OUSD(AT&L) Acquisition Resources & Analysis (ARA) Property and Equipment Policy Existence, Completeness and All That Jazz… Presented by: Mr. Steve Tkac Deputy Director June, 28,

Agenda  Background  E&C, Why?  Priorities  Current Status  Moving Forward 2

DoD & Audit Challenges  DoD is the only federal agency which has not yet received a “clean audit” opinion.  Extremely challenging and complex operating environment and in the midst of two global conflicts  $688 Billion annual budget is about the same as the Gross Domestic Production for the Netherlands  Geographically dispersed operating environment  Spends approximately $2 to $3 billion on average daily 3 DoD is comprised of: 3 Military Departments 17 Defense Agencies 10 DoD Field Agencies 8 Other Organizations 9 Combatant Commands Based on FY 2011 Financial Statements for US Government, DoD represents 71.7% of reported GPP&E

Property & Equipment Policy Who we are: 4 Office of the Under Secretary of Defense, Acquisition, Technology and Logistics (OUSD, AT&L) Acquisition Resources & Analysis (ARA) Property & Equipment Policy Office (P&E P) Mission: To establish policies and support business process development that enables military services and defense agencies to provide more accurate and reliable information to senior leaders to support management decisions at an enterprise level.

Putting Property in Perspective for DoD 5 DoD Total Asset Value as of FY2011 is approx. $2 Trillion

Putting Property in Perspective for DoD 6 DoD GPP&E, Net value is Approx. $608 Billion

Front Page Headlines 7

Can You Believe it… Stolen Tank 8 San Diego Police and the California Highway Patrol chase a stolen military tank down Interstate 805. The tank was stolen from the National Guard Armory.

More Headlines 9 Army Overwhelmed by massive lots of waiting vehicles

From the Headlines…Audit Readiness is Priority 10

Secretary Panetta Financial Improvement Priorities Highlights of October 13, 2011 Memorandum  “All Hands” effort across Department  Need to accelerate plan and place greater emphasis on overall effort  Achieve audit readiness for Statement of Budgetary Resources by FY2014  Increase emphasis on asset accountability  Execute a full review of Department financial controls over next 2 years & establish goals to measure progress  Mandatory training for audit and other key financial efforts  Meet legal requirements to achieve audit readiness by FY2017  Deputy Secretary of Defense will monitor progress 11 “…unacceptable that the Department of Defense cannot produce financial statements that passes all financial statement audit standard. This will change…. America deserves nothing less”

Background 12 Ensuring accountability over mission critical assets while achieving and sustaining auditability has been a longstanding objective for the Department of Defense (DoD).

Formula for Success Understanding & Evaluating Existing Environment Corrective Actions Plan Process Improvement Efficient / Effective Operating Environment 13 Doing the day to day job right is preparation for “audit readiness”

E&C Audit Readiness Progress 14

Inspector General Reports 15 DescriptionAir Force 6/7/2012 Navy 5/31/2012 Navy 1/19/2012 Scope: Examination of management’s assertion of audit readiness for existence, completeness, and rights of: Aircraft, ICBMs, Satellites, Cruise Missiles, Aerial Target Drones Department of the Navy’s Aircraft Ships and Submarines, Trident Missiles, and Satellites Findings: Internal Control Issues Classified certain aircraft in the APSR as ME that does not meet the DoD definition of Military Equipment AIRRS is not an APSR and does not meet the requirements in DoD Instruction Process memorandums are not in compliance with FIAR guidance. Opinion: Assertion of audit readiness for existence, completeness and rights of its assets: Fairly stated in all material aspects.

Preparing for Audit or Improving Processes? Opportunity to IMPROVE Operational Readiness by: Eliminating Losses Eliminating Excess Acquisitions Increase Asset Utilization and Increase productivity through Standardized Processes 16 Audit Readiness efforts ARE NOT JUST for being Audit Ready!

AT&L Audit Readiness Accomplishments AT&L Memorandums:  “ Standard Equipment Data Elements for GFP Baseline Establishment” Requires Components to include GFP as part of their FIPs  “Implementation of GFP Attachments to Solicitations and Awards” Provides GFP data schema as DoD’s initial phase to report GFP as data  “ Priorities for Improving Financial Information and Processes and Achieving Audit Readiness” FIAR focus areas: Equipment, Inventory, Real Property  “ Commander’s Audit Readiness Checklist” Assisting field level operations to support audit readiness initiatives 17

 OSD memorandum issued on January 7, 2012  Goals –Promote the current clause requirements –Demonstrate the relationship between the clauses, the DoD policy, and the system capabilities (IUID Registry) –Get a starting point for equipment already used by contractors –Increase visibility and awareness of the “mystery” surrounding GFP  Requires –Detailed Plans for implementing to be incorporated into FIPS by 4/6/2012 “Establishing GFP Baseline” 18

“GFP Data Schema & Electronic Formats”  USD(AT&L) Memorandum issued April 11,  Purpose: Provides guidance for implementation for PGI which requires DoD Components to begin identifying GFP information using a specific format.  Description: Introduces electronic formats for 2 GFP attachments used by Components and contractors to provide required data –Established GFP Data schema, Version 1.0, for collection and repository of required data –Developed machine readable, fillable Adobe PDFs for each GFP attachment. 19

“Priorities for Improving Financial Information”  Dated April 23, 2012  Recognizes AT&L’s lead in several FIAR focus areas: –Equipment –Inventory –Real Property  Recognizes AT&L agencies roles as both service provider and financial entity. –Must review their plans to ensure they are on the path to auditability  All (appropriate) SES members within AT&L have added FIAR goals into their performance plans 20

“Commander’s Audit Readiness Checklist”  Dated May 11, 2012  AT&L supported and reiterated the need to utilize the Checklist in support of field level operations to support audit readiness initiatives. »AT&L sent forward the memo from Mr. Kendall outlining the need for and including the checklist to all AT&L support activities. The Checklist:  Provides Commanders with the basic actions their organization should take to determine whether they are audit ready and, if not, identify areas for improvement.  Helps Commanders assess the efficiency of their organization and validate how well each function performs 21

Key Learnings Audit “Deal-breakers” Reconcile property book to financial statements Maintain audit trail from transaction to supporting documentation Review IT General and Application Controls in order to rely upon system data Assess effectiveness of internal controls in order to rely upon controls to reduce testing Engage Logistics Community Department-wide “All Hands” effort Not just a financial community exercise E&C Efforts MDA implemented Central Property Office to facilitate accountability across domains. GFP highlighted need to work collaboratively between Acquisitions, Contracting, Logistics and Property Accountability USMC process improvements to give property book update capabilities to functional user to accurately record assets in a timely manner. In General Focus on “right” things (not everything) Plan for audit logistics (POC, documentation available, sense of urgency) Document Best Practices to eliminate “recreating the wheel” 22

What Now? Real progress is being made, but there is a long way to go!  The Department has asserted to ~71% of its value of Military Equipment but the greatest challenge will be accounting for the “small stuff”  The future environment will require closer coordination between DoD’s financial and functional communities due to: – Audit readiness requirements – Budget cuts – Drawdowns – Equipment resets – System replacements 23

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