASA(FM&C), Army G-4, Army G-8, and OASA(ALT) decided to focus the E&C efforts for military equipment (ME), general equipment (GE), and operating materials and supplies (OM&S) on: • Class VII or other functionally complete end items. • Class V supply – Munitions (Quick wins – Hellfire, Javelin, and TOW missiles). • The Army’s real property (RP) E&C efforts are: • Initially focused on 20 sites at or near 100% complete with asset key supporting documentation (“folders”). • Expanding to all installations in 2013. • The Army’s E&C assertions are: • ME, GE, OM&S – December 31, 2013. • RP – September 30, 2014. 10

12. Existence and Completeness Approach Property Accountability Environment & Internal Control Activities Test of Design (TOD) Test of Operating Effectiveness (TOE) • Interview and Process Modeling • Stakeholder interviews • Process modeling for major asset lifecycle events • Receipt and acceptance, lateral transfer, disposal • Physical Inventory Re-performance • Re-perform physical inventory • Reconcile data and note changes • Reverse Testing • Verify completeness • Trace data elements • Annotate FOI assets • Observation and Walkthrough • Assess sufficiency of control activities • User access review • SOP review • Quality Control Program review • Warehouse walkthrough • Transaction Testing • Sample transactions • Test for signature authority and timeliness • Supporting Documentation Analysis • Collect and analyze supporting docs • E.g., logs, letters, forms, photos

13. E&C Way Ahead Operating Materials and Supplies (OM&S): • Completing site visits and compiling discovery results. • Reviewing quality controls over data integrity. • Coordinating with stakeholders on corrective action implementation and retesting. • Confirming financial reporting process. • Preparing assertion package. Military Equipment (ME)/General Equipment (GE): • Initiate controls testing with program managers. • Reviewing ME/GE data from various sources and systems (MEV, PBUSE, AWRDS, TS-MATS, and DPAS). • Coordinating with stakeholders on corrective action implementation and retesting. • Establishing the appropriate financial reporting process using PBUSE and GFEBS. Real Property (RP): • Solidifying population of RP capital assets. • Continuing site visits and compile evaluation and discovery results. • Reviewing internal controls over RP life-cycle processes. • Coordinating with stakeholders on corrective action implementation. • Updating RP financial improvement plan to reflect progress. • Confirming financial reporting process. • Preparing assertion package. 12

14. Audit Readiness Stakeholder Dependencies

15. Efforts to Support Audit Readiness • Secretary of the Army to release a memo that reinforces audit readiness deadlines and efforts required. • Guidance on SES audit readiness performance metrics forthcoming. • Army Audit Readiness Guide for Commands to be released that makes audit readiness actionable, relevant, and in plain language. • More than nine training modules on audit readiness and business process controls available and being conducted throughout the Army.

16. Supporting Efforts for Change Management • Sustaining continuous leadership • SECDEF directive • Active engagement and directive memoranda from SA, CSA, ASA(FM&C) • Army Audit Readiness Strategy • Building a competent workforce • Command Audit Readiness Guide • AKO Audit Readiness Site • Audit readiness training • Annual FIP Workshop • FIP Report newsletter • Well-defined architecture / ERP Systems • OBT and PEO-EIS actively engaged • ERP auditability assessments • Accountability & Oversight • SES performance plan requirement • Army governance • In-Process Reviews (GS-14/15) • Audit Committee Meetings (SES/GO) • Internal Review Workgroup • Participation in OSD Governance • Internal Controls • Installation-level process and control assessments • Corrective action implementation • Business process and controls training • Leveraging IR to assess controls and corrective actions • Instilling discipline and compliance with current policies • Supporting Efforts Help the Army Address GAO’s Six Challenges to DoD Auditability • Sustaining continuous leadership • Competent FM workforce • Accountability and oversight • Well-defined business architecture • ERP Systems • Internal Controls

17. Army Audit Readiness Timelines Milestone accelerated to meet Sec Panetta’s 2014 directive. Notes: • GFEBS waves correspond to deployment at specific sites. • “Assert” means Army is ready to be audited in that area. • Exams are evaluations by independent public accounting firms.

18. Ongoing Support Find More at Our AKO Site Find the latest news and resources at: www.us.army.mil/suite/page/auditready, or search “Army Audit Readiness.” • Army Audit Readiness Training • At Installations (e.g., Audit Readiness, Internal Controls, Testing, Corrective Action). • AKO Army Audit Readiness site (e.g., Testing Internals Controls, Corrective Action) http://www.us.army.mil/suite/page/auditready. • Army FIP Workshop (Annually) • Army Audit Readiness Publications • Army Audit Readiness Strategy. • Army Audit Readiness Handbook. • Army FIP Report (Quarterly Newsletter). • AKO Army Audit Readiness Site • Latest news. • Updated site visit schedule. • 2011 Army FIP Conference/Workshop presentations and trainings. • Guidance and policy.