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i 

72–416 2012

[H.A.S.C. No. 112–92] 

INDUSTRY PERSPECTIVES ON ACHIEVING 

AUDIT READINESS 

HEARING 

BEFORE THE

PANEL ON DEFENSE FINANCIAL MANAGEMENT 

AND AUDITABILITY REFORM 

OF THE

COMMITTEE ON ARMED SERVICES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

HEARING HELD 

NOVEMBER 17, 2011 
(II) 

PANEL ON DEFENSE FINANCIAL MANAGEMENT 

AND AUDITABILITY REFORM 

K. MICHAEL CONAWAY, Texas, Chairman 

SCOTT RIGELL, Virginia 

STEVEN PALAZZO, Mississippi 

TODD YOUNG, Indiana 

ROBERT ANDREWS, New Jersey 

JOE COURTNEY, Connecticut 

TIM RYAN, Ohio 

PAUL FODERARO, Professional Staff Member 

WILLIAM JOHNSON, Professional Staff Member 

LAUREN HAUHN, Research Assistant 
(III) 

C O N T E N T S 

CHRONOLOGICAL LIST OF HEARINGS 

2011 

Page 

HEARING: 

Thursday, November 17, 2011, Industry Perspectives on Achieving Audit 

Readiness .............................................................................................................. 1 

APPENDIX: 

Thursday, November 17, 2011 ................................................................................ 21 

THURSDAY, NOVEMBER 17, 2011 

INDUSTRY PERSPECTIVES ON ACHIEVING AUDIT READINESS 

STATEMENTS PRESENTED BY MEMBERS OF CONGRESS 

Andrews, Hon. Robert, a Representative from New Jersey, Ranking Member, 

Panel on Defense Financial Management and Auditability Reform ................ 2 

Conaway, Hon. K. Michael, a Representative from Texas, Chairman, Panel 

on Defense Financial Management and Auditability Reform .......................... 1 

WITNESSES 

Boutelle, Joann, Partner, Deloitte and Touche LLP ............................................. 3 

Keeley, Mark, Partner, PricewaterhouseCoopers LLP ......................................... 7 

Porter, Tracy, Partner, Grant Thornton LLP ........................................................ 5 

APPENDIX 

PREPARED STATEMENTS: 

Boutelle, Joann ................................................................................................. 27 

Conaway, Hon. K. Michael .............................................................................. 25 

Keeley, Mark ..................................................................................................... 49 

Porter, Tracy ..................................................................................................... 37 

DOCUMENTS SUBMITTED FOR THE RECORD: 

‘‘DOD Audit Readiness Essentials,’’ Submitted by Mark Keeley ................. 61 

WITNESS RESPONSES TO QUESTIONS ASKED DURING THE HEARING: 

[There were no Questions submitted during the hearing.] 

QUESTIONS SUBMITTED BY MEMBERS POST HEARING: 

[There were no Questions submitted post hearing.] 

(1) 

INDUSTRY PERSPECTIVES ON ACHIEVING AUDIT 

READINESS 

HOUSE OF REPRESENTATIVES, COMMITTEE ON ARMED SERVICES, PANEL ON DEFENSE FINANCIAL MANAGEMENT AND

AUDITABILITY REFORM, Washington, DC, Thursday, November 17, 2011. 

The panel met, pursuant to call, at 8:00 a.m. in room 2212, Rayburn House Office Building, Hon. K. Michael Conaway (chairman 

of the panel) presiding. 

OPENING STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE FROM TEXAS, CHAIRMAN, PANEL ON DEFENSE MANAGEMENT AND AUDITABILITY CONTROL 

Mr. CONAWAY. Thanks to everyone for being here at our last 

Panel on Defense meeting for the month of November. I would like 

to welcome our witnesses this morning to bring us industry’s perspective on audit readiness. 

Over the past 4 months we have heard from a variety of witnesses within Government, including representatives from the office of OSD [Office of the Secretary of Defense] and military department comptrollers; the Department of Defense functional communities; department Office of Inspector General; and the GAO [Government Accountability Office] on the challenges that the Department faces in achieving audit readiness and its efforts to resolve 

these issues. 

Today, as the Panel nears the completion of its work, we turn to 

accounting firms that have experience out of the private sector, as 

well as within Government, to get their views on the impediments 

to DOD [Department of Defense] achieving auditability and the actions needed to address these challenges. 

In addition to having experience performing work at various 

other entities, these firms are involved in almost every aspect of 

the Department’s financial improvement and audit readiness efforts, ranging from assisting DOD components in implementing the 

FIAR [Financial Improvement and Audit Readiness] strategy, to 

assisting the Office of the Under Secretary of Defense, Comptroller, 

in performing its review of DOD’s components’ progress, and actually performing certain audits themselves. 

Therefore, they can provide a well-informed point of view on the 

problems facing DOD as it works toward achieving auditability on 

the statement of budgetary resources by 2014 and full financial 

statements by 2017. 

Some of the challenges have been identified to date, including 

sustaining leadership and effective oversight, ensuring workforce 
2 

competency and implementing the ERPs [Enterprise Resource 

Planning], solving longstanding internal control weaknesses, and 

managing organizational challenges associated with having a large 

and complex organization such as DOD. 

The witnesses here today may or may not consider all these 

issues as impediments to improving financial management and 

audit readiness, or they may have slightly different take on the 

issues, or they may identify other challenges altogether. 

Most significantly, they may be able to provide alternative options on how to overcome these weaknesses. 

I look forward to hearing their testimony. I would now like to introduce our witnesses. We have got Ms. JoAnn Boutelle, partner 

with Deloitte and Touche; Ms. Tracy Porter, partner with Grant 

Thornton; and Mr. Mark Keeley, partner with 

PricewaterhouseCoopers. 

Now I would like to turn to Rob Andrews for any opening statement he would like to make. 

[The prepared statement of Mr. Conaway can be found in the Appendix on page 25.] 

STATEMENT OF HON. ROBERT ANDREWS, A REPRESENTATIVE 

FROM NEW JERSEY, RANKING MEMBER, PANEL ON DEFENSE FINANCIAL MANAGEMENT AND AUDITABILITY CONTROL 

Mr. ANDREWS. Well, good morning, Chairman. 

Good morning, ladies and gentlemen. I am glad to have you with 

us. 

I will repeat something I have said as we have gone forward in 

this process; that we are on the verge of making very consequential 

decisions about the defense budget, either by default, through the 

sequestration process, or through a more deliberative mechanism 

through the Special Committee. But one way or another there is 

big decisions ahead. 

And one thing I think that we all understand is that bad data 

lead to bad decisions, and bad recordkeeping systems lead to bad 

data. And it is an unfortunate presumption that the present state 

of affairs—because we do not have accurate financial statements 

from the Department of Defense—gives us too much bad data. 

So this whole project is really not about some, you know, metaphysical accounting exercise—with all due respect to the chairman—don’t want to insult accountants, but it is about a much larger and more substantive problem, which is if—that are we going 

to make these very consequential decisions with good information 

or without good information. 

And I am encouraged by much of what I have heard from the Department of Defense and the Services and the various sub-units of 

the Services that are responsible for making us audit-ready by the 

statutory deadline. 

But that is only half of the equation. I have been looking forward 

to this morning because it is the other half of the equation. We 

have been hearing from the people who are going to be preparing 

to be audited. We are now going to hear from the people who will 

be doing the audits and get your perspective on the audit readiness 

and the steps that stand between us and being totally audit-ready. 
3 

So we are glad that you are here. The spirit of this panel has always been to try to take information and use it in the best way 

possible, and we are glad that you are here to give us some of that 

information we can use. 

So thank you, Mr. Chairman. I look forward to the testimony. 

Mr. CONAWAY. Thanks, Rob. 

Ms. Boutelle, your opening statement? And without objection, all 

your statements will be entered in the record. Your written statements will be entered in the record. 

STATEMENT OF JOANN BOUTELLE, PARTNER, DELOITTE AND 

TOUCHE LLP 

Ms. BOUTELLE. Thank you. 

Chairman Conaway, Congressman Andrews and members of the 

Panel, thank you for the opportunity to testify today. 

I have had the unique experience over the last 26 years serving 

in both Government and now industry. Prior to joining Deloitte in 

2004, I worked as the Deputy Chief Financial Officer at DOD and 

before that at the Defense Finance and Accounting Service. 

While serving as the DCFO [Deputy Chief Financial Officer], I 

recognized the managerial challenges caused by issues with the integrity of DOD financial data and led efforts to improve financial 

statements, business processes and systems. 

It is from this experience that I offer my perspective on two 

areas which I think are critical to DOD’s achieving auditability; 

first, an increase in sustained leadership commitment and, second, 

a workforce with the applicable financial and technical competencies. 

I will talk about leadership first. A commitment from DOD leadership starting at the Secretary’s level is critical to achieve audit 

readiness by 2017. This belief comes from Deloitte’s direct experience working with both commercial and Government clients. 

The chief financial officer and the DOD financial management 

community have demonstrated leadership in addressing the tough 

issues of fixing the Department’s business processes and systems. 

However, the business owners must also be held accountable to 

correct deficiencies that impact the Department’s ability to achieve 

their audit goals. Cross-functional ownership at the senior levels 

cannot be forced by the CFO [Chief Financial Officer], who is a 

peer to many of the business leaders. This is a job for the Secretary 

and the Deputy Secretary, with tangible and measurable objectives. 

Secretary Panetta’s recent announcement that he is now personally involved in driving the Department to achieve audit readiness 

is a major signal that this is a top priority of the Department. 

However, sustained participation from the Secretary and Deputy 

Secretary is critical to reinforcing the message throughout the Department that auditability is a top priority. Let me provide an example where a director of an agency became personally involved in 

achieving auditability. The Defense Information Systems Agency, 

or DISA, started on a journey in 2005 to obtain an audit opinion 

on its financial statements. The DISA director and others in leadership became personally involved and actively drove the audit readiness efforts, and recently DISA successfully completed an audit of 

their working capital fund. 
4 

The ongoing involvement of the DISA director was a major factor 

in their success. 

Deloitte has seen similar examples in recent years on the commercial side where corporate CEOs [Chief Executive Officers] and 

COOs [Chief Operating Officers] aggressively led the implementation of the Sarbanes-Oxley Act. These organizations quickly 

learned that success required the full engagement of senior executives, not only in finance, but in the business units. 

A similar pattern of sustained leadership engagement is critical 

to the Department’s ability to meet its aggressive audit readiness 

time lines. 

Now let me address the second critical area for success: The need 

to improve the competencies of the DOD workforce. Workforce development relating to financial management within the DOD 

should include three areas. 

First, there are the people who are directly involved in the preparation of the Department’s financial statements. There should be 

an increased effort to hire CPAs [Certified Public Accountants] into 

these key positions and also to incentivize current qualified employees to take the CPA exam. 

Second, there are those nonfinancial managers who in the course 

of their daily jobs conduct activities that result in a financial transaction. Not all of these people need to be trained accountants, but 

they need to be trained to understand their role in financial management and why controls and timely processing of financial transactions are important to the integrity of the financial data. 

Third, there are those financial managers in DOD who are directly involved in the financial statement audit and audit readiness 

process. 

Leading these efforts requires CPAs with experience in complex 

financial statement audits. Getting to the first audit opinion is the 

most difficult step, and meeting the need for experienced audit professionals is critical to help DOD focus their resources most effectively. 

The DOD does not have a sufficient number of CPAs with this 

experience. Since coming to Deloitte and working directly with seasoned audit practitioners, I have come to appreciate the difference 

between knowing how the Department processes and accounts for 

financial and budgetary transactions and knowing how to audit 

these transactions. DOD needs to recognize this difference. 

In conclusion, DOD and its industry partners share the same 

goal—for DOD to achieve an unqualified audit opinion and for 

them to meet their deadlines. 

I want to thank the Panel for holding these important hearings 

on defense financial management and for your laser-focused attention on this very important issue. 

I look forward to your questions. 

[The prepared statement of Ms. Boutelle can be found in the Appendix on page 27.] 

Mr. CONAWAY. Thank you, Ms. Boutelle. 

Ms. Porter. 
5 

STATEMENT OF TRACY PORTER, PARTNER, GRANT 

THORNTON LLP 

Ms. PORTER. Chairman Conaway, Ranking Member Andrews and 

distinguished members of the Panel, good morning and thank you 

for inviting me to testify today. I am pleased to be able to share 

with you my perspective on the impediments to DOD achieving 

audit readiness and the actions DOD needs to take to become 

audit-ready. 

As you know, Grant Thornton was recently retained to perform 

the audit of the statement of budgetary resources of the United 

States Marine Corps. The results of that audit aren’t the subject 

of my testimony today. 

Instead, my views have been formed through years of conducting 

audits and audit readiness engagements for the Federal Government. 

I know, for some, audit readiness at DOD may seem like a struggle that will not soon be won. But I have seen significant changes 

in recent past included a much stronger focus on improving financial management and not simply because of the audit. 

Instead, there is a strong and sincere desire at DOD to give defense managers and warfighters better financial information with 

which to make their business decisions. 

Improving financial management is the ultimate goal of auditing 

the financial statements. But the road to an unqualified opinion is 

often rocky. Too often organizations and their stakeholders have 

unrealistic expectations about the results of early audits. 

Some of the expectations may derive from the term ‘‘audit readiness.’’ When laymen hear the term ‘‘audit readiness’’ they may assume it means an organization is likely to obtain an unqualified 

opinion on its financial statements. It often means, however, that 

the organization simply has enough evidence ready to subject to 

the scrutiny of auditors, even though the result may be a qualified 

opinion or even a disclaimer. 

The past has shown that receiving a qualified opinion or disclaimer is often the first step most Federal agencies have had to 

take before they really understand where the focus of their audit 

remediation efforts need to be. 

Like almost every action DOD takes, its audit will be the single 

largest audit every undertaken. In addition to large, the audit will 

be complex because DOD’s operations span our Nation’s history, 

while the focus on audit readiness is relatively recent. 

Unlike most companies undergoing an audit for the first time, 

DOD isn’t audit-ready. The difference between the initial audit 

readiness of DOD and most large companies stem from the drive 

for profit. The profit drive ingrains in private sector personnel that 

without financial managers’ input to keep business decisions, they 

don’t have adequate understanding of the availability of resources 

to carry out their operations. That nature hasn’t been part of the 

Government’s way of doing business. They just assume the funding 

will come. 

While changing today’s past practices are slow, the financial 

statements still reflect transactions from the past. So often obtaining that clean opinion for the first few years is unrealistic. Just as 

expectations of audit readiness should be managed, it should also 
6 

be ensured that realistic deadlines are imposed. In a publicly traded company, auditors are in an organization every quarter and 

then they have 90 days at the end of the fiscal year to complete 

the financial statement audit. 

Within the Federal Government, agencies have up to 45 days 

after the end of the year to complete and submit their audited 

statements to OMB [Office of Management and Budget]. In my 

view, it is simply impractical to subject an organization as complex 

as DOD to this unreasonable deadline for the first few years that 

they are subjected to the audit, especially when the publicly traded 

counterparts that are smaller and less complex have twice as long 

to accomplish the same tasks. 

Another challenge is DOD’s reliance on a complex web of service 

providers. Service providers perform financial management functions such as transaction processing and systems maintenance. In 

carrying out the functions, DOD agencies assume the service providers have proper internal controls, while service providers rightly 

assume that the policies and procedures are residing within the 

agencies. 

An effective manner for DOD to actually gain that assurance, instead of having to assume, is to have the service provider’s internal 

controls audited by an independent party. But it might surprise the 

Panel members to know that DOD service providers aren’t subjected to that audit, like the service providers in other agencies. 

In addition, DOD agencies and service providers need a detailed 

agreement that documents what the service providers are supposed 

to do for the agencies. That lack of agreement results in poor controls and injects risk in every transaction. 

Internal controls within DOD agencies themselves are also weak, 

and it is another challenge that they face. The organization as 

large and complex as DOD, they need a uniform approach to internal controls that would greatly enhance their financial management. The DOD controls environment is often far from standard, 

resulting in a decentralized, ineffective financial management environment. Without a uniform approach, it is difficult to share and 

adopt lessons learned in all DOD agencies and service providers. 

The 2,200-plus business systems that DOD relies on to perform 

its financial management is another challenge. This would be difficult enough were such systems under some standardization. Unfortunately, consistent policies on data processing and management 

are not in place. 

In my view, there are situations where DOD should not go back 

and undo the sins of the past. When a proper justification can be 

made, certain old transactions recorded in a financial system would 

far outweigh their benefits. But standards and policies and procedures need to be in place to govern systems and the data that they 

maintain for current and future transactions. 

Human capital is another major challenge throughout the Federal Government. The chain of command in the defense community 

adds complexity to that challenge. Financial management officials 

at headquarters often have no indirect or no authority over the financial management officials in the field. In addition, those field 

managers have more loyalty to their commanders than to the headquarters-level staff. This lack of financial management chain-of- 
7 

command makes it difficult to apply consistent financial management policies and procedures. 

I have discussed the challenges to audit readiness asrequested. 

And though they are many, the talent and energy being invested 

by DOD in improved financial management is unprecedented. With 

DOD’s continued leadership and attention, and the support and 

pressure applied by panels such as this one, I am sure we will be 

soon be reminiscing about just how steep the climb was at one 

time. 

That concludes my opening statement. I would be happy to take 

any questions. 

[The prepared statement of Ms. Porter can be found in the Appendix on page 37.] 

Mr. CONAWAY. Thank you, Ms. Porter. 

Mr. Keeley. 

STATEMENT OF MARK KEELEY, PARTNER, 

PRICEWATERHOUSECOOPERS LLP 

Mr. KEELEY. Chairman Conaway, Ranking Member Andrews and 

members of the Panel, it is a pleasure to be here today to share 

my perspectives about the impediments to the Department of Defense achieving audit readiness and the actions the DOD needs to 

take to become audit-ready. 

My own audit readiness perspectives come from 27 years of public accounting experience as a licensed CPA, including 20 years in 

the private sector and 7 years working here with the DOD. My experience is primarily in information systems auditing, but I will 

also offer an informed opinion today to the extent that I am able 

on broad audit readiness matters within the DOD. 

The firm in which I am a partner, PricewaterhouseCoopers LLP, 

has performed first-time audits of several Federal Government departments and DOD entities, including the financial statement 

audit of the United States Army Corps of Engineers-Civil Works; 

the financial statement audit of an intelligence community agency; 

and the service organization audit of the Defense Information Systems Agency. 

In addition, PwC [PricewaterhouseCoopers LLP] has been providing audit readiness advice to the Office of the Under Secretary 

of Defense Comptroller, Financial Improvement and Audit Readiness Directorate, FIAR, for the past 3 years. In this capacity, I 

have assisted with the development and implementation of the 

FIAR guidance and helped develop and teach the FIAR Directorate’s 3-day audit readiness professional development course to 

over 1,000 DOD professionals, including financial leaders. 

Most recently, I signed the unqualified examination opinion on 

the successful audit readiness of the Air Force fund balance with 

Treasury reconciliation process. 

As I was preparing my testimony today, I happened to visit the 

Department of Energy. The lobby of the Department headquarters 

contains a prominent display about the Manhattan Project and the 

role of Albert Einstein. The display reminded me of a quotation by 

Albert Einstein that is relevant to today’s topic: ‘‘We cannot solve 

the problems by using the same kind of thinking we used when we 

created the problems.’’ 
8 

The DOD did not intend to create the audit readiness challenges 

it has today. Rather, the DOD developed and implemented processes and systems tailored to achieve its overall functional mission. 

Audit-readiness then became an imperative. Because of DOD’s incumbent processes and systems were not originally designed to 

meet audit readiness, a new kind of thinking will be required for 

the DOD to address the requirements of an audit-ready organization. 

Since the CFO Act was passed in 1990, one of the most significant changes in audit readiness thinking that has already occurred 

in the DOD is the development and implementation of a financial 

improvement and audit readiness strategy. Rather than attempt to 

audit an entire component all at once, the strategy prioritizes financial improvement work into manageable waves of audit activity 

such as the statement of budgetary resources. 

The work ethic of DOD personnel is strong and the DOD can accomplish any goal that it sets for itself. The 60-day SBR [statement 

of budgetary resources] plans that are currently being developed by 

each component will soon provide detailed blueprints for how the 

DOD will meet the latest audit readiness deadlines. 

Based on PwC’s experience, the DOD should continue to improve 

its financial management and audit readiness efforts in three ways. 

First, enhance the skills of personnel resources through the addition of certified public accountants who have financial statement 

audit experience, and also continue to implement the Secretary of 

Defense Comptroller’s financial improvement and audit readiness 

professional development program, as well as the financial management certification program. 

Number two—ensure that functional leaders and financial leaders throughout the DOD, including the leaders of components, as 

well as shared service organizations, are held equally accountable 

for audit readiness. Third, ensure legacy or ERP systems are configured to report data in the financial statements as prescribed by 

generally accepted accounting principles, or GAAP. 

I would be pleased to expand further on these three mains areas 

during the question and answer period, and I thank you again for 

the opportunity to share my perspectives. 

[The prepared statement of Mr. Keeley can be found in the Appendix on page 49.] 

Mr. CONAWAY. Well, thank you very much. It does occur to me 

that this may be one of the few times we have five CPAs—there 

may be some in the audience as well. Any CPAs in the audience? 

Wow—seven. Steve and I are CPAs as well. So I want to get that 

on there—just a personal plug. 

[Laughter.] 

And I am wearing my CPA cufflinks, too, by the way. Rob. 

Mr. ANDREWS. I have my American flag cufflinks. 

Mr. CONAWAY. Okay. 

[Laughter.] 

Todd, you have 5 minutes. 

Mr. YOUNG. Well, I am not a CPA, so I didn’t understand all the 

CPA humor, but I appreciate everyone being here this morning. I 

was particularly interested, Ms. Porter, in your comments related 

to internal controls and the internal control environment within 
9 

DOD, but also outside the various stakeholders and service providers that DOD has. I don’t know how many entities provide services to DOD, but quite a large number, I suspect. 

To your knowledge, are any of those audited with respect to their 

internal control processes and procedures right now—something 

that you recommended we start doing? 

Ms. PORTER. Within DOD, there are two, I believe, current—they 

are called SAS–70 or SSAE–16 audits. They are the audits of the 

internal controls of the service providers. I believe DISA has one 

and DFAS [Defense Finance and Accounting Services] has an 

audit, but not as a service provider. There was one more. It might 

be DCA [Defense Commissary Agency]. 

Mr. YOUNG. That is all right. 

Ms. PORTER. DCIPS [Defense Civilian Intelligence Personnel System] also has one. 

Mr. YOUNG. If I understood in your testimony, you actually think 

that we should engage in more audits, broader audits, more regular 

audits of those entities. 

Ms. PORTER. Of the service providers, yes. 

Mr. YOUNG. That would seem to result in a great expansion of 

all the audit activity of DOD, which may well be justified. It may 

be necessary, to your mind. 

Are there some examples you can think of where had we conducted audits of these service providers, it would have mitigated 

some challenges that we are now experiencing? 

Ms. PORTER. The service providers operate the systems that cut 

across all the military departments. So I will give you an example. 

In the Marine Corps, DFAS actually processes the transactions for 

the United States Marine Corps out of one of their locations. A lot 

of the information that and the challenges that occur during that 

audit, DFAS is taking those lessons learned and moving them 

across the rest of their organization. Had those audits of that service provider happened prior to the Marine Corps audit, there would 

have been a more consistent and advanced notice of those types of 

improvements that needed to be made before the Marine Corps 

audit got underway. 

The other part to think about is each time that a service provider—so let us say that the Army goes under audit tomorrow. 

DFAS still has to be audited by the Army auditors as well because 

there is not this independent report that each of the auditors of the 

military services can look at and rely on. 

Mr. YOUNG. I see. Okay. 

You also spoke, Ms. Porter, to some unique human-capital challenges that our Armed Services face in light of the formal chain of 

command and then their duties, which are within the realm, in 

some cases, of financial management; so some people following the 

marching orders of those in the field, others listening to those at 

command. That seems like a pretty great challenge. Is that unique, 

however, to the military? 

I mean, within the private sector we have business units, and we 

have, you know, all sorts of different boxes and different people to 

look to. 

I guess I am trying to get a sense of why this is a unique challenge to the military? Maybe you could speak to that. If I under-
10 

stand the problem maybe we can come up with a better way to address it. 

Ms. PORTER. I think the problem is unique to the military because the functional leaders, both at the command level—don’t understand how they actually play into the overall financial management role. They don’t understand how what they do in making 

their purchases and the acceptance of—like a receiving report at 

the field level really has an overall implication up to the financial 

statements themselves. 

And I think that—you know, the command level financial managers understand there is a standard set of policies and procedures. 

But what happens when they are down there is they get implemented in a way that works for them, which isn’t necessarily the 

standardization across all the Department. 

Mr. YOUNG. It seems like that challenge could be one experienced 

by private sector entities, though, right? And if so, how is it typically addressed there? 

Ms. PORTER. I think the challenge could be addressed there, but 

it is mitigated because the auditors are in with all parts of the organization and have been for years. So everybody understands 

their role and what they do to get to those audited numbers. And 

right now this is all foreign to DOD. 

Mr. YOUNG. Okay. Thank you. 

Mr. CONAWAY. Mr. Andrews. 

Mr. ANDREWS. Thank you. 

I thank the witnesses. 

Mr. Keeley, you tell a story in your testimony about a payroll 

audit requiring 8,000 hours in 1 year and then 400 hours the next 

year because of technological improvements that were made. And 

that is in the context of your assessment of the ERP situation generally. 

Given what you know about the progress or lack thereof of the 

ERP systems, how do you think we are doing? And what suggestions might you make for us to expedite the process and improve 

the quality? 

Mr. KEELEY. Thank you for the question, Congressman. 

From my perspective, auditors are systems agnostic. So the FIAR 

guide itself speaks to the need for the components to improve, legacy systems or ERP solutions. 

So the aspects that an auditor looks for in any system is that the 

transactions are processed in accordance with GAAP, they capture 

and retain the transaction data so that it can be traced to the financial statements, and that transactions are maintained in a reliable computer environment. 

The example I used in my written testimony regarding the 8,000 

hours that it took to test the 800 items really comes from the spectrum of control that we need to achieve within the systems environment, both legacy systems and the ERP. 

And I have spoken to this point many times at the FIAR directorate and elsewhere throughout the components. Based on all my 

years as a systems auditor, the controls that are most required for 

an information system are logical security and programming. 
11 

If a component can prove to me that direct access to programs 

and data is well-secured, that component is well on its way to 

achieving at least some reliance on—— 

Mr. ANDREWS. Based upon your knowledge of the ERPs that are 

in various stages of development, how do we stack up against that 

criterion? 

Mr. KEELEY. My experience looking at the criteria is that the 

ERPs are first focused on functionality. So it is perfectly normal 

when you develop an ERP system to make sure it works. That is 

what the Department of Defense has been primarily focused on. 

From my experience, the controls that I spoke to in terms of logical security and program are often implemented after the 

functionality is addressed. So from my perspective, the view of controls and the testing of logical security programming and operations needs to happen much more quickly. It should be happening 

at the front end, in the middle and at the end. From what I have 

seen, that is not happening. 

Mr. ANDREWS. Now, Ms. Porter, you make reference to the 

SSAE–16 standards, which I think you say are lacking in a lot of 

the service provider areas. 

What kind of changes would the service providers have to adopt 

in order to comply with the SSAE–16 standards? 

Ms. PORTER. The first step in the process would be to actually 

have those systems and their processes as a service provider be examined under those standards. 

Right now there is very few, there is one that was recently 

awarded that is under way right now in the civilian pay process. 

But that would be the first step. 

Mr. ANDREWS. What do think that those examinations would 

likely yield? And what changes would those examinations likely 

provoke? 

Ms. PORTER. They would yield where there are deficiencies in the 

controls around the information systems and the transaction processing that those systems take place. 

And the hopeful result that would come out of that would be 

there would be changes made to those systems that would have an 

impact across all the military services and would get them one step 

closer to having that production of data at the transaction level—— 

Mr. ANDREWS. You think those changes could likely be achieved 

with existing resources or would they require new resources for 

those service providers? 

Ms. PORTER. I think with the proper level of understanding and 

training, I think they could be accomplished with the service providers that are in place today. 

I think they are definitely dedicated to making those things happen. 

Mr. ANDREWS. We think so too. We are encouraged by it. 

Now, Ms. Boutelle, you sat on both sides of the equation here, 

in your service, within the Department of Defense as well as on the 

outside. And you claim, and I think you are right, that increasing 

the number of CPAs that we have is an essential priority. 

Do you think that we have a compensation structure within the 

Federal service that will facilitate that goal, or won’t it? 
12 

Ms. BOUTELLE. I think the compensation structure is fine. There 

is a lot of opportunities to incentivize people to come on board. 

So I think if they take advantage of what is available to them 

to actually target CPAs, perhaps sign-up bonuses, training opportunities and things like that, I think that they can attract strong 

CPAs into the workforces. 

Mr. ANDREWS. We have attracted seven of them here this morning, so that is a very good sign. 

[Laughter.] 

I also just wanted to comment about the ERPs that—and I want 

to thank the chairman and Chairman McKeon and Ranking Member Smith in response to our last hearing about some concerns that 

GAO had raised about the ERPs. 

Chairman Conaway and the other members I mentioned, along 

with myself, signed a letter November 8th to the GAO asking that 

the GAO update its work on the ERPs by the 31st of December if 

they could. 

So what deadline are we using? 

Mr. FODERARO. The 31st of March. 

Mr. ANDREWS. I am sorry, I am always an optimist. So that we 

would have available to us their work; so as we deliberate on the 

fiscal year 2013 bill we have that. So I wanted to thank the chairman for his cooperation in that letter, and thank you for writing 

it. 

[Laughter.] 

Thank you very much. 

Mr. CONAWAY. Thanks, Rob. 

Steve. 

Mr. PALAZZO. Well, good morning. 

And for Todd, I am not going to say any CPA jokes, because he 

just doesn’t get our humor. 

[Laughter.] 

And I guess we will just start with Ms. Boutelle and just go to 

the right. 

I am interested in knowing—I was going to talk about ERPs. 

And as a CPA myself I have been through the ERP process; not 

at the level of a DOD audit. So I was going to talk on that. 

But what I wanted to see is—you know, there have been some 

dates out there. We are supposed to achieve audit readiness by 

2017. Then all of a sudden Secretary Panetta came out and said, 

‘‘We can do this by 2014.’’ Then all of a sudden there is some—you 

know, there was an article—for another $1 billion we could do it 

by 2017. 

So in you all’s opinion, what is a true, accurate date? You know, 

where do you think we are actually going to be able to achieve 

audit readiness? What are some of the most important factors in 

preparing us for audit achievability and any weaknesses and 

strengths along the way? 

And you can expand or summarize however you want. 

Ms. BOUTELLE. Good question. That is a question that has been 

asked for years, right? And I think that until the business leaders 

become more engaged in fixing the business processes and systems 

that the progress is not going to be made as aggressively as it 

needs to. 
13 

So to the point of what needs to be done, besides leadership involvement, I think there is something to be said for the ERPs, but 

to build the ERPs off of standard processes, standard data, they 

need to focus more on the business enterprise architecture in the 

Department, a wonderful tool that would allow them to build the 

processes so that there is one place of truth for how to do business 

with the Department—or within the Department—and would allow 

them then to test all of the ERPs that are being developed against 

that one standard truth. 

So I think that that would certainly help. But I do think that the 

biggest challenge is getting the owners of the processes. So, again, 

whether you are talking about a payroll transaction, you are talking about receiving goods or services, you are talking about issuing 

inventory, transporting equipment material, all of those are business processes and those transactions are the type of transactions 

where the impediments are. 

And so to fix them, to meet audit criteria, is what should be the 

major focus going on in the Department. 

Mr. PALAZZO. Just real quickly: 2017 or 2014—— 

Ms. BOUTELLE. So—— 

Mr. PALAZZO [continuing]. Or somewhere in between? 

Ms. BOUTELLE. So I actually think 2014 is very aggressive. I just 

think that is very aggressive given all of the details that they need 

to work. 

But somewhere between 2014 and 2017, I think, should be doable if they put the resources and the attention on it that is needed. 

Mr. PALAZZO. Thank you. 

Ms. Porter. 

Ms. PORTER. I would agree with Ms. Boutelle that you need that 

sustained leadership to continue and you need that leadership to 

get out to the field level so that they really do understand what 

their role is in the overall financial management process. 

The other thing I think that is going to be key to this is transaction level detail, regardless of where that transaction level detail 

comes from—because you can’t do an audit without it. And the 

other thing that you need is the documentation that is going to 

support the transaction level detail. 

If you put all of those things together, you can achieve the 2014 

and the 2017 goal with the right amount of focus and the right 

sustainment across the Department. 

Mr. KEELEY. Congressman, I have two points to make on this 

topic. 

From my perspective, the first one is methodology. In order to 

achieve the date, the methodology has to be ingrained throughout 

the Department. In the FIAR methodology, it is very straightforward and basic. We need to identify and document financial 

processes, test internal controls, test documentation, find gaps and 

correct them. 

The most important aspect right now is testing. We have spent 

a lot of time documenting processes. And I have seen volumes of 

them. And people are documenting everything they do that is critical to the mission, and that is very important. 
14 

We need to extract the financial aspects and get down to testing. 

That is my first point. 

The second point I would mention is the skill of the people to 

apply this approach. People are definitely hard-working; and there 

is a strong work ethic throughout DOD. But it comes down to judgment. When you look at workarounds in an ERP solution, how you 

are going to test that workaround. It comes down to pure judgment, and that only comes from experience. 

The word ‘‘judgment’’ appears in the Government Accountability 

Office financial audit manual and the yellow book of Government 

and audit standards 270 times out of 1,300 pages. 

So judgment is critical to being able to test and execute and 

achieve the 2014 date. 

Mr. PALAZZO. I am out of time. I yield back. 

Mr. CONAWAY. All right. Thanks. 

Ms. Porter, you mentioned the—to flesh out, just for the record, 

the impact of having the service providers be audited by each of 

the—because the service providers don’t have their own audit that 

other accountants can rely upon, each of the various entities would 

in effect have to come in and audit that service provider itself. 

Can you walk us through why it would be less expensive audithour-wise and cost to the taxpayer if those service providers had 

documentation audits that they could give to the various branches 

and other components that the auditors there could rely on? 

Ms. PORTER. What that means is that, if those independent-service-provider audits are available, the auditors of the statements 

themselves of the service organizations could rely on that work. 

There would only be—as long as that service provider audit covered 

the right period of time. 

So I will give you an example for the Marine Corps. If DFAS had 

had a service-provider audit that covered the last 9 months of the 

fiscal year, we would not have had to go in to the DFAS to look 

at their controls or look at the controls of the systems that they operate, such as the defense civilian pay system or the defense cash 

accountability system. 

Instead, we could have used the audit of that service provider 

and relied upon that report. That is assuming that that service provider’s report was an unqualified opinion or that it identified where 

the weaknesses were, because then what that would allow us to do 

is then focus back into the Department what were the mitigating 

controls that they had in place to compensate for the weaknesses 

of the service provider. 

Mr. CONAWAY. Mr. Keeley, you mentioned the other day, in a 

conversation that we had—or today, in fact—that you are ‘‘systemsagnostic.’’ That was your phrase. 

Flesh that out. In the sense of you can audit, if the controls are 

there, no matter what the system, whether it is an ERP or a handposted set of books, if the controls are there, you can audit that. 

Would you, kind of, walk us through what you meant by that? 

Mr. KEELEY. Yes. The controls need to be there. What we often 

find—and I will use an example of what I have seen in the field— 

is the earlier testimony you have received about ERPs talks about 

2,200 or so systems throughout the DOD. 
15 

Now, auditors are not afraid of size. So we can go in and look 

at the systems that need to be audited. But one aspect of the ERP 

solutions is to consolidate the data so that you don’t have duplication of data. 

One area of systems that causes a great deal of problem in an 

audit, when you have data in duplicate systems, an auditor doesn’t 

know which to choose. And so, in working with business folks, if 

the business folks have data in a legacy system and an ERP system, it is difficult to first reconcile that information and then nail 

down a population. 

We spend a great deal of time identifying the absolute population 

upon which we can test. And if we can’t identify the population, we 

cannot move forward. 

So, less may be more in the case of the ERP consolidation; so I 

applaud the effort. But that is much more of a business decision. 

I do not want an audit to impede the DOD’s warfighting mission. 

If you need 2,000 systems to achieve the mission, I can audit it. 

So it is a matter of determining how much reliance I can place 

on that system. 

And the financial information systems audit manual has 424 

points to it. We all, as auditors, apply judgment to those points and 

we can address primarily half of them to get you to at least some 

reliance on internal controls and be much more efficient using 

judgment. 

Mr. CONAWAY. That reliance on internal controls, just for the 

record, drove the drop in audit hours from 8,000 audit hours to 400 

audit hours in that previous example. 

Mr. KEELEY. That is a perfect example. If we go from no reliance 

on a system, because, for instance, if security is not locked down, 

to at least some reliance, the change in substantive testing is exponential. 

Mr. CONAWAY. All right. 

Ms. Boutelle, based on your experience, we talk about the workforce and the need for CPAs with a specific background in either 

financial statement audit or financial statement preparations. We 

have got a lot of folks, CPAs, in the system now. 

Is it all or none? Do you have to hire these folks from the outside 

totally, or can you cross-train or retrain or help get experience for 

the folks who are already on the team who know the way that 

these are going on, to help get them the skills necessary to be able 

to fill some of those slots that are lacking? 

Ms. BOUTELLE. So I think that they could work side by side with 

trained audit professionals. I think that the three firms here at the 

table have people on board helping in different places in DOD. I 

think, if they paired up some of their CPAs with the folks working 

audit readiness or even the audits, and they worked closely and 

they had a defined approach for how they would do that, I think 

that the experience gained by the current CPAs in the Government—that would enhance their capability to help the Department 

move forward. 

I do think that—you know, I am a CPA having spent most of my 

time in the Government. And I am not as proficient in audit as 

these two colleagues next to me. You know, I have lots of wonderful 
16 

audit practitioners back at Deloitte that I have learned a lot from 

in the 7 years that I have been there. 

So I do think that bringing in more seasoned audit practitioners 

to help guide the approach and then letting the folks within the 

Government learn from them would be a doable approach. 

Mr. CONAWAY. Thanks. 

We are going to have time for another round. Rob? 

Mr. ANDREWS. I really don’t have another round of questions at 

this time. 

Mr. CONAWAY. Okay. 

Todd, Scott, or Steve? 

Ms. Porter, the real-world example you were giving us about 

publicly held companies provide, or produce quarterly financial 

statements, and your firm is in their shop—well, some level of engagement with those quarterly reports. 

But that is not happening in the Federal—is there a similar 

process that could go on in the Department of Defense, in this example, that would shorten the timeframe needed to close out the 

books in November? I mean is there a way to look at what you do 

in the private sector with those quarterly reviews that you do and 

the impact it has on the year-end audits? Could that same model 

work in some altered form in a Federal agency? 

Ms. PORTER. Well, first, let me say I am not advocating quarterly 

reports for the Federal Government. I really don’t want to be on 

the record of saying that because everyone will—— 

[Laughter.] 

Mr. CONAWAY. That was not—— 

[Laughter.] 

Ms. PORTER. Yes. But what I think that does is it adds a discipline and an exposure to the auditors that the DOD hasn’t experienced so far because they are in there having the conversations. 

They are having discussions around what are your management 

controls that you use? 

And this is where it is not the auditors that are driving what the 

civilian agencies or even the commercial entities are doing. Management understands what they need to operate their business 

from a control perspective. And the auditors figure out how to use 

that information to get what they need to conduct the audit, to give 

management the feedback back as to whether they are using accurate financial information to make their decisions. 

It has been, from a DOD and a Government perspective, for 

years, but proprietary accounts weren’t looked at. They only focused on the budgetary sides of the transactions. And that was 

often driven by what overseers were asking them to report back up 

on. 

So as they have tried to get themselves in tune to both sides of 

the transactions, the budgetary and the proprietary side, there has 

been a learning curve. And sometimes that learning curve has been 

impeded by not having the true understanding of what level of detail, what an auditor actually looks for, and they don’t have that 

in the commercial entities because they are so involved with each 

other all the time. 

Mr. CONAWAY. All right. Mr. Keeley, any comments in regard to 

that? 
17 

Mr. KEELEY. No. Are you—— 

Mr. CONAWAY. Well, just that, you know, field work being done 

more regularly throughout the year—would that reduce the number of total audit hours? 

One of the things we are obviously going to—at some point in 

time, get to a running rate in which the controls are in place; the 

systems are working and sustainability of the audits year in and 

year out is going to be the key. 

That first audit, you can’t maintain the level of intensity to get 

to that first audit year after year after year after year, I don’t 

think. 

Once you have got this thing running, what would be the role of 

the auditors during the normal process? 

Mr. KEELEY. Well, yes, Congressman, my view is that continuous 

auditing has always been a bit of an enigma, even in the private 

sector. Yes, auditors are in the field, and we can do early substantive testing. 

But from my experience in the private sector 7 years before I 

came down here, the private-sector companies have teams of specialized accountants. They have tax departments with tax accountants. They have statutory accountants focused on compliance reporting. And then they have GAAP accountants. 

So they have entire teams in the field supplemented, of course, 

with internal audit. And they work at the companies. They are the 

companies’ employees. 

Our auditors, to the extent we can interact with them throughout 

the year and actually perform the testing I was talking about, definitely expedites the audit. 

There are accounting standards and rules that allow us to perform early testing and still rely on it for the year end. 

So it is definitely difficult to do, but it is done throughout the 

community. 

Mr. CONAWAY. Ms. Boutelle—I have got one more question for 

Ms. Porter—but, first, Ms. Boutelle, given your experience in both 

sides of the shop, is there a way to create a chain-of-command responsibility at Department of Defense, other than have whoever 

the current Secretary of Defense is saying, day after day after day, 

get this done—in other words, can there. You know, Bob Hale has, 

or the Assistant Secretary of State—Comptroller really doesn’t 

have command reach into all these other places. 

So, given that org chart that is in place—and we are going to 

make a lot of changes to it—is there a way that we can get to a 

point or a system that holds all the folks at the various levels accountable for making sure this gets done, so that—any thoughts on 

that? 

Ms. BOUTELLE. I think, with the Secretary’s involvement and 

whoever the Secretary is, going forward, has to be involved. I think 

that that will send a very strong message. 

Now, I understand that the reality is that the Secretary is not 

going to meet with the business owners on a monthly basis, most 

likely, but some periodic forum would be beneficial. 

The Chief Management Officer and the Deputy Chief Management Officer, I think, having responsibility for the business processes, the systems, would also be a very strong marriage between 
18 

those two roles, the CMO and the DCMO, with Bob Hale in driving 

this, that maybe between the two of them—I know Beth McGrath 

has got tremendous knowledge of the systems and the processes. 

I think coming together with Bob Hale they make a pretty formidable team. They have got to have the power, though, to direct 

changes within the business areas. And without that, they cannot 

be as successful as they need to be. 

Mr. CONAWAY. Ms. Porter, I can’t let you off the hook. What can 

you share with us, if anything, about the Marine Corps audit 

that—and you may not be able to talk to us about this year’s Marine Corps audit, but can you share with us a perspective on the 

difference between where the Marine Corps was this time last year 

and where the Marine Corps is today, without telegraphing too 

much what is going to happen shortly? I couldn’t let you off the 

hook. 

Ms. PORTER. Sure. 

So last year’s audit, in fiscal year 2010, we had a big struggle 

at the beginning of the audit. We didn’t get very far into the testing beyond beginning balances. We basically tested no current year 

transactions. 

For the fiscal year 2011 audit—well, let me go back to fiscal year 

2010. There were also quite a few findings and recommendations 

that came out of the audit that the Marine Corps started immediately to undertake remediation actions to while the audit was 

still under way. 

In fiscal year 2011, you could see that there was an improvement 

in the process, they better understood what we were looking for, 

they were better able to produce reconciliations and tie-outs of data 

that we had a big struggle with in the previous year. It is not perfect because they still had some struggles this year. We thought it 

might be a little bit better. But they are moving in the right direction. 

We have also got to a lot more current year testing this year 

than we did in the past. So you definitely see that they are becoming more accustomed to understanding what we are looking for. We 

are also becoming more accustomed to how they do business and 

what documentation they have. 

And so I see progress every year. And I also see them taking 

those lessons learned to the other Services. 

Mr. CONAWAY. All right. Typically, you know, in a commercial 

entity you give a set of financial statements. You also give them 

a statement of weakness of internal controls—did you see adequate 

remediation for the stuff that you discovered in the 2010 audit, Marine Corps make—without specific details—but make adequate 

process at addressing those weaknesses and moving as far as you 

thought they could move in the time they had to move it? 

Ms. PORTER. We issued two different sets of findings and recommendations to the Marine Corps last year, one associated with 

information technology and one associated with the financial statement controls themselves. 

So the information technology piece, we did see quite a bit of 

changes and were able to test those actions that they took last 

year. And before we had to cut off testing I would say there was 

probably another 20 to 30 percent of them that are ready to be 
19 

tested right now, that the action actually took place after we 

stopped testing. 

For the financial statement findings, it is a little more difficult 

to address because we haven’t yet been able to conduct the test of 

the current year transactions, which—associated with those findings—which would actually in fact tell us whether the remediation 

actions worked. 

Mr. CONAWAY. All right. Okay. 

Rob, other questions? 

Mr. ANDREWS. Well, just as a concluding comment, think Ms. 

Porter’s limited sneak preview of the Marine Corps audit, which 

shows reason for optimism. And the chairman’s question about sustaining the progress we have made beyond this Secretary of Defense I think is the core challenge facing this panel. 

I think Secretary Panetta deserves enormous praise for giving 

this effort such a high priority. But there will be another Secretary 

of Defense soon. There always is. 

Mr. CONAWAY. Maybe even another president. 

Mr. ANDREWS. Maybe. That is right. And whether there is another president or this one, there is—you know, secretaries do 

change. 

And I do think that our key mission is to try to build into the 

culture of the institution and the structure of the institution a high 

priority on this audit readiness, because if we have to rely upon the 

leadership priorities of the person who is going to be secretary, I 

just don’t think we are ever going to achieve what we need to do, 

because, you know, priorities come and go. 

So the chairman and I have talked about this before. Think all 

members of the Panel and members of the public should be thinking about advice they could give us on institutionalizing the 

progress that we have seen right now. 

I think very much of that is attributable to the chairman’s focus, 

laser-like focus on this issue for several years, and on Secretary Panetta’s admirable response to that. But we want to make this a 

principle that extends beyond individuals to a more embedded culture in the organization. However we can do that, I think we will 

have made great progress. 

And I do appreciate the contribution of the three witnesses here 

this morning. Thank you. 

Mr. CONAWAY. Well, I want to echo Rob’s praise of Secretary Panetta, unprecedented forward leap and commitment to this issue. 

And I am really tickled to death he has made that. 

Just quickly, just kind of maybe a yes or no, have we got enough 

forward momentum toward this goal that this is actually going to 

happen? In other words, can we—we get beyond that tipping point 

where, yes, it is going to behard, and, yes, it may take a while, but 

have we got past that point where we really are going to make this 

happen, in your all’s perspective? 

Mark. 

Mr. KEELEY. Yes, sir, I believe so. One of the topics I talked 

about in my testimony was the lessons learned. So we have a great 

deal of lessons learned from the Marine Corps, from the Army 

Corps, from DISA and others. And we are always looking back at 

those lessons and applying them going forward. 
20 

So applying the lessons and speeding the training and momentum is certainly achievable. 

Mr. CONAWAY. Okay. 

Tracy, your perspective? 

Ms. PORTER. I do think the goals are there. I think the 

sustainment across the Department at the lower levels so that it 

doesn’t go away when the Secretary changes is critical to make this 

leap forward that they are trying to get to. 

So with that right amount of focus and with those lessons continuing to being learned and nobody backing off from that progress 

and just keeping that pressure on, because you take the pressure 

of the audit readiness or the pressure of the audit off, the way 

things work right now aren’t yet well ingrained in everybody within the Services. So they will immediately fall back to their old way 

of doing business. 

So you have to just keep this pressure and this momentum in 

order to keep us going in the direction that they need to go. 

Mr. CONAWAY. JoAnn, your comments? 

Ms. BOUTELLE. I agree with Ms. Porter. I think that you have 

to keep the pressure on. I think that the momentum is there, it is 

moving, you have brought tremendous attention to this topic. But 

there is a ways for them to go for the business owners to truly embrace and understand their responsibility. 

So, again, I think that they can make it if you keep the pressure 

on them. 

Mr. CONAWAY. All right. 

Well, thank you three. I appreciate the witnesses today. And we 

did not telegraph that question. We try to make sure this panel 

keeps existing. No. 

[Laughter.] 

One of our big issues is how do we put in place the right kind 

of attention at the committee so that when Rob and I are doing 

something else or going somewhere else, that pressure and that 

commitment from our side on the oversight piece remains in place 

in the appropriate manner to make sure we do our part of that. 

Again, thank the witnesses for being here this morning. 

We are adjourned. 

[Whereupon, at 8:56 a.m., the panel was adjourned.] 
A P P E N D I X 

NOVEMBER 17, 2011 

PREPARED STATEMENTS SUBMITTED FOR THE RECORD 

NOVEMBER 17, 2011 

(25) 

Statement of Hon. K. Michael Conaway 

Chairman, Panel on Defense Financial Management and 

Auditability Reform 

Hearing on 

Industry Perspectives on Achieving Audit Readiness 

November 17, 2011 

I’d like to welcome everyone to today’s hearing on Industry Perspectives on Achieving Audit Readiness. Over the past 4 months, 

we have heard from a variety of witnesses within Government, including representatives from the offices of the OSD and Military 

Department Comptrollers, the DOD functional communities, the 

DOD Office of Inspector General (OIG), and the GAO on the challenges the Department faces in achieving audit readiness and its 

efforts to resolve these issues. Today, as the Panel nears the completion of its work, we turn to accounting firms that have experience out in the private sector, as well as within Government, to get 

their views on the impediments to DOD achieving auditability and 

the actions needed to address these challenges. 

In addition to having experience performing work at various 

other entities, these firms are involved in almost every aspect of 

DOD’s financial improvement and audit readiness (FIAR) effort, 

ranging from assisting DOD components in implementing the FIAR 

strategy, to assisting the Office of the Under Secretary of Defense 

(Comptroller) in performing its review of the DOD components’ 

progress, to actually performing certain audits themselves. Therefore, they can provide a well informed point of view on the problems facing DOD as it works towards achieving auditability on the 

Statement of Budgetary Resources by 2014 and the full set of financial statements by 2017. 

Some of the challenges that have been identified to date include 

sustaining leadership and effective oversight, ensuring workforce 

competency, implementing Enterprise Resource Planning (ERP) 

systems, resolving long-standing internal control weaknesses, and 

managing organizational challenges associated with having a large 

and complex organization such as DOD. The witnesses here today 

may or may not consider all of these issues as impediments to improving financial management and achieving audit readiness, or 

they may have a slightly different take on the issues, or they may 

identify different challenges all together. Most significantly, they 

may be able to provide alternative options on how to overcome 

these weaknesses. That is why I look forward to hearing their expert views on the issues confronting DOD and possible courses of 

action to address these challenges. 
26 

I would like to thank our witnesses in advance for their testimony and agreeing to be with us this morning. We have with us 

today: 

• Ms. JoAnn Boutelle, Partner, Deloitte & Touche LLP; 

• Ms. Tracy Porter, Partner, Grant Thornton LLP; and 

• Mr. Mark Keeley, Partner, PricewaterhouseCoopers LLP. 
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