1. 1 WARFIGHTER-FOCUSED, GLOBALLY RESPONSIVE, FISCALLY RESPONSIBLE SUPPLY CHAIN LEADERSHIP DEFENSE LOGISTICS AGENCY AMERICA’S COMBAT LOGISTICS SUPPORT AGENCY DEFENSE LOGISTICS AGENCY AMERICA’S COMBAT LOGISTICS SUPPORT AGENCY WARFIGHTER SUPPORT ENHANCEMENT STEWARDSHIP EXCELLENCE WORKFORCE DEVELOPMENT Joint Finance/Supply PRC Ongoing Financial Initiatives By Bob Hammond Chair, Finance Process Review Committee June 20, 2013

2. 2 WARFIGHTER-FOCUSED, GLOBALLY RESPONSIVE, FISCALLY RESPONSIBLE SUPPLY CHAIN LEADERSHIP Outline Purpose of Briefing PDC 1035 - Increased Frequency of Interfund Billing (Withdrawn) Intragovernmental (IGT) Financial Eliminations - DoD Material Weakness Draft Proposed FMR Change - Receipt and Acceptance - FMR Vol. 4, Ch. 9, Para. 090201 Treasury Direct Disbursing Invoice Processing Platform/Collaborative Agency WG

3. 3 WARFIGHTER-FOCUSED, GLOBALLY RESPONSIVE, FISCALLY RESPONSIBLE SUPPLY CHAIN LEADERSHIP Purpose Provide situational awareness of ongoing initiatives Perspective of the DoD Finance Process Committee (FPRC) Chair - Cross functional subject matter expert evaluation needed Potential topics for near-term focused FPRC meetings

4. 4 WARFIGHTER-FOCUSED, GLOBALLY RESPONSIVE, FISCALLY RESPONSIBLE SUPPLY CHAIN LEADERSHIP PDC 1035 - Increased Frequency of Interfund Billing Treasury Commissioner Memorandum January 14, 2011 goals: - Improve Accuracy of daily Funds Balance with Treasury - Eliminate Monthly Reporting - Move Toward Daily Reporting PDC 1035 - Staffed to allow frequent Interfund reporting to Treasury vice monthly - Components and Agencies, in coordination with their Supporting Central Accounts Offices determine proposed frequency of reporting - Withdrawn at the request of OUSD(C) sponsor pending analysis of an initiative to centralize reporting to Treasury via Defense Cash Accountability System

5. 5 WARFIGHTER-FOCUSED, GLOBALLY RESPONSIVE, FISCALLY RESPONSIBLE SUPPLY CHAIN LEADERSHIP Intragovernmental (IGT) Financial Eliminations DoD Material Weakness - DoD IG Finding (http://www.dodig.mil/Audit/reports/fy10/10-002.pdf)http://www.dodig.mil/Audit/reports/fy10/10-002.pdf Managerial Cost Accounting Concepts and Standards for the Federal Government - Inter-entity expenses or assets and financing sources should be eliminated for any consolidated financial statements covering both entities DOD FMR, Volume 6B, Chapter 13 - All DOD reporting entities are required to report intragovernmental account balances in their financial statements and eliminate appropriate intra-DOD balances

6. 6 WARFIGHTER-FOCUSED, GLOBALLY RESPONSIVE, FISCALLY RESPONSIBLE SUPPLY CHAIN LEADERSHIP Intragovernmental (IGT) Financial Eliminations Continued DoD IG Findings - DOD cannot accurately identify most of its intragovernmental transactions by customer because DOD systems do not track the buyer and seller data needed to match related transactions - DOD is unable to fully reconcile intragovernmental transactions with all Federal partners - DOD acknowledged its inability to reconcile most intragovernmental transactions results in adjustments that cannot be fully supported

7. 7 WARFIGHTER-FOCUSED, GLOBALLY RESPONSIVE, FISCALLY RESPONSIBLE SUPPLY CHAIN LEADERSHIP 7 Transactions between buyers and sellers of same agency Transactions between buyers and sellers of DoD agencies DoD AgenciesArmyNavyAFFed Agencies ArmyNavyAF Fed AgenciesDoD Federal Government Federal Government financial statement level DoD financial statement level Federal to Federal agency eliminations Department financial statement level DoD to DoD agency eliminations Agency financial statement level Within agency eliminations Transactions between DoD and other Fed agencies Fed Agencies DoD Agencies Intragovernmental (IGT) Financial Eliminations Transactions between agencies and private sector

8. 8 WARFIGHTER-FOCUSED, GLOBALLY RESPONSIVE, FISCALLY RESPONSIBLE SUPPLY CHAIN LEADERSHIP Intragovernmental (IGT) Financial Eliminations Continued Topic deferred from 2011 Finance Process Review Committee (FPRC) and from FPRC Standard Financial Information Structure & Government – Wide Accounting Interfund Working Group Focused FPRC briefing may be beneficial to determine if Interfund billing or logistics processes contribute to this material weakness - Determine if process changes are needed - What can we do to help?

9. 9 WARFIGHTER-FOCUSED, GLOBALLY RESPONSIVE, FISCALLY RESPONSIBLE SUPPLY CHAIN LEADERSHIP Draft Proposed FMR Change Vol. 4, Ch. 9, Para. 090201 Receipt and Acceptance OUSD(C) Draft in Coordination - Accounts payable must be supported by receipt and acceptance - Clarifies receipt and acceptance - IPAC bill initiated by buyer vice seller per Treasury guidance oTreasury Financial Manual Bulletin No. 2013-04, Attachment 2, Intragovernmental Transaction (IGT) Guide, Section 9.1.2.2, “Roles and Responsibilities.”Treasury Financial Manual Bulletin No. 2013-04, Attachment 2, Intragovernmental Transaction (IGT) Guide, Section 9.1.2.2, “Roles and Responsibilities.”

10. 10 WARFIGHTER-FOCUSED, GLOBALLY RESPONSIVE, FISCALLY RESPONSIBLE SUPPLY CHAIN LEADERSHIP Treasury Direct Disbursing Concept discussed for “Target Environment” - in ADC 435ADC 435 - DLMS Revisions for Standard Financial Information Structure (SFIS) (Supply/Finance) OUSD(C) Current Initiative (P2PPAWG #17)P2PPAWG #17

11. 11 WARFIGHTER-FOCUSED, GLOBALLY RESPONSIVE, FISCALLY RESPONSIBLE SUPPLY CHAIN LEADERSHIP Invoice Processing Platform/Collaborative Agency WG OUSD(C) Strategic Initiative Targets Financial Eliminations Includes Treasury Direct Reporting via IPAC Relates to Interagency Agreement; former IVAN Collaborative Agency Working Group formed - OUSD(C)/Treasury Leading - USMC at the Leading Edge

12. 12 WARFIGHTER-FOCUSED, GLOBALLY RESPONSIVE, FISCALLY RESPONSIBLE SUPPLY CHAIN LEADERSHIP Invoice Processing Platform/Collaborative Agency WG Continued Out of Scope - IPP IGT will look to address Intragovernmental transactions within DoD only, level II and III. Once IPP IGT is proven within DoD IPP IGT will be looked for DoD to Non-DoD transaction, or level I. Also, out of scope for the near-term are: oInterfund oAdvance Payments oAssisted acquisitions oTransportation oPurchase Card oFuel NOTE: While the aforementioned are considered reimbursable activities, these reimbursable types are currently not supported within the IPP IGT solution scope due to their specific process and data needs. These transactions will be addressed at a later date yet to be determined.

13. 13 WARFIGHTER-FOCUSED, GLOBALLY RESPONSIVE, FISCALLY RESPONSIBLE SUPPLY CHAIN LEADERSHIP Invoice Processing Platform/Collaborative Agency WG Continued Potential Logistics Implementation Challenges: -Logistics transactions occur outside of IPP oAll federal agencies (including DOD) use hundreds of thousands of DLMS/MILSTRIP/FEDSTRIP transactions per month to buy from each other, regardless of the method of payment (e.g. Interfund, IPAC) oThese transactions (e.g. requisition, auto pass to seller to fill from stock/vendor/lateral redistribution, partial fill, ship/split ship, cancel, receive, acknowledge receipt, report discrepancy, bill, credit adjustment, etc.) all occur outside of IPP and are all needed to support the ultimate bill (500+ MILS/66 DLMS) oTransactions are integrated and highly automated; triggered via standard processes and business rules and are subject to DAAS validation edits oAcceptance completed in Wide Area Workflow today oIntegrating/replicating this data into IPP may be problematic

14. 14 WARFIGHTER-FOCUSED, GLOBALLY RESPONSIVE, FISCALLY RESPONSIBLE SUPPLY CHAIN LEADERSHIP Invoice Processing Platform/Collaborative Agency WG Continued Logistics Potential Implementation Challenges (continued) -Bill after receipt for stock items vice upon issue oStock items may be billed/revenue recognized upon issue, per FMR 1102. oOverall DOD March 2013 Material Receipt Acknowledgement (MRA) was 78.4%, oRelying on MRA and shifting responsibility from seller to buyer for billing may result in immediately universal seller insolvency -Feasibility, data standards/mapping, business rules, interoperability, systems, roles & responsibilities, governance; potential warfighter impacts, cost will need to be considered going forward -Investment Review Board (IRB) model may be useful in assessing existing systems capability, integration, costs and milestone decisions

15. 15 WARFIGHTER-FOCUSED, GLOBALLY RESPONSIVE, FISCALLY RESPONSIBLE SUPPLY CHAIN LEADERSHIP Invoice Processing Platform/Collaborative Agency WG Agreement w/GT&C RequisitionObligation Receipt/ Acceptance IPAC Charge Agreement w/GT&C Unfilled OrderFilled OrderReceivableIPAC Credit US TREASURY 1. Create & Appr. Agreement 2. Create & Appr. Agreement 3. Create Order 7. Accepted Order 6. Accepted Order 5. Submit Order 9. Approve Invoice 8. Submit Invoice 10. IPAC PMNT Seller Buyer IPP & ERP interfaces w/GEX needed 4. Approve Order Logistics Buy/Sell transactions by DOD and all federal agencies occur outside of IPP today

16. 16 WARFIGHTER-FOCUSED, GLOBALLY RESPONSIVE, FISCALLY RESPONSIBLE SUPPLY CHAIN LEADERSHIP DAAS BUYERBUYER Finance Supply Finance SELLERSELLER Supply 4b (856S) 1 (511R) 2 (870S) Distribution Depot 511R: Requisition (Order) 527R Material Receipt Acknowledge 810L Logistics Bill 856S Shipment Status 867I Issue 870S: Supply Status Retail Base 1 Seller CAO Buyer CAO Treasury 4a (945A) 4c Item shipped 5 (527R) 1 (511R) Order Submission and Fulfillment 3 (940R) 4b (856S) 4d (867I) 5 (527R) *6 (810L) 6 (810L) 940R: Material Release 945A: Material Release Confirmation * Stock – bill on drop from inventory; DVD - bill on receipt acknowledgement/acceptance 500+ Integrated MILS transactions

17. 17 WARFIGHTER-FOCUSED, GLOBALLY RESPONSIVE, FISCALLY RESPONSIBLE SUPPLY CHAIN LEADERSHIP Discrepancy related Request (812R) 5 *Return Wrong Item (*Sequence for US. for FMS mat’l returned prior to credit) Bill (Credit) (810 L) SDR Reply 842AR Bill (Credit) (810 L) DAAS Seller CAOBuyer CAO BUYERBUYER Finance Supply Finance SELLERSELLER Supply Distribution Depot Treasury Retail Base Billing and Discrepancy Report Adjustment Requests and Replies Request (812R) 5 SDR Discrepancy Report Submission (842AW) SDR Reply 842AR 1 1 SDR (842 AW) 2a Reply (812 L) 6 Financial related 2 2b 3 3 4 Reply (812 L) 6

18. 18 WARFIGHTER-FOCUSED, GLOBALLY RESPONSIVE, FISCALLY RESPONSIBLE SUPPLY CHAIN LEADERSHIP DAAS BUYERBUYER Finance Supply Finance SELLERSELLER Supply Distribution Depot Retail Base 1 Seller CAO Buyer CAO Treasury 6 (810L) 6b (810L) 6 Seller Interfund Report 6a ( 810L) 7 Stm of Trans 8 Buyer Interfund Report Billing and Interfund Payment 9 Stm of Trans 8 Collection 810LLogistics Bill 6c (810L) Interfund Billing is out of scope near term. DAAS Edits logistics transactions, including bills; rejects those failing edits

19. 19 WARFIGHTER-FOCUSED, GLOBALLY RESPONSIVE, FISCALLY RESPONSIBLE SUPPLY CHAIN LEADERSHIP Backup DOD 7000.14-R, VOLUME 11B, CHAPTER 11, § 1102 REVENUE RECOGNITION {Intervening text not shown} 110202.Policy {Intervening text not shown} C. Activities in the Supply Management activity group shall recognize revenue, and related costs, when an item is dropped from inventory for sale or other revenue generating disposition. {Intervening text not shown} E. Activities in the Distribution Depots activity group shall recognize revenue, and related costs, based on one of the following events: Event Revenue Recognized Upon Receipt of Items Receipt of an Item Issuance of Items Issuance of an Item