1. Stepped Up ERM Teresa McKay Director, Defense Finance and Accounting Service ASMC Washington Chapter September 17, 2008

2. 2 Agenda Enterprise Risk Management Why We Need Enterprise Risk Management Case Studies  Wounded Warrior  Out of Country Payments  Accounts Payable

3. 3 A Complex Environment Fraught with Risk 6.9 million travel payments $328 billion in military retirement managed 865 active DoD appropriations 54.5 million general ledger accounts with billions of transactions $446 billion in disbursements 154.6 million payroll payments 14 million commercial invoices

4. 4 What is Enterprise Risk Management? Enterprise Risk Management (ERM): An organization-wide approach that proactively identifies inherent risks and prevents or manages them

5. 5 Why do we use Enterprise Risk Management? Why ERM

6. 6 DFAS’ Approach to ERM Assess Plan Execute Sustain DFAS ERMP Implementation Activities: ERM Governance Business Environment Identification KRI Identification and Monitoring ERM Reporting Compliance Management Taxonomy, Risk Classification, and Policy Establish DFAS Risk Appetite ERM System/ Dashboard Development Incident Capture Process Communication, Training, and Awareness Risk and Control Identification and Assessment Control Testing Issue Management and Remediation

7. 7 Current StateDesired State, Implementation Implementation Activities Governance Development Training Sub-Core Self Assessment Core Area Risk Assessment Map Key Processes Perform Risk & Control Identification and Assessment Establish Risk Tolerance Risk Mitigation Develop Test Plans Develop Internal Control Questionnaires Implementation Outcomes Dashboard Reporting Proactive, Risk-Aware Workforce Centralized repository of policies and procedural guidance Process Excellence ERM Evolution DFAS Enterprise Risk Management Program Ad HocManagedStandardizedIntegratedOptimized DFAS Risk Management Maturity

8. 8 Identifying Risk Document the process Identify risks and establish controls to mitigate those risks Evaluate, test and -- if necessary -- revise

9. 9 Accountability is Key Accounts Payable: Own the process Identify Risks: What all can go wrong Prioritize: Develop an integrated strategy for solutions

10. 10 Compliance Audit oversight Internal review Federal Managers’ Financial Integrity Act Compliance Improper Payments Information Act Financial Improvement and Audit Readiness Federal Financial Management Improvement Act Clinger-Cohen Act Balanced Scorecard Department of defense Information Assurance and Certification Accreditation Process Federal Information Security Management Act

11. 11 Outcomes Streamlined accounting and personnel processes Better support for our customers Peace of mind for Warfighters and their families

12. 12 Case Study: Wounded Warrior Background Results Inaccurate pay to wounded soldiers resulted in soldiers owing money to the government Pay and personnel systems unable to handle situation Congress and media were outraged Number of erroneous payments significantly reduced Hospitalized Soldiers contacted personally Wounded In Action (WIA) database developed Available financial personnel at Walter Reed and Landsthul hospitals Overall processes and procedures improved

13. 13 Case Study: Out of Country Payments Background Results Billions of dollars spent on the Global War on Terror DoD unable to support financial operations in Iraq and Afghanistan using standard operating procedures Army needed to improve internal controls for soldiers to be supported properly Regulations for soldiers in contingency environment revised Partnered with Army to improve controls and ensure payments are properly supported Communication, training and interagency planning improved Oversight/follow-up procedures established

14. 14 Case Study: Accounts Payable Background Results Disparate accounts payable processes. Consolidated operations and standardized processes Improved efficiency and effectiveness, exceeding customer expectations In FY07 saved $53m by eliminating rework and increasing productivity 55 errors identified Dollar impact $7,166,567 Employee coding training opportunities identified Opportunities to apply Business Activity Monitoring identified Reduced improper payments Identified Fraud

15. 15 Business Activity Monitoring The Future of BAM with DFAS Improper Payments are detected and corrective action injected automatically at the source. Detect and Prevent

16. 16 Questions