Stepped Up ERM Teresa McKay Director, Defense Finance and Accounting Service

1. Stepped Up ERMTeresa McKay Director, Defense Finance and Accounting Service ASMC Washington Chapter September 17, 2008

2. Agenda • Enterprise Risk Management • Why We Need Enterprise Risk Management • Case Studies • Wounded Warrior • Out of Country Payments • Accounts Payable

3. A Complex Environment Fraught with Risk 6.9 million travel payments 54.5 million general ledger accounts with billions of transactions 154.6 million payroll payments $328 billion in military retirement managed 865 active DoD appropriations $446 billion in disbursements 14 million commercial invoices

4. What is Enterprise Risk Management? Enterprise Risk Management (ERM): An organization-wide approach that proactively identifies inherent risks and prevents or manages them

5. Why ERM Why do we use Enterprise Risk Management?

6. Assess Plan Execute Sustain DFAS’ Approach to ERM

7. ERM Evolution DFAS Enterprise Risk Management Program DFAS Risk Management Maturity Ad Hoc Managed Standardized Integrated Optimized Current State Desired State, Implementation

8. Document the process Identify risks and establish controls to mitigate those risks Evaluate, test and -- if necessary -- revise Identifying Risk

9. Accountability is Key • Accounts Payable: Own the process • Identify Risks: What all can go wrong • Prioritize: Develop an integrated strategy for solutions

10. Compliance • Audit oversight • Internal review • Federal Managers’ Financial Integrity Act Compliance • Improper Payments Information Act • Financial Improvement and Audit Readiness • Federal Financial Management Improvement Act • Clinger-Cohen Act • Balanced Scorecard • Department of defense Information Assurance and Certification Accreditation Process • Federal Information Security Management Act

11. Outcomes • Streamlined accounting and personnel processes • Better support for our customers • Peace of mind for Warfighters and their families

12. Case Study: Wounded Warrior • Inaccurate pay to wounded soldiers resulted in soldiers owing money to the government • Pay and personnel systems unable to handle situation • Congress and media were outraged Background • Number of erroneous payments significantly reduced • Hospitalized Soldiers contacted personally • Wounded In Action (WIA) database developed • Available financial personnel at Walter Reed and Landsthul hospitals • Overall processes and procedures improved Results

13. Case Study: Out of Country Payments • Billions of dollars spent on the Global War on Terror • DoD unable to support financial operations in Iraq and Afghanistan using standard operating procedures • Army needed to improve internal controls for soldiers to be supported properly Background • Regulations for soldiers in contingency environment revised • Partnered with Army to improve controls and ensure payments are properly supported • Communication, training and interagency planning improved • Oversight/follow-up procedures established Results

14. Case Study: Accounts Payable • Disparate accounts payable processes. • Consolidated operations and standardized processes • Improved efficiency and effectiveness, exceeding customer expectations • In FY07 saved $53m by eliminating rework and increasing productivity Background • 55 errors identified • Dollar impact $7,166,567 • Employee coding training opportunities identified • Opportunities to apply Business Activity Monitoring identified • Reduced improper payments • Identified Fraud Results

15. Business Activity Monitoring The Future of BAM with DFAS Detect and Prevent Improper Payments are detected and corrective action injected automatically at the source.

16. Questions