1. PwC Through the Looking Glass Real Audit Readiness Under the Auditor's Lens American Society of Military Comptrollers Washington Chapter June 2007 Luncheon PwC

2. Discovery & Correction Phase DoD Components Inspector General Audit Phase OR Validation Phase Sustainable Processes Assertion Phase Communication Coordination DCFO Evaluation of Assertion & Executive Steering Committee Endorsement Recommendations for Improvement Assessment Phase DoD Audit Readiness and Audit Process

3. PwC Road to Readiness Key Milestones 1988 USACE begins CEFMS development 1993-1998 CEFMS deployed 1993-2001 AAA performs initial CFO audits 2002-2005 DoD OIG audits with heavy focus on PP&E June 2004 DoD OIG & USACE Memorandum of Agreement on PP&E April 2005 Chief of Engineers issues “Get Well Plan” Oct 2005 All Districts assert audit readiness Nov 2005 AAA completes validation review Dec 2005 USACE asserts readiness to ESC March 2006 ESC affirms USACE assertion April 2006 Contract awarded to PwC May 2006 Audit entrance conference held SOURCE: DRM, US Army Corps of Engineers

4. PwC Big Picture Lessons Learned  Start very early to avoid an impractical timeline  Fully mine and bank the value of prior audits  Enhance readiness expectations and processes, using the auditor’s lens  Enable effective advance scoping by auditors  Size and sequence audit scope for practicality and optimum results  Precisely define audit scope, roles and expectations from the start  Stay poised for continuous learning, teamwork, flexibility and agility

5. PwC  Control Environment  IT Controls  Manual Controls Little or No Controls Reliability Significant Controls Reliability Management’s Controls Through the Auditor’s Lens Available direct savings from reliable controls Control Tests Substantive Tests of Detail Substantive Analytical Tests Greater effort; higher cost Less effort; lower cost  Control Environment  IT Controls  Manual Controls

6. PwC Common PerspectivesAuditor’s Lens It’s the “what” of control activities that is most important “Who” performs the control activities and enterprise-wide consistency are also key Defense Departmental Reporting System (DDRS) reporting template routinely followed Non-routine matters may require disclosure considerations beyond DDRS template Local managers perform validations via a few spot checks at a few locations Rigorous enterprise-wide validations performed by independent parties using representative samples Focus is on routine transaction cycles Non-routine cycles are also key Only financial transaction processing systems posting to the General Ledger are in scope Any systems that significantly impact key assertions and control activities are in scope Common Perspectives vs. The Auditor’s Lens

7. PwC System A: Traditional transaction processing “feeder system” System B: Ancillary system affecting key financial reporting objectives Impact: IT general & application controls for both systems may need to be tested to support audit conclusions and optimum audit approach. IT Systems Significant to Financial Reporting

8. PwC Questions? PwC