Fourth Estate Financial Management Update Washington-ASMC National Capital Region PDI March 3, 2015

Panel Composition Mr. Mark Easton (Moderator), Deputy Chief Financial Officer, OUSD(C) DFAS Service Provider Perspectives Mr. David McDermott, Deputy Director for Operations, DFAS Working Capital Fund Perspectives Ms. Gretchen Anderson, Director, Revolving Funds, OUSD(C) TI-97 Appropriations Perspectives Mr. Tom McClutchy, Associate Director, Defense-Wide Programs, OUSD(C) Financial Management Workforce Initiatives Ms. Glenda Scheiner, Director, Human Capital and Resource Management, OUSD(C) Fourth Estate Audit Strategy Ms. Alaleh Jenkins, Director, Financial Improvement and Audit Readiness, OUSD(C) 2

Welcome Mr. Mark Easton Deputy Chief Financial Officer, OUSD(C) 3

Fourth Estate Audit Strategy Ms. Alaleh Jenkins Director, Financial Improvement and Audit Readiness OUSD(C) 4

 DoD has developed a strategy to move to full financial statement audit by FY 2018 in accordance with the NDAA for FY 2010  The audit strategy builds on audit readiness momentum and demonstrates interim progress toward the FY 2018 target using a phased approach –Propose that audits of select reporting entities’ financial statements be accelerated –Other reporting entities will undergo progressively more complex examinations  The phased approach will allow for continual growth and expansion of DoD’s audit infrastructure to support the increasing number of audits  Strategy assigns each of DoD’s reporting entities to one of four categories: –Tier 1: Large Caps (OMB Designated Entity Audits) –Tier 2: Mid Caps (DoD Designated Audits) –Tier 3: Small Caps (DoD Designated Examinations) –Tier 4: Micro Caps (Remaining Defense Agencies, Organizations, and Funds (Not Material for Audit)) The Resulting DoD Consolidated Financial Statement Audit Starting in FY 2018 Will Likely Be the Largest Financial Statement Audit Ever Performed DoD Consolidated Audit Strategy Overview 5

0.9 % Not Material for Audit Tier 4 3.6% DoD Designated Examinations Tier % DoD Designated Audits Tier % OMB Designated Entity Audits Tier 1 Categories as Percentage of Total Budgetary Resources Department of the Army (GF and WCF) Department of the Navy (GF and WCF) (includes Marine Corps GF and WCF) Department of the Air Force (GF and WCF) Military Retirement Fund (MRF) Trust Fund U.S. Army Corps of Engineers (USACE)– Civil Works WHS (Pentagon admin) MDA (missile defense) DSCA (security cooperation) DoDEA (education) DARPA (R&D) Many others Defense Logistics Agency USTRANSCOM (transport) DISA (IT / communication) DHA (healthcare) USSOCOM (special ops) Others already under audit Selected Activities in the Fourth Estate are participating in mock audits Large Caps Small Caps Mid Caps Micro Caps The DoD Agency-Wide Audit Will Involve Presenting Our Complete Portfolio Entities in red are under audit 6

 Tone from the Top – Stress importance – Emphasize deadlines  Strong Audit Infrastructure – Well organized audit support team – Continual and effective communication  Access to Supporting Documentation – Correct, clear, and timely – Auditor must be able to follow (plain English) Critical Success Factors 7

 Be Prepared – Auditor will interview personnel and observe operations – Auditor will test account balances and trace to source – All organizations, locations, processes, and systems may be subject to audit – Assign point personnel for supporting documentation – Expect large sample sizes for testing  Own Your Information – Provide correct audit evidence in a timely manner – Be able to respond to an auditor’s questions  Communicate – Continually communicate with audit liaisons and your organizations – Don’t assume auditors know your business…clear communication is key – Embrace feedback Setting Expectations 8

DFAS Service Provider Perspectives Mr. David McDermott Director for Operations, DFAS 9

DFAS Business In FY 2014, DFAS: –Pay Services o Paid ~6.3 million customers  Processed million pay transactions o Made 5.8 million travel payments o Paid 11.5 million commercial invoices o Disbursed $572 billion –Accounting/Account Management Services o Accounted for 1,270 active DoD appropriations o Maintained million General Ledger accounts o Managed $772 billion in Military Retirement and Health Benefits Funds o Managed $18.3 billion in accounts receivables o Managed Foreign Military Sales cases valued at $424 billion (Reimbursed by foreign governments)  Military Members – 2.2M  Civilians – 1.2M  Retirees/Annuitants – 2.8M  Military Members – 2.2M  Civilians – 1.2M  Retirees/Annuitants – 2.8M 10

The DFAS Role in Audit Readiness – Service Provider DoD Component Transactions DFAS Audit Support Department of Defense Independent Public Accountant Conducts independent review Issues audit opinion As of FY14, DFAS helped its Customers achieve 34 Favorable Audit Opinions COMMUNICATIONCOLLABORATIONEXPECTATIONS Military Pay Processes People System s Civilian Pay Contractor/ Vendor Pay DoD Auditable Financial Statements Army Navy Air Force Marine Corps Defense Agencies 11

Working Capital Fund Perspectives Ms. Gretchen Anderson Director, Revolving Funds, OUSD(C) 12

Cash Management SASC FY 2015 NDAA Report Language - “…prepare a report…on: (1) DOD’s status made on the proposed change to daily cash balances; (2) A specific definition of sufficient cash balances that DOD and each military service will follow; (3) The methodology used to calculate such definition; (4) Recommendations on how to mitigate the need to carry excess cash to avoid Anti-deficiency Act violations; and (5) A mitigation plan to address the projected ARA shortfall, including any initiatives that could result in savings.” Plan – –Workshop o Define sufficient cash and develop methodology o Make recommendations to mitigate need for high cash balances  What can we do?  What can Congress and other stakeholders do? –Propose policy improvements –Closeout –Prepare policy draft and circulate for comment 13

TI-97 Appropriations Perspectives Mr. Tom McClutchy Associate Director, Defense-Wide Programs, OUSD(C) 14

Where We Are Now Current Priorities (Along with and in addition to PPBE) –Audit Readiness for General Fund Budgetary Resources (September 30, 2014) –Audit Readiness for Existence & Completeness (E&C) of Mission Critical Property (June 30, 2016) Examples –Sub allocations –Moving funds by Military Interdepartmental Purchase Request (MIPR) 15 New requirements (or old requirements re-discovered) 15

Financial Management Workforce Initiatives Ms. Glenda Scheiner Director, Human Capital and Resource Management OUSD(C) 16

DoD FM Certification and Audit Readiness Establish a framework to guide DoD FM professional development Applicable to DoD Civilians and Military in the DoD FM Workforce Intent is to make a good FM workforce even better! −Establish a mechanism to encourage key training in: −Audit Readiness −Decision Support/Analysis −Encourage career broadening and leadership −Transition to a more analytic orientation −Ensure financial management workforce has knowledge, skills, and abilities necessary to achieve auditable financial statements Develop a course-based rather than test-based certification to encourage continuous learning Reminder: 2-year CET clock starts the day a member earns their FM Certification 17

Total DoD Financial Management Workforce Total DoD Military Workforce 11,900, 22% Key Civilian Demographics: Education Levels -Less than a Bachelor’s Degree – 45% -Bachelor’s Degree – 38% -Master’s Degree – 17% -Doctorate Degree – 0.12% Career Levels -GS /Equivalent – 21% -GS /Equivalent – 46% -GS 13-15/Equivalent – 33% Age Distribution -29 and Under – 9% – 19% – 26% – 34% – 9% -Over 65 – 3% Retirement Eligibility -Currently Eligible to Retire – 14% -Eligible to Retire Next Year – 4% -Eligible to Retire in Two to Five Years –15% DoD Workforce Total - 53,300 Army (26%) Civ – 8,100 Mil – 5,700 Air Force (22%) Civ – 7,600 Mil – 4,400 DoN (19%) Civ – 8,300 Mil – 1,800 4 th Estate (33%) DFAS – 8,800 Other – 8,600 Total DoD Civilian Workforce 41,400, 78% Mil DoN 3% Mil AF 8% Mil Army 11% Civ 4 th Estate 33% Civ Army 15% Civ Air Force 14% Civ DoN15% Workforce Demographics As of 30 Sep 2014 Total DoD Civilian Workforce 41,400, 78% 18

99% of Active Components Implemented in FY14 2,384 FM members have completed certification Guard/Reserve Implementation −31 March 2015 target completion date −4,999 RC launched out of 6,404 RC total (78%) Course Development −Will provide capability to achieve all FM competency-based requirements via training on-line −OUSD(C) and DoD SMEs have developed 48 web-based courses −21 more new courses are planned for development in FY15 FY 14 Implementation Results DoD FM Certification 19

DoD FM Certification By 4 th Estate as of 25 February 5% 0% 6% 18% 15% 0% 1% 18% 6% Certified Not Certified The 2-year window for achieving FM Certification ends 30 Jun 2016, or two years from date of launch whichever is later 20

On-going Strategic Initiatives Competencies − DoD FM Enterprise-wide Competencies Competency refresh slated for FY16 CFO Council is propagating DoD’s FM competencies across federal government − Round 1: Workforce Competency Assessment - Results Highest response rate in DoD No significant gaps in mission critical occupations 501, 510, and 560 Small gaps in 511 series (Audit Reporting, Decision Support-Audit, Execution, Audit Planning and Management) ̶ Round 2: Workforce Competency Assessments – to begin in April Focus on non-mission critical occupational series May receive system – please participate promptly, feedback anonymous Defense Civilian Emerging Leadership Program ̶ Residential leadership course – 5 modules focused on leadership development ̶ FY15 Cohort includes 28 Participants FM Occupational Series ̶ Released civilian FM career roadmaps for 13 occupational series; available via FM Online ̶ Aligned Civilian and military occupational series/specialties to FM competencies; available on FM myLearn 21

Open Q & As 22

23 PROFESSIONAL DEVELOPMENT ASMC National Capital Region: Professional Development Institute TRAINING EDUCATION 23 Speed Mentoring Polaris Room 16:30