1. Define Audit Readiness
U.S. ARMY SOLDIER SUPPORT INSTITUTE
NONCOMMISSIONED OFFICER ACADEMY 1

2. Agenda Guidance for Audit Audit Readiness
Statement of Budgetary Resources
Supply (Class IX)
Existence and Completeness
Getting Audit Ready
Garrison IR Role
Joint Review Process

3. SECARMY Priority: Army Audit Readiness
Congressional Mandate:
CFO Act – 1990
National Defense Authorization Acts – FY09, 10, 11..
House Armed Services Committee Hearing on Defense Budget Reductions, 27 January 2011
“…is DOD above the law? What…do we have to do to get you to comply with the law? And how can we even begin to talk about savings and efficiencies when we cannot verify a single dollar of where our defense budget is going?”
We need to make our dollars count.
We need to account for our dollars!

4. DoD GUIDANCE
DoD’s objective is to achieve “Statement of Budgetary Resources” audit readiness by September 30, 2014 & “full financial statement” audit readiness by September 30, (CFO Act of 2010 & OMB Circular A-123 (Appendix A)).
Financial statement audit readiness includes verifying “the existence and completeness of mission critical assets …” (USD(Comptroller Memo of Aug 11, 2009)
“For the purposes of the actions requested in this memorandum, existence and completeness are defined as follows:
Existence - All accountable property (military and general equipment, real property, inventory, and operating materials and supplies) in DoD systems of record exists and their records match actual physical assets.
Completeness - All accountable property is identified and accurately recorded in a DoD system of record.
Under this priority, Components are tasked with either demonstrating that their assets are already being accounted for properly in Component Accountable Property Systems of Record (APSRs) or identifying process, control or system deficiencies impeding success and developing plans to remediate these impediments. “
(USD(AT&L) Memo of Nov 2, 2009)

5. Army Financial Statements
Consolidated
Balance Sheet
Combined Statement of
Budgetary Resources
Consolidated Statement of
Changes in Net Position
Consolidated
Statement of Net Cost
Balance Sheet: “The Balance Sheet presents, as of a specific time, amounts of economic resources owned or managed by a reporting entity (assets), amounts owed by the entity (liabilities), and amounts that comprise the difference between assets and liabilities (net position).”
Statement of Budgetary Resources: “The SBR and related disclosures provide information about how budgetary resources were made available as well as their status at the end of the period. It is the only financial statement predominately derived from an entity’s budgetary general ledger in accordance with budgetary accounting rules.”
Statement of Changes in Net Position: “The SCNP reports the change in net position during the reporting period.”
Statement of Net Cost: “The SNC is designed to show the components of the net cost of the reporting entity’s operations for the period. The net cost of operations is the gross cost incurred by the reporting entity less any exchange revenue earned from its activities.”

6. Effectively managing resources gets us audit ready.
Get Audit Ready
Effectively managing resources gets us audit ready.
People
Audit readiness affects everybody and everyone must own audit readiness. Army leaders now have audit performance metrics.
Processes
We must standardize processes and demonstrate effective controls.
Technology
Systems affected include:
General Fund Enterprise Business System (GFEBS).
Global Combat Support System–Army (GCSS-Army).
Logistics Modernization Program (LMP).
Integrated Personnel and Pay System–Army (IPPS-A).
The Accountability and Audit Readiness Directorate oversees the Financial Improvement Plan (FIP) to make Army’s business environment consistently auditable.
We support commands and units to help them become auditable.

7. Getting Audit Ready in Six Distinct Phases
Audit Readiness Phases
Phases of an Audit
Discovery
Corrective Action
Evaluation
Assertion
Validation
Audit
Once the Army is audit ready, the audit cycle phases occur annually. #
*FIAR Guidance Phase
Description 1
Discovery
Define and prioritize processes, assess risks, test controls, identify weaknesses. 2
Corrective Action
Develop and execute corrective actions in the FIP. 3
Evaluation
Evaluate corrective action implementation effectiveness through testing. 4
Assertion
Compile proof of audit readiness for OUSD(C) and DoD OIG review. 5
Validation
OUSD(C) and DoD OIG review assertion package. 6
Audit
Independent public accounting firm performs audit supported by reporting entity.
The Office of the Under Secretary of Defense (Comptroller) (OUSD(C)), Department of Defense Office of Inspector General (DoD OIG)
* FIAR (Financial Improvement and Audit Readiness)

8. Army Audit Readiness Timeline
IMCOM HQ Relocation IPR for G3
Army Audit Readiness Timeline
30 Sep 2017
Full Financial Audit
30 Sep 2014
Assert Army RP
Nov 2014
SBR IPA Audit
Mar 2014
All RP Corrective Actions Complete
June 2014
Assert Army SBR
Dec 2013
Assert Army Mission Critical Assets E&C
Summer 2013
Corrective Actions Complete – E&C
Mission Critical Assets
Summer 2013
SBR IPA Exam (All Garrisons & Regions)
Mar 2013
Corrective Actions Complete - SBR (All Garrisons and Regions)
31 Dec 2012
Assert Real Property E&C Quick Wins (23 Garrisons)
15 Oct 2012
Corrective Actions Complete – RP E&C Quick Wins (23 Garrisons)
Jul 2012
Testing -Real Property E&C Quick Wins (23 Garrisons)
Jul 2012
Assert OM&S Quick Wins
Critical Garrison/Region Milestones – Corrective Actions Ready for Final validation by IR

9. Garrison IR Role Audit Readiness POC for Army on the Installation
IR has Primarily testing role: August 2012
Responsible for monthly testing of key controls for audit readiness
Reports on audit readiness go to HQ/ASA FM&C
Annual IR Plan priority must support audit readiness
ASA FM&C/IBM Teams train, limited tests in 2013
Major Components in Audit Readiness
Statement of Budgetary Resources ($$)
Real Property
Equipment
Operational Materials & Supplies

10. Unit Audit Requirements
Statement of Budgetary Resources reviews contracts, TDYs, GPC, Supply requisitioning
Units provide source documentation for each sample validated by PBOs and S4s; documentation is uploaded to AADR by G8 (SBR) and reviewed by IR for accuracy and completeness.
Required worksheet with documentation for each sample will demonstrate property/transaction was requested with proper controls, received, issued, posted on accountable record or receipted for properly in the system, and that the property/transaction exists on records.

11. Unit Audit Requirements Cont.
Examples of documentation required for Supply Requisitioning samples includes NSF File, Supply Receipt Verification MRF/NSF Funds Availability, Signed Commander's Exception Report, DA Form 1687, SARSS Reconciliations and SOPs.
Examples of documentation required for property samples includes System Access controls showing who is authorized access & roles, Physical Inventory demonstrated with signed/dated Commander’s Hand Receipt, DA Form 1687 and PBO appointment letter, DD Form A, Issue Release/Receipt Document, DA Form 2765, Request for Issue or Turn-In, or Turn-In, DD Form 250, Material Inspection and Receiving Report, DD Form 1149, Requisition and Invoice/Shipping Document, DD Form 1150, Request for Issue/Transfers/Turn-In, DA Form 3161 for transfers, proof that equipment is posted within 72 hours of receipt and acceptance; DA Form 3161, Request for Issue; pictures of equipment data plate.

12. Available Resources Local Internal Review Office ALMS
Army Audit Readiness
Army Financial Improvement Plan (FIP)
Internal Controls
Testing
Corrective Action
Army Audit Data Repository (AADR)
Internal Review Portal Page
Handbooks
Attribute Sheets
AKO
SBR Internal Controls Training
Civilian Payroll
Contractual Services/Acquisition of Assets
General
Reimbursable Inbound

13. Take Away Points Army Audit Readiness – Commander’s Priority
Audit Compliance by 1 October 2014
Plan for success
IR is garrison’s lead for testing/ status/results
Commander's responsibilities and how IR can help them
“Leaders at all levels are responsible for instilling proper levels of discipline into all business processes within their Command.” General Raymond T. Odierno, CSA

14. Joint Review Process
Reference: DoDFMR Volume 3, Chapter 8, section DFAS-IN Regulation 37-1, Chapter 27, section 2708.
SOP – Joint Review Procedures MSE G8
Budget Analysts/S8’s in conjunction with the Managerial Accounting Office will perform quarterly Joint Reviews.
Joint Reviews shall be conducted a minimum of three times per year. Phase I ends January 31, Phase II ends May 31, and Phase III ends September 30.
281000S May 14 G8 v.2

15. Joint Review Process - Cont
Review the Standard Operating Procedures provided for additional instructions in performing and certifying of the quarterly reviews.
Reviews will be conducted in conjunction with the Managerial Accounting Office in the G8 Conference room as scheduled.
Joint Reviews are necessary to ensure financial transactions are correctly recorded and documented. The objective is to ensure unliquidated obligations are valid and will require a future payment. All transactions must be correctly classified, recorded and supported by required documentation.
281000S May 14 G8 v.2

16. Prior Year
Reference: Defense Financial Management Regulation (DoDFMR), Volume 3, Chapter 8; DFAS-IN Regulation 37-1, Chapter 8.
Budget Analysts/S8’s are responsible for maintaining and working prior year records until closure.
Prior year records are records for Fiscal Years that have closed but are still open due to contractual obligations, unliquidated obligations, etc.
Prior year records can remain open as long as five years.
Prior year records will be reviewed quarterly during the Joint Review Process.
Prior year funding is managed and approved by the G8 Accounting Section.
281000S May 14 G8 v.2

17. “What you permit you approve.”
Set Tone at the Top…
“What you permit you approve.”
Your Internal Review Office can help you set your tone if you allow them. IR can help you create a culture of doing the right thing.
When Commanders demonstrate a strong commitment to efficiency, effectiveness, and economy; zero- tolerance for fraud and collusion; and consistently pursue organization-wide buy-in for ethical behavior, they will build a team that is well positioned to stand strong against those who would endanger the organizational good.
IR can help by….
Promoting strong and effective internal controls.
Providing ethics and fraud training for staff.
Implementing a confidential tips hotline.
Creating a culture of doing the right thing.

18. Questions
Any questions?

19. Audit Readiness Guidance
Government Accountability Office (GAO)
Office of the Under Secretary of Defense (Comptroller),
Department of Defense
Federal Accounting Standards Advisory Board (FASAB)
Generally Accepted Government Auditing Standards (GAGAS) (Yellow Book)
FASAB Handbook
OUSD(C) Financial Improvement and Audit Readiness (FIAR) Guidance
Government Accountability Office/ President’s Council on Integrity and Efficiency Financial Audit Manual (GAO/PCIE FAM)
GAO, DoD and the Federal Accounting Standards Advisory Board (FASAB) have all issued guidance. You can find links to these guidance on our AKO Audit Readiness site. We are not going to cover this in detail, but you have it here as reference.
FYI if anyone asks:
- GAO FAM-Provides guidance for financial statement audits
- FIAR Guidance-OUSD(C ) guidance for financial improvement and audit readiness including strategies, priorities, and methodology
- DoD FMR R-DoD Financial Management Regulation – DoD Financial Management policies and procedures covering Budget, Accounting, Reporting, Disbursing, Financial Statements, Pay, Travel, etc.
- FASAB Handbook-Includes Statements of Federal Financial Accounting Concepts and Standards (SFFAC, SFFAS)
- GAGAS (Generally Accepted Government Auditing Standards) - Standards for audits of government organizations
DoD Financial Management Regulation (DoD FMR R)