Managing DFAS Operations Like a Business Rick Davis Deputy Director for Compliance, Standards & Compliance May 20, 2009

Integrity - Innovation - Service 2 DFAS – What We Do (2008) Sales & Service - $1.5B Scope of Business Military Pay $ 247.5M Civilian Pay $ 73.3M Retiree Pay $ 57.6M Travel Pay $ 50.3M Commercial Pay $ 162.2M Accounting Services $ 466.1M Support to Others $ 124.7M Others $ 320.2M Processed 169 million pay transactions (6.5 million people) Made 7.5 million travel payments Paid 14.4 million commercial invoices Maintained 55.7 million general ledger accounts Managed military retirement and health benefits funds ($394 billion) Made $591 billion in disbursements to pay recipients Made $26.5 billion in foreign military sales (reimbursed by foreign governments) Account for 927 active DoD appropriations People 12,572 employees * (Civilian and Military) Located in: 13 sites 9 states 3 countries

Integrity - Innovation - Service 3 DFAS Operations Org Chart

Integrity - Innovation - Service 4 DFAS Standards and Compliance Org Chart Standards and Compliance (Dave McDermott) Standards and Compliance (Dave McDermott) Business Management Deputy Director for Compliance (Rick Davis) Deputy Director for Compliance (Rick Davis) Deputy Director for Standards (Greg Schmalfeldt) Deputy Director for Standards (Greg Schmalfeldt) Post Pay Review & Analysis Network Compliance Corporate Reporting Finance Mission Area Accounting Mission Area Financial Improvement & Audit Readiness Metrics & Initiatives Program Manager, Accounting HPO Program Manager, Accounting HPO

Integrity - Innovation - Service 5 Strategy Execution

Integrity - Innovation - Service 6 DFAS STRATEGIC PLAN ( ) Lead transformation of finance and accounting functions throughout DoD Perform the DFAS mission at best value for DoD Attract, develop, and retain a highly capable workforce with relevant skills and competencies Attain operational excellence in finance and accounting services Use DFAS resources efficiently and effectively to achieve expected results Achieve expected financial results from transformation initiatives Optimize processes to meet or exceed industry and government standards Increase productivity and deliver products and services on time Identify and mitigate risks to improve processes and internal controls Raise the level of relevant skills and competencies to meet anticipated needs Attract and retain employees with needed skills and competencies Learning & Growth Perspective Internal Perspective Financial Perspective Establish business requirements for DoD transformation initiatives related to finance and accounting activities Execute and/or support deployment of DoD transformation initiatives Lead transformation of finance and accounting functions throughout DoD Perform the DFAS mission at best value for DoD Attract, develop, and retain a highly capable workforce with relevant skills and competencies Attain operational excellence in finance and accounting services Raise the level of relevant skills and competencies to meet anticipated needs Attract and retain employees with needed skills and competencies Learning & Growth Perspective Internal Perspective MISSION Direct, approve and perform finance and accounting activities for DoD VISION Transforming with the Warfighter to remain the trusted financial partner for DoD OBJECTIVESGOALS Support DoD in prevailing in the Overseas Contingency Operations Support Customers in the Overseas Contingency Operations Customer Perspective

Integrity - Innovation - Service 7 HOW DO WE EXECUTE STRATEGY? Strategy and BSC Process ensures clear linkage between:  Each Goal and its Objectives  Each Objective and its Measures  Each Measure and the Initiatives that will close the gap to the Targets STRATEGYACTION GoalObjectivesMeasuresTargetsInitiatives Each Objective has at least one measure Each Target has an associated initiative Perform the DFAS Mission at Best Value for DoD Achieve Expected Financial Results from Transformation Initiatives Initiative Impact on Productivity: Work Counts / Productive Hr Charged to Travel Defense Travel System Implementation ≤ FY08 Rate ≤ FY09 Rate ≤ FY10 Rate Initiative Impact on Savings: % Actual Execution of Budgeted Accounting Operations Work Years <100% <FY09 Rate <FY10 Rate Accounting HPO Implementation FINANCIAL PERSPECTIVE

Integrity - Innovation - Service 8 Operationalizing the DFAS Strategy Strategic Objectives Corporate Initiatives FY 09 Tactical ActivitiesQuarter 1 Support DoD in prevailing in the Overseas Contingency Operations Overseas Contingency Operations Costs Pay service members, civilians and vendors supporting Overseas Contingency Operations  Provide finance and accounting expeditionary support in theater  Manage Wounded Warrior pay accounts Supply accounting data related to Overseas Contingency Operations Costs G G G G

Integrity - Innovation - Service 9 Operationalizing the DFAS Strategy Strategic Objectives Corporate Initiatives FY 09 Tactical ActivitiesQuarter 1 Lead transformation of finance and accounting functions throughout DoD Enterprise Resource Planning Support implementation of : General Fund Enterprise Business System (GFEBS) –Army High Performance Organization (HPO) Global Combat Support System (GCSS) – Army Business Activity Monitoring (BAM) Logistics Modernization Program (LMP) – Army Defense Agencies Initiative (DAI) – 26 Defense Agencies Defense Integrated Military Human Resources System – Army, Air Force Apply BAM to Vendor Pay Systems (MOCAS, CAPS, OnePay) Implement HPO initiatives across Accounts Payable; Accounts Receivable; and Accounts Maintenance and Control Y G G G G G Y

Integrity - Innovation - Service 10 Operationalizing the DFAS Strategy Strategic Objectives Corporate Initiatives FY 09 Tactical ActivitiesQuarter 1 Perform the DFAS mission at best value for DOD BRAC Link work years/counts with budget, performance, and manpower Meaningful productivity measurements Monitor and achieve Lean6 savings Lean6 Conduct business case analysis of Foreign Military Sales Most Efficient Organization Implement Deputy Director of Operations’ Metric and Performance Indicator Tools Complete transition of Air Force Military Pay workload Manage budgetary and manpower resources to achieve missions on time and within approved resource restraints Y G G YY G

Integrity - Innovation - Service 11 Performance Management

Integrity - Innovation - Service 12 Key Accomplishments Debt & ClaimsMilitary Pay Civilian PayTravel Pay Inventory Reduction Decrease in TAT New Accounts On Board Performance Sustained

Integrity - Innovation - Service 13 Key Challenges Summer Surge Improvement Plan Flexible Workforce Outside Assistance Improved Workflow Civilian PayTravel Pay Unacceptable ASA Approaching Summer Surge

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Integrity - Innovation - Service 17 TI Agency Level Accounting

Integrity - Innovation - Service 18 Field Level Accounting

Integrity - Innovation - Service 19 Process Improvements and Controls

Integrity - Innovation - Service 20 FY 2009 ERMP Objectives Execute Enterprise Risk Management Program (ERMP) for critical customer programs Validate and document key processes/controls/risks Test risks and controls by core area (travel pay, civ pay, etc.) Standardize key processes/controls/risks Develop Internal Control Questionnaires (ICQ) by core area Evaluate internal controls across mission using the ICQ Establish Foundation for Integrating FMFIA and Appendix A programs with ERMP

Integrity - Innovation - Service 21 Statement of Assurance Senior Level Manager review IC matrix evaluation results appoint AU managers at an agency specified level identify & review risks FMFIA Coordinator request self evaluation using the IC questionnaire report to senior manager report to FMFIA recognize trends and report AU/Process Manager provide input to the ICQ utilize the standard ICQ perform self evaluation identify & review risks Corrective Action Plan Technician/Analyst identify risks provide input to the ICQ FMFIA Office consolidate ICQs submit SOA Sub-Core Area Lead create Sub-CA IC questionnaires review self evaluations identify & review risks Core Area Manager create Sub-CA IC questionnaires (ICQ) ensure standard IC aligned to business objectives for CA assign Sub-CA Leads review self evaluations identify & review risks ERMP Fortifies Internal Controls Up/Down and Across the Agency Risks are managed enterprise wide with an enhanced Mission Focus Organizational Centric Mission Centric

Integrity - Innovation - Service 22 3 QTR 09 4 QTR 09 1 QTR 10 Departmental Operations Accounts Receivable Travel Pay Retired and Annuitant Pay Military Pay Civilian Pay Accounts Payable Trust Funds Disbursing Transportation Pay Security Assistance Accounting Planned CA Schedule w/Prioritization Criteria Most Critical Sub-Core Areas Additional Prioritized Core Areas (e.g. Civ Pay, Debt & Claims, AM&C) 2 QTR 10 CRITERIA: Top 10 Risks DIMHRS & ERMP Focus Area FMFIA Deficiency Mitigations FIAR Support (A/P) HPO Initiative CRITERIA: FIAR support End to End Segment Strategy FMFIA Deficiency Mitigation High IPIA Percentages HPO initiative CRITERIA: DoD AFS Strategy Top 10 risks Standard Disbursing Initiative FMFIA support

Integrity - Innovation - Service 23 Risk Mitigation Plan/Risk Rating: Examples of Critical Customer Programs Fund Balance With Treasury (FBWT) - Cash FBWT understated by the amount of cash disbursed but not recorded/Cash overstated Agents make cash payments and provide documentation supporting transactions in- theater Require agents clear within 30 day window; specific documents for cash payments; reconciliation payments and documents Risk Condition: Process: Controls: Reduce cash payments; transfer vendor operations to CONUS via EFT; improve visibility of agent cash in financial reports

Integrity - Innovation - Service 24 Lean6 Process Improvements: Accounts Receivable Project TitleStatusPotential Savings Estimated Completion Comments Out of Service Debt and Claims Management Credit Card Process Completed$379KFebruary 2009 Initial phase complete, will next expand current credit card initiative with DCMO from phone payments to online payments. Out of Service Debt Customer Service Inquiry Process Completed$57KApril 2009 Changed to paper process for inquiries to fully automated process. Reduced turnaround time on inquiries from 20 days to 3 days or less. Customers receive immediate confirmation of received inquiry. Reduction of time to prepare management reports in Debt and Claims Case Management On-Track$1MJuly 2009 Reduce the number of management reports required to two all inclusive reports, in addition to changing the employee production reports from a manual to electronic process.

Integrity - Innovation - Service 25 ERMP Customer Outcomes Integrate and support other DFAS initiatives Verify internal controls are properly tested Improve Internal Controls and Compliance Across Operations Reduce Risk and Ensure Effective Risk Mitigation Standardize processes, Controls, and Structures (HPOs) Increase Program Reliability and Timely Delivery of Information Ensure Reporting Audibility and Supportability Internal control programs absorbed by ERMP and integrated to eliminate redundant efforts and costs DFAS asserts processes are compliant and auditable

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