U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office,

http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center,

U.S. Government Printing Office. Phone 202–512–1800, or 866–512–1800 (toll-free). E-mail, gpo@custhelp.com.

i 

68–461 2011

[H.A.S.C. No. 112–60] 

DEPARTMENT OF DEFENSE 

COMPONENT AUDIT EFFORTS 

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 

SEPTEMBER 8, 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, September 8, 2011, Department of Defense Component Audit Efforts ....................................................................................................................... 1 

APPENDIX: 

Thursday, September 8, 2011 ................................................................................. 23 

THURSDAY, SEPTEMBER 8, 2011 

DEPARTMENT OF DEFENSE COMPONENT AUDIT EFFORTS 

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 

Commons, Hon. Gladys J., Assistant Secretary of the Navy, Financial Management and Comptroller, and Caral E. Spangler, Assistant Deputy Commandant, Programs and Resources Department, U.S. Marine Corps ............. 5 

Matiella, Hon. Mary Sally, Assistant Secretary of the Army, Financial Management and Comptroller .................................................................................... 3 

Miller, Wesley C., Director of Resource Management, U.S. Army Corps of 

Engineers .............................................................................................................. 8 

Morin, Hon. Jamie M., Assistant Secretary of the Air Force, Financial Management and Comptroller .................................................................................... 6 

APPENDIX 

PREPARED STATEMENTS: 

Commons, Hon. Gladys J. ................................................................................ 38 

Conaway, Hon. K. Michael .............................................................................. 27 

Matiella, Hon. Mary Sally ............................................................................... 29 

Miller, Wesley C. .............................................................................................. 52 

Morin, Hon. Jamie M. ...................................................................................... 43 

DOCUMENTS SUBMITTED FOR THE RECORD: 

[There were no Documents submitted.] 

WITNESS RESPONSES TO QUESTIONS ASKED DURING THE HEARING: 

Mr. Andrews ..................................................................................................... 61 

Mr. Rigell .......................................................................................................... 61 

QUESTIONS SUBMITTED BY MEMBERS POST HEARING: 

Mr. Conaway ..................................................................................................... 65 

(1) 

DEPARTMENT OF DEFENSE COMPONENT AUDIT 

EFFORTS 

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

AUDITABILITY REFORM, Washington, DC, Thursday, September 8, 2011. 

The panel met, pursuant to call, at 8:01 a.m. in room 2212, Rayburn House Office Building, Hon. K. Michael Conaway (chairman 

of the panel) presiding. 

Mr. CONAWAY. Good morning and thanks, everybody, for being 

here bright and early. I appreciate my colleagues being here; and, 

Rob, thanks for being here. 

I would like to welcome today’s panel on the efforts of the Department of Defense to generate auditable financial statements. 

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

Mr. CONAWAY. At our first hearing, we received testimony on 

DOD’s [Department of Defense] strategy—I don’t think I will ever 

be able to say that word: ‘‘strategery.’’ Strategy. And I don’t think 

ex-President Bush actually ever said that—methodology to achieving audit readiness by 2017 and on the challenges it faces in 

achieving that goal. 

Today, we will hear from various DOD components on their approach to implementing the DOD financial improvement strategy 

and methodology. We will delve somewhat deeper into the challenges faced at the component level and hear how the components 

are incorporating lessons learned from ongoing audits in their 

audit readiness plans. 

Although there is a standard methodology that DOD components 

must follow to guide their audit readiness efforts, their approaches 

to achieving audit readiness may vary from component to component. We are interested in hearing about each component’s approach to achieving financial statement auditability by 2017. 

It is widely recognized that the successful implementation of the 

enterprise resource planning systems is key to DOD’s ability to 

achieve audit readiness. In my examination of this issue, one thing 

is clear. We can’t afford the cost overruns—continued cost overruns 

and schedule slippages that have plagued these systems to date if 

DOD is in fact going to be ready by 2017. 

However, as our witnesses noted in testimony before this panel 

in late July, new IT [Information Technology] systems alone will 
2 

not guarantee auditability. The DOD must improve its business 

processes. Hopefully, today’s hearing will shed some light on how 

the various components are doing in both of these regards. 

Although the military departments are not yet auditable, DOD 

has made some progress towards this goal. For example, six smaller departmental organizations, including the Corps of Engineers, 

have received clean audit opinions; and the Marine Corps is undergoing an audit of its statement of budgetary resources as we speak. 

The military departments must leverage the lessons learned from 

these efforts into their audit readiness plans. I hope our discussions here today will assist in that information exchange and bring 

to light some good news with respect to the Department’s efforts 

to produce financial statements that we and the taxpayers can 

have confidence in. 

With that, I would like to thank our witnesses for taking time 

out of their schedules to be with us this morning. 

We have today the honorable Mary Sally Matiella—Matiella? 

Matiella. Paul and I were working on that, Mary Sally, and we 

just—Matiella, the Assistant Secretary of the Army, Financial 

Management and Comptroller; the Honorable Gladys Commons, 

Assistant Secretary of the Navy, Financial Management and Comptroller; Ms. Caral Spangler, the Assistant Deputy Commandant, 

Programs and Resources, U.S. Marine Corps; the Honorable Dr. 

Jamie Morin, Assistant Secretary of the Air Force, Financial Management and Comptroller; and Mr. Wesley Miller, Director of Resource Management, Corps of Engineers. 

Now I would like to turn it to my good colleague, Rob Andrews, 

for any remarks that he has at this point. 

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

STATEMENT OF HON. ROBERT ANDREWS, A REPRESENTATIVE 

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

Mr. ANDREWS. Thank you, Mr. Chairman. 

Good morning, ladies and gentlemen. Good to have you all with 

us this morning. We appreciate your preparation, and I am sure 

this is a hearing where we will all be able to learn something. 

Mr. Chairman, thank you for your aggressive schedule on moving 

our work forward. I expected nothing less, and I am happy to be 

a part of it. 

Since the panel last met, we have made a very important decision as Congress in this country and that is that it is rather certain 

that, irrespective of who is in the Executive Branch or Congress, 

there will be very important decisions about defense spending 

made over the course of the next decade. 

The law as we sit here this morning is that are facing either a 

very significant reduction because of sequestration or we are facing 

an agreement that in all likelihood will contain some further reductions in defense spending if there is one. 

These are grave and important decisions any way you slice it. 

And the question here is not whether we are going to make these 

decisions. The question is whether we are going to make them 
3 

based on good evidence or insufficient evidence. And the country 

would be ill-served if we make these decisions based on insufficient 

evidence, and we will make them based on insufficient evidence if 

we don’t have auditable financial statements throughout the Department. 

This is not just another academic exercise where people debate 

the metaphysical question whether auditable statements are a good 

thing or a bad thing. This is for real. Because, as I say, irrespective 

of who is running the executive branch or Congress, they are going 

to be very consequential decisions that literally affect the life and 

death of the men and women who serve and affect the security of 

the country. 

So I think this gives a new urgency to the task of this panel and 

of the ladies and gentlemen who will testify this morning to put 

ourselves in a position where we, as a Congress and a country, 

have in front of us the correct body of evidence to begin to make 

decisions about where our investments should be and where they 

shouldn’t be and how they should be altered. 

With that framework, I do think we have seen some real 

progress. Mr. Hale’s testimony last time around I think laid out a 

very good roadmap to get to where we want to go; and this morning 

we begin our process of getting into the specifics, into the weeds, 

if you will, of how to get there, that you ladies and gentlemen of 

the people responsible for getting us there. And we are interested 

in hearing how far you have gotten and when you are going to get 

to where we need to go and what obstacles may stand in the way 

between here and there. 

So thank you, Mr. Chairman, for this opportunity. I look forward 

to hearing from the witnesses. 

Mr. CONAWAY. All right. Thank you, Rob. 

I would ask unanimous consent that non-panel members, specifically Tim Griffin, be allowed to participate in today’s panel. Is 

there objection? 

Without objection, non-panel members will be recognized at the 

appropriate time for 5 minutes. 

Mr. CONAWAY. Mary Sally, your turn. 

STATEMENT OF HON. MARY SALLY MATIELLA, ASSISTANT 

SECRETARY OF THE ARMY, FINANCIAL MANAGEMENT AND 

COMPTROLLER 

Secretary MATIELLA. Chairman Conaway, Representative Andrews, members of the panel, thank you for the opportunity to testify today regarding financial management and our commitment to 

achieving auditable financial statements. 

Secretary McHugh, the Chief of Staff of the Army General 

Odierno, Secretary Westphal, our Chief Management Officer, and 

all our senior leaders recognize the value and the importance of 

achieving the mandate of fiscal year 2010 National Defense Authorization Act which requires the Army to be audit ready by September 30, 2017. 

The Army employs hardworking soldiers and civilians, personnel 

across all functional areas who are dedicated to achieving audit 

readiness goals. These professionals are transforming our financial 

and business systems to improve financial management, provide 
4 

timely, accurate, and relevant information for decision makers, and 

reassure American taxpayers and Congress the Army is a trustworthy steward of public funds. 

I am confident that we will be audit ready by September 30, 

2017. Because we have a sound and resourced financial improvement plan conforming to the Department’s financial improvement 

and audit readiness criteria, a solid enterprise resource planning 

strategy guiding our businesses through development and deployment, and an effective governance oversight and structure ensuring 

accountability, our financial improvement plan is fully resourced, 

contains detailed corrective actions and milestones, identifies accountable organizations, incorporates lessons learned from the 

Army Corps of Engineers in the Marine Corps audit and aligns our 

business strategy. 

The plan emphasizes early and comprehensive evaluation and 

testing of management controls. This ensures the controls of vital— 

controls vital to audit readiness are in place and operating effectively as soon as possible. We ensure that we are audit ready by 

September 17th. 

Our improvement plan calls for annual audit examinations by an 

independent public accounting firm each year from fiscal year 2011 

to 2014, these examinations on management and information technology system controlled and business processes in the ERP [Enterprise Resource Planning] environment. The accounting firms conducting these examinations will identify deficiencies and issue corrective actions. 

These examinations will enable us to correct deficiencies early 

enough to meet our audit goals for an assertion of the general fund 

statement of budgetary resources in fiscal year 2015 and assertion 

of all financial statements in fiscal year 2017. 

These audit exams will also condition the Army on how to support financial statement audits and ensure audit readiness strategy 

is sound and remains on schedule. 

Each year, we are repeating a cycle of assessing, testing, identifying deficiencies, and implementing corrective actions. Additionally, each audit exam expands its scope by covering additional 

audit installations, processes, and systems each time we do a different wave. 

The audit examination is currently in process at three installations and Army headquarters and covers several business processes 

executed in the ERP environment. We recently completed an examination of appropriations received, which resulted in an unqualified 

audit opinion from an independent auditor, thus confirming our 

ability to receive and account for nearly $230 billion of appropriations. 

Army senior leaders provide governance and oversight of our 

audit readiness efforts and hold personnel accountable for achieving specific milestones. Accordingly, audit readiness performance 

criteria will be included in our senior executive performance plans 

starting in October in fiscal year 2012. 

Examination of our fiscal improvement plan and enterprise resource planning strategy, combined with senior level governance 

and oversight, will enable the Army to be audit ready by September, 2017. I am personally committed to meeting our national 
5 

security objectives and mandates of law requiring auditability. I 

look forward to continued collaboration with members of this panel, 

your counterparts in the Senate, GAO [Government Accountability 

Office], Comptroller Hale, and DCMO [Deputy Chief Management 

Officer] McGrath to ensure the continued improvement of the 

Army’s business environment. 

I look forward to your questions. 

[The prepared statement of Secretary Matiella can be found in 

the Appendix on page 29.] 

Mr. CONAWAY. Thank, Mary Sally. 

Ms. Commons. 

STATEMENT OF HON. GLADYS J. COMMONS, ASSISTANT SECRETARY OF THE NAVY, FINANCIAL MANAGEMENT AND 

COMPTROLLER, AND CARAL E. SPANGLER, ASSISTANT DEPUTY COMMANDANT, PROGRAMS AND RESOURCES DEPARTMENT, U.S. MARINE CORPS 

Secretary COMMONS. Good morning, Chairman Conaway, Congressman Andrews, members of the panel. Thank you for the opportunity to discuss the Department of the Navy’s effort to achieve 

financial audit readiness. 

Congressman Conaway, I want to personally thank you for your 

support and the interest that you have shown in our efforts to improve financial management. 

The Department is fully committed to achieving financial 

auditability, and our senior leaders have provided the resources to 

do so. Secretary Hale has asked us to concentrate our efforts in two 

areas, the statement of budgetary resources and existence and completeness of high-value military equipment. Our plans reflect those 

priorities. 

As noted, the Marine Corps is in the second year of the audit of 

the statement of budgetary resources. It has been challenging, but 

we continue to make progress, and we have learned many lessons 

from that audit. We have incorporated those lessons in the overall 

Department’s financial improvement plan. We are also sharing 

these lessons with other departments. They include from the complex, proving the accuracy of our beginning balances for all appropriations, to the simple, maintenance of our supporting documentation and separation of duties. 

We are making progress in other areas. The Department recently 

received an unqualified opinion on our appropriations received 

process examination conducted by a private audit firm. The Department of Defense Inspector General is examining the completeness 

and existence of high-value military equipment, for example, our 

ships, submarines, ballistic missiles, and satellites. That examination will be followed by an examination of the existence and completeness of our aircraft and ordnance inventory. We believe the 

outcome from these examinations will be positive as well. 

We are working with our service providers to ensure that we all 

understand what must be done and who is responsible. We have 

reached across the aisles to assign responsibility to our own business process owners, such as our human resource and acquisition 

organizations. We have met with every senior executive responsible 

for executing our business processes; and, beginning in October, 
6 

they will have an audit readiness objective in his or her performance plan. 

We are also engaging our general and flag officers through the 

Vice Chief of Naval Operations and the Assistant Commandant of 

the Marine Corps. 

Achieving auditability is challenging and there is much work to 

do, but our financial data is accurate, and I will give you an example. 

A few months ago, I received a letter from a former Navy employee who stated in his letter that he had not received full payment for a PCS [Permanent Change of Station] move that was 

made a number of years ago. We were able to go into our accounting system, pull out the data, show him the fact that we indeed 

had made full payment for his PCS move. 

Now, when the auditors look at that, they would ask me, can you 

provide the actual PCS order? I may not have been able to provide 

the actual PCS order because it would—it happened a number of 

years ago, but I was able to go into the accounting system and pull 

out the data to show that he had actually been paid in full for his 

permanent change of station movement. 

We are committed to this effort. We are making progress. Thank 

you for your interest and support of our efforts. I will be happy to 

answer any questions you might have, as appropriate. 

[The prepared statement of Secretary Commons can be found in 

the Appendix on page 38.] 

Mr. CONAWAY. Thank you. 

Caral. 

Ms. SPANGLER. I don’t have a separate statement. Thank you. 

Mr. CONAWAY. Sorry. That is right. 

Jamie Morin, your turn. 

STATEMENT OF HON. JAMIE M. MORIN, ASSISTANT SECRETARY OF THE AIR FORCE, FINANCIAL MANAGEMENT AND 

COMPTROLLER 

Secretary MORIN. Thank you, Mr. Chairman and Mr. Andrews 

and to all of the members of the panel, for the invitation and for 

the focus of this committee over a sustained period of time on this 

important agenda. 

If I may, I would just like to briefly summarize written testimony 

and put the statement in the record. 

Mr. CONAWAY. Without objection. 

Secretary MORIN. Thank you. 

Mr. Conaway, I think that the lesson is clear, that business as 

usual is the enemy of success in the audit readiness effort for the 

Department of Defense. Business as usual is not going to get the 

Department where we need to go. And the focus of the senior leadership of the Department of Defense, in response to the clear 

charge from this committee, from Congress, and from the American 

people, has helped get us out of the chain of business as usual. 

The Air Force is closely aligned with the strategy that Under 

Secretary Hale has laid out for a focus in audit readiness on the 

information that managers use to manage the Department, building that positive feedback loop that comes from giving senior leaders the tools they need to do their job, refocusing our financial im-
7 

provement and readiness plan on those elements that are most relevant to those day-to-day managerial challenges. 

It was a shift of focus for the Air Force, which had put a lot of 

effort into valuation and other balance sheet pieces of the effort. 

And so we are coming from a little bit behind, but we are making 

up ground quickly due to really strong support from senior leaders 

in the Air Force, including Secretary Donley and Under Secretary 

Conaton, who is a good friend of this committee’s, and, of course, 

our senior uniformed leadership. 

Just a month ago, Under Secretary Conaton and Vice Chief of 

Staff General Breedlove jointly wrote all of the 4-star commanders 

of the Air Force major commands to impress on them the criticality 

of building audit readiness into the performance plans of their senior executives across a wide range of functional responsibilities, 

pushing that effort down to command level and from there to base 

level, so it is not just a headquarter’s effort, and pushing that effort 

out across the numerous functional areas in the Air Force, so it is 

not just a financial management effort. 

This leadership from our Chief Management Officer and our— 

one of our senior military leaders has really helped us. I am 

pleased that, because of that leadership, we have made some real 

progress over the last year or so. 

Some of our wins include achieving audit readiness for our appropriations received, as the other Services have, and our funds 

distribution process. I think that is critical to giving the American 

taxpayer confidence that resources are being allocated the way they 

are appropriated. 

We have also asserted our funds balance with Treasury reconciliation process. This is really balancing the Air Force’s checkbook 

with the Department of Treasury. It is over a million transactions 

a month, and we are now reconciling it to 99.99 percent accuracy. 

A year ago, we couldn’t reconcile it. So that is a significant step. 

We have made progress on some of our military equipment and 

other mission-critical assets as well, asserting audit readiness for 

existence and completeness of our full military equipment universe, 

our cruise missiles, and our aerial targets, which we treat as operating materials and supplies. 

Again, I think this progress directly comes from that intense 

commitment from our senior leadership, uniformed and civilian. 

We do have a long way to go. That is clear. And the 2017 deadline in law is going to be challenging for the Air Force because of 

the shift in focus from the more valuation-oriented effort but also 

because of the IT acquisition challenges we face. We do see moderate risk, but with the high level of leadership commitment we 

feel like we are on track to make the deadline. 

Our ability to achieve audit readiness really does depend on systems modernization. Right now, we are focused on fielding enterprise resource planning systems, a new accounting system called 

DEAMS [Defense Enterprise Accounting and Management System], 

a new logistics system called ECSS [Expeditionary Combat Support 

System], a new personnel system, and others. We are behind the 

other Services in that regard, but that has been a benefit in many 

respects because we have been able to learn lessons from the experiences the other Services have gone through. As a result, we have 
8 

made a heavy focus on data cleanup, we have made a heavy focus 

on feeder systems, we have made a heavy focus on change management for the user community, and that has been helpful. We are 

not rushing wide deployment of these systems into the field, but we 

are using them in real terms. 

The DEAMS accounting system is the system of record at Scott 

Air Force Base, one of our large and complex bases that is handling 

billions of dollars of transactions. It closed out last fiscal year successfully, and we will be finishing up this fiscal year. We will assess that and move on to rolling that system out. 

ERP’s are not a panacea. They are not a solution to all of our 

problems. But the Air Force is running right now based on ’70s-era 

bookkeeping systems that will not get us to a clean audit. They do 

not have the transaction-based fidelity. They do not have the U.S. 

standard general ledger basis that we need to get there. So IT systems modernization is inescapably part of the Air Force effort. 

Again, we can’t rely on business as usual to get us across the finish line here. We need clear accountability for individual executives. The Air Force has really been leading the way on that. We 

have got a number of senior leaders with direct financial tie in 

their performance plans to audit readiness this year and an even 

larger universe next year. 

We need that real investment in systems modernization. We 

need a responsive effective acquisition process for those system 

modernization efforts. Again, you can’t be stuck in business as 

usual of over cost, over schedule; and we need that involvement to 

stretch from the headquarters to the field and from the financial 

management community to the broader community. 

We are making good progress on all of those pieces, and that is 

due in part to the focus of this panel and of Congress, for which 

I thank you. 

Thank you, sir. 

[The prepared statement of Secretary Morin can be found in the 

Appendix on page 43.] 

Mr. CONAWAY. All right. Mr. Miller. Excuse me. Mr. Miller. 

STATEMENT OF WESLEY C. MILLER, DIRECTOR OF RESOURCE 

MANAGEMENT, U.S. ARMY CORPS OF ENGINEERS 

Mr. MILLER. Good morning, Congressman Conaway, Congressman Andrews, members of the panel. 

I am Wes Miller, Director of Resource Management for the U.S. 

Army Corps of Engineers. Thank you for this opportunity to discuss Civil Works Financial Statement Audits. 

The Corps of Engineers achieved a major milestone in fiscal year 

2008 with the receipt of the first-ever unqualified opinion from a 

major Department of Defense activity. Last year, we received our 

third consecutive unqualified audit opinion and anticipate a fourth 

this year. Our current audit firm is KPMG, with the DOD Inspector General providing oversight. 

The Corps has been working on CFO [Chief Financial Officer] 

compliance for over 20 years and has faced many challenges along 

the way. The biggest challenge in our first audit was providing documentation for over $28 billion of property, plant, and equipment. 

We overcame that challenge by using alternate supporting docu-
9 

mentation approved by the Inspector General. We also encountered 

many challenges processing over 14,000 samples as well as meeting 

the accelerated reporting timelines. The key to overcoming all challenges was building a cohesive partnership with the auditors and 

working with them for solutions. 

From a lessons learned perspective, I would offer that the Corps 

of Engineers Financial Management System, which we refer to as 

CEFMS, is a major factor in our audit success. The Corps developed CEFMS as an enterprise financial system that encompasses 

travel, training, timekeeping, acquisition, asset accountability, and 

fully integrated with the Corps’ project and asset management accountability systems. Many of the Corps’ internal controls are automated within CEFMS, forcing 100-percent compliance. 

For fiscal year ’11 audit, we expect to process approximately 

4,000 samples, which is a huge reduction from the first audit. With 

the reduced sample testing, we have shifted our resources to improve our internal controls program. 

I recently signed our fiscal year ’11 internal audits over financial 

reporting letter with an unqualified assurance that our controls are 

operating effectively. I expect that our work on improving internal 

controls will result in most if not all of our auditor reported material weaknesses being cleared in this fiscal year. That is our number one priority. 

Thank you for inviting me here today. I look forward to any 

questions you may have. 

[The prepared statement of Mr. Miller can be found in the Appendix on page 52.] 

Mr. CONAWAY. Thank you, Mr. Miller. 

Thank all you panel members for coming here and the preparation time you put into making this happen. I am not sure how you 

got all those people here behind you, but apparently there is some 

interest in your squads as to what you were going to say this morning. 

We will now go on the 5-minute clock with questions. I will start 

us off. 

One of the things that—it may just be a problem I have—is that 

we have legacy systems out there. Mr. Morin, you mentioned in 

your written statement that if it looks like you are not going to 

make it to 2017. You are developing contingency plans to audit 

those systems. We will talk about that in a little bit. 

But is tracking the demise of legacy systems one of the metrics 

that we should be looking at as we try to evaluate the progress 

that you are making? In other words, at this stage in the arrangement, I would expect you to be able to point to those legacy systems which will no longer be needed once you get to where you 

want to get to. It would seem if those continue on beyond that 

point that you are putting in place a system that is not sustainable. You may be able to get that one time audit or whatever, but 

you are putting—so is—any of the panel members want to comment on that? And that is to how you track and affect the demise 

of these legacy systems as they are replaced by the others. 

Secretary COMMONS. Chairman Conaway, I will take that question. 
10 

In implementing our ERP at our major acquisition commands, 

we believe that we will be able to eliminate 96 legacy systems by 

the end of 2016. We know that we have already eliminated 14. We 

think we will do another 11 this fiscal year. So we are tracking 

whether or not we are able to eliminate those legacy systems. 

One thing that I would like to highlight, however, is that much 

of the data that is contained in some of the legacy systems we need 

to keep. For example, shipbuilding is a 5-year appropriation, and 

it expends much longer, 10, 12 years in some instances. So converting all of that data to a new system is very expensive. We 

chose in some instances to keep that information into the legacy 

system until such time as those appropriations spend out. We are 

tracking. 

Mr. CONAWAY. Okay. Air Force, Army? 

Secretary MATIELLA. Our strategy right now is we roll out 

GFEBS [General Fund Enterprise Business System], which is our 

new accounting system, is we are inputting—as we roll it, put 

GFEBS into an installation, we only record new data into GFEBS 

and the old data stays in STANFINS [Standard Financial System], 

which is our old accounting system. But at a date certain, which 

would be, you know, something that you could track, the metric 

that you are talking about, at a date certain, by 2015, when we 

have fully deployed GFEBS, we are going to start working on 

bringing the old balances from the system, the ones that are still 

applicable, because many of those would have already deobligated. 

But the lingering balances in STANFINS, and we are going to 

bring them over into GFEBS. 

So we are tracking. We do have a strategy where we are concentrating on new data in GFEBS, but at some point at a date certain 

in 2015 we are going to start moving the old data into the new system. 

Right now, we are just concentrating on making sure that the 

new system is working, that we are training people correctly, and 

we will worry about moving the beginning balances after we feel 

like we have got a stable environment in GFEBS. 

Mr. CONAWAY. Jamie, as you answer yours, one of the things in 

looking at the three Services, your timeline gets you right at the 

bucket, right at 2017. The other two Services have—or at least 

have plans in place to get it done sooner so that if they have slippage and it doesn’t go as planned they have got a window of opportunity to make that work. Can you address the fact that the Air 

Force has got it right on the dime and that means no slippage? 

Secretary MORIN. Yes, sir. 

I think I will begin with the fact that in the dialogue between 

the committee—this committee and the Department of Defense, the 

Air Force was the pacing factor that led the Department of Defense 

to provide you with the schedule that got to 2017. So that it is not 

by happenstance that we are on the edge. We gave you the most 

aggressive deadline we could, given that schedule. 

But it leaves us, as you said, with very little room for slippage, 

and we are very cognizant of that. As a result, we are pushing now 

what I would call a belt-and-suspenders type approach. 

You have mentioned the line in my written testimony on that, 

that we are both pursuing our IT systems modernization through 
11 

our ERP strategy, where we are definitely planning to replace a 

number of systems and we are tracking them as they come out, although the fact that we are rolling out many of these systems geographically means that the actual retirement of the replaced systems will not come until we have covered the full geography of the 

Air Force. 

But we are modernizing with the ERPs, and then we are also 

looking carefully at our legacy systems, the ones that can be remediated. Not all of them can. So, for those, we will be reliant on the 

ERPs. 

But, in certain cases, relatively cost-effective investments in existing legacy systems will get us the trail that we need to have 

clean financial input to the underlying accounting system. So we 

are focused on that very closely, and we are watching those interdependencies. 

One final point, which is that in the medium—in the early stages 

of the Air Force audit readiness effort, we perhaps bit off more 

than we could chew with some of those systems modernizations. 

Our ECSS effort, you know, was originally planned to replace I believe 240 IT systems. That was probably too much scope. And over 

the more than 5-year history of that program it has now been tailored and moved into smaller increments and releases of capability. 

Because trying to replace 240 systems at once strained the planning and execution capability of an institution of our size. 

Mr. CONAWAY. Thank you. 

Rob, 5 minutes. 

Mr. ANDREWS. Thank you, Mr. Chairman. 

Secretary Matiella, I understand in December of this calendar 

year the Army is going to match GFEBS against the GAO’s sort 

of audit manual to see how it stacks up. Do you have any early indication as to how GFEBS is going to stack up? 

Secretary MATIELLA. I believe that we are going to be very successful. We have been working very hard to make sure that GFEBS 

is meeting the criteria that is required, that it has all the general 

ledger accounts that it requires. So I believe that at this point that 

GFEBS is going to be successful in being able to meet the IG’s [Inspector General] and all the other regulation requirements. 

Mr. ANDREWS. What is the Plan B? Because it seems that so 

much of the Army’s efforts for the audit compliance depends on 

GFEBS really working the way you want it to. Is there some sort 

of fire drill ready if there are deficiencies found in December of this 

year? 

Secretary MATIELLA. We are just—it is resourced. We have got 

the resources there to fix what is broken. And so at this point, you 

know, we plan on fully deploying GFEBS by July of next year. We 

have got a lot of major commands that are fully on GFEBS at this 

point. So we are sticking to Plan A. And, at this point, what we 

see is GFEBS is working. There are no data integrity problems. We 

do have to, you know, maybe slice and dice the data within GFEBS 

into different accounts, but we believe it is going to work. So we 

are very hopeful of that. 

Mr. ANDREWS. With the chairman’s permission, I think we would 

like—the panel would probably like to have a report after your December review, a letter or some kind of written report to let us 
12 

know how you are doing, because I think that is a very pivotal midpoint. 

[The information referred to can be found in the Appendix on 

page 61.] 

Secretary MATIELLA. More than happy. 

Mr. ANDREWS. Thank you. 

Secretary Commons, I love your story about the person who 

wrote in and thought he was underpaid. Usually, they write to me. 

I am glad it was you instead. 

How long did it take you—when you asked that question, how 

long did it take you to get the answer? 

Secretary COMMONS. Actually, not very long. Within a day or 

two. Our systems—our accounting systems for many years have 

been at the transaction level detail. So we are able to go in and 

look at data. Our issue is pulling that data out for the auditors. 

But we have been at the transaction detail level for many years. 

Mr. ANDREWS. That is good. 

I want to ask you a more subjective question based upon your 

professional judgment. How would you place the probability the 

Navy will get to that 2017 deadline? How probable is it? 

Secretary COMMONS. I am very optimistic. Our deadline that we 

have set for ourselves is fiscal year 2013. So I believe we will have 

ample time to make whatever corrections we need to make to meet 

the 2017 deadline. We are pushing very hard. We are not slipping 

our deadline. We are trying to stick to it and forcing the issues to 

make sure that we meet the 2017 deadline. 

Mr. ANDREWS. I appreciate that. 

And, Dr. Morin, you have spoken with great detail about the systems modernization challenges that the Air Force has to get to 

where we need to go. Are there any others in addition to systems 

modernization that you think are potential roadblocks to getting to 

the deadline? 

Secretary MORIN. There is absolutely a range of other challenges. 

We have—it is people, it is processes, and it is systems. And they 

have got to work in concert. 

What we have found as we have rolled out DEAMS at Scott Air 

Force Base is, you know, in many cases doing financial management business in an auditable solid system is harder work than 

doing it in a legacy system. You know, you can’t just enter seven 

9s in a field and have the system pass the funding document 

through. So we have had to do a lot of additional training, a lot 

of hand holding as we get our workforce up on this system. And 

there is education required as to the strategic importance of this. 

Mr. ANDREWS. How are you handling the employee education to 

get your employees up to speed on what they have to do? 

Secretary MORIN. We have a very deliberate and careful change 

management process that starts months and months in advance of 

turning the system on. 

Mr. ANDREWS. Who does the educating? Is it a vendor? Is it in 

house? How do you do that? 

Secretary MORIN. It is a mixed force. We have a functional management office that is made up of seasoned financial managers that 

provides the detailed subject matter expertise. A lot of the—a lot 
13 

of the training is done by contract support. But it is—it depends 

on exactly the level of training. 

Mr. ANDREWS. Very quickly, Mr. Miller, I saw you had a recommendation or a thought about the 45-day window at the end of 

the fiscal year. Do you think there should be a longer window for 

that compliance? If so, what should it be? 

Mr. MILLER. In the first-year audit, sir, that is very difficult to 

make. After that, you are working towards that 45-day window, 

and it is workable, and we have achieved it each of the last 3 

years. 

Mr. ANDREWS. What do you think it should be in the first year? 

Mr. MILLER. Sir, I think that first audit, it is going to take 4 to 

5 months in order to get the results from that first audit. 

Mr. ANDREWS. Some of us just hope that the Corps has some 

money to be audited next year. A different problem. Thanks very 

much. 

Mr. MILLER. Thank you, sir. 

Mr. CONAWAY. Thanks, Rob. 

Scott, 5 minutes. 

Mr. RIGELL. Good morning. Thank you, Mr. Chairman; and 

thank you all for being here bright and early and all the staff. We 

really appreciate that. 

I am encouraged by what I am hearing. I think there is a deep 

resolve to move this forward, and just as a fellow American I thank 

you for that. We need to use our monies wisely. 

It seems like there was a common theme in your opening remarks that incorporating an assessment of the senior leadership, 

the executives, is starting to pay some benefit there; and I can tell 

you from my private sector experience that this is a good thing. 

I have routinely sat down with general managers of operating 

components and said, we are going to go through this general ledger; and they say, well, I have never done that before. And I say, 

well, this is how we run this business. And I said, I am not trying 

to make an accountant out of you, but you need to have a working 

knowledge of what you have been entrusted with. And it has always been very helpful. So I encourage you to pursue that. 

Now, with that in mind, you always wonder, okay, well, how are 

you establishing a benchline? 

Let us say I am a hard-charging colonel in Afghanistan. Come 

back, they reward me with a base. I am a 1-star now. I walk on 

the base. I don’t know what I have inherited with respect to accounting. So how do you establish that baseline and how do you 

judge his or her performance at the end of his or her time? 

And I just would direct that to the general—the panel there, 

whoever would like to comment. 

Secretary COMMONS. First, we are indeed working with our flag 

and general officers as well. In fact, the Commandant of the Marine Corps believes that this is so important he has invited us to 

come and talk to his 3-star and above general officers to explain 

to them exactly what is needed for financial audit readiness. 

Also, the Vice Chief of Naval Operations has offered the same for 

his flag officers, that we come and talk to them about the importance of audit readiness. 
14 

So we believe that we do have the support of the senior leaders 

of the Department. We take advantage of every opportunity to talk 

to senior leaders. I in fact went over and talked to our senior executives within the Department of the Navy, explained to them 

their role in this process. And, again, we have visited or talked to 

every senior executive within the Department of the Navy who influences the business processes to tell them of their importance and 

the role that they play. Because I think that is the key, that they 

understand the role that they play in reaching financial audit readiness. 

Mr. RIGELL. A follow-up then might be if you could provide—certainly me and maybe the panel here with copies of that performance appraisal, not of course—not specific to a person but just the 

generic one. I would like to see what we are asking of our senior 

officers and how we are going about that. 

[The information referred to can be found in the Appendix on 

page 61.] 

And, also, I think you may want to consider, since you are having real success in this area and it is helping, if we could establish 

a culture even earlier on. If you have got your 3-stars, that is great. 

But over time to develop that to where we’re instilling that is at 

junior and mid-level officers and senior NCOs [non-commissioned 

officers] that this is just part of your duty. We don’t want to take 

the warrior out of you. We don’t want to do that. And I think we 

need to be careful about how we approach these things. But certainly being accountable for the assets entrusted to them is a good 

thing. 

As we move along in this process—and wouldn’t we all love to 

fast-forward the tape to 2013 or 2017 and just see how we all did— 

but there are measurable benchmarks along the way. I trust those 

are clearly defined and we’ll be informed along the way. 

And is there any third party—my final question, is there any 

third party—Mr. Morin, I will direct this to you, sir. Is there any 

third party that would come along and say, no, they really are not 

meeting that and alarm bells would go off so we could take action? 

Secretary MORIN. Third-party valuation is critical, obviously, to 

any audit effort. We are relying on a series of third-party 

validators. For example, for our appropriations received assertion, 

we brought in an independent public accounting firm to do an examination of that. And we have received their unqualified opinion, 

and that is giving us confidence that we fixed the issues there. 

We also use the Inspector General. We use the DOD Inspector 

General for a portion of our examinations, and we use the Air 

Force audit agency as well. All of those bodies maintain a sufficient 

level of independence. 

But there is—we need to do a very good job of providing those 

interim metrics, and we have plans with literally thousands of line 

items of actions. Some of them—— 

Mr. RIGELL. Thank you. My time has expired. I just want to— 

out of respect for the chairman. Thank you, sir, very much. 

Mr. CONAWAY. Thank you, Scott. 

Mr. Courtney for 5 minutes. 

Mr. COURTNEY. Thank you, Mr. Chairman. 
15 

Actually, I just have one quick question. Secretary Commons, you 

mentioned in your testimony that, right now, the Navy is going 

through an audit with the Inspector General. And I am just—it is 

really—and I apologize for sort of talking about—or spending time 

on an issue that most people probably know standing on their 

head. But I mean is that an audit that is just random or is that 

a regular audit or is that something that you guys just sort of suddenly get a letter in the mail, like the IRS [Internal Revenue Service]? 

Secretary COMMONS. No, this is actually an examination to prove 

out that we say that we are ready for audit of completeness and 

existence of our high-value military equipment. The DOD IG is actually coming behind and verifying that the statement that I made 

is true, that we are ready there. So they are auditing that. They 

are going out. They are looking to see that the ships that are on 

our inventory are actually there and recorded. 

Mr. COURTNEY. And how long a process is that? 

Secretary COMMONS. We believe that this should take only a couple of months to complete this audit, but I don’t control the IG 

timeframe. I just respond to them. 

Mr. COURTNEY. So if this effort to hit the 2017 target with the 

new systems is successful, I mean, will that moot this sort of Inspector General process? Or will it just make it easier to comply 

with? 

Secretary COMMONS. What we are actually trying to do is to get 

the auditor’s lens on our processes as quickly as possible to confirm 

that the actions that we are taking, have taken are, in fact, successful. That gives us confidence to move to the next area that we 

need to work on. And so it is merely an examination to prove out 

the fact that, yes, your processes are good there, you are fully 

auditable in that area. When we have completed this entire process 

and will be ready for audit of the full statement, there will just be 

one audit. 

Mr. COURTNEY. Thank you. I yield back, Mr. Chairman. 

Mr. CONAWAY. Thanks, Mr. Courtney. 

Mr. Palazzo for 5 minutes. 

Mr. PALAZZO. Thank you, Mr. Chairman; and I would like to 

thank the witnesses for being here today to continue this extremely 

important conversation. 

In the essence of time—and I know my colleagues to the right 

of me have some questions and there will probably be some closing 

remarks, so I will try to keep this brief. 

This is for everybody. Do you believe—I mean, there are certain 

lessons learned as we go through this process. It is a huge attempt 

to prepare the Services to become audit ready. And we have had 

to look at ERP and updating our legacy systems to more modern 

technology and, quite honestly, that—as a CPA [Certified Public 

Accountant] and a former business owner, I am still with the same 

tax preparation software and will probably be until they discontinue it just because I fear that change and that deliberative 

change management and, you know, we finally got the system 

tweaked, even though it is not the best. 

Anyway, I am digressing. So I didn’t want to do that. 
16 

Do you see that these lessons learned—CPAs have a habit of 

doing that. Do you see that these lessons learned are applicable to 

all of the Services or do you think each Service is so unique and 

so separate that we have to give—and I know there is probably a 

certain amount of individual attention. But do you think these lessons learned that, say, the Corps of Engineers will be applicable to 

the Army, the Navy, Marine Corps, and Air Force? So if you would 

just—— 

Secretary MATIELLA. I would like to answer that. 

I believe that lessons learned are applicable across. I went 

through an audit with the Forest Service. We got our first clean 

opinion while I was CFO there. Those lessons learned are things 

we are struggling here. It is about change management. It is about 

training. It is about having the right systems. It is about knowing 

how to be auditable, how to communicate with the auditors. 

Internal controls are important. So there is a lot of lessons 

learned, and Wes here will also talk about that. But this is why 

we are looking at the folks that are under auditability. But you can 

go into not only inside of DOD, outside of DOD and have the same 

lessons learned. Very applicable. 

Mr. PALAZZO. And also are you all communicating between the 

Services the lessons learned and the best practices? 

Mr. MILLER. Sir, I go on the road quite a bit and talk about the 

lessons learned from our audit. I say there are four things that 

were critical for us and that we learned. 

First of all, there needs to be a CFO culture that you have there. 

You have to have competent people, one. But you also have to have 

individuals that expect to be checked. Individuals will do best what 

they know is going to be checked. So bringing in an external auditor in is very helpful as far as the audit program. 

The second point as far as having that financial management 

system that provides the detail in the transactional fidelity that 

you need to have there. 

The third item is the command support. The command has to be 

behind you 100 percent. It is just not the resource management 

community that enforces the audit, but it has to be the command. 

They have to buy into standards and enforcing those standards 

when they need be. 

And then the final element, as far as when we conduct the audit, 

is that it is work conducting that audit. You have to be there with 

the auditors, hand in hand, understanding their particular position, getting them to understand your position and why your processes are the way that they are. 

And I think those are applicable to all Services, sir. 

Mr. PALAZZO. Anybody else? 

Secretary MORIN. Congressmen, if I could, I think it is fair to say 

that DOD as a whole and each of the Services have closely looked 

at the success of the Army Corps of Engineers and we have used 

that to structure a lot of our governance process. So each of the 

Services has a cross-functional team chaired by the CFO that is responsible for bringing together that command support and that set 

of knowledge across the functions of a headquarters and an operation. So we have really looked aggressively at that. 
17 

The Marine Corps audit, obviously still a work in progress but 

an important piece of progress, our staffs and we individually have 

had a number of interactions at a detailed level going through the 

recommendations that came out of that. In particular these are important for me at the Air Force because of our tight timeline. We 

can’t afford to learn lessons by making mistakes ourselves. We 

have to learn lessons by viewing others’ successes and failures. 

Mr. PALAZZO. Well, that is admirable. I appreciate the fact that 

you all are sharing lessons learned, best practices, and everything 

else. And it is also admirable that you all are taking on such a 

monumental task. Just a small CPA firm and the fear of new technology and changing—so it is just wonderful to see that you all are 

doing this and, at the end, we are going to be able to achieve audit 

readiness. I think that is wonderful. Thank you. 

Mr. CONAWAY. The gentleman yields back. 

Our rules are a little ill-defined. I will go to Mr. Griffin first 

since he was here on time. Five minutes. 

Mr. GRIFFIN. Thank you, Mr. Chairman. I appreciate you holding 

this hearing. And thank you all for coming early. I really appreciate it. 

I just did a whole lot of town halls over the break and/or the vacation, as it was called. I didn’t get the memo on that one. But I 

talk about the fact that DOD has had this problem with being 

audit ready; and when I am discussing it, folks understand that. 

But they always want to know what are the consequences of that. 

And we have heard a lot of talk here about the systems. I know 

that is what you all are focused on. But could you—could you talk 

a little bit in layman’s terms what the negative consequences has 

been with DOD not being audit ready? 

I know that the general narrative of some of the discussion this 

morning has been that we are not technically audit ready but we 

have the data somewhere. And that is often the case. But there are 

real-life, negative, wasteful consequences to not being audit ready, 

DOD not being audit ready. Can you all—can you all give some examples that I could use back home to explain why this is a problem 

for DOD? And it is not just a function of technical compliance, that 

there really is an impact in terms of taxpayers’ dollars. Does anybody have anything to share on that? 

Secretary COMMONS. I will take a stab at that. 

First of all, our systems were never designed to do proprietary 

accounting the way that we are being asked to do it today. They 

were designed for budgetary accounting; and, quite frankly, we believe we do that very well. We do not have Anti Deficiency Act violations as—we have some but not as many as you find in some of 

the other agencies. 

Our processes—our business processes were not designed from 

end to end. In other words, if you were in the civilian personnel 

business, your system was designed to support hiring, getting people on board, and making sure that they were in the system. It was 

not necessarily coordinated with the financial system. So what we 

need to do is to look at our end-to-end processes. 

What the auditors do when they come in to look at our books, 

they will say, I see from your financial records that you are paying 
18 

an employee. What I would now like to look at is the supporting 

data supporting that entry in the accounting system. 

The supporting data is in fact a personnel action, be it from an 

SF–52 or a 50. So when you go back you are going to the personnel 

people to say give me that supporting documentation. 

Our processes have not been optimized in that way. But that is 

where we are going, to optimize those processes, make sure that 

the linkages between the various business owners is there. So that 

when the auditors come I can show them from end to end this is 

the transaction in the accounting system, this is the supporting 

documentation for that transaction, and they can look at our entire 

process. That is what we have not yet done and what we are working toward. 

Mr. GRIFFIN. So you would say to my constituents that, in many 

cases, this is—this is more of a technical problem and is not—does 

not reflect on a situation where you are unable to track money. 

This has more to do with being able to know the ins and outs of 

the money being spent, money coming in, and being able to manage 

it better in the future. It does not reflect a situation where you just 

don’t know where the money is; is that correct? 

Secretary COMMONS. That is correct. Absolutely. I believe we 

know where the money is. I think what this does for us by going 

down to the transaction level of detail, it reinforces the fact that 

the summary level data that we have can be relied upon by our decisionmakers. 

Mr. GRIFFIN. Got you. Thank you. 

Thank you, Mr. Chair. 

Mr. CONAWAY. Mr. Young for 5 minutes. 

Mr. YOUNG. Thank you, Mr. Chair. 

I want to thank our Assistant Secretaries, our Assistant Deputy 

Commandant very much for being here this morning. 

I was struck by a couple of different trends that I have picked 

up, not just here today but in some of the previous hearings we 

have had. First is the collaborative cross-departmental effort to become audit ready, to achieve those clean audit opinions; and then, 

second, is the very different audit readiness goals that we find 

across departments. So I would like to briefly dig into each of 

those. 

First, I was encouraged by the Corps of Engineers’ efforts to educate everyone on what they regard as lessons learned, best practices and I wanted to see if there are any specific examples of 

changes that your departments have made, you know, following 

some of those different consultations. Specifically, if you can speak 

to—if anyone can speak to this integrated financial management 

system, is that something that can be overlaid into another department very easily? I mean, that seems like it requires quite an investment of both time and money to improve that. We have heard 

some talk about systems and I am sort of getting my sea legs, as 

we say in the Navy, with some of this material, but if you could 

speak to those lessons learned and changes made right now, I 

would appreciate that. Anyone. 

Mr. MILLER. Sir, concerning the use of CEFMS as far as in other 

areas, that has in fact been tried. And it is a very specific system 

that is designed in order to do project-based accounting, so it is 
19 

very good as far as for construction. But it isn’t for general fund 

type of accounting that the other Services would need. 

Secretary MATIELLA. One of the huge lessons learned that we got 

from the Army Corps of Engineers is how to manage an audit. An 

audit itself is a lot of work. For example, I like to estimate how 

many samples we would get to have the support in an audit, and 

I am thinking it is about 150,000 samples, just a huge amount of 

work. So how do you manage that work so that you can come up 

with an opinion in that 45-day window? Of course, you start the 

audit way, way before the end of the fiscal year. 

So there is a lot of lessons on audit governance and how you communicate with the field and how you keep track of deliverables and 

how you keep folks accountable for deliverables, timeframes that 

are involved, and also developing business rules on what is good 

supporting documentation. That is a huge one that you can establish with the auditors way ahead of time, is what is it they expect 

and what is an appropriate level of work effort and support for a 

sample. 

So in terms of how to negotiate an audit and do it well and efficiently and on time and on cost is a huge lesson that we have 

learned from the Corps of Engineers. 

Mr. YOUNG. Thank you. 

Secretary COMMONS. I would say that certainly we learned from 

the Corps of Engineers that we needed an efficient process to retrieve and provide to the auditors a large balance of source documentation. When the Marine Corps went to audit they took that 

lesson learned to heart and they actually developed an automated 

process using SharePoint® server technology. So we are in fact 

learning from each other as we go through the audit process, and 

we are putting those lessons to use. 

Mr. YOUNG. I have got about 1 minute 20 left, so I am going to 

allow one person to take a stab at this one. I am struck, though, 

by the fact, as I said earlier, that we have got different departments here learning from the lessons of the Corps and from others, 

but we have very divergent, very different audit readiness goals. To 

what do you attribute that? 

Secretary COMMONS. Quite frankly, we are at different stages of 

audit readiness. As we noted, the Marine Corps is already under 

audit. We have done things in the Navy that we may be a little 

farther ahead of the other departments, so it is a matter of what 

stage you are in the audit readiness that really sort of dictates the 

plan for us. 

Secretary MORIN. And, sir, if I may add, I think another key 

piece is that the Services and the defense agencies are in different 

places with regard to their IT support, so that the Navy is starting 

from what is fundamentally a sound accounting system that they 

fielded a decade or so ago. The Air Force is starting from a bookkeeping system that was fielded in the early ’70s. So different prerequisites have to be worked with. 

Mr. CONAWAY. Well, Rob, anything else? 

Mr. ANDREWS. Yes, Mr. Chairman, just briefly. 

I think it was Mr. Miller who used the phrase ‘‘CFO culture.’’ 

Was that your phrase? I liked that one, and I think it is a good 

summary of what we are trying to accomplish here on the panel 
20 

and what you ladies and gentleman are accomplishing out in your 

work, which we appreciate. You said that if you expect to be audited, you begin to change your behavior. Members of Congress 

would be wise to maybe keep that in mind, too. 

Our objective on this panel is to, in effect, audit the auditors. We 

want to keep in touch with you, we want to hear about your 

progress, and as that culture filters down through the agencies I 

think we will find ourselves in a much better position to understand what we are doing and make informed judgments. 

Mr. Chairman, I give you credit that your single-minded devotion 

to making this happen is the reason we are hearing about this 

progress today, and you have my commitment that we will continue to work with you and with the ladies and gentlemen we have 

heard from today to move even further down the road so we 

achieve that day when each of these entities has an auditable financial statement, achieves that unqualified opinion, and I think 

we will accomplish something of real value. Thank you. 

Mr. CONAWAY. Thanks, Rob. 

I also was encouraged by Jamie’s comments that you don’t necessarily have to make all the mistakes yourself, that you can learn 

from each other. Each of these audit processes will come with a report by the auditor at the end of the deal as to where you need to 

improve, a formal system for sharing those at some proper level 

with your team so that you don’t in fact have to reinvent the wheel 

each time that something is disclosed, that you can learn from 

those issues. 

This team on our side of the panel will be better informed this 

time next year. We will have a lot better sense, since we are putting this work together now, as to how much progress is being 

made. 

Mr. Miller, you mentioned that you do what gets checked. Having performance evaluation metrics in each of the senior executive’s 

performance plan for next year, somebody, Rob and I or somebody, 

is going to be interested in looking at how that worked, are there 

in fact consequences to doing the job that you were asked to do and 

charged with doing, and are there consequences for where that did 

not get done and a variety of reasons. 

So we will be checking those kinds of things, and our side will 

have a better foundation of being able to evaluate how this 

progress is going. This is not us against you, obviously. That is not 

intended in any way to be there. But we have a role, and you have 

one as well. 

This has been one of our more productive hours spent together, 

and I appreciate each of you coming in and reaching out to us 

ahead of time as well, either in August or this past week or so. So 

thank you for that. 

If there are things that we can do to address things that are 

standing in your way, legal issues, other things that are there, we 

have an open door as to how we get that addressed. 

One of the things that Rob and I will be watching is how the various agencies are resourced in your efforts. Each of you have said 

at this stage you believe you are properly resourced to get the job 

done. In this era of cutting spending, sometimes that can impact 

this. So we will be watching to make sure that these efforts are 
21 

resourced so that we do in fact get to a point that—and we talk 

about the audit, but the real issue is, day in and day out, data generation systems, management information systems, internal control 

systems that generate all of this and allow a once-a-year quick 

Good Housekeeping—I say ‘‘quick’’—Good Housekeeping Seal of Approval to be laid on this deal. But it is really about the sustained 

information systems and flow of information that decisionmakers 

will need on both sides of our respective responsibilities that are 

there. 

So, ladies and gentlemen, thank you very much for coming this 

morning. If there is nothing else, we will stand adjourned. Thank 

you. 

[Whereupon, at 9:05 a.m., the panel was adjourned.] 

A P P E N D I X 

SEPTEMBER 8, 2011 

PREPARED STATEMENTS SUBMITTED FOR THE RECORD 

SEPTEMBER 8, 2011 

(27) 
28 
29 
30 
31 
32 
33 
34 
35 
36 
37 
38 
39 
40 
41 
42 
43 
44 
45 
46 
47 
48 
49 
50 
51 
52 
53 
54 
55 
56 
57 

WITNESS RESPONSES TO QUESTIONS ASKED DURING 

THE HEARING 

SEPTEMBER 8, 2011 

(61) 

RESPONSE TO QUESTION SUBMITTED BY MR. RIGELL 

Secretary COMMONS. Listed below are generic performance standards developed 

for use by Department of the Navy senior executives. 

General Department of the Navy Guidance. If the Senior Executive Service (SES) 

member’s performance has a direct influence on the accomplishment of Department 

of the Navy Financial Improvement and Readiness/Financial Improvement Plan 

(FIAR/FIP) objectives, the performance objective should be reflected in the ‘‘Contribution to Mission Accomplishment’’ mandatory critical element. If the SES member’s performance has an indirect influence on the accomplishment of DON FIAR/ 

FIP objectives, the performance objective should be reflected in the ‘‘Leadership/Supervision’’ mandatory critical element. 

Generic Leadership/Supervision Mandatory Critical Element. • Achieves results 

pertaining to the Department of the Navy’s Financial Improvement and Financial 

Readiness/Financial Improvement Plan goals and objectives intended to improve access to timely, relevant, and reliable financial and cost information to make informed decisions and ensure resources are optimally aligned to priority tasks focused on meeting the National Defense Authorization Act requirement to have 

auditable financial statements by 2017. • Establishes appropriate strategic plans, 

including goals and implementation activities necessary to effect business process 

changes targeted at achieving desired results. Ensures goals and activities are reflected in performance plans of subordinate managers and are cascaded throughout 

the organization. Submits quality progress reports and work products to superiors, 

including Departmental officials as required. Effectively manages agency resources 

toward the attainment of the Department of the Navy Financial Improvement and 

Readiness/Financial Improvement Plan goals and objectives. 

Tailored Contribution to Mission Accomplishment Critical Element. 

Personnel and Payroll Business Process Objective. Ensure the accuracy of DON 

master employee records through the processing and retention of documentation 

that support human resource data in the Defense Civilian Personnel Data System. 

Acquisition Business Process Objective. Validate audit readiness of financial reporting processes associated with acquisition, including proper financial accounting 

treatment for assets, standard procurement systems and data elements, unique 

identification of assets, etc. 

Existence and Completeness of Property Business Process Objective • Ensure controls are in place to document receipt of physical assets • Implement business transformation plans to enable audit readiness of real property acquire-to-retire business 

process, including conducting asset inventories and establishing a valuation process 

(i.e. DD1354) [See page 14.] 

RESPONSE TO QUESTION SUBMITTED BY MR. ANDREWS 

Secretary MATIELLA. The Army expects to finish the internal review of GFEBS 

against the GAO Financial Information Systems Control Audit Manual (FISCAM) 

in late December 2011 and will plan to provide this panel with a summary of our 

results not later than January 31, 2012. [See page 12.] 

QUESTIONS SUBMITTED BY MEMBERS POST HEARING 

SEPTEMBER 8, 2011 

(65) 

QUESTIONS SUBMITTED BY MR. CONAWAY 

Mr. CONAWAY. Although the Air Force, Army, and Navy are not as far along as 

the USMC in achieving full financial auditability, all three Services are making 

progress. As a result, the Air Force, Army, and Navy should be already seeing benefits from implementing the Financial Improvement and Readiness plan. Please describe, in detail, what tangible benefits your Service has already experienced. 

Secretary MATIELLA. Army has accrued several tangible benefits as a result of implementing audit readiness efforts. These efforts, along with the implementation of 

the General Fund Enterprise Resource System (GFEBS), have standardized business processes, improved both automated and manual internal controls and provided the framework for successful audits. For example, the US Army Corps of Engineers has a three year record of achieving an unqualified audit opinion on its financial statements. The lessons learned from the Corps of Engineers, along with 

Army audit readiness efforts, led to an unqualified audit opinion on the Army’s appropriations received, a positive first step toward achieving an overall financial 

statement opinion. 

Another benefit we have experienced to date is the increased ownership in audit 

readiness from the Army’s leaders and Command and Installation staff, specifically 

from outside the financial management community. Non-financial personnel have 

begun to understand and appreciate the role they play in supporting audit readiness 

on a daily basis, rather than requiring the financial community to shoulder the entire burden. This is a critical benefit to improving our business environment and 

enabling the Army to attain and sustain audit readiness. 

The Army has provided resources to meet all fiscal year requirements, from FY 

11 through FY 16, for audit readiness. For example, the fiscal year 2012 requirement of $44 million has been funded. With these resources and a sound financial 

improvement plan, Army will build on its initial successes and achieve auditable financial statements by September 30, 2017 as required under the National Defense 

Authorization Act of 2010. 

Mr. CONAWAY. Although the Air Force, Army, and Navy are not as far along as 

the USMC in achieving full financial auditability, all three Services are making 

progress. As a result, the Air Force, Army, and Navy should be already seeing benefits from implementing the Financial Improvement and Readiness plan. Please describe, in detail, what tangible benefits your Service has already experienced. 

Secretary COMMONS. One outcome of progress in advancing the Department of the 

Navy’s financial improvement and audit readiness initiative includes the recent receipt of an unqualified audit opinion on our funds receipt and distribution process 

(referred to as appropriations received process) from an independent public accounting firm this past August 2011. The tangible benefit of this unqualified opinion is 

independent evidence that Congress and the taxpayer can be assured that the 

amounts appropriated by the Congress are well controlled, accurately reported, and 

that we meet the intent of the Congress in allocating those resources. Sustainment 

of this process enables improved standardization of our business practices, enhanced 

transparency of our underlying management information, and better utilization of 

warfighter resources. 

The tangible benefit of the current DoD Inspector General examination of our selected military equipment existence and completeness effort is the assurance that 

the warfighter knows the assets available and where they are located to accomplish 

the mission. 

Finally, the tangible benefit from the USMC audit engagement is it provided critical insight into the DoD-wide collaboration and infrastructure required to efficiently 

provide the auditors extremely large amounts of transactional data and supporting 

documentation necessary to be successful in an audit engagement. 

Mr. CONAWAY. The United States Marine Corps (USMC) is the furthest along out 

of the Services in achieving an unqualified opinion on a financial audit. Please describe, in detail, the tangible benefits USMC has seen as a result of the statement 

of budgetary resources audit. 

Secretary COMMONS. The most significant tangible benefit the USMC has realized 

as a result of the ongoing audit of the Statement of Budgetary Resources (SBR) is 
66 

the increasing assurance that Marine Corps financial data is accurate and can be 

relied upon to inform decision making. The USMC and the Department of the Navy 

(DON) leadership are cautiously optimistic the FY2011 SBR audit engagement will 

yield a positive outcome. 

A second sizeable and tangible benefit has been the key lessons learned from the 

USMC SBR audit which have been leveraged and shared within DON and across 

the Department of Defense. These include: USMC’s recently-developed capability to 

fully reconcile and trace detailed transactions to the reported balances on the SBR; 

their repeatable capability to reconcile USMC cash balances with Treasury; 

strengthened controls over accruals and estimated obligations; greater rigor in validating obligations during tri-annual reviews; and increased controls over recording 

of appropriations shared with the Navy. 

Finally, another tangible benefit is the ongoing cultural change within the USMC. 

The same rigor and discipline which has long been a defining characteristic of 

USMC operations and doctrine are evolving as standards in USMC financial management. The value of improved, auditable financial practices and greater accountability for business and financial operations is now recognized by USMC leadership 

and throughout the organization. 

Mr. CONAWAY. The United States Marine Corps (USMC) is the furthest along out 

of the Services in achieving an unqualified opinion on a financial audit. Please describe, in detail, the tangible benefits USMC has seen as a result of the statement 

of budgetary resources audit. 

Ms. SPANGLER. The lessons learned from both the Fiscal Year (FY) 2010 and 2011 

Statement of Budgetary Resources (SBR) audits have generated many improvements and benefits for the Marine Corps as well as other Services and agencies 

within the Department of Defense (DoD). 

The foundation of the audit is to support the balances represented on the financial 

statement by performing examinations that tie the accounting transaction to its corresponding documentation. While initially very challenging, the Marine Corps was 

able to fully reconcile detailed transactions to the reported balances on the SBR, 

and the auditors were able to test samples from a listing of transactions. To date, 

the Marine Corps is the only Service with this validated capability. 

The Marine Corps has seen internal benefits from pursuing the audit such as improved models and controls for estimated obligations; a strengthened process to accomplish DoD mandated Tri-Annual Reviews; and general ledger corrections to support the appropriate recording and reporting of appropriations shared with the 

Navy. These have improved the clarity of our information and allowed leadership 

to base decisions with increased agility. Furthermore, we have made great strides 

with automation and reconciliation tools. However, the Marine Corps is acutely 

aware that investments will still be required to improve controls or systems to bring 

them in line with Generally Accepted Accounting Principles (GAAP) and audit 

standards. 

The larger DoD community has also benefited from Marine Corps audit efforts. 

DoD-wide processes are being analyzed for compliance with GAAP given auditor 

identified concerns with advances (pre-payments) and contract financing payments. 

While the Marine Corps’ processing of these payments was in compliance with DoD 

Financial Management Regulation (FMR) guidelines, efforts are underway within 

the Office of the Under Secretary of Defense (Comptroller) to update and/or clarify 

the DoD FMR so that future audits will not generate similar GAAP concerns. The 

issues, findings, and lessons learned, if appropriately implemented throughout the 

Department, will exponentially speed-up the audit posture of the DoD. The endstate will be improved recognition and transparency on how, what and when we 

spend and in a manner that is accurate and auditable. 

The auditors tested several key information systems that are leveraged heavily 

across DoD. Defense Cash Accountability System (DCAS) and the Defense Departmental Reporting System (DDRS) were evaluated for internal control accuracy and 

the auditors’ findings have generated improvements in system access policies, programming practices, and system-to-system communications. Our systems environment is being strengthened through improved monitoring of user roles and system 

policies, allowing for increased confidence in system reliability and data outputs. 

The audit has uncovered gaps in roles and responsibilities for systems that play a 

significant part in our financial management processes but whose ownership and 

control is outside of our functional purview. These DoD-wide systems are also undergoing improvements that will demonstrate sustainable Federal Financial Management Improvement Act (FFMIA) compliance as we fortify of our business enterprise to streamline operations and identify efficiencies that maximize the utilization 

of every dollar. From improved procedures that test and track system updates to 
67 

better monitoring of system errors, the audit is generating visibility and accountability across key facets of our system enterprise. Working closely with the Defense 

Finance and Accounting Service (DFAS) and the former Business Transformation 

Agency (BTA), the Marine Corps performed a general ledger reconciliation of the 

unadjusted trial balance to the adjusted trial balance. This was an achievement 

never accomplished prior to the audit, and spurred improved financial reporting and 

reconciliation support that will yield benefits for all financial statement reporting 

entities within the DoD. In this regard, the automated DDRS Information Center 

(ICe) tool is being developed to assist in producing quick, accurate and reconcilable 

trial balances for all DoD components. The previous process for reconciling detailed 

transactions to the financial statement involved four separate departments, a myriad of system interface reconciliations, and the direct involvement of over 50 people. 

As a result of the audit, this new automation will represent a workforce savings, 

as these needed records will be generated swiftly and without significant manual 

intervention. 

The Marine Corps is the first Service to undertake an audit of a major financial 

statement, the General Fund SBR. We volunteered for this mission because we recognized that a successful audit is critical to effectively managing the resources provided by the Congress, and would further demonstrate our faithful stewardship of 

the Nation’s resources. Based on the findings to date we are confident that 

auditability will enhance our readiness posture by enabling better utilization of the 

funding provided by Congress, and will provide us better data upon which to base 

future budget development in this period of declining resources. While the audit is 

not yet complete, the progress we have made has made us confident that our ongoing efforts will ultimately be validated by an audit opinion and continued 

auditability. 

Mr. CONAWAY. Although the Air Force, Army, and Navy are not as far along as 

the USMC in achieving full financial auditability, all three Services are making 

progress. As a result, the Air Force, Army, and Navy should be already seeing benefits from implementing the Financial Improvement and Readiness plan. Please describe, in detail, what tangible benefits your Service has already experienced. 

Secretary MORIN. The Air Force has completed several assertions. They include: 

Funds Receipt; Existence and Completeness of Military Equipment, Cruise Missiles, 

and Aerial Targets; and Fund Balance with Treasury Reconciliation. In order to 

make these assertions, we have implemented multiple corrective actions which will 

benefit the Air Force. These actions include: 

• Implementing an automated cash reconciliation tool allowing the AF to balance its checkbook and reduce unmatched disbursements from approximately 

$1.3 Billion to $800 thousand. This reduces the time required to research and 

resolve our unmatched disbursements; however, because numerous audit 

readiness tasks remain to be completed, we have not reduced manning based 

on these time savings. 

• As part of our Funds Distribution assertion, AF developed a four system cross 

reconciliation providing greater transparency into our processes and ensuring 

the timely resolution of any discrepancies identified. We also implemented a 

standard document numbering process to facilitate the reconciliation process. 

While the savings cannot be precisely measured, the increased reliability in 

our data allows us to execute funds with greater confidence. 

We will continue to implement appropriate controls to support audit readiness 

and enhance efficiency. 

Mr. CONAWAY. The U.S. Army Corps of Engineers has achieved an unqualified 

opinion on their financial audits for the past three years. In the testimony received 

on September 8, 2011, Mr. Miller indicated he cannot quantify the dollar savings 

in doing the audits; however, there are other benefits to doing audits, such as being 

able to identify spare equipment and parts on hand thus reducing superfluous reordering. Please describe, in detail, the tangible benefits the U.S. Army Corps of Engineers has experienced as a result of completing their audits. 

Mr. MILLER. The greatest benefit related to performing financial statement audits 

in the Federal government, more specifically in the U.S. Army Corps of Engineers 

(USACE), is a continuous emphasis on standardizing business processes that contain strong internal controls. USACE can show tangible benefits such as low Prompt 

Payment Act interest penalties, fewer improper contractual payments, no unmatched disbursements, and shorter processing time for travel payments. These accomplishments may not have been a direct result of the audit but rather the annual 

Chief Financial Auditor (CFO) audit has been a main driver in creating what I refer 

to as a ‘‘CFO Culture.’’ 
68 

This ‘‘CFO Culture’’ is primarily built upon three main components: (1) the Corps 

of Engineers Financial Management System (CEFMS) and the internal controls programmed into that system, which forces strong internal controls into our business 

processes; (2) USACE Commanders understanding the importance of strong internal 

controls and being held accountable at all levels; and (3) an environment of accountability and stewardship over the resources entrusted to us by Congress and our 

many customers and stakeholders. 

The pillar of the USACE ‘‘CFO Culture’’ is CEFMS—an enterprise financial management system that USACE built internally and deployed fully in fiscal year (FY) 

1998. CEFMS is frequently referred to as a comprehensive ‘‘self contained’’ system. 

This means from the point the funds are loaded into CEFMS to the point they are 

disbursed, the detailed subsidiary and general ledger transactions are linked and 

are inclusive in one system. Transactions that result in payment, regardless of functional source, must originate and disburse within CEFMS. The enterprise approach 

prevents costly duplication and expensive interfaces and improves auditability. 

Project Managers and many of the other 33,000 USACE employees use CEFMS 

daily for functions such as creating purchase requests/obligations, certifying contract 

progress and payments, creating travel orders and vouchers, recording the disposal 

of excess property, recording the receipt of goods, recording time and attendance, 

and processing collections and disbursements. CEFMS provides real-time funds control throughout the entire budget life cycle (fund, commit, obligate, expense, disburse). The system updates simultaneously the detailed subsidiary records and 

United States Standard General Ledgers (USSGLs) for both proprietary and budgetary accounts with automated reconciliations between the subsidiary data and the 

general ledgers. These features provide a complete audit trail, at detailed subsidiary 

level, to facilitate the accelerated reporting requirements associated with financial 

statement audits. A fully integrated financial system allows our travelers almost instant reimbursement of travel costs, with turnaround times of one day for temporary duty travel and two days for permanent change of station travel. Many of 

the USACE internal controls and data edits are ‘‘hard coded’’ into CEFMS, forcing 

user compliance and providing data validation. These internal controls cover data 

entry, transaction processing and reporting. 

Business process improvement is another benefit of the financial statement audit 

process. It is a critical focus embedded in the USACE internal controls and internal 

audit functions as part of our risk management initiatives. This provides a framework for not only identifying risks, errors and potential instances of fraud, but for 

addressing those risks. We can show tangible benefits such as the $103,633 Civil 

Works Prompt Payment Act interest penalties in Fiscal Year 2011 (through August 

31, 2011) on disbursements of over $8.5 billion. The $103,633 in interest penalties 

is a reduction of 86% from our FY 2007 figures (the year before we achieved an unqualified opinion). Another tangible benefit is the $5.1million in improper payments 

for FY 2011 of which almost 100% was recovered. Finally other benefits are $0 in 

both Unmatched Disbursements and Negative Unliquidated Obligations. USACE 

leadership has embraced CFO compliance. In FY 2008, USACE established the Executive Senior Assessment Team (ESAT). The ESAT mission is to provide leadership 

and direction over financial audits and associated controls. The USACE Deputy 

Commander chairs the ESAT, which is comprised of all the Headquarters Senior 

Executive Service Directors. At the field level, CFO Act compliance and strong internal controls have become a critical part of day-to-day functions and are subject to 

continuous monitoring through a robust internal testing program, which lowers the 

cost of an external audit. 

The audit opinion and the associated scrutiny of our strong internal controls demonstrate to our customers that USACE’s financial data and underlying business 

processes meet the highest standards of generally accepted accounting practices. 

This type of assurance is crucial to develop trust between USACE and its customers. 

The audit of the USACE Civil Works Program has enhanced our ability to readily 

supply detailed accurate financial data that provides transparency to the American 

taxpayer. Our CFO culture has become engrained in every USACE business process 

and that culture is our greatest benefit. 

Æ