Office of the Assistant Secretary of the Army (Financial Management & Comptroller) (OASA(FM&C))

Deputy Assistant Secretary of the ArmyFinancial Operations

Accountability & Audit Readiness: Sustaining Army’s Strength

Accountability & Audit Readiness: Sustaining Army’s Strength

FY 2018 Army Annual Financial Report

1

General Fund

Working Capital Fund

Financial Statement Audit Overview

2

▪ The Chief Financial Officers (CFO) Act of 1990 requires all federal agencies to prepare audited financial statements

▪ The National Defense Authorization Act (NDAA) required DoD financial statements to be validated as ready for audit by 30 September 2017

▪ Financial statement audits occur annually, and continue in perpetuity

▪ Financial statement audits examine all aspects of an organization’s operations and financial information

▪ DoD financial audits examine four financial statements and related footnotes

▪ Financial statement audits result in an opinion by the auditor on whether the financial statements are presented fairly in accordance with Generally Accepted Accounting Principles

Types of Audit Opinions

3

There are four types of audit opinions and they are determined based on the level of materiality:

Type Definition

UnmodifiedAuditor has no significant reservation in respect to matters contained in the financial statements (i.e., the agency’s financial condition, position, and operations are fairly presented in the financial statements).

ModifiedAuditor encountered one or more types of situations which do not comply with generally accepted accounting principles, however the rest of the financial statements are fairly presented.

DisclaimerAuditor could not form, and consequently refuses to present, an opinion on the financial statements. Auditor tried to audit the entity but could not complete the work due to various reasons and does not issue an opinion.

Adverse Auditor determines that the financial statements are materially misstated and, when considered as a whole, do not conform with GAAP; opposite of Unmodified.

Army Financial Statement Audit History

4

▪ FY92-97 - AAA performed the Army financial statement audits from

▪ FY98-17 - DoD OIG took over and performed limited procedures audits

▪ FY12-14 - Limited scope “examinations” with an Independent Public Accounting firm

▪ FY15 - General Fund Statement of Budgetary Activity (SBA) audit

▪ FY16 - General Fund SBA audit & WCF audit of portions of selected line items

▪ FY17 - General Fund and Working Capital Fund Statement of Budgetary Resources audit

▪ FY18 – General Fund and Working Capital Fund Audits of Full set of Financial Statements and Related Footnotes, plus audits of Conventional Ammunition and GFEBS controls, plus consolidated DoD audit and other Defense organization audits

Non-Federal vs. DoD: Size and Complexity

Number of

Employees

Total

Assets

Apple

115K

DoD

2.8M

Inventory

Walmart

$44B

DoD

$262B

Walmart

$200B

DoD

$2.4T

State of California

227K

Walmart

2.3M

State of California

$231B

Apple

$290B

Apple

$2B

State of California

$97M

Over 55% of DoD assets under first year audit for FY 2018 6

Background

DoD Consolidated Audit StructureComprised of Over 24 Stand-Alone Audits and an Overarching Consolidated Audit

DoD-Wide Consolidated Audit Performed by DoD Office of Inspector General (DoD OIG)

Included in the Consolidated Audit

5% Budget, 3% Assets

Those DoD components not undergoing stand-alone audits will

be included in the consolidated audit.

DoD OIG will perform internal controls and substantive testing

over activities and balances.

Stand-Alone Audits

95% Budget, 97% Assets

DoD OIG (as the Consolidated Auditor) will assume responsibility for or make

reference to the audit opinions of each component auditor (performed by an

independent public accounting firm).

Army

General Fund

Air Force

General Fund

U.S. Army Corps

of Engineers –

Civil Works1st Full Audit: 2006

Military

Retirement Fund1st Full Audit: 1991

Medicare-Eligible

Retiree Health

Care Fund1st Full Audit: 2003

DCAA1st Full Audit: 2005

DFAS Working

Capital Fund1st Full Audit: 2005

DHA-CRM1st Full Audit: 2009

USTRANSCOM

USSOCOM

DoD Classified1st Full Audit: 2015

DLA

Strategic

Materials1st Full Audit: 2017

DLA

Working Capital

Fund1st Full Audit: 2017

DLA

General Fund1st Full Audit: 2017

DeCA1st Full Audit: 2005

DHPDISA General

Fund1st Full Audit: 2016

DISA Working

Capital Fund1st Full Audit: 2016

DoD OIG1st Full Audit: 2015

Army Working

Capital Fund

Navy

General Fund

Navy Working

Capital Fund

Air Force Working

Capital Fund

U.S.

Marine Corps

General Fund1st Full Audit: 2017

Multiple Years Under Audit1st Year

JCS

(incl. NDU)DTRADCMA

DARPADoDEAMDA

DAU

DHRA

OEADSS DTIC DMA

CBDP

DSCAWHS

Other TI-97 Funds

Provided to Army by

OSD

Other TI-97 Funds

Provided to Navy by

OSD

Other TI-97 Funds

Provided to Air Force

by OSD

DOTE DPAA DTSA DFAS GF MHPI

Burden Sharing

Account by Foreign

Allies, Defense

Support for U.S.

Relocation to Guam

Activities, Defense

Host Nation Support

for U.S. Relocation

Activities, Defense

DoD Education

Benefits Fund

Emergency

Resp. Fund,

Defense

Homeowners

Assistance Fund,

Defense

Mutually

Beneficial

Activities

Voluntary

Separation

Incentive

Trust Fund

Defense

Gift Fund

National

Security

Education

Trust Fund

Defense

Cooperation

Account

2nd Year

• In December 2017, the Army began its first-ever Department-wide financial statement audit.

• The FY 2018 audits concluded on 11/15/18 with the publication of the Army’s Annual Financial Report, including the Independent Auditor Report

• https://www.asafm.army.mil/documents/Offices/FO/FY%202018%20U.S.%20Army%20Annual%20Financial%20Report.pdf

• The auditor issued disclaimers of opinion on the GF and WCF financial statements, and modified opinions on Conventional Ammunition and GFEBS

FY18 Army Audits

7

FY18 Audit Statistics

8

Scope/Size Metric General Fund Working Capital Fund

NFRs 283 114

Responses to Auditor Requests 16,000 5,000

Commands Executing Funds 14 1

Assets Subject to Audit $302B $23B

Military Pay $60B NONE

FBwT $ to reconcile and support $122B $2B

Systems supporting iUoT 40+ 25

Number of CAP execution owners 33 8

• The scope and size of GF greatly outweighs the that of the Army WCF

*NFR total does not include 32 NFRs that have a combination of both GF and WCF findings

Media Perspective

9

Congressional Perspective

10

Analysis

1) As of 28 Feb 2019

• 413 CAPs complete and in execution

• 5 CAPs in development

• 39 CAPs being finalized

2) Establish battle rhythm for organizations to update

completed milestones on a more frequent schedule

within the CAP Tool.

3) Expected completion of CAPs to extend beyond FY20

4) Closed NFRs and associated corrective action results

will be assessed during FY20 and FY21 audits

Secretary of the Army Perspective

As of 18 February 2019

FY18 NFRs Closed by Management – Plan vs. Actual FY18 CAP Execution Steps Completion - Plan vs. Actual

FY19 Goal: Achieve or exceed planned NFR closures End State Goal: Achieve audit opinions in FY20 (WCF) and FY22 (GF)

Army will complete corrective action plan development by 15 February 2019.

NFR = NOTICE OF FINDING AND RECOMMENDATION CAP = CORRECTIVE ACTION PLAN

Initiatives❑ Prioritize actions to fix key audit impediment: universe of

transitions, IT general controls, existence & completion of

assets, FBwT

❑ Remediation of audit findings will continue in order to obtain

an unmodified opinion

❑ HQDA, Commands, organizations, and service providers

work to finish development and start execution of corrective

action plans to meet milestones

❑ Functional area (Priority) leads continue to review, update,

and coordinate execution of required tasks

❑ Implement ASA(FM&C) tool to capture status of milestone

execution across organization

FY19 Army Financial Audit Priorities

UoT – Complete UniverseITGC – Access ControlsAsset Accountability

➢ Accurate and current

Asset data

➢ Achieve >95%

accuracy rates on

audit samples

➢ Improve IT access and

segregation controls

➢ Increase security of

business IT systems

➢ Capability to

aggregate all Army

financial transactions

➢ Create a complete

universe of

transactions

▪ Implementation of corrective actions to remediate the root causes of findings (NFRs)

▪ Army goals:

– Modified opinions on the FY20 Working Capital Fund and FY22 General Fund financial statements

– Unmodified opinions on the FY22 Working Capital Fund and FY24 General Fund financial statements

Summary and Way Ahead

13

Accountability & Audit: Sustaining Army’s Strength

BACKUP

14

Accountability & Audit: Sustaining Army’s Strength

Financial Statements

15

General Fund Working Capital Fund

Accountability & Audit: Sustaining Army’s Strength

Financial Statements

16

General Fund Working Capital Fund

Accountability & Audit: Sustaining Army’s Strength

Financial Statements

17

General Fund Working Capital Fund

Accountability & Audit: Sustaining Army’s Strength

▪ Material Weaknesses

– Entity-Level Controls

– Financial Reporting

– General Ledger Adjustments / Journal Entries

– Beginning Balances

– Accruals

– Completeness/Reconciled Universe of Transactions

– Evidential Matter

– IT Controls

– Inventory

– General Property, Plant and Equipment

– Fund Balance with Treasury

– Environmental Liabilities (GF only)

– Revenue (WCF only)▪ Significant Deficiency

– Service Provider Oversight▪ Non Compliance with Laws/Regulations

– FMFIA

– FFMIA

FY 2018 AWCF Audit Report

18

DoD/Army implemented an audit feedback cycle to

respond to and maximize auditor feedback 19

How We Track Progress

Pre-

Planning

Phase

Planning

Phase

Internal Control

PhaseTesting Phase

Reporting

Phase

Army Collects and

Prioritizes Findings

ODASA-FOA

Assigns

Findings for

Action

Responsible

Parties

Develop and

Implement

Corrective

Actions

Planning

Phase

Internal Control

PhaseTesting Phase

Reporting

Phase

Year 1 Audit Year 2 Audit

Audit Finding

Audit Finding

Audit Finding

Auditor

Validates

Corrective

Actions and

Closes or

Reissues

Findings

Reissued Finding

A-123 Cycle

to Sustain

Closed

Fin

din

g

Audit

Finding

Audit

Finding

Accountability & Audit: Sustaining Army’s Strength

Asset Substantive Audit Results

G-4 SamplesE&C Pass

RateData Quality

Pass Rate SamplesE&C Pass

RateData Quality

Pass RateGeneralEquipment* 1,199 79% 63%OM&S (Munitions)* 1,072 94% TBD

20

OACSIM Samples

E&CPass Rate

Data Quality

Pass Rate SamplesE&C Pass

RateData Quality

Pass RateGeneral Fund Real Property⁺

875 98% 52%

Working Capital Fund Real Property

659 99% 94%

*The following was not tested in the FY18 audit for GE: assets held at DLA, GFP in contractor custody, OCONUS assets, PM owned **The following was not tested in the FY18 audit for OM&S: OCONUS assets

AMC SamplesE&C Pass

Rate

Data Quality

Pass Rate SamplesE&C Pass

RateData Quality

Pass RateWorking Capital Fund General Equipment 392 97% 85%Working Capital Fund Inventory† 997 87% 92%

†The following was not tested in the FY18 audit for Inventory: assets held at DLA, OCONUS Inventory

⁺The following was not tested in the FY18 audit for Real Property: assets held at ARNG, USAR/OCAR, OCONUS property

FY18 Results FY19 Results

Accountability & Audit: Sustaining Army’s Strength

Army Priorities

21

Universe of Transactions (UoT) Reconciliation

Fund Balance with Treasury (FBwT)

Existence and Completeness(E&C)

Asset Valuation

Journal Vouchers (JVs) / Financial Reporting

Environmental and Disposal Liabilities

(EDL)

Audit Management and Governance

Information Technology General Controls

(ITGC)

Posting Logic and Data Categorization

Budget Execution Process Improvement

1 2 3

4 5 6

7 8 9

Service Organization Overview

Vendor Pay

DFAS Civilian Pay

DFAS Military Pay

DFAS Standard

Disbursing

DISA (ATAAPS)

DMDC DCPDS

Military & Civilian Payroll

DFAS Contract Pay

DCMA Contract Pay

Contract Pay

DFAS Vendor Pay

(CAPS-W, OnePay,

DAI)

DLA DAI

DLA iRAPT

DMDC DTS US Bank SYNCADA

US Bank

Retail Payment Processing

US Bank

Total Systems Services

Us Bank Elavon, Inc.

US Bank Access Online

Citigroup Technology

Infrastructure (CTI)

DLA SOIDC

DLA DPAS

U.S. Army

Conventional Munitions

Property & Equipment

DOL Compensation

Benefit & Payment

DOL / Xerox

(OWCP) Bill Processing

Federal Employee

Contribution Act

Treasury

Funds Management

Treasury Admin Resource

Center

Treasury Invest &

Borrowings

U.S. Treasury

Accounting & Investment

DFAS FBWT

Treasury Distribution

DFAS FBWT Treasury

Reconciliation

FBWT

Accounting & Financial

Reporting

US Bank Convergys

QTS

DFAS FBWT

Treasury Distribution

DISA (EIS)

DFAS (AuD-IT)

DFAS

Financial Reporting

DFAS (ELAN)

DISA (EIS)

DFAS (AuD-IT)

DFAS (ELAN)

DFAS Standard

Disbursing

DISA (EIS)

DFAS (AuD-IT)

DFAS (ELAN)

DISA (EIS)

DFAS Standard

Disbursing

DLA iRAPT

DFAS (AuD-IT)

DFAS (ELAN)

DISA (EIS)

DFAS (AuD-IT)

DFAS (ELAN)

DISA (EIS)

DFAS (AuD-IT)

DLA DAI

DFAS Accounting

DLA DAI

U.S. Army GFEBS

DISA (EIS)

DFAS (AuD-IT)

DFAS (ELAN)

U.S. Army GFEBS

DFAS (ELAN)

DFAS (AuD-IT)

22

Treasury Invoice

Processing Platform

US Bank Lockbox

Summary of SOC 1 Coverage

by Assessable Unit

Unqualified/

Unmodified

Opinion

Qualified /

Modified

Opinion

TBDImpacts Multiple

Families

Treasury Invoice

Processing Platform