# Presentation: 009864

## Department of Defense Building a Better Financial Management Foundation with Standardization 

**James E. Short**
**Deputy Chief Financial Officer**
**March 11, 2008**

## Agenda

- DoD Financial Management Standardization:
- Financial Improvement and Audit Readiness Plan (FIAR)
- Enterprise Transition Plan (ETP)
- Standard Financial Information Structure
- Priorities
- Emerging Issues
- Accomplishments
- Summary

## 
DoD Financial Improvement and Audit Readiness Plan (FIAR) 
Built on a foundation of Army, Navy, Air Force, and Defense Logistics Agency Financial Improvement Plans (FIPs)
Incremental, prioritized improvement work based on segments of the DoD business and financial environment
Improvements address Policies, Processes, Controls (OMB Cir. A-123), Systems, and Human Capital
Integrated with Enterprise and Component Transformation Plans
Over 2,000 milestones maintained and managed in a web-based project repository with FIPs and Enterprise Transition Plan
Components report progress and status in achieving FIAR Plan milestones monthly
Progress and status are reviewed quarterly by the DCFO, USD(C), Deputy Secretary of Defense, and OMB

- Financial Improvement and Audit Readiness

- DoD Financial Improvement and Audit Readiness Plan (FIAR)
- Built on a foundation of Army, Navy, Air Force, and Defense Logistics Agency Financial Improvement Plans (FIPs)
- Incremental, prioritized improvement work based on segments of the DoD business and financial environment
- Improvements address Policies, Processes, Controls (OMB Cir. A-123), Systems, and Human Capital
- Integrated with Enterprise and Component Transformation Plans
- Over 2,000 milestones maintained and managed in a web-based project repository with FIPs and Enterprise Transition Plan
- Components report progress and status in achieving FIAR Plan milestones monthly
- Progress and status are reviewed quarterly by the DCFO, USD(C), Deputy Secretary of Defense, and OMB

## FIAR E2E Business Process Segments

- Provides a systematic, structured approach to improvement activities
- Ensures all essential business and financial processes are addressed during Discovery and Correction
- Provides a means to utilize BEA products and to integrate Business Transformation initiatives
- Identifies functional communities that perform each process step
- Is consistent with the auditor’s approach to financial statement audits
- Provides a method for monitoring and measuring progress and status that also provides visibility of completed improvement activities

## What Is a FIAR Segment?

- Segments are either:
- Balance Sheet line items (e.g., Environmental Liabilities)
- End-to-end business processes (e.g., Acquire to Retire for Real Property)
- Organizations/Commands in a Component (e.g., Naval Supply Command)
- Segments are used for:
- Planning and executing improvements to:  Policies, Processes, Controls, Systems, and Human Capital
- Planning for Management Assertions
- Performing Validations by IG or an IPA
- Managing sustainment until completely audit ready

- The FIAR Plan contains individual Key Milestone (KM) Plans for each SEGMENT with tasks in Component FIPs
- for each FIAR KM.

**Notes:**
Business processes that can be addressed end-to-end, such as Civilian Pay. ·       Groups of financial statement lines that are closely related and may be addressed by making similar improvements, such as Fund Balance with Treasury, Accounts Payable, and Accounts Receivable.
·       Individual financial statement lines in which improvements can be easily segregated, such as Cash and Other Monetary Assets.
·       Material sub-lines, such as Military Equipment. ________________________________ 
Segments can be formed by either bringing together closely related areas of financial management or further breaking apart areas into more manageable portions. This allows the Department greater flexibility in how it organizes and prioritizes financial management improvement efforts.  Segments may be business processes, groups of related financial statement lines, sub-lines, or a single line.

## FIAR End-to-End (E2) Business Processes

**E2E Business****Processes provide****a link to Process ****Steps; Data Objects;****and Laws, Regs,**
**and Policies in the****BEA**

**E2E Business Processes provide a means for engaging the functional**
** ****communities who perform the activities within the process steps**.

## How Functional Communities Are in the FIAR Plan

- Acquisition Process Steps

- Logistics Process Steps

- Financial Process Steps

- Logistics
- Process Step

-   Example:  Acquire to Retire and Procure to Pay for Military Equipment

## How E2E Processes Are in  the FIAR Plan

**1 ****Key Milestone**** for each Process Step**

**Procure to Pay **

**5 ****Milestones**** / one for each****type of improvement activity**

|  | 2008 | 2009 | 2010 | 2011 |
| --- | --- | --- | --- | --- |
| Requisition Process Step |  |  |  |  |
|     Policies |  |  |  |  |
|     Processes |  |  |  |  |
|     Controls |  |  |  |  |
|     Systems |  |  |  |  |
|     Human Capital |  |  |  |  |
| Sourcing Process Step |  |  |  |  |
|     Policies |  |  |  |  |
|     Processes |  |  |  |  |
|     Controls |  |  |  |  |
|     Systems |  |  |  |  |
|     Human Capital |  |  |  |  |

**FIAR Key Milestone**
**Project Plans Maintained**
**Web-Based in FIAR Tool**

- Note:  Each milestone is supported by tasksin Component Financial Improvement Plans
- maintained in the Web-based FIAR Tool.

## How FIAR Segments Lead to Financial Audits 

- How FIAR Segments Lead to Financial Audits

-   Segments matrix together to equal each Component’s:
- Mission, business, and financial operations, and
- The business and financial data reported in Financial Statements

**Financial**
**Statement**
**Management**
**Assertion**

**Clean**
**Audit**
**Opinion**

**Financial**
**Statement**
**Audit**

**Financial Statements**

**Component Mission, Business**
**and Financial Operations**

**       ****E2E**
**  ****Business**
**   ****Process**
**Segments**

**Balance**
**  ****Sheet**
**   ****Line**
**Segments**

**Command**
**Segments**

**Balance**
**Sheet**

**Notes:**
Business processes that can be addressed end-to-end, such as Civilian Pay. ·       Groups of financial statement lines that are closely related and may be addressed by making similar improvements, such as Fund Balance with Treasury, Accounts Payable, and Accounts Receivable.
·       Individual financial statement lines in which improvements can be easily segregated, such as Cash and Other Monetary Assets.
·       Material sub-lines, such as Military Equipment. ________________________________ 
Segments can be formed by either bringing together closely related areas of financial management or further breaking apart areas into more manageable portions. This allows the Department greater flexibility in how it organizes and prioritizes financial management improvement efforts.  Segments may be business processes, groups of related financial statement lines, sub-lines, or a single line.

## Discovery & Correction:
Processes, systems and controls documented, evaluated and tested
Weaknesses identified
Corrective actions, including system modernization or deployment, completed
Segment Assertion:  Management asserts audit readiness to OIG and OUSD(C) for concurrence 
Audit Readiness Validation:  OIG or IPA validates management’s segment assertion
Audit Readiness Sustainment:  Annual verification by segment using OMB A-123, Appendix A, as guidance
Financial Statement Assertion:  Management asserts audit readiness to OIG and OUSD(C) for concurrence
Financial Statement Audit:  OIG or IPA performs an audit

- Discovery & Correction:
- Processes, systems and controls documented, evaluated and tested
- Weaknesses identified
- Corrective actions, including system modernization or deployment, completed
- Segment Assertion:  Management asserts audit readiness to OIG and OUSD(C) for concurrence
- Audit Readiness Validation:  OIG or IPA validates management’s segment assertion
- Audit Readiness Sustainment:  Annual verification by segment using OMB A-123, Appendix A, as guidance
- Financial Statement Assertion:  Management asserts audit readiness to OIG and OUSD(C) for concurrence
- Financial Statement Audit:  OIG or IPA performs an audit

**Discovery****&**** Correction**

**    ****Audit****      Readiness****     Validation**

**     ****Audit**
**     ****Readiness**
**     ****Sustainment**

- Financial Improvement and Audit Readiness

**       ****Segment****       Assertion**

-        **Financial**
**       ****Statement****       Audit**

**     ****Financial**
**     ****Statement**
**     ****Assertion**

## This Is How We Measure Progress

- USACE Audit
- DISA Audit
- USMC Audit
- MERHCF Audit
- TRICARE Audit

- Clean opinions on a portion of DoD’s assets and liabilities

- Military Equipment Segment (23% of   DoD Assets)

- Air Force
- 7%

- Navy 11%

- Army 4%

**End-to-End Segment Improvements**

- Audit
- Readiness

- Assertion

| Policy |   |   |
| --- | --- | --- |
| Process |   |   |
| Int. Control |   |   |
| System |   |   |
| People |   |   |

- Current Opinion

- Component

- Audits

- DoD’s Total Assets and Liabilities

## This Is How We Oversee Progress

**Deputy Secretary of Defense**
**(Chief Management Officer)**

**FIAR**
**Committee**
**(Chaired by**
**DCFO)**

**FIAR**
**Subcommittee**

**USD(C)/CFO**

**Army**
**Plan**

**Navy**
**Plan**

**Air Force**
**Plan**

**Defense**
**Agency**
**Plans**

**FIAR**
**Plan**

**Components report monthly progress on Financial Improvement**
** ****and Audit Readiness milestones**

**Secretaries of Army, Navy,**
** ****and Air Force meet quarterly**
**with Deputy Secretary**** to review financial statements ****and FIAR progress**

## DoD Enterprise Transition Plan

- Enterprise Transition Plan (ETP) is the roadmap.
- The ETP articulates a systematic process for delivering improved capabilities that will have a major impact on the performance of DoD's business mission.
- The ETP gives DoD - particularly the Defense Business Systems Management Committee (DBSMC) and Investment Review Boards - a comprehensive management tool for business modernization, with measurable plans, schedules, and budgets.
- Major milestones for the systems and initiatives that are critical to achieving transformation priorities are outlined in the ETP.

## Integrated Information Is Impossible Without Data Standards

***Lack of financial data standards across the Services impedes the ability to analyze performance on an enterprise-wide basis***

*An Example of Pre-SFIS Data Mappings*

**Integrated Information Is Impossible Without Data Standards**

## Standard Financial Information Structure

***Strategic priorities focus on continuous improvement in fulfilling ******critical responsibilities***

- System

- Standard Financial Information Structure (SFIS)

- Accomplishment

- Why Important

- SFIS is DoD’s common business language that facilitates the consistent collection and reporting of financial information
- SFIS provides standard definitions, lengths, values, and business rules that enable transparency and interoperability across the DoD enterprise

- Completed SFIS plan that tracks when each DoD business feeder and accounting system will be SFIS compliant
- SFIS Phase III: Cost accumulation structure released in BEA 4.1 Q2 FY07
- Developed DoD-wide SFIS on-line training and ERP configuration guides in Q1 FY08

## DoD FM Priorities

***Strategic priorities focus on continuous improvement in fulfilling ******critical responsibilities***

- Transform Financial Operations

- Providing better support to the warfighter
- Delivering timely, accurate, reliable information to decision makers
- Standardizing business data and rules
- Integrating enterprise-wide processes and systems
- Deploying state-of-the-art technology

- Improve Stewardship

- Recruit and Retain a World-class Workforce

- Building and executing robust metric programs
- Strengthening internal controls
- Eliminating material weaknesses, and safeguarding taxpayer’s dollars
- Delivering transparency
- Achieving clean audit opinions

- Using innovative strategies to recruit talent
- Investing in a world-class financial workforce
- Achieving outcomes by aligning National Security Personnel System Individual Development Plans to strategies
- Initiating the CFO Academy at the National Defense University

## DoD FM Emerging Issues

***Financial Transformation is delivering results and the Department******is committed to meeting the challenges ahead***

- Transform Financial Operations

- Driving financial reform in a warfighting culture
- Balancing the global scale of operations and diverse missions
- Managing external and oversight stakeholder expectations
- Building and executing a totally integrated financial improvement and audit readiness plan

- Improve Stewardship

- Recruit and Retain a World-class Workforce

- Changing operational perceptions about the value of internal controls
- Building relationships with stakeholders that lead to successful outcomes
- Finding the optimal balance between risk and cost
- Achieving clean audit opinions

- Paying competitive rates for financial talent
- Retaining institutional knowledge in light of retirement bow wave
- Using innovative strategies to recruit talent
- Achieving outcomes by aligning National Security Personnel System Individual Development Plans to strategies

## DoD FM Accomplishments

***The Department has a responsibility to be good stewards over the resources we manage.  We take this responsibility seriously!***

- Transform Financial Operations

- Clean audit opinions on $1.3T or 36 percent of all assets and liabilities
- Five unqualified and two qualified audit opinions for FY2007
- Standard Financial Information Structure across the Department
- Enterprise-wide Integrated Financial Improvement and Audit Readiness Plan (FIAR)

- Improve Stewardship

- Recruit and Retain a World-class Workforce

- Reduced self-identified internal control weaknesses from 116 to 19
- Zero weakness in the civilian pay system internal control design
- Prevented over $452m in duplicate payments
- DCAA audited $358B of contracts; saved the Department $2.4 B

- Provided financial assistance to employees seeking advanced degrees and professional certification
- DFAS Leaders-in-Motion Program recruits and trains an average 225 financial employees each year
- The Department is investing in the CFO Academy at NDU

## OSD and DoD Components share the requirement to produce an integrated improvement plan, based on:
DoD Enterprise Priorities 
Focus on systems and initiatives critical to the Business Enterprise Priorities

Component Priorities 
Each Component has the responsibility to represent its own transformation story in the context of its Business Mission
Focuses on systems and initiatives critical to each Component’s transformational efforts
Components are responsible for developing and maintaining architectures and transition plans that detail each Component’s Priorities.

- This Is How We Will Succeed

**OSD and DoD Components share the requirement to produce an integrated improvement plan, based on:**
**DoD Enterprise Priorities**** **
- Focus on systems and initiatives critical to the Business Enterprise Priorities
**Component Priorities**** **
- Each Component has the responsibility to represent its own transformation story in the context of its Business Mission
- Focuses on systems and initiatives critical to each Component’s transformational efforts
- Components are responsible for developing and maintaining architectures and transition plans that detail each Component’s Priorities.

**Tiered Accountability**

## Summary

- The Department’s mission and the changing nature of the threats to which it must respond, require it to be nimble, adaptive, flexible, and accountable.
- The Department’s business model must allow it to adapt and flex as decision makers deal with growing competitive pressures, changing regulations, and strategic and tactical course shifts.
- In this model, transformation is about reacting instantly and effectively to what today’s modular, agile, technologically-advanced joint force demands.  This new reality has given increased urgency to transforming the Department’s business operations.
- Transforming those operations is no longer just a matter of achieving cost, schedule, and performance requirements.  It’s about business agility.

**Notes:**
For the past several decades, the Defense Department’s business model has been configured to support a military dependent on large-scale weapons systems and prepared for sustained, predictable battlefield engagements in specific parts of the world. The contemporary defense business model must be different, to keep pace with the changing nature of the DoD’s warfighting challenges.