Office of the Under Secretary of Defense (Comptroller) Financial Improvement and Audit Readiness Directorate DoD Financial Improvement and Audit Readiness (FIAR) Plan A process for improving financial information in support of the Warfighter Presented By: Mr. Robert McNamara, Acting FIAR Director, OUSD(C) March 9, 2006

Agenda Overview of the FIAR Plan and how it differs Accomplishments How the Plan is: Constructed Integrated Executed Monitored Accomplishments Next steps Why the Plan will succeed

Overview of the FIAR Plan Comprehensive, integrated Plan that identifies, prioritizes and assigns accountability to: Deficiencies, both financial and operational, that affect the Department’s ability to produce quality financial information Corrective activities Revising policies Improving processes and procedures Assessing risks, and improving and testing controls System solutions (changing existing or deploying new systems) Enhancing Human Capital (e.g., certifications, training) Dependencies integrated across Components and business operations Opportunities for Collaboration to expedite change and minimize cost Resource requirements to fund improvements

How the Plan Differs Supported and monitored by DoD senior leaders Deputy Secretary of Defense (DEPSECDEF) made its development and implementation a DoD priority Military Department Secretaries and Defense Agency Directors coordinate and approve the Plan DEPSECDEF and Business Systems Management Committee receive quarterly updates, and USD(Comptroller) provided monthly progress reports FIAR Committee, chaired by DCFO, decides Plan development and implementation steps, and monitors progress Day-to-day management and oversight conducted by a dedicated OUSD(C) office of SMEs and supported by contractors and a powerful web-based tool

How the Plan is Constructed - COMPOSITION The FIAR Plan consists of: 14 FIAR key milestone plans setting critical paths 5 phase process A-123 requirements 13 Component Financial Improvement Plans containing tasks essential to accomplishing FIAR key milestones Business Transformation (ETP) solution key milestones

14 Key Milestone Plans - COMPOSITION Focus Areas Key Milestone Plans Environmental Liabilities - Military Equipment Medicare-Eligible Retiree Health Care Fund - Real Property Other Key Milestone Plans Fund Balance With Treasury (also a Priority) Account Receivable - Accounts Payable Other Liabilities - Other Assets Cash and Other Monetary Assets Inventory and Operating Materials and Supplies Personnel Obligations Other Military Retiree Health Care U.S. Marine Corps

How the Plan is Integrated Enterprise Transition Plan and Initiatives DoD FIAR Plan Roadmap to Financial Improvement and Auditability Component Improvement Plans Transition OIG Assessment and Audit Integration Facilitated by Web-Based FIAR Planning Tool

How the Plan is Executed – PHASED METHODOLOGY Discovery & Correction Validation Assertion Assessment Audit Discovery & Correction: Deficiencies identified, corrective action plans added to FIPs in FIAR Planning Tool, progress tracked, and deficiencies corrected Validation: Management confirms corrective actions completed successfully Assertion: Management asserts to OIG the reliability of financial information Assessment: OIG performs limited review of controls and procedures to determine if ready for full audit Audit: OIG audits the organization’s financial information

How the Plan is Monitored - TRACKING PROGRESS Plan presently consists of over 1,800 key milestones within 14 key milestone plans (complex Plan) Components report monthly progress on current and subsequent quarter’s key milestones Not Started On Schedule Completed Behind Schedule - requires identification of issue and get-well plan Not Completed - requires explanation and get-well plan with revised date Currently tracking progress on 191 key milestones for FY 2006, Quarters 2 and 3 Quarterly accomplishments are provided to DEPSECDEF, DBSMC, USD(C), DCFO, FIAR Committee and OMB

Accomplishments to Date Completed and documented the baseline for DoD military equipment Army, Navy and Air Force completed environmental liability estimates for DERP sites Navy completed the identification of ships and submarines requiring environmental liability estimates Air Force General Fund Balance with Treasury ready for audit DLA completed a worldwide inventory of its fuel sites to improve its real property records Corps of Engineers FY 2006 financial statements ready for audit

Projected Accomplishments Achieve favorable audit results: Air Force General Fund Balance With Treasury Corps of Engineers financial statements Complete Management Assertions: Army and USMC General Fund Balance with Treasury Army General Fund Cash and Other Monetary Assets Navy Environmental Liabilities for nuclear ships and submarines Update Military Equipment baseline and report on June 2006 financial statements Reengineer business and financial real property CIP processes

Next Steps Develop coordinated, single Real Property Transformation Plan for both financial and business improvement and modernization Refine current key milestone plans Identify critical path key milestones, fill gaps and level-set Integrate OMB Circular A-123 Appendix A requirements Expand and automate integration with Business Transformation solutions Expand: Vertical integration (threads) between plans Identification and alignment of dependencies Partnership and engagement of functional/business operation communities

Next Steps - Continued Develop DoD-wide audit strategy Begin independent verification and validation (IV&V) of specific key milestones Expand Plan for opportunities to improve financial and business data needed by decision-makers Improve alignment of Component FIP tasks to ensure successful completion of Plan milestones Determine FY 2008 President’s Budget FIAR Plan resource requirements Prepare and issue the September 2006 version of the Plan

Why the Plan will Succeed Senior leadership is engaged and monitoring progress Functional/operational communities are involved Incremental strategic approach Dedicated office/staff and support resources DoD-wide standard use of state-of-the-art plan management technology Plan assists in budgeting, justifying and acquiring funds for financial improvement activities

For Additional Information FIAR Directorate, OUSD(C), website: http://www.dod.mil/comptroller/FIAR/index.mil DoD Business Transformation Agency website: http://www.defenselink.mil/dbt/ FIAR Planning Tool help email address: FIARSupport@osd.mil FIAR Directorate telephone number: 703-607-0300

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Challenges DoD financial improvement encompasses an unprecedented scope and complexity: Over 3,000 worldwide facilities Over 4,000 IT systems 3 million employees 5.2 million inventory items $1.3 trillion in Assets $1.9 trillion in Liabilities $635 billion in operational costs

FIAR Planning Tool Web-based Profile and password controlled Over 600 users DoD-wide standard use Used by/for: FIAR Plan ETP A-123 Component FIPs Communication

FIAR Planning Tool - Monthly Reporting Web-enabled progress reporting Status for prior month reported by 3rd work day of following month Process documents status, management decisions, and changes to Plan Provides “audit trail”

FIAR Plan Quarterly Progress Report Highlights progress and slippage Provided to DoD senior leaders and OMB

Projected Balance Sheet Accomplishments Military Equipment - Baseline Army 7.5% of assets Navy 11.1% of assets Air Force 7.4% of assets 2007 Liabilities Assets 2005 Environmental Liabilities Army 2.4% of liabilities Navy 0.7% of liabilities Fund Balance With Treasury Army 7.4% of assets Air Force 5.0% of assets

Projected Balance Sheet Accomplishments Military Equipment – FASAB Compliant Army 7.5% of assets Navy 11.1% of assets Air Force 7.4% of assets Real Property Army 1.8% of assets Navy 1.6% of assets Air Force 1.8% of assets Fund Balance With Treasury Navy 6.9% of assets Air Force 5.1% of assets Environmental Liabilities Army 2.4% of liabilities Navy 1% of liabilities Air Force 0.5% of liabilities 2010 2007 Liabilities Assets