1. A Tale of Two Audits Jim Patton March 30, 2017
Source: OSD (C) CFO FIAR Plan Status Report – November 2016

2. The Worst of Times
1990: Chief Financial Officer’s Act passed by Congress – all cabinet level federal agencies have been determined to be auditable except DoD
2012: Sen. Coburn urges passage of the Audit the Pentagon Act – ““When the Pentagon can’t tell Congress, or itself, how it is spending money good programs face cuts along with wasteful programs,…”
2013: “DOD has been unable to get audits of the financial statements since the first year agency were required to prepare audited finance statements was for the fiscal year 1996,” said Gary Engel, Director in the Financial Management and Assurance Team at GAO. “They’ve been getting a disclaimer.”
2016: DOD financial management has been on GAO’s High-Risk List since 1995 because of long-standing deficiencies with its financial management systems, reporting practices, and management of its finances…
Source: Various

3. Revelations - Tone From the Top
2005: OSD (C) Issues the Financial Improvement and Audit Readiness (FIAR) Plan
2009 OSD (C) sets FIAR Plan priorities focused on improving processes, controls, and systems supporting information most often used to manage the Department.
2011: Secretary of Defense Panetta directed DoD to accelerate key FIAR Plan elements
2012: OSD(C) Financial Improvement and Audit Readiness Directorate issues the Commander’s Audit Readiness Checklist
2013: Secretary of Defense Hagel reiterates the audit readiness “Tone From the Top” with his “DoD Financial Accountability Message
Source: OSD (C) CFO FIAR Plan Status Report – November 2016

4. An Opinion (or Two or Three or…) - Army
General Fund SBA Audit Outcomes
Internal Control Gaps to verify transactions entered into systems.
Incomplete balances due to ineffective cut-off and suspense transactions.
Evidential support that was not readily available could not be linked to the transaction tested and not appropriately reviewed.
Lack of policies and procedures to assess service providers that host/manage financial systems that support amounts on the Schedule.
Lack of accrual estimation methodologies to verify Schedule balances are complete
Ineffective process to support documentation and meeting requests.
Inadequate process for monitoring of separated and transferred individuals
Inadequate super user monitoring and management.
Excessive privileges granted or managed within or amongst the systems.
Inadequate segregation of duties management.
Periodic review of users’ access privileges not conducted/not conducted consistently.
Audit logging procedures surrounding access and/or activity are not formalized or are not performed.
Configuration change management processes and standards need improvement.
Inadequate patch management processes.
Source: OSD (C) CFO FIAR Plan Status Report – November 2016

5. An Opinion (or Two or Three or…) - Army
Working Capital Fund Financial Statements (Selected Lines) Audit Outcomes
Revenue:
Sufficient supporting evidence was not available or was not provided.
Review and approval of price data was not immediately available. Prices in LMP were inconsistently used.
Revenue populations could not be reconciled to the associated costs.
Cost of Goods Sold:
Moving average cost on supporting documentation did not agree to the sample.
Operating Expenses:
Sufficient supporting documentation was not available or was not provided.
Transactions were recorded in different periods or fiscal years than the action that generated the transaction.
Transactions were not recorded in the correct accounts and the amounts could not be verified.
Unfilled Customer Orders:
Sufficient supporting documentation was not available or did not include all the required data elements.
Source: OSD (C) CFO FIAR Plan Status Report – November 2016

6. An Opinion (or Two or Three or…) - Army
Working Capital Fund Financial Statements (Selected Lines) Audit Outcomes
Obligations:
Sufficient supporting documentation was not available or not provided to support the obligation.
Sufficient supporting documentation was not provided to support the review and approval of funds availability.
Outlays:
Sufficient supporting documentation was not available or not provided.
Sufficient supporting documentation was not available or not provided to support journal vouchers or correcting entries.
Civilian Payroll:
Inventory:
Sufficient inventory reconciliations and controls were not in place.
Consistently applied inventory receipt procedures and controls were not in place at the inventory storage facilities.
Warehousing procedures were not in place to support inventory ownership data.
Source: OSD (C) CFO FIAR Plan Status Report – November 2016

7. An Opinion (or Two or Three or…) - Army
Working Capital Fund Financial Statements (Selected Lines) Audit Outcomes
Real Property:
Sufficient supporting documentation was not available or was not provided.
Inventory counts and the related reconciliation cannot be used to validate completeness of the real property population.
Classification of Real Property as General Equipment.
General Equipment:
Updated depreciation methodology was not applied consistently to all assets.
Internal controls over proper review and approval of the inventory count were not fully effective.
Policies and procedures over the review and approval of general equipment data input were not properly designed.
Internal-use software assets were classified as equipment.
Select assets did not reflect their current status based on physical inspection.
Source: OSD (C) CFO FIAR Plan Status Report – November 2016

8. An Opinion (or Two or Three or…) - Navy
General Fund SBA Audit Outcomes
Ineffective controls over financial reporting & transactional controls:
Controls to ensure completeness and accuracy not operating effectively.
Controls over SBA preparation are not effective.
Controls over journal vouchers need improvement.
Lack of documentation to substantiate existence/recording of obligations.
Lack of proper approval for collections/outlays.
Improperly recorded budgetary transactions.
Lack of proper/timely recording for certain transactions.
Insufficient controls for intragovernmental orders.
Lack of supporting documentation for sampled transactions.
Inconsistent monitoring procedures regarding obligations/customer orders.
Ineffective controls over information technology:
Lack of effective security controls.
Insufficient access controls for financial system users.
Ineffective segregation of duties controls.
Lack of configuration management controls.
Need for consistent interface controls.
Lack of controls of third party systems.
Source: OSD (C) CFO FIAR Plan Status Report – November 2016

9. An Opinion (or Two or Three or…) - USMC
General Fund SBA Audit Outcomes
Financial reporting:
Offline requisitions – internet ordering platforms lack adequate controls or do not interface with the accounting system.
Timely recording of obligations – due to some enterprise-wide systems and business practices, delays in recording obligations persist.
IT sytems:
Standard Accounting, Budgeting and Reporting System (SABRS) – various IT control findings.
Marine Corps Total Force System – various IT control findings.
Source: OSD (C) CFO FIAR Plan Status Report – November 2016

10. An Opinion (or Two or Three or…) - USAF
General Fund SBA Audit Outcomes
Financial reporting:
Inability to validate the completeness of transactions underlying the Schedule.
Unsupported trading partner adjustments.
Lack of timely financial reporting.
Oversight and monitoring of internal controls:
Inability to maintain adequate documentation evidencing performance of the relevant controls and provide the documentation timely.
Incomplete or inaccurate narrative descriptions.
Issues with other oversight and monitoring.
Financial information systems:
Material weaknesses previously identified still exist.
Source: OSD (C) CFO FIAR Plan Status Report – November 2016

11. An Opinion (or Two or Three or …) – DFAS
Financial Reporting SSAE No. 16 Examination:
All in-scope business processes and subprocesses have controls in place to achieve the relevant control objectives.
All material systems achieve the relevant FISCAM IT general and application-level general control objectives.
Defense Cash Accountability System SSAE No. 16 Examination:
Department 97 Reconciliation and Reporting Tool Assertion:
Vendor Pay Assertion:
Source: OSD (C) CFO FIAR Plan Status Report – November 2016

12. An Opinion (or Two or Three or …) – DLA
SBA Audit Outcomes and SSAE No. 16 Examination Results
Financial reporting:
Lack of sufficient audit evidence for selected transactions.
Inability to support completeness of disbursements and collections.
Appropriation transfer incorrectly recorded.
Samples selected from EBS general ledger extract could not be tied directly to the supporting documentation using the existing data fields.
The accounting treatment used is not compliant with the standard transactions defined by the USSGL Treasury Financial Manual.
Financial Reporting SSAE No. 16 Examinations:
Military Service-Owned Items in DLA Custody – Defense Automatic Addressing System – Defense Agencies Initiative – Invoices Receipt Acceptance and Property Transfer
All in-scope business processes and subprocesses have controls in place to achieve the relevant control objectives.
All material systems achieve the relevant FISCAM IT general and application-level general control objectives.
Source: OSD (C) CFO FIAR Plan Status Report – November 2016

13. IT Systems Critical to Audit
Service/Agency
Service Owned & Assessed as Audit Ready by IPA
Other Owned & Assessed as Audit Ready by IPA
Service Owned Assessed as Not Audit Ready by IPA
Other Owned Assessed as Not Audit Ready by IPA
Service Owned Not Assessed by IPA
Other Owned Not Assessed by IPA
Army 1 4 9 13 35
Navy 20 31
USMC 7 40
USAF 11 18 30 23
DLA 10 16
Source: OSD (C) CFO FIAR Plan Status Report – November 2016

14. The Judgements (So Far)
FY 2015 Financial Statement Audit Opinions
Unmodified Audit Opinions:
- U.S. Army Corps of Engineers
- Defense Commissary Agency
- Defense Contract Audit Agency
- Defense Finance and Accounting Service
- Defense Health Agency – Contract Resource Management
- Military Retirement Fund
Modified Audit Opinion
- Medicare-Eligible Retiree Health Care Fund
Source: OSD (C) CFO FIAR Plan Status Report – November 2016

15. Critical Area Update
Army-Navy-USAF expanded current-year budgetary activity audit scope to include an additional year’s appropriation.
Full financial statement audits:
Defense Logistics Agency
United States Marine Corps
Defense Information Systems Agency
Defense Intelligence Agencies
DFAS & DCMA sustaining examinations
DFAS will complete FBwT/Vendor Pay examinations
Source: OSD (C) CFO FIAR Plan Status Report – November 2016

16. State of Play – FY 2017 Audits
90% of DoD General Fund Budgetary Resources Under Audit
54% of DoD Working Capital Fund Budgetary Resources Under Audit
43% of DoD Total Assets Under Audit $B $B
Source: OSD (C) CFO FIAR Plan Status Report – November 2016

17. The “Better” of Times Initial Audit Outcomes Are:
Driving Change
Giving Financial Managers and Functional Leaders Valuable Real-World Audit Experience
DoD Better Understands Auditor’s Expectations:
Higher level of consistency, discipline, and rigor with respect to business and financial operations
DoD Financial Statement Audit Engagement Benefits:
Increasing transparency
Improving the quality of our financial information
Providing opportunities for efficiency
Strengthening business practices in support of the warfighter
Source: OSD (C) CFO FIAR Plan Status Report – November 2016