1. Achieving Balance Between Clean Audit and Transformation Imperatives
“The Marine Corps is a combat force-not a business. To be successful, however, we need to support Warfighter excellence with well managed business processes that are both effective and efficient”
M.W. Hagee rdCommandant, United States Marine Corps
6 March 2008

2. Agenda Reasons for Achieving Balance
Clean Audit and Financial Improvement Similarities
USMC’s Historical Challenges
The Case for Transformation
Successful Financial Improvement
Application of the “Auditor Lens”
Financial Improvement Efforts Translate to Audit Readiness
Examples
Balancing the Here and Now

3. Why Am I Achieving a Balance
OUSD(C) Memorandum of May 2003
Improve Business Processes
DoD Enterprise Architecture
Systems Transition Plan
Standard Data
Improve Management Information
OUSD(C) Memorandum of 8 Aug 2003
Mid–Range Financial Improvement Plan
Identification of measurable steps to ensure material line items are auditable
Address all identified major DoD deficiencies
Dates when improved areas will be ready for external assessments and audits
Favorable Audit Opinion by FY 2007

4. Clean Audit and Financial Improvement Similarities
Transformation Imperative
Clean Audit
Objective: Timely, relative, accurate financial information to Commanders to aid decision making
Objective: A fair presentation of an entity’s financial position.
Outcomes:
Sound processes to support Warfighters
Savings
Increased confidence in financial decisions
Taxpayer and Congressional trust
Approach:
Business Process Improvements
Application of “Auditor Lens” across business processes
Transition from one system to another system may improve business processes but leave you un-auditable due to data conversions.
SFIS compliance is a financial improvement but successful implementation does not make you auditable.
Implementation of interfaces is a financial improvement that reduces costs, reduces errors, but does not make you auditable, you may not have sufficient internal controls, valuations may be recorded incorrectly, supporting documentation may be insufficient.
You may invest in heroic efforts and obtain documentation, put in place processes that do not rely upon systems, and construct financial statements manually, all of which could very well be auditable, however; the financial improvements would be non-existence, you would have a costly, labor intensive manual system that is auditable but not cost effective.
But …..
Audit can be achieved without improved business processes as Financial Improvements can be made without being auditable.

5. USMC’s Historical Challenges
Lack of accurate, timely, and relevant financial information.
Inability to quickly identify ineffective program/project execution.
Lack of interfaces/or non-standard data structures across financial feeder systems.
Manual processes increase DFAS support costs and are key contributor to interest penalty costs.
Negatively impacts leaderships ability to redirect resources to meet emergent requirements while reducing execution risks of established programs.
Delays funds redistribution to fund warfighter requirements.
Inhibits the ability to provide accurate and relevant information to leadership.
Reduces funds available for warfighting requirements.
Problems
Lost Opportunities

6. The Case for Transformation
Lost Opportunities
Prevent Reverted Balances
$123 million
(FY 2002 – 2004 O&M Costs)
Fund Peacetime Depot Maintenance for 5th Echelon Repair for one year
Avoid Congressional Reductions due to past Reverted Balance
$15.7 million
(Appropriation Act FY2005)
Support Operating Budget of First Marine Division
Reduce Supporting Establishment cost by 1% by improved understanding of cost
Our current, outdated processes and procedures are causing us lost funding opportunities.
For instance:
- After each fiscal year, reverted balances (de-obligated funds we can no longer use for other efforts) over the past three years, have totaled the amount of resources we would spend in one year to fund peace time Depot Maintenance.
- Not only do we miss opportunities due to reverted balance, Congress “penalizes” us with further funding reductions in the appropriations act based on the reversions.
- Approximately 900 Marines (one Battalion) can be funded for every one percent in cost efficiencies that can be found in the supporting establishment.
Bottom line: The Marine Corps could have increased our support for our Marines and our Warfighting Mission with better financial management tools and practices.
$23 million
(Appropriation Act FY2005)
Buys 2+ Rifle Companies
(Approx. 420 Marines)
Reduce DFAS Bill
6$ Million
(7% of $84 million –
Projected FY 2005 DFAS Bill)
Buys 2+ Rifle Platoons
(Approx. 110 Marines) 3

7. Accurate, Timely, Relevant Financial Information
Successful Financial Improvement Accomplished thru Strategic Changes of Business Processes
Looking to the Future
Organization &
Infrastructure
Policies & Procedures
Management
Control
People
Information
Systems
Data Integrity
Accurate, Timely, Relevant Financial Information
5 Key Strategic Areas
Governance
Sustainability
Financial Improvement is about improving the way you do business in future
Financial Improvements must be sustainable
Financial Improvements should be cost effective
Financial Improvements should be efficient
Financial Improvements should be auditable

8. Accurate, Timely, Relevant Financial Information
Clean Audit Accomplished thru the Application of the “Auditor Lens” over all Business Processes
Looking at the Past Business
Organization &
Infrastructure
Policies & Procedures
Management
Control
People
Information
Systems
Data Integrity
Accurate, Timely, Relevant Financial Information
5 Key Strategic Areas
Governance
Sustainability
Internal Controls
Source Documentation
Reconciliations
Transactional Validity and Integrity
Completeness
Rights and Obligations
Valuation or Allocation
Existence or Occurrence
Presentation and disclosure

9. Financial Transformation Efforts Translate to Audit Readiness
Financial Improvement Value
Transformation Efforts
Audit Readiness Value
Defense Property and Accountability System (DPAS) and Standard Accounting Budgeting and Reporting System (SABRS) interface for the reporting of personal property.
Implementation of abnormal condition tracking within the financial environment.
Transaction analysis of SABRS.

10. Financial Transformation Efforts Translate to Audit Readiness
Financial Improvement Value
Transformation Efforts
Audit Readiness Value
Transaction integrity between the accounting system and the mixed personal property system.
Asset visibility.
Manual journal vouchers eliminated.
Defense Property and Accountability System (DPAS) and Standard Accounting Budgeting and Reporting System (SABRS) interface for the reporting of personal property.
Root cause/trend analysis
Process improvement benchmarking.
Implementation of abnormal condition tracking within the financial environment.
Assurance that the accounting system is in accordance with the Treasury Financial Manual.
Assurance that linkages exist between the general ledger and transactions.
Transaction analysis of SABRS

11. Financial Transformation Efforts Translate to Audit Readiness
Financial Improvement Value
Transformation Efforts
Audit Readiness Value
Transaction integrity between the core accounting system and the mixed personal property system.
Asset visibility.
Manual journal vouchers eliminated.
Defense Property and Accountability System (DPAS) and Standard Accounting Budgeting and Reporting System (SABRS) interface for the reporting of personal property.
Provides an integrated process to record and account for personal property
Enhances internal controls over financial reporting
Root cause/trend analysis
Process improvement benchmarking.
Implementation of abnormal condition tracking within the financial environment.
Documents the existence of “Environmental Controls” over transaction records, documents and financial activities.
Assurance that the accounting system is in accordance with the Treasury Financial Manual.
Assurance that linkages exist between the general ledger and transactions.
Transaction analysis of SABRS
Documents transaction level assessment and compliance with Treasury, OMB and DoD financial management regulations and requirements
Financial Improvements resulted in less reverted 1 year after FY close. Example GWOT obligations 2003 – 2005 O&M
Obligations ($M) Obligations ($M)
FY End of FY End of Next FY Reverted ($M) % Rev
$ 2, $ 1, $ %
$ 1, $ 1, $ %
$ 2, $ 2, $ %

12. Examples of Where We Are Today
Reverted Balances - GWOT
% Rev
Reverted ($M)
End of Next FY
End of FY FY
Obligations ($M)
1.1 %
$ 28
$ 2,571
$ 2,599
2005
2.6 %
$ 40
$ 1,518
$ 1,558
2004
4.4 %
$ 91
$ 1,964
$ 2,055
2003
$ 2, $ 2, $ %
Interest Penalties
CONDITION FY04 FY07 %Chg Interest Penalty Cost Per $M $ 818 $ % Interest Paid $ 1,400K $ 366K 74% Discounts Taken $ 0 $ 390K
DFAS Bill
Reduction of $ 6M in FY 07

13. Balancing the Here and Now Against the Future
How do we do this?
Redskins fans know the answer…

14. Balancing the Here and Now Against the Future
“The future is now.” G. Allen

15. “The Marine Corps is a combat force-not a business.
In Conclusion…
“The Marine Corps is a combat force-not a business.
To be successful, however, we need to support Warfighter excellence with well managed business processes that are both effective and efficient”
M.W. Hagee rdCommandant, United States Marine Corps