Presentation on theme: "Department of the Navy Drive to Auditability"— Presentation transcript:
1 Department of the Navy Drive to Auditability Presentation to the 2010 ASMC PDIMr. Dennis Taitano – DASN Financial Operations2 June 2010
2 Agenda Everyone Contributes to Auditability Why is FIAR Important? DoD ChallengesDoD FIAR Strategy and DON FIP Progress-to-DateAssertion and Audit Lessons LearnedSummary
3 Everyone Contributes to Auditability – Bottom Line Up Front Essentially, auditability is:Well-controlled business processes to satisfy:Generally Accepted Accounting Principles (GAAP)Compliance with Federal Financial Management Regulations (FMR, FFMIA, FMFIA, etc.)Ability to readily produce evidence (e.g. documentation, testing) to support business transactionsManagement Assurance (Internal)3rd Party Assessment (External)Financial Audit Readiness is presented through 5 Management Assertions:Completeness: Are all assets and liabilities accounted for?Rights and Obligations: Do we have ownership and control of assets (i.e. title), and are liabilities our obligation?Existence: Do all assets and liabilities in our records actually exist?Valuation: Have we completely and accurately accumulated the appropriate costs of assets and liabilities?Presentation and Disclosure: Have we presented the transactions appropriately in our financial statements?Through our efforts to reach this goal, the outcome produced will be timely, accurate, and reliable financial information.
4 Financial Auditability Nuclear Reactor Safety DoD Business “Control Continuum”CurrentState“Playground Rules”No Control(Anything Goes!)Financial AuditabilityFFMIA CompliantComplete ControlNuclear Reactor SafetyGAPNo AssuranceQualifiedAssuranceReasonableAbsolute AssuranceThe DoD Business “Control Continuum” displays the broad spectrum of possible internal control environments. The Continuum begins with a “Playground Rules” environment, in which no control is present. At the opposite end of the spectrum is complete control, akin to the environment of checks and balances present in dealing with nuclear reactor safety (absolutely necessary when lives are at stake).Obviously the ultimate goal is complete control, but the realist goal is to close the gap between the current state (Qualified Assurance) and Financial Auditability (Reasonable Assurance). Obtaining this goal will provide the apparent benefit of being auditable, but other benefits will be produced as well:-Controls that are in place and tested (confidence in the control environment, auditable processes)-More standard processes-Implementing more capable systems-Improved operational efficiency (streamlined organization, cost savings)-Reduced vulnerability to fraud/waste (tighter control)-Sustained public trust/confidence (stewardship)“Closing the Gap” Will Mean:Controls that are in place and testedMore standard processesImplementing more capable systemsImproved operational efficiencyReduced vulnerability to fraud/wasteSustained public trust/confidence
5 Financial Improvement and Audit Readiness (FIAR) Why is FIAR Important?Comply with Laws: - Laws require financial statement auditsVerify Correct Allocation of Funds: - Verify that all resources are efficiently allocated to approved mission prioritiesImprove Mission Support: - Provide better information for timely, informed decision-makingIncrease Public Trust: - Reassure the public that DoD is a good steward
6 DoD ChallengesMany diverse functional organizations must work togetherLack of understanding relating to financial audit requirementsCurrent business environment makes auditability hard to achieveDoD systems are not integrated and/or manually intensiveLack of processes standardization or embedded internal controlsSome systems do not collect or lack visibility of data at transaction levelLack of coordinated plansServices pursuing different agendas at different paceEarlier focus was on information of limited value to managementNew Approach Established in August 2009: Focus on Improving Information We Use
7 “It will take longer than we thought to become audit-ready.”
8 OSD/Services Developing Detailed Financial Improvement Plans New ApproachFocus on information DoD uses to manageBudgetary dataAsset counts/location (existence and completeness)Main emphasis: improve informationUse audits to verify success or identify problemsFocus on internal controls and source documentationLower priority for information not useful to managersOSD/Services Developing Detailed Financial Improvement Plans
9 DON Financial Improvement Program Overview DON FIP is a department-wide effort designed to achieve the goal of DON reaching an audit ready stateThe program continues to drive toward more effective business processes, with the focus centered on effective internal control implementationDON FIP outcomes include:More accurate, timely, and reliable information for decision makingMore confidence of DON’s effective stewardship of taxpayer dollars
10 DON FIP Accomplishments and Updates Accomplishments to Date:AccomplishmentsEnvironmental Liabilities –Weapons Systems (Ships, Submarines), DERP, OEL, BRACCash and Other Monetary AssetsContingent Legal Liabilities, DebtIn Process Items:In ProcessCivilian Pay Assertion – currently under review by OSD(C) and DoDIGAppropriations Received (Funds Receipt and Distribution) – pre-audit review by DoDIGUSMC Statement of Budgetary Resources – currently under auditKey Upcoming Milestones/Dates:EventDateTransportation of People (TDY Travel) Assertion9/30/2010E&C Quick Wins (Ships and Submarines, Aircraft, Satellites, ICBMs) AssertionUSMC SBR Audit Opinion11/15/2010Remediate control weaknesses for CivPay and Appropriations Received (FRD)12/31/2010
11 FIAR FY 11-16 Milestones - Audit Ready Assertion Dates Obligation Status - DONSupply Orders (MILSTRIPs) Q3 FY11Contracts Q4 FY11Military Pay Q4 FY12Funds Balance with Treasury (Outlays) - DON Q4 FY12Statement of Budgetary ResourcesDON (USMC already under audit) Q1 FY13Army Q1 FY15Air Force Q4 FY16Mission Critical Asset Existence and CompletenessDON Q2 FY15Army Q3 FY15We Will Seek Independent Validation for Some of These
12 DON FIP Strategy - Management Challenges How We Are RespondingImplementing a Robust Internal Control Environment Across a Large, Geographically Dispersed OrganizationFocusing on mitigating risk and meeting control objectivesDefining key controls across business processesIntegrating Audit Readiness with Change Management effortsIntra/Inter DoD Agency CoordinationContinuing to foster cooperative relationships with business partners (e.g. DFAS, DLA, DCMA)Reaching outside of the FM community (e.g. Acquisition, Logistics)Working to adopt BTA standards and promote common business processes and interoperability of dataBuilding and Sustaining an Audit Readiness InfrastructureLooking to standardize processes and internal controls to reduce complexity, risk, cost of maintenance, and deploy new enterprise systems (e.g. Navy ERP, FPPS)Promoting awareness and understanding of the importance and use internal controls across the enterprise, while establishing accountabilityDeveloping an organized systemic means to periodically evaluate operating effectiveness (OMB A-123 Appendix A - ICOFR)
13 Lessons Learned: Assertion to Audit Key Lessons Learned thus far can be grouped into four areas:Financial Environment“Know Your Environment”Understand the flow of events and transactions from recognition through recording to reportingReconciliation of: FBWT, UTB to ATB, DO-Unpaid to A/P, etc.Readily available source docsStandard internal controls,systems, and processes improvesaudit performanceData ManagementSample retrieval, submission, and tracking, as well as follow-up question management“Transmitting Timely and Accurate Information”DoD/DON information security requirementsPathway to SuccessData requirements are large and complex – requires constant focusAuditor-Auditee CommunicationHuman Resource Management“People Make the Difference”“Simple in Concept… Monumental in Execution”Quality people are needed in the auditee organization as well as in the external service providersConstant education of both auditor and auditeeMust have the “Will to Win” – Audit is unrelentingKnow how to communicate with the auditorAssure clear understanding by all parties of business activitiesWe know our business better than anyone, so be confident
14 What is the Significance of These Dates? 19901996200020072017
15 Summary DoD’s financial management community is performing well DoD’s financial management health and capabilities are a reflection of the business environment and key supporting elements (i.e., people, processes, systems)Enterprise-wide changes in our business will be required to meet stakeholder expectationsBetter integrated/more capable systemsStandardized business processes which are periodically tested and measured against efficiency, effectiveness and compliance criteriaThe Comptroller serves as a catalyst in strengthening the key elements of our business…both inside and outside of the FM “stovepipe.”We need to recapitalize our business infrastructureContinue to build and strengthen the audit support infrastructure today, to support the audit tomorrow.