04/22/2023 10:30 PM

Office of the Under Secretary of Defense (Comptroller)

Audit ReadinessThe New Priorities -- Financial Information We

Really Use

Joe QuinnOffice of the Under Secretary of Defense (Comptroller)

June 2010

04/22/2023 10:30 PM

Agenda

• Financial Improvement and Audit Readiness (FIAR) Strategy

• Keys to Success

• Where Are We Now

• What Does Success Look Like

• What Do We Look Like

• The Changes We Need to Make

2

• Congress requires DoD audit readiness by Sept 2017• Focus efforts on improving information most often

used to manage in the DoD in order to:– Build momentum to improve the processes and systems that

underlie all financial information and statements

– Demonstrate the value of improving financial information

– Increase DoD-wide buy-in and participation

• Prioritize on budgetary and asset records first– Valuation is secondary as it is rarely relevant to decisions

– All transactions go through the budget execution lifecycle

– Clean audits will be a byproduct of improved processes

3

Focus first on information used to manage in order to build momentum and demonstrate value

The FIAR Strategy

The FIAR Strategy – Approach• Focus first on information used to manage the DoD

– Budgetary Information (Waves 1 & 2)

– Mission Critical Asset Information (Wave 3)

• Incremental and prioritized approach to achieve auditability

4

Based on accounting and audit principles and will not change

04/22/2023 10:30 PM 5

Keys to Success

• Enhanced Oversight and Governance– Incorporation of DCMO

– FIAR Governance Board

Keys to Success

6

Keys to Success• Resources

– Increased resources for Army and Air Force

– Using more CPAs and auditors

7

FY 2010 - FY 2014 FIAR BudgetFY 2010 FY 2011 FY 2012 FY 2013 FY 2014

OUSD(C) 8$ 9$ 9$ 9$ 9$ Army 9 43 45 61 63 Navy 61 63 65 67 69 Air Force 20 28 27 25 25 DLA 52 45 47 44 45 Totals 150$ 188$ 193$ 206$ 211$ Notes: (1) Dollars are in millions. (2) Amounts do not include funds for systems modernization (e.g., ERPs). (3) Navy amounts include funds for audits. (4) DLA amounts include Service Provider audit readiness support. (5) Air Force amounts exclude some organic, field-level support.

Keys to Success• Strategy and Guidance

– FIAR Strategy based on sound business case

– Guidance that defines activities, outcomes, and success criteria

8

Keys to Success• Enhanced Oversight and Governance

– Incorporation of DCMO

– FIAR Governance Board

• Resources– Increased resources for Army and Air Force

– Using more CPAs and auditors

• Strategy and Guidance– FIAR Strategy based on sound business case

– Guidance that defines activities, outcomes, and success criteria

9

With these improvements DoD believes that we will see faster progress and better results than past efforts

04/22/2023 10:30 PM 10

Where Are We Now?

11

DoD’s CurrentSBR Status

Reporting EntityBudgetary Resources (in millions)

Percent

Under AuditMilitary Retirement Fund $50,304 4.27%U.S. Army Corps of Engineers-Civil Works 40,395 3.43%U.S. Marine Corps, GF 38,391 3.26%TRICARE Management Activity - CRM 14,268 1.21%Medicare-Eligible Retiree Healthcare Fund 8,291 0.70%Defense Commissary Agency 7,655 0.65%Defense Finance and Accounting Service 1,601 0.14%Defense Contract Audit Agency 502 0.04%Office of the Inspector General, DoD 318 0.03%

Subtotal Under Audit $161,725 13.73%

Preparing for AuditArmy, GF $320,491 27.20%Air Force, GF 201,591 17.11%Navy, GF 185,531 15.75%Military Retirement Fund Payment 65,530 5.56%Defense Logistics Agency, WCF 38,007 3.23%Navy, WCF 29,025 2.46%DoD Component Level Accounts 27,630 2.35%Service Medical Activity 21,086 1.79%Army, WCF 18,718 1.59%Office of the Secretary of Defense 17,898 1.52%Air Force, WCF 11,612 0.99%Other Defense Reporting Entities 67,710_ 5.74%

Subtotal Preparing for Audit $1,004,829_ 85.29%

Immaterial Reporting Entities $11,541_ 0.98%

Total Budgetary Resources $1,178,095 100%

FY 2009 DoD Statement of Budgetary Resources

Under Audit14%

Preparing for Audit85%

Immaterial1%

Current Status• We Have a Good Plan

– "I applaud the Department of Defense for finally taking an important first step forward to achieve financial accountability by developing a coherent plan to clean up its books so that American taxpayer dollars aren't being wasted,“ said Sen. John McCain.

– Sen. Tom Carper said, " The Pentagon hasn't yet met this critical goal of being able to audit its books, but at least we finally have a plan to help them navigate the path ahead”

– Unfortunately, past pronouncements and plans have not resulted in the change in culture needed at the Defense Department to ensure financial accountability for taxpayer dollars. I hope this time, things are truly different," said Sen. Tom Coburn.

12

Plans are only good intentions unless they immediately degenerate into hard work. --Peter Drucker

04/22/2023 10:30 PM 13

What Does Success Look Like?

What We Need To Do• Improve Controls

– All financial business events are captured in the general ledger:• In the right period

• At the correct amount

• Using the proper funds

• With appropriate authority

• Support Balances– Balance tie to transaction populations

– Transactions can be traced to supporting documents or data

14

Simple in concept and difficult in execution… requires discipline, persistence, and consistency

Auditors and 6 Year-Olds want to know the same thing…

Where did that come from?

15

16

Department of the Army -- Schedule of Obligations Incurred - DirectAs of September 30, 2009 -- Prepared October 17, 2009; by Virginia Fortune

General Ledger Account Balances Amount4801 - Undelivered Orders - Unpaid 19,886,595$ A

4802 - Undelivered Orders - Paid 4,971,649 B

4901 - Delivered Orders - Unpaid 24,858,244 C

4902 - Delivered Orders - Paid 198,865,950 D

Total 248,582,438$

General Ledger Summaries 4801 4802 4901 4902STANFINS 17,500,204$ E 4,375,051$ F 21,875,255$ G 175,002,036$ H

GFEBS 795,464 198,866 994,330 7,954,638 CEFMS 994,330 248,582 1,242,912 9,943,298 SABRS 198,866 49,716 248,582 1,988,660 GAFS 397,732 99,433 497,165 3,977,319

Total 19,886,595$ 4,971,649$ 24,858,244$ 198,865,950$ A B C D

General Ledger Sources - STANFINS 4801 4802 4901 4902Military Pay - DJMS 3,150,037$ 787,509$ 3,937,546$ 31,500,367$ Civilian Pay - DCPS 1,925,022 481,256 2,406,278 19,250,224 Weapon System Purchases 2,450,029 612,507 3,062,536 24,500,285 Goods - DLA 2,975,035 743,759 3,718,793 29,750,346 Goods - Army WCF 1,225,014 306,254 1,531,268 12,250,143 Goods and Services - SPS 2,800,033 700,008 3,500,041 28,000,326 Goods and Services - Purchase Card 875,010 218,753 1,093,763 8,750,102 Services - PowerTrack 350,004 87,501 437,505 3,500,041 Services - TRANSCOM 525,006 131,252 656,258 5,250,061 Services - DTS 350,004 87,501 437,505 3,500,041 Services - IATS 700,008 175,002 875,010 7,000,081 Other - Immaterial 175,002 43,751 218,753 1,750,020

Total 17,500,204$ 4,375,051$ 21,875,255$ 175,002,036$ E F G H

17

Department of the Army -- Schedule of Obligations Incurred - DirectAs of September 30, 2009 -- Prepared October 17, 2009; by Virginia Fortune

General Ledger Sources - STANFINS 4801 4802 4901 4902 TotalGoods and Services - SPS 2,800,033$ 700,008$ 3,500,041$ 28,000,326$ A 35,000,407$

Transaction Detail Population4902 - Delivered and PaidContract Document Number WAWF R/A # Paper R/A # EFT # Advance Code AmountAHY123532JK1255 297582332 698611555 2,356.24$ AHY123532JK1256 297582697 698611920 Y 2,612.24$ AHY123532JK1257 6986533 698612043 2,735.24$ AHY123532JK1258 6987056 698612566 3,258.24$ AHY123532JK1259 297582820 698612689 3,135.24$ AHY123532JK1260 6987588 698613221 3,667.24$ AHY123532JK1261 297582943 698613344 3,544.24$ AHY123532JK1262 297582955 698613356 3,556.24$ AHY123532JK1263 297583078 698613479 Y 3,433.24$ AHY123532JK1264 6987654 698613545 3,499.24$ AHY123532JK1265 297583120 698613587 3,457.24$ …. See Page 2 27,965,071.18$

Total A 28,000,325.82$

TRANSTN_AMT NH_BATCH_FILE_ID REC_SEQ_ID DEPT TRANSTN_EFF_DT BLOCK_NBR TRANSTN_TY TRANS_DEPT FY BASIC_SYMBOL LIMIT OA ASN AMS119541.57 616046 98012 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000

7547.06 616046 98013 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000425.5 616046 98014 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000

440.85 616046 98015 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000269.37 616046 98016 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000

196697.86 616046 98017 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000885 616046 98018 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000

3162.6 616046 98019 21 9/30/2006 BJ 6 2020 0000 74 0951 8477816000018752.46 616046 98020 21 9/30/2006 BJ 6 2020 0000 74 0951 8477816000011644.44 616046 98021 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000

207386.56 616046 98022 21 9/30/2006 BJ 6 2020 0000 74 0951 8477816000082819.2 616046 98023 21 9/30/2006 BJ 6 2020 0000 74 0951 847781600009915.12 616046 98024 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000-756.72 616046 98025 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000

21184.83 616046 98026 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000-9 616046 98027 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000

244.4 616046 98028 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000-13368.05 616046 98029 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000342054.93 616046 98030 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000

-308.28 616046 98031 21 9/30/2006 BJ 6 2020 0000 74 0951 847781600008033.76 616046 98032 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000-201.29 616046 98033 21 9/30/2006 BJ 6 2020 0000 74 0951 847781600005511.02 616046 98034 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000

-26739.16 616046 98035 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000722615.08 616046 98036 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000

-386.16 616046 98037 21 9/30/2006 BJ 6 2020 0000 74 0951 8477816000010211.73 616046 98038 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000

-294.97 616046 98039 21 9/30/2006 BJ 6 2020 0000 74 0951 847781600001954.43 616046 98040 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000

-17740.69 616046 98041 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000608427.77 616046 98042 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000

-182.75 616046 98043 21 9/30/2006 BJ 6 2020 0000 74 0951 847781600008867.49 616046 98044 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000

-25174.03 616046 98045 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000762620.74 616046 98046 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000

-174.33 616046 98047 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000278312.25 616046 98049 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000

4381.86 616046 98050 21 9/30/2006 BJ 6 2020 0000 74 0951 8477816000075000 616046 98051 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000

96905.12 616046 98052 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000630 616046 98053 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000550 616046 98054 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000

5213.32 616046 98055 21 9/30/2006 BJ 6 2020 0000 74 0951 8477816000066.26 616046 98056 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000

278.36 616046 98057 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000-252.7 616046 98058 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000

8107.91 616046 98059 21 9/30/2006 BJ 6 2020 0000 74 0951 847781600003667.14 616046 98060 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000

327.06 616046 98061 21 9/30/2006 BJ 6 2020 0000 74 0951 8477816000077834.53 616046 98062 21 9/30/2006 BJ 6 2020 0000 74 0951 84778160000

16473751.47 616046 98063 21 9/30/2006 BJ 6 2020 0000 74 0951 84778510000904834.2 616046 98064 21 9/30/2006 BJ 6 2020 0000 74 0951 84778510000289179.2 616046 98065 21 9/30/2006 BJ 6 2020 0000 74 0951 8477851000077069.62 616046 98066 21 9/30/2006 BJ 6 2020 0000 74 0951 84778510000

114510.01 616046 98067 21 9/30/2006 BJ 6 2020 0000 74 0951 8477851000027725.91 616046 98068 21 9/30/2006 BJ 6 2020 0000 74 0951 84778510000

4308.58 616046 98069 21 9/30/2006 BJ 6 2020 0000 74 0951 84778510000320.64 616046 98070 21 9/30/2006 BJ 6 2020 0000 74 0951 84778510000

14298.07 616046 98071 21 9/30/2006 BJ 6 2020 0000 74 0951 84778510000181574 616046 98072 21 9/30/2006 BJ 6 2020 0000 74 0951 84778510000

23500 616046 98073 21 9/30/2006 BJ 6 2020 0000 74 0951 8477851000036277.71 616046 98074 21 9/30/2006 BJ 6 2020 0000 74 0951 84778510000

617232.63 616046 98075 21 9/30/2006 BJ 6 2020 0000 74 0951 8477851000083520.99 616046 98076 21 9/30/2006 BJ 6 2020 0000 74 0951 84778510000

6507.84 616046 98077 21 9/30/2006 BJ 6 2020 0000 74 0951 8477851000015000 616046 98078 21 9/30/2006 BJ 6 2020 0000 74 0951 84778510000

-1137.75 616046 98079 21 9/30/2006 BJ 6 2020 0000 74 0951 8477851000031448.48 616046 98080 21 9/30/2006 BJ 6 2020 0000 74 0951 84778510000

-68.16 616046 98081 21 9/30/2006 BJ 6 2020 0000 74 0951 847785100001820.21 616046 98082 21 9/30/2006 BJ 6 2020 0000 74 0951 84778510000

-11.1 616046 98083 21 9/30/2006 BJ 6 2020 0000 74 0951 84778510000297.15 616046 98084 21 9/30/2006 BJ 6 2020 0000 74 0951 84778510000

-13348.2 616046 98085 21 9/30/2006 BJ 6 2020 0000 74 0951 84778510000344263.13 616046 98086 21 9/30/2006 BJ 6 2020 0000 74 0951 84778510000

-1480.73 616046 98087 21 9/30/2006 BJ 6 2020 0000 74 0951 8477851000039138.91 616046 98088 21 9/30/2006 BJ 6 2020 0000 74 0951 84778510000

18

Department of the Army -- Schedule of Obligations Incurred - DirectAs of September 30, 2009 -- Prepared October 17, 2009; by Virginia Fortune

General Ledger Sources - STANFINS 4801 4802 4901 4902 TotalGoods and Services - SPS 2,800,033$ 700,008$ 3,500,041$ 28,000,326$ A 35,000,407$

Transaction Detail Population4902 - Delivered and PaidContract Document Number WAWF R/A # Paper R/A # EFT # Advance Code AmountAHY123532JK1255 297582332 698611555 2,356.24$ AHY123532JK1256 297582697 698611920 Y 2,612.24$ AHY123532JK1257 6986533 698612043 2,735.24$ AHY123532JK1258 6987056 698612566 3,258.24$ AHY123532JK1259 297582820 698612689 3,135.24$ AHY123532JK1260 6987588 698613221 3,667.24$ AHY123532JK1261 297582943 698613344 3,544.24$ AHY123532JK1262 297582955 698613356 3,556.24$ AHY123532JK1263 297583078 698613479 Y 3,433.24$ AHY123532JK1264 6987654 698613545 3,499.24$ AHY123532JK1265 297583120 698613587 3,457.24$ …. See Page 2 27,965,071.18$

Total A 28,000,325.82$

19

Contract Document Number WAWF R/A # Paper R/A # EFT # Advance Code AmountAHY123532JK1259 297582820 698612689 3,135.24$

• Support Balances• In the right period

• At the correct amount

• Using the proper funds

• With appropriate authority

04/22/2023 10:30 PM 20

What Do We Look Like?

Our Current Environment• Multiple General Ledgers• Massive Unsupported Journal Voucher Adjustments• Data Calls to Identify Financial Events• Unrecorded Financial Events• Misclassified Financial Events

21

We Must Change How We Conduct Our Business

04/22/2023 10:30 PM 22

The Changes We Need

Demonstrate the Value of Improved Information

• Congress and the Public – Stewardship duty• Secretary Gates and Cost Accounting

– Do more with less slightly more

– Shift resources from “tail” to “tooth”

– “The patriot today is the fellow who can do the job with less money” – President Eisenhower

• Need to know how much “tail” we have and the performance/outputs of overhead cost centers

• Financial Accounting is the Foundation of Management Information

23

The path to mission efficiency is through financial management effectiveness

Demonstrate the Value of Improved Information

• Cost or Managerial Accounting can only occur with a solid foundation of financial accounting*

24*Cost & Effect, Kaplan and Cooper, 1997

Culture Changes• Prove your strengths vice hide your faults

– The traditional program/compliance audit approach does not work for financial statement audits

• Human Capital– Align people with the proper experience and capabilities to the

tasks assigned

– In DoD we employ doctors to perform surgery, lawyers to argue cases, architects and engineers to build structures; but we don’t require use of CPAs to perform accounting and auditing

• Business Excellence Everyday– Instill military operational discipline in business operations

– You cannot cram for a financial statement audit

25

Accountability for reliable financial information is critical

Dirty Jobs

26

Must Change How We Conduct Our Business

• Integrated End-to-End Processes– Link feeder and mixed systems to general ledger so all financial

events are captured

• Document Retention– Millions of paper and electronic records must be retained every

month to support transactions recorded in general ledgers

• Service Provider Integration– Business and financial organizations and people are being

impacted by the changes.

Dirty Jobs

27

• Integrated End-to-End Processes– Link feeder and mixed systems to general ledger so all financial

events are captured

The Vendor

MOCAS SystemEntitlement

APVM(Prevalidation)

PPVM(Prevalidation)

ObligationValidation

Confirmation

Receiving

Activity

MaterialPIIN-CLIN-SLIN

Receipt Validation

By PIIN CLIN SLIN

InvoicePIIN-CLIN-SLIN

InvoicePIIN-CLIN-SLIN

InvoicePIIN-CLIN-SLIN

InvoicePIIN-CLIN-SLIN

WAWF

WAWF

Contract Writing System

EDA

MOCAS System Contract Admin

Manual

Contract InfoPIIN-CLIN-SLINContract Info

PIIN-CLIN-SLIN

PIINCLINSLINPR

PR LineNumberPR Line

Funding ID

Purchase Requisition

Purchase Order

Goods Receipt

Invoice Receipt Expenditure

PRPR LineNumberPR Line

Funding ID

UnblockInvoice

PIIN-CLIN-SLIN

Disbursing System

DisbursementWith Contract

Info Only

Treasury

Any ERP

Contracting Outside the ERP

Goods Receipt and Invoice Receipt Outside the ERP

Disbursing Outside the ERP

Cross Reference TablePR/PR Line Number/PR Line Funding IDPO/PO Line Number/PO Line Funding ID

PIIN/CLIN/SLIN

ReceiptValidation From X-Ref Disbursement

PIIN-CLIN-SLIN

MATCHFrom X-Ref

Contract InfoPIIN-CLIN-SLIN

ReadyToPayFile

ReceiptReport

PIINCLINSLIN

BlockedInvoice

Use x-Ref

Dirty Jobs

28

• Service Provider Integration– Business and financial organizations and people are being

impacted by the changes.

Conclusion• We have a well defined way forward

– With resources and leadership

• There is a tremendous amount of work to do– With the right people and continued hard work this task can

be accomplished

29

We must succeed to support the DoD mission and meet our duty to taxpayers