oversight

DOD Financial Management: Challenges in Attaining Audit Readiness and Improving Business Processes and Systems

Published by the Government Accountability Office on 2012-04-18.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                            United States Government Accountability Office

GAO                         Testimony
                            Before the Subcommittee on Readiness
                            and Management Support, Committee on
                            Armed Services, U.S. Senate

                            DOD FINANCIAL
For Release on Delivery
Expected at 2:30 p.m. EDT
Wednesday, April 18, 2012

                            MANAGEMENT
                            Challenges in Attaining
                            Audit Readiness and
                            Improving Business
                            Processes and Systems
                            Statement of Asif A. Khan, Director
                            Financial Management and Assurance




GAO-12-642T
                                            April 18, 2012

                                            DOD FINANCIAL MANAGEMENT
                                            Challenges in Attaining Audit Readiness and
                                            Improving Business Processes and Systems
Highlights of GAO-12-642T, a testimony
before the Subcommittee on Readiness and
Management Support, Committee on Armed
Services, U.S. Senate



Why GAO Did This Study                      What GAO Found
Over the years, the Department of           GAO’s recent work highlights the types of challenges facing the Department of
Defense (DOD) has initiated several         Defense (DOD) as it strives to attain audit readiness and reengineer its business
efforts intended to improve its financial   processes and systems. The urgency in addressing these challenges has been
management operations and ultimately        increased by the goals of an auditable DOD Statement of Budgetary Resources
achieve an unqualified (clean) opinion      (SBR) by the end of fiscal year 2014 and a complete set of auditable financial
on its financial statements. These          statements by the end of fiscal year 2017. For example, GAO’s 2011 reporting
efforts have fallen short of sustained      highlights difficulties the DOD components experienced in attempting to achieve an
improvement in financial management         auditable SBR. These include:
and financial statement auditability.           •    the Navy’s and the Air Force’s premature assertions of audit readiness and
In this statement, GAO provides its                  missed interim milestones;
assessment of DOD’s progress toward:            •    the Army’s inability to locate and provide supporting documentation for its
(1) producing an auditable Statement                 military pay;
of Budgetary Resources (SBR) by
fiscal year 2014 and a complete set of          •    the Navy’s and Marine Corps’ inability to reconcile their Fund Balance with
auditable financial statements by fiscal             Treasury (FBWT) accounts; and
year 2017, including the development
of interim milestones for both                  •    the Marine Corps’ inability to receive an opinion on both its fiscal years 2010
aforementioned audit readiness goals;                and 2011 SBRs because it could not provide supporting documentation in a
(2) acquiring and implementing new                   timely manner, and support for transactions was missing or incomplete.
enterprise resource programs and            In a February 2012 briefing on its updated plans, DOD accelerated milestones for its
other critical financial management         components —in some cases, significantly—to accomplish the 2014 SBR goal. For
systems; (3) reengineering business         example, the Air Force had planned to validate its audit readiness for many SBR-
processes and instituting needed            related items in fiscal year 2016; however, the department’s February 2012
controls; and (4) implementing a            accelerated plans show that most of the Air Force’s SBR line items will be audit-ready
comprehensive business enterprise           in fiscal years 2013 or 2014. Also, in its February 2012 update DOD shows that 7 of
architecture and transition plan, and       24 material general fund Defense Agencies and Other Defense Organizations have
improved investment control                 either already had SBR audits or are ready to have their SBRs audited, which
processes.                                  represent important positive steps.
This statement is primarily based on        DOD has stated it considers the successful implementation of its enterprise resource
GAO’s prior work related to the             planning (ERP) systems critical to transforming its business operations, addressing
department’s efforts to achieve audit       long-standing weaknesses, and ensuring the department meets its mandated
readiness, implement modern business        September 30, 2017 auditability goals. However, in 2011, GAO reported that
systems, and reengineer its business        independent assessments of two of these systems—the Army’s and Air Force’s new
processes. GAO also obtained and            general ledger systems—identified operational problems, gaps in capabilities that
compared key milestones in a                required manual workarounds, and training that was not focused on system
February 2012 DOD briefing on its           operation. Moreover, users of these systems had difficulties using these systems to
updated plans to accelerate achieving       perform daily operations. GAO also reported in 2011 on numerous weaknesses in
SBR auditability with the May 2011          DOD’s enterprise architecture and business processes that affect DOD’s auditability.
Financial Improvement and Audit             For example, while DOD continued to update its corporate enterprise architecture, it
Readiness plan but did not                  had not yet augmented its corporate architecture with complete, coherent subsidiary
independently verify the updated            architectures for DOD components such as the military departments. Also, while
information in the February 2012            DOD and the military departments largely followed DOD’s Business Process
briefing.                                   Reengineering Guidance to assess business system investments, they had not yet
                                            performed the key step of validating assessment results. GAO has made prior
                                            recommendations to address these issues. DOD has generally agreed with these
                                            recommendations and is taking corrective actions in response. GAO has work
View GAO-12-642T. For more information,     underway to evaluate DOD’s continuing efforts in these areas.
contact Asif A. Khan at (202) 512-9869 or
khana@gao.gov.

                                                                                       United States Government Accountability Office
Chairman McCaskill, Ranking Member Ayotte, Members of the
Subcommittee:

It is a pleasure to be here today to discuss the status of the Department
of Defense’s (DOD) efforts to improve its financial management and
related business operations and to achieve audit readiness. DOD has
been required to prepare departmentwide financial statements and have
them audited since 1997, but through 2011, has not been able to meet
this requirement. 1 On October 13, 2011, the Secretary of Defense
directed the department to achieve audit readiness for the Statement of
Budgetary Resources (SBR) for General Fund 2 activities by the end of
fiscal year 2014 3 as an interim milestone toward meeting the mandate in
the National Defense Authorization Act (NDAA) for Fiscal Year 2010 to
achieve full audit readiness for DOD’s complete set of financial
statements by the end of 2017. 4 Given the federal government’s fiscal
challenges, it is more important than ever that the Congress, the
administration, and federal managers have reliable, useful, and timely
financial and performance information, particularly for the government’s
largest department.

Today, I will discuss DOD’s progress toward: (1) achieving the goals of an
auditable SBR by fiscal year 2014 and a complete set of auditable
financial statements by fiscal year 2017, including the development of
interim milestones for both audit readiness goals, (2) acquiring and
implementing new enterprise resource programs and other critical
financial management systems, (3) reengineering business processes
and instituting needed controls, and (4) implementing a comprehensive


1
 The Chief Financial Officers Act of 1990, Pub. L. No. 101-576, title III, § 303, 104 Stat.
2838, 2849 (Nov. 15, 1990), initially required annual audited financial statements of
certain DOD components and activities, but the Government Management Reform Act of
1994, Pub. L. No. 103-356, § 405, 108 Stat. 3410, 3415 (Oct. 13, 1994), expanded the
annual requirement to departmentwide financial statements beginning with fiscal year
1996, which at the time had to be prepared no later than March 1, 1997. See 31 U.S.C. §
3515.
2
 An agency’s general fund accounts are those accounts in the U.S. Treasury holding all
federal money not allocated by law to any other fund account. GAO, High-Risk Series: An
Update, GAO-11-278 (Washington, D.C.: Feb 16, 2011).
3
 DOD, Secretary of Defense Memorandum, “Improving Financial Information and
Achieving Audit Readiness,” October 13, 2011.
4
Pub. L. No. 111-84, § 1003(a), (b), 123 Stat. 2190, 2439-40 (Oct. 28, 2009).




Page 1                                                                         GAO-12-642T
             business enterprise architecture and transition plan, and improved
             investment control processes. My statement today is primarily based on
             our prior work related to the department’s efforts to achieve audit
             readiness, implement modernized business systems and a business
             enterprise architecture, and reengineer its business processes. In
             addition, we are providing information on DOD’s updated plans for
             achieving auditability presented at a February 2012 briefing. Specifically,
             we are presenting a comparison of key milestones in the February 2012
             DOD briefing 5 that outlined its plans to accelerate the timeframe to
             achieve SBR auditability with DOD’s May 2011 Financial Improvement
             and Audit Readiness (FIAR) plan. We also conducted interviews with
             DOD officials about the February 2012 briefing. We did not independently
             verify information contained in the February 2012 briefing with DOD or
             any of its components or agencies. Our work on which this testimony is
             based was conducted in accordance with generally accepted government
             auditing standards. Those standards require that we plan and perform the
             audit to obtain sufficient, appropriate evidence to provide a reasonable
             basis for our findings and conclusions based on our audit objectives. We
             believe the evidence obtained provides a reasonable basis for our
             findings and conclusions based on our audit objectives. Additional
             information on our scope and methodology is available in previously
             issued products.


             According to the fiscal year 2013 President’s Budget, DOD accounts for
Background   about 57 percent of the discretionary federal budget authority.
             (See figure 1.)




             5
              Office of the Secretary of Defense (Comptroller), Accelerated Financial Improvement and
             Audit Readiness (FIAR) Plan, presented to the staff of the House Committee on Oversight
             and Government Reform, February 14, 2012.




             Page 2                                                                      GAO-12-642T
Figure 1: Comparison of DOD’s Fiscal Year Budget Authority with That of Other
Federal Agencies




For fiscal year 2011, of the 24 agencies covered by the Chief Financial
Officers Act of 1990 (CFO Act), DOD was the only agency to receive a
disclaimer of opinion on all of its financial statements. 6 The DOD
Inspector General (IG) reported that

•   the department’s fiscal year 2011 financial statements would not
    substantially conform to generally accepted accounting principles;
•   DOD’s financial management and feeder systems were unable to
    adequately support material amounts on the financial statements; and
•   long-standing material internal control weaknesses identified in prior
    audits continued to exist, including material weaknesses in areas such
    as financial management systems, Fund Balance with Treasury,
    Accounts Receivable, and General Property, Plant, and Equipment.

In 2005, the DOD Comptroller first prepared the Financial Improvement
and Audit Readiness (FIAR) Plan for improving the department’s



6
 In a disclaimer of opinion, the auditor does not express an opinion on the financial
statements. A disclaimer of opinion is appropriate when the audit scope is not sufficient to
enable the auditor to express an opinion, or when there are material uncertainties
involving a scope limitation—a situation where the auditor is unable to obtain sufficient
appropriate audit evidence.




Page 3                                                                         GAO-12-642T
business processes. The FIAR Plan is DOD’s strategic plan and
management tool for guiding, monitoring, and reporting on the
department’s financial management improvement efforts. As such, the
plan communicates progress in addressing the department’s financial
management weaknesses and achieving financial statement auditability.
In accordance with the NDAA for Fiscal Year 2010, DOD provides reports
to relevant congressional committees on the status of DOD’s
implementation of the FIAR Plan twice a year—no later than May 15 and
November 15. 7

The NDAA for Fiscal Year 2010 also mandated that the FIAR Plan
include the specific actions to be taken to correct the financial
management deficiencies that impair the department’s ability to prepare
timely, reliable, and complete financial management information. 8 In May
2010, the DOD Comptroller issued the FIAR Guidance to implement the
FIAR Plan. The FIAR Guidance provides a standardized methodology for
DOD components to follow for achieving financial management
improvements and auditability. The FIAR Guidance requires DOD
components to identify and prioritize their business processes into
assessable units, 9 and then prepare a Financial Improvement Plan (FIP)
for each assessable unit in accordance with the FIAR Guidance. Many of
the procedures required by the FIAR Guidance are consistent with
selected procedures for conducting a financial audit, such as testing
internal controls and information system controls. In September 2010, we
reported that the department needed to focus on implementing its FIAR
Plan and that the key to successful implementation would be the efforts of
the DOD military components and the quality of their individual FIPs. 10

A FIP serves as a framework of steps and documentation requirements
for both planning and implementing the FIAR Guidance. For example,
civilian and military pay are two assessable units for which DOD


7
 Pub. L. No.111-84, §1003(b).
8
 Pub. L. No.111-84, §1003(a)(2).
9
 An assessable unit can be any part of the financial statements, such as a line item or a
class of assets (e.g., civilian pay or military equipment), a class of transactions, or it can
be a process or a system that helps produce the financial statements.
10
  GAO, Department of Defense: Financial Management Improvement and Audit
Readiness Efforts Continue to Evolve, GAO-10-1059T (Washington, D.C.: Sept. 29,
2010).




Page 4                                                                             GAO-12-642T
components, such as the Army, Navy, and Air Force, are expected to
develop and implement FIPs in accordance with the FIAR Guidance. The
steps required for these plans include assessing processes, controls, and
systems; identifying and correcting weaknesses; assessing, validating,
and sustaining corrective actions; and ultimately achieving audit
readiness. After a component’s management determines that an
assessable unit is ready for audit, both the DOD Comptroller and the
DOD Inspector General (IG) review the related FIP documentation to
determine if they agree with management’s conclusion of audit readiness.

DOD intends to progress toward achieving financial statement auditability
by executing the FIAR Guidance methodology for groups of assessable
units across four waves. Under the FIAR Plan, successful execution of
the FIAR Guidance methodology for groups of assessable units across
these waves is intended to result in the audit readiness of various
components’ financial statements through fiscal year 2017. The first two
waves of the FIAR Plan focus on achieving the DOD Comptroller’s interim
budgetary priorities, which DOD believes should lead to an auditable
SBR. The third wave focuses on accountability for DOD’s mission-critical
assets, and the fourth wave focuses on the remaining assessable units
constituting DOD’s complete set of financial statements.

As mentioned earlier, the Secretary of Defense directed the department
to achieve audit readiness for the SBR for General Fund activities by the
end of fiscal year 2014. The NDAA for Fiscal Year 2012 reinforced this
directive by requiring that the next FIAR Plan Status Report—to be issued
in May 2012—include a plan, with interim objectives and milestones for
each military department and the defense agencies, to support the goal of
SBR audit readiness by 2014. 11 The NDAA for Fiscal Year 2012 also
requires the plan to include process and control improvements and
business systems modernization efforts necessary for the department to
consistently prepare timely, reliable, and complete financial management
information.

The SBR is the only financial statement predominantly derived from an
entity’s budgetary accounts in accordance with budgetary accounting
rules, which are incorporated into generally accepted accounting
principles (GAAP) for the federal government. The SBR is designed to



11
     Pub. L. No. 112-81, §1003, 125 Stat. 1298, 1555 (Dec. 31, 2011).




Page 5                                                                  GAO-12-642T
                          provide information on authorized budgeted spending authority reported
                          in the Budget of the United States Government (President’s Budget),
                          including budgetary resources, availability of budgetary resources, and
                          how obligated resources have been used.


Overview of DOD’s         In November 1990, DOD created the Defense Finance and Accounting
Accounting and Business   Service (DFAS) as its accounting agency to consolidate, standardize, and
Operations                integrate finance and accounting requirements, functions, procedures,
                          operations, and systems. 12 The military services continue to perform
                          certain finance and accounting activities at each military installation.
                          These activities vary by military service depending on what the services
                          retained and the number of personnel they transferred to DFAS. As
                          DOD’s accounting agency, DFAS is critical to DOD auditability as it
                          records transactions in the accounting records, prepares thousands of
                          reports used by managers throughout DOD and by the Congress, and
                          prepares DOD-wide and service-specific financial statements. The
                          military services play a vital role in that they authorize most of DOD’s
                          expenditures and are the source of most of the financial information that
                          DFAS uses to make payroll and contractor payments. The military
                          services also have responsibility for most of DOD’s assets and the related
                          information needed by DFAS to prepare annual financial statements
                          required under the CFO Act.

                          To support its operations, DOD performs an assortment of interrelated
                          and interdependent business functions, such as logistics, procurement,
                          health care, and financial management. As we have previously reported,
                          the DOD systems environment that supports these business functions
                          has been overly complex, decentralized, and error prone, characterized
                          by (1) little standardization across the department, (2) multiple systems
                          performing the same tasks and storing the same data, and (3) the need
                          for data to be entered manually into multiple systems. For fiscal year
                          2012, the department requested about $17.3 billion to operate, maintain,
                          and modernize its business systems. DOD has reported that it relies on
                          2,258 business systems, including 335 financial management systems,
                          709 human resource management systems, 645 logistics systems, 243
                          real property and installation systems, and 281 weapon acquisition
                          management systems.



                          12
                           DOD Directive 5118.5, "Defense Finance and Accounting Service" (Nov. 26, 1990).




                          Page 6                                                                  GAO-12-642T
Importance of Business    For decades, DOD has been challenged in modernizing its timeworn
Enterprise Architecture   business systems. Since 1995, GAO has designated DOD’s business
and Reengineering         systems modernization program as high risk. In June 2011, we reported
                          that the modernization program had spent hundreds of millions of dollars
Business Processes        on an enterprise architecture and investment management structures that
                          had limited value. 13 As our research on public and private sector
                          organizations has shown, two essential ingredients to a successful
                          systems modernization program are an effective institutional approach to
                          managing information technology (IT) investments and a well defined
                          enterprise architecture. 14 For its business systems modernization, DOD is
                          developing and using a federated business enterprise architecture, which
                          is a coherent family of parent and subsidiary architectures, to help
                          modernize its nonintegrated and duplicative business operations and the
                          systems that support them.

                          Section 1072 of the NDAA for Fiscal Year 2010 requires that programs
                          submitted for approval under DOD’s business system investment
                          approach be assessed to determine whether or not appropriate business
                          process reengineering efforts have been undertaken. The act further
                          states that these efforts should ensure that the business process to be
                          supported by the defense business system modernization will be as
                          streamlined and efficient as practicable and the need to tailor commercial
                          off-the-shelf systems to meet unique requirements or incorporate unique
                          interfaces has been eliminated or reduced to the maximum extent
                          practicable. 15


                          GAO’s recent work highlights the types of challenges facing DOD as it
Challenges in             strives to attain audit readiness and reengineer its business processes
Achieving Audit           and systems. DOD leadership has committed DOD to the goal of
                          auditable financial statements and has developed FIAR Guidance to
Readiness                 provide specific instructions for DOD components to follow for achieving
                          auditability incrementally. The department and its components also
                          established interim milestones for achieving audit readiness for various


                          13
                            GAO, Department of Defense: Further Actions Needed to Institutionalize Key Business
                          System Modernization Management Controls, GAO-11-684 (Washington, D.C.: June 29,
                          2011).
                          14
                           GAO-11-684.
                          15
                           Pub. L. No.111-84, § 1072 (amending 10 U.S.C. §2222).




                          Page 7                                                                    GAO-12-642T
                           parts (or assessable units) of the financial statements. These efforts are
                           an important step forward. The urgency in addressing these challenges
                           has been increased by the recent efforts to accelerate audit readiness
                           time frames, in particular attaining audit readiness for the department’s
                           SBR by fiscal year 2014. Our September 2011 report highlights the types
                           of challenges DOD may continue to face as it strives to attain audit
                           readiness, including instances in which DOD components prematurely
                           asserted audit readiness and missed interim milestones. 16 Also, DOD’s
                           efforts over the past couple of years to achieve audit readiness for some
                           significant SBR assessable units have not been successful. However,
                           these experiences can serve to provide lessons for DOD and its
                           components to consider in addressing the department’s auditability
                           challenges.


DOD Component              DOD’s ability to achieve departmentwide audit readiness is highly
Compliance with FIAR       dependent on its military components’ ability to effectively develop and
Guidance Is Crucial to     implement FIPs in compliance with DOD’s FIAR Guidance. However, in
                           our September 2011 report, we identified several instances in which the
Ensuring Audit Readiness   components did not prepare FIPs that fully complied with the FIAR
                           Guidance, resulting in premature assertions of audit readiness.

                           Specifically, as we reported in September 2011, the FIAR Guidance
                           provides a reasonable methodology for the DOD components to follow in
                           developing and implementing their FIPs. 17 It details the roles and
                           responsibilities of the DOD components, and prescribes a standard,
                           systematic approach that components should follow to assess processes,
                           controls, and systems, and identify and correct weaknesses in order to
                           achieve auditability. When DOD components determine that sufficient
                           financial improvement efforts have been completed for an assessable unit
                           in accordance with the FIAR Guidance and that the assessable unit is
                           ready for audit, the FIP documentation is used to support the conclusion
                           of audit readiness. Thus, complying with the FIAR Guidance can provide
                           a consistent, systematic means for DOD components to achieve and
                           verify audit readiness incrementally.



                           16
                             GAO, DOD Financial Management: Improvement Needed in DOD Components’
                           Implementation of Audit Readiness Effort, GAO-11-851 (Washington, D.C.: Sept. 13,
                           2011).
                           17
                            GAO-11-851.




                           Page 8                                                                    GAO-12-642T
                         We found that when DOD components did not prepare FIPs that fully
                         complied with the FIAR Guidance, they made assertions of audit
                         readiness prematurely and did not achieve interim milestones.18 While the
                         components initially appeared to meet some milestones by asserting
                         audit readiness in a timely manner, reviews of supporting documentation
                         for the FIPs of two assessable units and attempts to audit the Marine
                         Corps’ SBR revealed that the milestones had not been met because the
                         assessable units were not actually ready for audit. For example, the Navy
                         asserted audit readiness for its civilian pay in March 2010 and the Air
                         Force asserted audit readiness for its military equipment in December
                         2010. However, we reported that neither component had adequately
                         developed and implemented their FIPs for these assessable units in
                         accordance with the FIAR Guidance and were therefore not ready for
                         audit. The Marine Corps first asserted financial audit readiness for its
                         General Fund SBR on September 15, 2008. The DOD IG reviewed the
                         Marine Corps’ assertion package and on April 10, 2009, reported that the
                         assertion of audit readiness was not accurate, and that its documentation
                         supporting the assertion was not complete. GAO has made prior
                         recommendations to address these issues. DOD has generally agreed
                         with these recommendations and is taking corrective actions in response.


Reported DOD Progress    The Secretary of Defense’s direction to achieve audit readiness for the
toward Audit Readiness   SBR by the end of 2014 necessitated that DOD’s components revise
for the Statement of     some of their plans and put more focus on short-term efforts to develop
                         accurate data for the SBR in order to achieve this new accelerated goal.19
Budgetary Resources
                         In August 2011, DOD’s military components achieved one milestone
                         toward SBR auditability when they all received validation by an
                         independent public accounting firm that their Appropriations Receipt and
                         Distribution—a section of the SBR—was ready for audit. In addition, the
                         November 2011 FIAR Plan Status Report indicated that the Air Force
                         achieved audit readiness for its Fund Balance with Treasury (FBWT).



                         18
                          GAO-11-851.
                         19
                           In addition to requiring audit readiness of the SBR, the Secretary’s memo also directed
                         the DOD Comptroller to increase emphasis on accountability for assets; execute a full
                         review of the department’s financial controls over the next 2 years and establish interim
                         goals for assessing progress; ensure mandatory training for audit and other key financial
                         efforts, and establish a pilot certification program for financial managers; appropriately
                         resource efforts to meet these goals; and meet the legal requirement for full financial
                         statement audit readiness by 2017.




                         Page 9                                                                         GAO-12-642T
Further, in a February 2012 briefing on its accelerated plans, DOD
indicated that 7 of 24 material general fund Defense Agencies and Other
Defense Organizations are either already sustaining SBR audits or are
ready to have their SBRs audited. 20 These accomplishments represent
important positive steps. Nevertheless, achieving audit readiness for the
military components’ SBRs is likely to pose significant challenges based
on the long-standing financial management weaknesses and audit issues
affecting key SBR assessable units. Our recent reports highlight some of
the difficulties that the components have experienced recently related to
achieving an auditable SBR, including

•    the Army’s inability to locate and provide supporting documentation
     for its military pay; 21
•    the Navy’s and the Marine Corps’ inability to reconcile their Fund
     Balance with Treasury accounts; 22 and
•    the Marine Corps’ inability to provide sufficient documentation to
     auditors of its SBR. 23
To achieve SBR audit readiness by 2014, DOD and its components need
accelerated, yet feasible, well-developed plans for identifying and
correcting weaknesses in the myriad processes involved in producing the
data needed for the SBR. While DOD has developed an accelerated
FIAR Plan to provide an overall view of the department’s approach for
meeting the 2014 goal, most of the work must be carried out at the
component level.




20
  According to the February 2012 accelerated plan, the seven Defense Agencies and
Other Defense Organizations that are already sustaining SBR audits are the Defense
Finance and Accounting Service (DFAS), Defense Contract Audit Agency (DCAA),
TRICARE Management Activity—Contract Resource Management, Defense Commissary
Agency, Medicare Eligible Retiree Healthcare Fund, Military Retirement Fund, and the
DOD Office of the Inspector General.
21
 GAO, DOD Financial Management: The Army Faces Significant Challenges in Achieving
Audit Readiness for Its Military Pay, GAO-12-501T (Washington, D.C.: March 22, 2012).
22
  GAO, DOD Financial Management: Ongoing Challenges with Reconciling Navy and
Marine Corps Fund Balance with Treasury, GAO-12-132 (Washington, D.C.: Dec. 20,
2011).
23
 GAO, DOD Financial Management : Marine Corps Statement of Budgetary Resources
Audit Results and Lessons Learned, GAO-11-830 (Washington, D.C.: Sept. 15, 2011).




Page 10                                                                  GAO-12-642T
Army’s Inability to Locate and   The Army’s active duty military payroll, reported at $46.1 billion for fiscal
Provide Supporting               year 2010, made up about 20 percent of its reported net outlays for that
Documentation for Military Pay   year. As such, it is significant to both Army and DOD efforts for achieving
                                 auditability for the SBR. For years, we and others have reported
                                 continuing deficiencies in the Army’s military payroll processes and
                                 controls. 24 Moreover, other military components such as the Air Force and
                                 the Navy share some of these same military payroll deficiencies.

                                 In March 2012, we reported that the Army could not readily identify a
                                 complete population of its payroll accounts for fiscal year 2010. 25 DOD’s
                                 FIAR Guidance states that identifying the population of transactions is a
                                 key task essential to achieving audit readiness. However, the Army and
                                 DFAS-Indianapolis (DFAS-IN), which is responsible for accounting,
                                 disbursing, and reporting for the Army’s military personnel costs, did not
                                 have an effective, repeatable process for identifying the population of
                                 active duty payroll records. For example, it took 3 months and repeated
                                 attempts before DFAS-IN could provide a population of service members
                                 who received active duty Army military pay in fiscal year 2010. Further,
                                 because the Army does not have an integrated military personnel and
                                 payroll system, it was necessary to compare the payroll file to active Army
                                 personnel records. However, DOD’s central repository for information on
                                 DOD-affiliated personnel did not have an effective process for comparing
                                 military pay account files with military personnel files to identify a valid
                                 population of military payroll transactions.

                                 In addition, the Army and DFAS-IN were unable to provide documentation
                                 to support the validity and accuracy of a sample of fiscal year 2010
                                 payroll transactions we selected for review. For example, DFAS-IN had
                                 difficulty retrieving and providing usable Leave and Earnings Statement
                                 files and the Army was unable to locate or provide supporting personnel


                                 24
                                   DOD Inspector General, Active Duty Military Personnel Accounts Were Generally Valid
                                 and Secure, but DoD May have Made Improper Payments, D-2011-093 (Arlington, Va.:
                                 July 27, 2011); GAO, Military Pay: The Defense Finance and Accounting Service–
                                 Indianapolis Could Improve Control Activities over Its Processing of Active Duty Army
                                 Military Personnel Federal Payroll Taxes, GAO-09-557R (Washington, D.C.: June 18,
                                 2009); Military Pay: Hundreds of Battle-Injured GWOT Soldiers Have Struggled to Resolve
                                 Military Debts, GAO-06-494 (Washington, D.C.: Apr. 27, 2006); Military Pay: Army
                                 National Guard Personnel Mobilized to Active Duty Experienced Significant Pay Problems,
                                 GAO-04-89 (Washington, D.C.: Nov. 13, 2003).
                                 25
                                  GAO, DOD Financial Management: The Army Faces Significant Challenges in Achieving
                                 Audit Readiness for Its Military Pay, GAO-12-406 (Washington, D.C.: Mar. 22, 2012).




                                 Page 11                                                                   GAO-12-642T
                              documents for a statistical sample of fiscal year 2010 Army military pay
                              accounts. At the end of September 2011, 6 months after we had provided
                              them with our sample of 250 items, the Army and DFAS-IN were able to
                              provide complete documentation for only 2 of the sample items and
                              provided only partial documentation for another 3 items; they were unable
                              to provide any documentation for the remaining 245 sample items.

                              At of the time of our report, the Army had several military pay audit
                              readiness efforts planned or under way. Timely and effective
                              implementation of these efforts could help reduce the risk of DOD not
                              achieving the SBR audit readiness goal of 2014. However, most of these
                              actions are in the early planning stages. Moreover, these initiatives, while
                              important, do not address (1) establishing effective processes and
                              systems for identifying a valid population of military payroll records, (2)
                              ensuring Leave and Earnings Statement files and supporting personnel
                              documents are readily available for verifying the accuracy of payroll
                              records, (3) ensuring key personnel and other pay-related documents that
                              support military payroll transactions are centrally located, retained in
                              service member Official Military Personnel Files, or are otherwise readily
                              accessible, and (4) requiring the Army’s Human Resources Command to
                              periodically review and confirm that service members’ Official Military
                              Personnel File records are consistent and complete to support annual
                              financial audit requirements. GAO has made prior recommendations to
                              address these issues. DOD has agreed with these recommendations and
                              is taking corrective actions in response.

Navy’s and Marine Corps’      A successful audit of the SBR is dependent on the ability to reconcile an
Inability to Reconcile Fund   agency’s Fund Balance with Treasury (FBWT) with the Treasury records.
Balance with Treasury         FBWT is an account that reflects an agency’s available budget spending
                              authority by tracking its collections and disbursements. Reconciling a
                              FBWT account with Treasury records is a process similar in concept to
                              reconciling a check book with a bank statement. In December 2011, we
                              reported that neither the Navy nor the Marine Corps had implemented
                              effective processes for reconciling their FBWT. 26

                              The Navy and the Marine Corps rely on the DFAS location in Cleveland
                              (DFAS-CL) to perform their FBWT reconciliations. We found numerous
                              deficiencies in DFAS processes that impair the Navy’s and the Marine



                              26
                               GAO-12-132.




                              Page 12                                                          GAO-12-642T
                             Corps’ ability to effectively reconcile their FBWT with Treasury records,
                             including the following.

                             •   There are significant data reliability issues with the Defense Cash
                                 Accountability System (DCAS), which records daily collections and
                                 disbursements activity. The Navy and Marine Corps rely on DCAS to
                                 reconcile their FBWT to Treasury records.
                             •   DFAS-CL did not maintain adequate documentation for the sample
                                 items we tested to enable an independent evaluation of its efforts to
                                 research and resolve differences.
                             •   DFAS-CL recorded unsupported entries (plugs) to force Navy and
                                 Marine Corps appropriation balances to agree with those reported by
                                 Treasury instead of investigating and resolving differences between
                                 these two services’ appropriation balances and those maintained by
                                 Treasury.

                             Navy, Marine Corps, and DFAS-CL officials acknowledged that existing
                             FBWT policies and procedures were inadequate. Navy and DFAS-CL
                             officials stated that the base realignment and closure changes from 2006
                             through 2008 resulted in loss of experienced DFAS-CL personnel and
                             that remaining staff have not received the needed training. In response to
                             our recommendations, the Navy developed a plan of action and
                             milestones (POAM) intended to address the Navy’s audit readiness
                             weaknesses, including FBWT required reconciliations.

Difficulty in Auditing the   The Marine Corps received disclaimers of opinion from its auditors on its
Marine Corps’ Statement of   fiscal year 2010 and 2011 SBRs because it could not provide supporting
Budgetary Resources          documentation in a timely manner, and support for transactions was
                             missing or incomplete. Further, the Marine Corps had not resolved
                             significant accounting and information technology (IT) system
                             weaknesses identified in the fiscal year 2010 SBR audit effort.

                             The auditors also reported that the Marine Corps did not have adequate
                             processes and controls, including systems controls, for accounting and
                             reporting on the use of budgetary resources. Further, the Marine Corps
                             could not provide evidence that reconciliations for key accounts (such as
                             FBWT) and processes were being performed on a monthly basis. The
                             auditors also identified ineffective controls in key IT systems used by the
                             Marine Corps to process financial data. During fiscal year 2011, however,
                             the Marine Corps was able to demonstrate progress toward auditability.
                             For example, its auditors confirmed that as of October 2011, the Marine
                             Corps had fully implemented 32 out of 139 fiscal year 2010 audit
                             recommendations.



                             Page 13                                                          GAO-12-642T
                                The results of the audit for fiscal year 2010 provided valuable lessons on
                                preparing for a first-time financial statement audit. In our September 2011
                                report, we identified five fundamental lessons that are critical to
                                success. 27 Specifically, the Marine Corps’ experience demonstrated that
                                prior to asserting financial statement audit readiness, DOD components
                                must (1) confirm completeness of populations of transactions and
                                address any abnormal transactions and balances, (2) test beginning
                                balances, (3) perform key reconciliations, (4) provide timely and complete
                                responses to audit documentation requests, and (5) verify that key IT
                                systems are compliant with the Federal Financial Management
                                Improvement Act of 1996 28 and are auditable. GAO has made prior
                                recommendations to address these issues. DOD has generally agreed
                                with these recommendations and is taking corrective actions in response.

                                These issues are addressed in GAO’s Standards for Internal Control in
                                the Federal Government 29 and DOD’s FIAR Guidance. During our audit,
                                Navy, Army, and Air Force FIP officials stated that they were aware of the
                                Marine Corps lessons and were planning to, or had, incorporated them to
                                varying degrees into their audit readiness plans.

Accelerated Plans for SBR Are   In its November 2011 FIAR Plan, DOD provided an overall view of its
in Progress                     accelerated FIAR Plan for achieving audit readiness of its SBR by the end
                                of fiscal year 2014. In its February 2012 briefing, DOD recognized key
                                factors that are needed to achieve auditability such as the consistent
                                involvement of senior leadership as well as the buy-in of field
                                commanders who ultimately must implement many of the changes
                                needed. The plan also provided interim milestones for DOD components
                                such as the Army, Navy, Air Force, Defense Logistics Agency, and other
                                defense agencies. Acceleration substantially compresses the time allotted
                                for achieving some of these milestones. For example, the May 2011 FIAR
                                Plan Status Report indicated that the Air Force had planned to validate its



                                27
                                 GAO-11-830.
                                28
                                  CFO Act agencies’ financial management systems are required by the Federal Financial
                                Management Improvement Act of 1996 (FFMIA) to comply with federal financial
                                management systems requirements, applicable federal accounting standards, and the
                                United States Government Standard General Ledger at the transaction level, Pub. L. No.
                                104-208, div. A, title VIII, § 803, 110 Stat. 3009, 3009-390 (Sept. 30, 1996).
                                29
                                  GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1
                                (Washington, D.C.: November 1999).




                                Page 14                                                                   GAO-12-642T
                                        audit readiness for many SBR-related assessable units in fiscal year 2016
                                        and that its full SBR would not be ready for audit until 2017. However, the
                                        February 2012 briefing on the accelerated plans indicated that most of the
                                        Air Force’s SBR assessable units will be audit-ready in fiscal years 2013
                                        or 2014. These revised dates reflect the need to meet the expedited audit
                                        readiness goal of 2014. (See figure 2.)

Figure 2: Changes in SBR Interim Milestones




                                        As discussed earlier, the key to audit readiness is for DOD components to
                                        effectively develop and implement FIPs for SBR assessable units, and to
                                        meet interim milestones as they work toward the 2014 goal. According to
                                        Navy officials, the Navy plans to prepare a FIP for each of several
                                        assessable units that make up the SBR. For example, for its SBR, Navy


                                        Page 15                                                         GAO-12-642T
                      officials told us they have identified assessable units for appropriations
                      received, and for various types of expenditures for which funds are first
                      obligated and then disbursed, such as military pay, civilian pay, contracts,
                      and transportation of people. The Air Force will prepare FIPs for
                      assessable units similar to those of the Navy. Army officials told us they
                      are taking a different approach from the Navy. They said that instead of
                      developing FIPs for discrete assessable units constituting the SBR, they
                      are preparing only one FIP for one audit readiness date for the Army’s
                      entire SBR, an approach similar to that of the Marine Corps.


                      For years, DOD has been developing and implementing enterprise
Effective             resource planning (ERP) systems, which are intended to be the backbone
Implementation of     to improved financial management. 30 DOD considers the successful
Business Systems Is   implementation of these ERP systems critical to transforming its business
                      operations and addressing long-standing weaknesses in areas such as
Critical              financial and supply-chain management and business systems
                      modernization. DOD officials have also stated that these systems are
                      critical to ensuring the department meets its mandated September 30,
                      2017, goal to have auditable departmentwide financial statements.
                      However, as we recently reported, six of these ERP systems are not
                      scheduled to be fully deployed until either fiscal year 2017 or the end of
                      fiscal year 2016. 31

                      The DOD IG reported that the Navy developed and approved deployment
                      of the Navy ERP System without ensuring that the system complied with
                      DOD’s Standard Financial Information Structure (SFIS) and the U.S.
                      Government Standard General Ledger. 32 The DOD IG further stated that
                      as a result, the Navy ERP System, which is expected to manage 54
                      percent of the Navy’s obligation authority when fully deployed, might not
                      produce accurate and reliable financial information.


                      30
                        An ERP system is an automated system using commercial off-the-shelf software
                      consisting of multiple, integrated functional modules that perform a variety of business-
                      related tasks such as general ledger accounting, payroll, and supply chain management.
                      32
                       DOD Inspector General, Navy Enterprise Resource Planning System Does Not Comply
                      With the Standard Financial Information Structure and U.S. Government Standard
                      General Ledger, DODIG-2012-051 (Arlington, Va.: Feb. 13, 2012).
                      32
                        DOD Inspector General, Navy Enterprise Resource Planning System Does Not Comply
                      With the Standard Financial Information Structure and U.S. Government Standard
                      General Ledger, DODIG-2012-051 (Arlington, Va.: Feb. 13, 2012).




                      Page 16                                                                       GAO-12-642T
Two ERP systems—the Army’s General Fund Enterprise Business
System (GFEBS) and the Air Force’s Defense Enterprise Accounting and
Management System (DEAMS)—are general ledger systems intended to
support a wide range of financial management and accounting functions.
However, DFAS users of these systems told us that they were having
difficulties using the systems to perform their daily operations. Problems
identified by DFAS users included interoperability deficiencies between
legacy systems and the new ERP systems, lack of query and ad hoc
reporting capabilities, and reduced visibility for tracing transactions to
resolve accounting differences. For example:

•    Approximately two-thirds of invoice and receipt data must be manually
     entered into GFEBS from the invoicing and receiving system due to
     interface problems. Army officials explained that the primary cause of
     the problem was that the interface specification that GFEBS is
     required by DOD to use did not provide the same level of functionality
     as the interface specification used by the legacy systems. At the time
     of our review, Army officials stated that they are working with DOD to
     resolve the problem, but no time frame for resolution had been
     established.
•    DEAMS did not provide the capability—which existed in the legacy
     systems—to produce ad hoc query reports that could be used to
     perform data analysis needed for day-to-day operations. DFAS
     officials noted that when DEAMS did produce requested reports, the
     accuracy of those reports was questionable. According to DFAS
     officials, they are currently working with DEAMS financial
     management to design the type of reports that DFAS needs.

While we were told that as of February 2012, the Army and the Air Force
had corrective actions under way to address identified deficiencies,
specific timelines had not been developed so that progress could be
monitored. 33

In February 2012, we reported that independent assessments of four
ERPs—the Army’s GFEBS and Global Combat Support System (GCSS-
Army), and the Air Force’s DEAMS and Expeditionary Combat Support
System (ECSS)—identified operational problems, such as deficiencies in



33
  GAO, DOD Financial Management: Implementation Weaknesses in Army and Air Force
Business Systems Could Jeopardize DOD’s Auditability Goals, GAO-12-134 (Washington,
D.C.: Feb. 28, 2012)




Page 17                                                                GAO-12-642T
                      data accuracy, inability to generate auditable financial reports, the need
                      for manual workarounds, and training. 34 DOD oversight authority limited
                      the deployment of GFEBS and DEAMS on the basis of the results of the
                      independent assessments. However, in June 2011, DOD authorized
                      continued deployment of GFEBS and delegated further GFEBS
                      deployment decisions to the Under Secretary of the Army.

                      In addition to functional issues, we found that training was inadequate.
                      According to DFAS personnel as of February 2012, the training they
                      received for GFEBS and DEAMS did not fully meet their needs. DFAS
                      personnel informed us that the training focused on an overview of GFEBS
                      and DEAMS and how the systems were supposed to operate. While this
                      was beneficial in identifying how GFEBS and DEAMS were different from
                      the existing legacy systems, the training focused too much on concepts
                      rather than the skills needed for DFAS users to perform their day-to-day
                      operations. GAO has made prior recommendations to address these
                      issues. DOD has generally agreed with these recommendations and is
                      taking corrective actions in response.


                      Improving the department’s business environment through efforts such as
Challenges in         DOD’s business enterprise architecture and improved business systems
Developing and        management is an important part of helping DOD achieve auditability. In
                      June 2011, we reported that DOD had continued to make progress in
Implementing DOD’s    implementing a comprehensive business enterprise architecture,
Business Enterprise   transition plan, and improved investment control processes. 35 However,
Architecture and      we also reported that long-standing challenges had yet to be addressed.
                      Specifically, we reported that while DOD continued to release updates to
Investment Control    its corporate enterprise architecture, the architecture had yet to be
Processes             augmented by a coherent family of related subsidiary architectures. 36 For
                      example, we reported that while each of the military departments had
                      developed aspects of a business architecture and transition plan, none of
                      them had fully developed a well-defined business enterprise architecture



                      34
                       GAO-12-134.
                      35
                       GAO-11-684.
                      36
                        DOD's business enterprise architecture approach calls for a federated approach, in
                      which the architecture consists of a family of coherent but distinct member architectures
                      that conform to an overarching corporate or parent architecture.




                      Page 18                                                                       GAO-12-642T
and transition plan to guide and constrain business transformation
initiatives. 37

We also reported in June 2011 that DOD continued to improve its
business system investment management processes, but that much
remained to be accomplished to align these processes with investment
management practices associated with individual projects and with
portfolios of projects. 38 With regard to individual projects, DOD and the
military departments all had documented policies and procedures for
identifying and collecting information about IT projects and systems to
support their business system investment management processes.
However, neither DOD nor the military departments had fully documented
policies and procedures for selecting a new investment, reselecting
ongoing investments, integrating funding with investment selection, or
management oversight of IT projects and systems. With regard to
portfolios of projects, DOD and the Departments of the Air Force and
Navy had assigned responsibility for managing the development and
modification of IT portfolio selection criteria. However, neither DOD nor
the military departments had fully documented policies and procedures
for creating and modifying IT portfolio selection criteria; analyzing,
selecting, and maintaining their investment portfolios; reviewing,
evaluating, and improving the performance of their portfolios; or
conducting post implementation reviews. In addition, while DOD largely
followed its certification and oversight processes, we reported that key
steps were not performed. For example, as part of the certification
process, DOD assessed investment alignment with the business
enterprise architecture, but did not validate the results of this assessment,
thus increasing the risk that decisions regarding certification would be
based on inaccurate and unreliable information.

Since 2001, we have made recommendations to improve DOD’s business
architecture, enterprise transition plan, and business system investment




37
 GAO-11-684.
38
  These best practices are identified in GAO IT investment management guidance. See
GAO, Information Technology Investment Management: A Framework for Assessing and
Improving Process Maturity, GAO-04-394G (Washington, D.C.: Mar. 2004).




Page 19                                                                 GAO-12-642T
                       management. 39 DOD has generally agreed with these recommendations
                       and is taking corrective actions in response. It is essential that DOD
                       implement our recommendations aimed at addressing these long-
                       standing challenges, as doing so is critical to the department’s ability to
                       establish the full range of institutional management controls needed for its
                       financial management as well as its overall business systems
                       modernization high-risk program. We have ongoing work to evaluate the
                       department’s efforts to comply with the NDAA for Fiscal Year 2012, as
                       amended, including updating our evaluations of DOD’s comprehensive
                       business enterprise architecture and transition plan and improved
                       investment control processes.


                       Section 1072 of the NDAA for Fiscal Year 2010 requires that new DOD
DOD Has Begun          programs be assessed to determine whether or not appropriate business-
Performing Business-   process reengineering efforts have been undertaken. The act further
                       states that these efforts should ensure that (1) the business process to be
Process                supported by the defense business system modernization will be as
Reengineering          streamlined and efficient as practicable and (2) the need to tailor
                       commercial-off-the-shelf systems to meet unique requirements or
Assessments            incorporate unique interfaces has been eliminated or reduced to the
                       maximum extent practicable. 40 In June 2011, we reported that, for those
                       investments we reviewed, DOD and the military departments used DOD’s
                       Business Process Reengineering Guidance (dated April 2011) to assess



                       39
                         See, for example, GAO, Information Technology: Architecture Needed to Guide
                       Modernization of DOD’s Financial Operations, GAO-01-525 (Washington, D.C.: May 17,
                       2001); DOD Business Systems Modernization: Improvements to Enterprise Architecture
                       Development and Implementation Efforts Needed, GAO-03-458 (Washington, D.C.: Feb.
                       28, 2003); Business Systems Modernization: DOD Continues to Improve Institutional
                       Approach, but Further Steps Needed, GAO-06-658 (Washington, D.C.: May 15, 2006);
                       Business Systems Modernization: Strategy for Evolving DOD's Business Enterprise
                       Architecture Offers a Conceptual Approach, but Execution Details Are Needed, GAO-07-
                       451 (Washington, D.C.: Apr. 16, 2007); Business Systems Modernization: DOD Needs to
                       Fully Define Policies and Procedures for Institutionally Managing Investments, GAO-07-
                       538 (Washington, D.C.: May 11, 2007); DOD Business Systems Modernization: Progress
                       in Establishing Corporate Management Controls Needs to Be Replicated Within Military
                       Departments, GAO-08-705 (Washington, D.C.: May 15, 2008); DOD Business Systems
                       Modernization: Recent Slowdown in Institutionalizing Key Management Controls Needs to
                       Be Addressed, GAO-09-586 (Washington, D.C.: May 18, 2009); Organizational
                       Transformation: Military Departments Can Improve Their Enterprise Architecture
                       Programs, GAO-11-902 (Washington, D.C., Sept. 26, 2011).
                       40
                        Pub. L. No.111-84, § 1072.




                       Page 20                                                                   GAO-12-642T
               whether the investments complied with the business-process
               reengineering requirement. 41 Consistent with the guidance, DOD and the
               military departments completed questionnaires to help them identify and
               develop approaches to streamlining and improving existing business
               processes. Once these assessments had been completed, the
               appropriate authorities asserted that business-process reengineering
               assessments had been performed.

               We also reported in June 2011 that while DOD and the military
               departments largely followed DOD’s guidance, they did not perform the
               key step of validating the results of these reengineering assessments to
               ensure that they, among other things, accurately assessed process
               weaknesses and identified opportunities to streamline and improve
               affected processes. The reason DOD did not follow key aspects of the
               certification process—primarily not validating assessment results—was
               attributed in part to unclear roles and responsibilities. According to military
               department officials responsible for the investments we reviewed,
               validation activities did not occur because DOD policy and guidance did
               not explicitly require them to be performed. In addition, there was no
               guidance that specified how assessments should be validated. According
               to DOD officials, the oversight and designated approval authorities did not
               validate the DOD level assessments and assertions because DOD policy
               and guidance had not yet been revised to require these authorities to do
               so. We have work underway to evaluate DOD’s efforts to improve its
               business system investment process, including its efforts to address the
               act’s business process reengineering requirement. GAO has made prior
               recommendations to address these issues. DOD has agreed with these
               recommendations and is taking corrective actions in response.


               In closing, DOD has demonstrated leadership and sustained commitment
Concluding     since the first issuance of its FIAR Plan in 2005 and through
Observations   improvements and responsiveness to our recommendations since then.
               DOD has made progress through the FIAR Guidance, with the
               development of a methodology for implementing the FIAR strategy. Full
               compliance with the guidance can provide a consistent, systematic
               process to help DOD components achieve and verify audit readiness.
               Without full compliance, as we have seen in our work, components may



               41
                GAO-11-684.




               Page 21                                                            GAO-12-642T
assert audit readiness while process deficiencies prevent validation,
require corrective actions, and delay an audit for another fiscal year.

Automated information systems are essential for modern accounting and
recordkeeping. DOD is developing its ERP systems as the backbone of
its financial management improvement and they are critical for
transforming its business operations. To be fully successful,
implementation of ERP systems should be consistent with an effective
corporate enterprise architecture and the development of streamlined
business processes. DOD officials have stated that these systems are
critical to ensuring that the department meets its mandated September
30, 2017, goal to have auditable departmentwide financial statements.
However, implementation has been delayed by deficiencies in
performance and the need for remedial corrective actions. DOD
components will evaluate cost-effective modifications to legacy systems
and implement any necessary changes. According to DOD officials, for
the ERP systems that will not be fully deployed prior to the audit
readiness goals, the DOD components will need to identify effective
workaround processes or modifications to legacy systems that will enable
audit readiness.

DOD faces considerable implementation challenges and has much work
to do if it is to meet the goals of an auditable SBR by fiscal year 2014 and
a complete set of auditable financial statements by fiscal year 2017. It is
critical that DOD continue to build on its current initiatives. Oversight and
monitoring will also play a key role in making sure that DOD’s plans are
implemented as intended and that lessons learned are identified and
effectively disseminated and addressed. Absent continued momentum
and necessary future investments, the current initiatives may falter,
similar to previous well-intended, but ultimately failed, efforts.

We will continue to monitor the progress and provide feedback on the
status of DOD’s financial management improvement efforts. We currently
have work in progress to assess (1) the FIAR Plan’s risk management
process for identifying, assessing, and addressing risks that may impede
DOD’s ability to achieve the 2017 financial audit readiness goal; (2)
DOD’s funds control in relation to the reliability of its financial statements;
(3) the schedule and cost of Army’s GCSS; (4) components’ efforts to
prepare for SBR and full financial statement audits; and (5) DOD’s actions
in response to our recommendations. As a final point, I want to
emphasize the value of sustained congressional interest in the
department’s financial management improvement efforts, as
demonstrated by this subcommittee’s leadership.


Page 22                                                            GAO-12-642T
                   Chairman McCaskill, Ranking Member Ayotte, and members of the
                   subcommittee, this completes my prepared statement. I would be pleased
                   to respond to any questions that you may have at this time.


                   If you or your staff have any questions about this testimony please
GAO Contacts and   contact me at (202) 512-9869 or khana@gao.gov. Contact points for our
Staff              Offices of Congressional Relations and Public Affairs may be found on
                   the last page of this testimony. GAO staff who made key contributions to
Acknowledgments    this testimony include Valerie Melvin, Director; Cindy Brown Barnes,
                   Assistant Director; Mark Bird, Assistant Director; Kristi Karls; Michael
                   Holland, Chris Yfantis, and Maxine Hattery.




(197115)
                   Page 23                                                        GAO-12-642T
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