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i 

76–218 2013

[H.A.S.C. No. 112–157] 

DEPARTMENT OF DEFENSE AUDITABILITY 

CHALLENGES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT 

AND INVESTIGATIONS 

OF THE

COMMITTEE ON ARMED SERVICES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

HEARING HELD 

SEPTEMBER 14, 2012 
(II) 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS 

ROB WITTMAN, Virginia, Chairman 

K. MICHAEL CONAWAY, Texas 

MO BROOKS, Alabama 

TODD YOUNG, Indiana 

TOM ROONEY, Florida 

MIKE COFFMAN, Colorado 

JIM COOPER, Tennessee 

ROBERT ANDREWS, New Jersey 

MARK S. CRITZ, Pennsylvania 

COLLEEN HANABUSA, Hawaii 

MICHELE PEARCE, Professional Staff Member 

PAUL LEWIS, Counsel 

ARTHUR MILIKH, Staff Assistant 
(III) 

C O N T E N T S 

CHRONOLOGICAL LIST OF HEARINGS 

2012 

Page 

HEARING: 

Friday, September 14, 2012, Department of Defense Auditability Challenges .. 1 

APPENDIX: 

Friday, September 14, 2012 .................................................................................... 25 

FRIDAY, SEPTEMBER 14, 2012 

DEPARTMENT OF DEFENSE AUDITABILITY CHALLENGES 

STATEMENTS PRESENTED BY MEMBERS OF CONGRESS 

Critz, Hon. Mark S., a Representative from Pennsylvania, Subcommittee on 

Oversight and Investigations .............................................................................. 2 

Wittman, Hon. Rob, a Representative from Virginia, Chairman, Subcommittee 

on Oversight and Investigations ......................................................................... 1 

WITNESSES 

Commons, Hon. Gladys J., Assistant Secretary of the Navy, Financial Management and Comptroller, U.S. Department of the Navy ................................ 8 

Hale, Hon. Robert F., Under Secretary of Defense (Comptroller), U.S. Department of Defense; and Hon. Elizabeth A. McGrath, Deputy Chief Management Officer, U.S. Department of Defense ........................................................ 3 

Matiella, Dr. Mary Sally, Assistant Secretary of the Army, Financial Management and Comptroller, U.S. Department of the Army ..................................... 6 

Thomas, Marilyn M., Principal Deputy Assistant Secretary for Financial Management and Comptroller, U.S. Department of the Air Force ......................... 10 

APPENDIX 

PREPARED STATEMENTS: 

Commons, Hon. Gladys J. ................................................................................ 52 

Hale, Hon. Robert F., joint with Hon. Elizabeth A. McGrath ...................... 32 

Matiella, Dr. Mary Sally .................................................................................. 46 

Thomas, Marilyn M. ......................................................................................... 59 

Wittman, Hon. Rob ........................................................................................... 29 

DOCUMENTS SUBMITTED FOR THE RECORD: 

Deputy Chief Management Officer Response to DOD IG Audit Report ...... 67 

WITNESS RESPONSES TO QUESTIONS ASKED DURING THE HEARING: 

Mr. Wittman ..................................................................................................... 75 

QUESTIONS SUBMITTED BY MEMBERS POST HEARING: 

[There were no Questions submitted post hearing.] 

(1) 

DEPARTMENT OF DEFENSE AUDITABILITY 

CHALLENGES 

HOUSE OF REPRESENTATIVES, COMMITTEE ON ARMED SERVICES, SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, Washington, DC, Friday, September 14, 2012. 

The subcommittee met, pursuant to call, at 9:00 a.m., in room 

2118, Rayburn House Office Building, Hon. Rob Wittman (chairman of the subcommittee) presiding. 

OPENING STATEMENT OF HON. ROB WITTMAN, A REPRESENTATIVE FROM VIRGINIA, CHAIRMAN, SUBCOMMITTEE ON 

OVERSIGHT AND INVESTIGATIONS 

Mr. WITTMAN. I will call the Oversight and Investigations Subcommittee of the House Armed Services Committee to order on today’s hearing on Department of Defense Auditability Challenges. I 

want to welcome everybody to today’s hearing. I appreciate our witnesses coming in to talk to us more about those challenges facing 

the Department of Defense as it works toward audit readiness in 

2014 and 2017. 

I would like to welcome our distinguished panelists this morning. 

Mr. Robert Hale, Under Secretary of Defense, Comptroller, U.S. 

Department of Defense; Ms. Elizabeth McGrath, Deputy Chief 

Management Officer, U.S. Department of Defense; the Honorable 

Gladys Commons, Assistant Secretary of the Navy, Financial Management and Comptroller, U.S. Department of Navy; Dr. Mary 

Sally Matiella, Assistant Secretary of the Army, Financial Management and Comptroller, U.S. Department of the Army; and Ms. 

Marilyn Thomas, Deputy Assistant Secretary for Financial Management and Comptroller, U.S. Department of the Air Force. 

Thank you very much for being here with us today. Collectively you share the responsibility for managing nearly $700 billion of net 

operating costs and accounting for nearly $2 trillion in assets. 

These are weighty responsibilities, particularly when you consider 

the importance of your mission to our Nation’s national security 

and to our warfighters. 

I want to thank you for your service and for the commitment you 

have demonstrated on this issue. Achieving audit readiness, when 

considered against this backdrop, is both complex and challenging 

and it is clear to me that you are making tangible progress forward. This hearing is meant as a follow-up to the Defense Financial Management and Auditability Reform Panel, which was appointed by Chairman ‘‘Buck’’ McKeon and Ranking Member Adam 

Smith in July 2011 to carry out a comprehensive review of the Department’s financial management system. The purpose of the re-
2 

view was to oversee DOD’s financial management system and its 

capacity for providing timely, reliable and useful information needed for making accurate decisionmaking and reporting. 

I would like to thank Mr. Conaway, who served as chairman of 

the panel, and Mr. Andrews, who served as ranking member. Because of your diligent efforts and outstanding leadership, we now 

have a much better understanding of the issues surrounding audit 

readiness and the path that lies ahead. 

Audit readiness is an important aspect for many reasons, but for 

me it is most important because of what it means for our national 

defense strategy. Put simply, every dollar we corral for our national 

defense budget matters, especially because of impending cuts and 

financial constraints. The budget shapes not only our discussions 

on force size, structure and capability, but ultimately determines 

whether our warfighters have the tools and equipment they need 

to do their jobs. This is the prism through which I view discussions 

about audit readiness and why I am pleased to be having this discussion today. 

Before we get started with questions, I have a quick administrative matter to address. I anticipate a number of other members 

from other subcommittees will join us and I would like to ask for 

unanimous consent that they be allowed to participate. 

Absent objection, it is so ordered. I will recognize these members 

at the appropriate times for 5 minutes after all Oversight and Investigations Subcommittee members have had an opportunity to 

question the witnesses. 

At this point, I will turn to our acting ranking member, Mr. 

Critz, for any statement that he may have. 

[The prepared statement of Mr. Wittman can be found in the Appendix on page 29.] 

STATEMENT OF HON. MARK S. CRITZ, A REPRESENTATIVE 

FROM PENNSYLVANIA, SUBCOMMITTEE ON OVERSIGHT AND 

INVESTIGATIONS 

Mr. CRITZ. Thank you, Mr. Chairman. I do not have an opening 

statement other than to say thank you for being here, and, as we 

all know, accurate information is critical to making the best decisions. So I look forward to the hearing and your testimony. 

Mr. WITTMAN. Very good. Thank you, Mr. Critz. 

At this point we turn to our panel members for your opening 

statements. 

Ms. Thomas, we will begin with you. 

Ms. THOMAS. Thank you, Chairman Wittman. 

Mr. WITTMAN. Ms. Thomas, if you will, just go ahead and pull 

your microphone up to you. 

Secretary HALE. Mr. Chairman, if I may, if it is okay with you, 

I think the order we prefer is that I would start out and give an 

overview from the Department’s standpoint and then go to the 

services. Will that work for you? 

Mr. WITTMAN. That will be fantastic. 

Secretary HALE. Ms. McGrath and I will do that jointly. 

Mr. WITTMAN. Very good. 
3 

STATEMENT OF HON. ROBERT F. HALE, UNDER SECRETARY 

OF DEFENSE (COMPTROLLER), U.S. DEPARTMENT OF DEFENSE; AND HON. ELIZABETH A. MCGRATH, DEPUTY CHIEF 

MANAGEMENT OFFICER, U.S. DEPARTMENT OF DEFENSE 

Secretary HALE. Mr. Chairman, members of the committee, 

thank you for the opportunity to discuss financial operations at the 

Department of Defense and our progress in audit readiness. Ms. 

McGrath and I submitted a statement for the record. In the interest of time we will summarize it briefly. 

Let me begin by saying that we remain fully committed to meeting our audit goals and we are reasonably confident that we will 

meet those goals in the timeframes that have been established by 

us and in some cases in the law. 

So why is it important to do this, to achieve auditability? It is 

important first because it is the law. Auditability also matters because, as you said, Mr. Chairman, it will help us make better use 

of taxpayer resources. That is important especially in these times 

of fiscal stress and declining budgets. 

But in my view the most important reason that we need to do 

this, to achieve auditable financial statements, is public confidence. 

I don’t think we will ever convince the American public, I don’t 

think we will convince the Congress that we are good stewards of 

their funds unless we can pass an audit test. 

I should note that even though DOD’s financial statements are 

not auditable, we still know where we are spending taxpayer dollars, and I think that is a very important point. With rare exceptions, we pay our people and our vendors on time and accurately 

and record the transactions properly. If that weren’t the case, you 

would see massive problems of missed payments and mission failure, and I am pleased to report none of that is happening. 

Our financial statements fail audit tests not because we don’t 

know where the funds are being spent, but because we can’t document the transactions properly and quickly and because in some 

cases our financial processes and internal controls are not sufficiently strong and consistent. These are problems we can and will 

fix. 

I believe we will fix these problems and achieve auditable statements for several reasons. First, we have a workable plan that focuses on the information we most use to manage. I mean everybody 

is pulling in the same direction. We have a combination of shortterm goals and long-term goals, a supportive governance structure, 

dedicated funding at $300 to $400 million a year throughout our 

planning period, and accountability that begins with Secretary Panetta, who is deeply committed to this effort. 

As a result we are seeing meaningful progress: A Marine Corps 

that is on the verge of an auditable budget statement for current 

resources; a Navy that is showing auditability for a key weapons 

system; an Army and an Air Force that are demonstrating progress 

in key areas; and, for the first time, defense agencies that are now 

all focusing on achieving auditable financial statements. The service financial managers who are with me today will describe their 

services’ efforts in more detail. 

In all our auditability efforts across the Department and in many 

the other ways, state-of-the-art financial systems are critical, and 
4 

for a few words on our progress in this area I would like to turn 

to our Deputy Chief Management Officer, Beth McGrath. 

Ms. MCGRATH. Good morning. Like Mr. Hale, I appreciate your 

interest in this topic and also your unwavering support to our military members and their families. 

Our efforts to improve financial management and achieve audit 

readiness are part of a broader effort to improve business operations across the Department. We continue to make steps to mature our business environment. These steps include better definition of our target environment utilizing our business and in-place 

architecture. We continue to push hard on business process reengineering that addresses not only at the system level, but the appropriate end-to-end process that that system resides within. 

Strategic planning and performance measurements continue to 

increase, and finally an investment management process that addresses both IT [information technology] modernization and 

sustainment funding across the business enterprise. We are accomplishing this comprehensive investment management process 

through the legislation Congress passed in section 901 of the 2012 

National Defense Authorization Act [NDAA]. 

The Department’s implementation of this change enables an integrated governance for our entire portfolio of business systems by a 

single investment review board. This has been significant for us. 

This board reviews and certifies planning, design, acquisition, development, modernization, all aspects of a project, again how they 

fit into the broader business conversation, and it is for all systems 

and initiatives that are greater than $1 million across the FYDP 

[Future Years Defense Program], which is virtually everything. 

This helps us make not only better investment decisions, but it 

reinforces the relationship of the business environment to those 

specific system investments and the business outcomes that we are 

trying to achieve like audit readiness. It also accelerates the retirement of legacy systems. For example, in 2012 we retired 120 legacy 

systems—I am sorry, 2011. In 2012, the number is approaching 

200, and we are projecting at least 150 for 2013. 

Our modernized systems environment includes each of the departments’ enterprise resource planning, ERPs [Enterprise Resources Planning], which will improve financial management and 

accounting operations and help with future audits. At present, each 

one of these systems is at a different stage of its life cycle. Many 

have experienced challenges, certainly from design to implementation, leading certainly to cost and schedule overruns, but we are 

proactively addressing each one of these challenges like data conversion, business process reengineering, stabilization of requirements, and certainly the culture challenges associated with implementing a new IT system. 

We are committed to achieving and overcoming those challenges. 

It is important to also state that while we are experiencing challenges, we are also delivering capabilities; shorter repair cycle 

times, better visibility of our assets, reduced interest penalties and 

better scheduling of maintenance activities. 

Effective implementation of our new business systems will not 

enable audit by itself. However it will establish a modern business 

environment we need to meet and sustain our goal of audit readi-
5 

ness. We recognize the amount of work that lies ahead and are 

committed to its successful execution. 

Secretary HALE. Systems are critical to this. Another one is committed leadership, and we definitely have that, starting with Secretary Panetta. He has issued a memo on this. He did a videotape. 

I update him periodically at our morning staff meetings. And despite all the other challenges he faces, he always shows interest 

and usually asks questions about this topic. 

We have the full support of our Deputy Secretary who is, of 

course, the Department’s Chief Management Officer. We have the 

support of our service Secretaries and Chiefs of Staff. They have 

all met on this topic. I talk to them periodically, as, of course, do 

the service reps you will talk to, and, I think, relevant members 

of our civilian SES [Senior Executive Service] leaders. In short, I 

think we have commitment in this Department, military and civilian, to take action. 

I would be less than candid if I didn’t tell you there are problems 

and challenges and not much time to solve them, but we are, I 

think, addressing those challenges. We need to continue to build 

the skills of our people. We have got a force-based certification program we are putting in place to do that as well as some specific 

audit training. 

We have got to implement comprehensive and meaningful and 

consistent financial controls, which we don’t always have, and we 

are taking a number of steps, including getting the service audit 

agencies involved to try to do that. And we have got to sustain the 

momentum during the upcoming changes in leadership which tend 

to occur regardless of what the outcome of presidential elections. 

We are grateful for the support that we have gotten from the 

Congress, including the recommendation of the committee’s Financial Improvement Panel, Mr. Conaway and Mr. Andrews and other 

members. Congressional attention is one effective means of ensuring that audit readiness remains a high priority. 

There is another thing you can do to help. In recent years we 

have encountered unprecedented budgetary uncertainty, including 

no fewer than four shutdown drills for which we planned and a 

long-term continuing resolution in fiscal 2011. They have generated 

time-consuming and unproductive planning efforts. Sometimes I 

think I spend most of my time planning for things I hope don’t happen. Now we face the prospect of sequestration and yet another 

long-term continuing resolution. 

Dealing with these extraordinary actions is sapping the time we 

could be spending on other things, including audit readiness. The 

single biggest thing you could do to help me would be to return to 

a more orderly budget process. 

We will close by reiterating our full commitment to financial 

management goals of the Department of Defense, including 

auditability. I take this seriously. I started in 1994 as the Air Force 

[inaudible] and I am still trying now as the DOD Comptroller. We 

owe it to all of you to do that, we owe it to the troops and we owe 

it to the American taxpayers. 

Mr. Chairman, that concludes our joint opening statement and I 

would suggest Army, Navy, Air Force if that fits, if that is okay 

with you. 
6 

[The joint prepared statement of Secretary Hale and Ms. 

McGrath can be found in the Appendix on page 32.] 

Mr. WITTMAN. Yes. 

Secretary HALE. Dr. Matiella. 

STATEMENT OF DR. MARY SALLY MATIELLA, ASSISTANT SECRETARY OF THE ARMY, FINANCIAL MANAGEMENT AND 

COMPTROLLER, U.S. DEPARTMENT OF THE ARMY 

Dr. MATIELLA. Good morning. Congress Wittman, members of the 

subcommittee, thank you for the opportunity to testify today regarding the Army’s work to achieve financial statement audit readiness. I want to convey to you that Secretary McHugh, General 

Odierno, Under Secretary Westphal and I commit to improving financial management and becoming auditable. 

The Army will assert audit readiness for its financial statements 

by September 2017, as required by NDAA for fiscal year 2010. The 

effort to increase financial accountability and achieve audit readiness go hand-in-hand with Secretary McHugh’s call for a leaner, 

faster and more adaptable Army. A more agile Army is only possible if we have timely, accurate and reliable financial information 

to inform our resourcing decisions. 

We recently achieved a significant milestone that simultaneously 

supports our audit readiness and our business transformation objectives. On July 1 of this year, the Army completed the scheduled 

deployment of the General Fund Enterprise Business System, 

GFEBS. This system is designed to comply with audit requirements. Each day more than 25,000 users are using GFEBS across 

28 Army commands, component commands and direct reporting 

units. Of course, in an organization as large and complex as the 

Army, a transformation that requires a change in our day-to-day 

business and a fundamental shift in our culture faces significant 

challenges. 

Both Houses of Congress and the GAO have been valuable partners in our transformation endeavors. The Army’s audit readiness 

strategy addresses each of these six concerns: leadership engagement; accountability; internal controls; competent workforce; business architecture; and compliance. 

Audit readiness is part of the Army’s campaign plan and in alliance with the Secretary’s top 10 priorities. Top leadership has communicated through memorandum and other means the critical nature of audit readiness across the enterprise and our intent to hold 

personnel accountable, military and civilian. 

For example, in April, the Chief of Staff sent a message to all 

general officers informing them of the importance of audit readiness. Also, we have greatly increased accountability and oversight 

by embedding audit readiness criteria in the annual performance 

plans of all Army Senior Executive Service civilians. In addition, 

we are engaging commanders and holding them accountable for implementing effective internal controls. 

Building a competent workforce requires comprehensive communications and training efforts. In 2012 alone we have trained more 

than 8,000 personnel across all business functions in audit readiness principles and implementing the internal controls within the 

Army business processes. We are using the Army learning manage-
7 

ment system, an online system, to broaden our reach in a costeffective manner and enabling users to assess the training content 

within 24 hours a day. 

Finally, I established the Army Financial Management Workforce Transformation Working Group to identify the required workforce skills and staffing levels that will support our financial management transformation. We are strengthening internal controls 

through installation-level process and control assessments, corrective action implementation, and business process and control training. 

At the end of June we reached two major milestones that demonstrate how far we have come in implementing internal controls. 

First, we asserted audit readiness for 9 processes at 10 different installations for the Statement of Budgetary Resources [SBR]. An 

independent auditor will validate the assertion through the second 

of three SBR exams leading up to the Secretary of Defense’s 2014 

SBR mandate. 

The first SBR exam in 2011 resulted in a qualified audit opinion, 

that was at three installations, that highlighted that the standardization of business processes across locations is in place, which is 

a major achievement for the Army. The second SBR exam evaluates our internal control environment. 

Second, in June, the Army asserted audit readiness for three 

missile programs, Javelin, Hellfire and TOW [Tube-launched, Optically tracked, Wire command-link guided], which represents approximately 16 percent of the operating materials and supplies. 

The DOD IG [Department of Defense Inspector General] will conduct exams to validate this assertion. 

For the remaining two challenges we developed a well-defined 

business architecture which enables our ERP [Enterprise Resource 

Planning] system to better support Army audit readiness objectives. We are conducting internal assessments of our ERPs and material feeder systems using the GAO [Government Accountability 

Office] Financial Information Systems Control Audit Manual, 

FISCAM, which provides the guidelines an auditor will follow when 

conducting a financial statement audit of a Federal agency. I am 

confident that the Army’s ERPs will fully support the Army’s audit 

readiness schools as independent auditors have already confirmed 

GFEBS to be substantially compliant with FFMIA [Federal Financial Management Improvement Act] and DOD’s standard financial 

information structure. With SFEBS, GFEBS is about 93 percent 

compliant. 

We have achieved some significant accomplishments in the last 

12 months. We received a clean opinion on appropriations received. 

For exam one we received a qualified opinion, and we have fully 

deployed GFEBS, our new accounting system. I recognize the challenges we face, but I am confident that we are executing a sound 

plan that will achieve the NDAA 2010 mandates. Our plan is sufficiently resourced and has the full support of the Army’s top leadership and has resulted in successfully achieving several milestones 

to date. 

I am personally committed to this effort and I look forward to 

working with the members of the subcommittee, GAO and the 
8 

Comptroller to ensure the continued improvement of the Army’s 

business environment. 

Thank you. 

Mr. WITTMAN. Thank you. 

[The prepared statement of Dr. Matiella can be found in the Appendix on page 46.] 

Mr. WITTMAN. Ms. Commons. 

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

COMPTROLLER, U.S. DEPARTMENT OF THE NAVY 

Mrs. COMMONS. Good morning. Mr. Chairman, members of the 

committee, thank you for the opportunity to provide you an update 

on the work we are doing to achieve audit readiness. We appreciate 

your engagement and focus in this area. 

The Department of the Navy remains fully committed to achieving audit readiness within the timeframes established by the Secretary of Defense and the Congress. We have a detailed plan and 

believe we are on track to accomplish the goals necessary to 

achieve audit readiness. 

Our financial management community, business process owners, 

and service providers are working hand-in-hand to accomplish the 

tasks necessary to improve our business processes. In some cases, 

such as transportation of people, the business process owners at 

the senior executive level have taken the lead to examine the process and to ensure that the internal controls surrounding the business process are effective. They have demonstrated the functional 

ownership that we need by taking the initiative to implement the 

changes required for audit readiness, train the staff and monitor 

sustainment efforts. 

The Marine Corps continues under audit and we are leveraging 

the lessons learned from their audit experience over the past 2 

years. Where they have implemented processes and procedures 

that meet audit standards, we have incorporated them in our detailed plan for the entire Department and share them with other 

departments and defense agencies. This year we are focused on 

current year activities and I am hopeful that we will receive a positive report in the December-January timeframe. 

Over the past year the Department asserted that a major defense 

acquisition program, the E–2D Advanced Hawkeye Program, was 

audit ready. In July a review by an independent public accounting 

firm validated that the financial transactions associated with this 

program were accurate and that reasonable internal controls were 

in place. They issued an unqualified opinion. 

We have also received unqualified audit opinions on the existence 

and completeness of the majority of our military equipment. We 

have assessed our civilian personnel pay and travel processes, identified deficiencies in both the processes and the internal controls. 

We have remediated those deficiencies across the business enterprise, documented the process and tested to ensure that changes 

have been made and that they are working effectively. We are now 

awaiting review by an independent public accounting firm which 

should begin within the next several weeks. 
9 

We have examined all of our business processes and completed 

at least one round of testing to identify any deficiencies which 

would preclude audit readiness. We are in the process of making 

the necessary changes to remediate those deficiencies. 

We are also examining the general application controls in our 

business systems to determine the systems changes required to 

meet audit standards. We will complete this fall a thorough assessment of the Navy ERP, the internal controls, using the GAO established audit standards, the Federal Information Systems Controlled 

Audit Manual. 

I am pleased with the significant progress we have made. We 

have embraced audit readiness as an opportunity to improve our 

business processes and to correct longstanding issues that were not 

priorities in the past. 

However, achieving audit readiness is not without challenges. 

First, because our systems and processes were not designed to 

achieve the standards demanded by a financial audit, changes are 

required to sustain our efforts. It will take time to implement all 

the necessary changes, but we are identifying and prioritizing those 

changes, particularly the systems changes, in an effort to eliminate 

intensive manual workarounds. 

Second, we know that our business process internal controls need 

to be strengthened and enforced. We have identified the key controls required in each business process. The challenge is to make 

sure the controls are implemented across the Department, verify 

their effectiveness and ensure through testing that they remain in 

place. 

Third, we execute our resources across many organizations and 

activities generating millions of transactions. We rely on thousands 

of people inside the Department of the Navy and outside the Department to perform segments of our business processes. These dependencies require constant nurturing, collaboration, consultation, 

close coordination and monitoring to make sure we all remain in 

sync with the requirements for audit readiness. 

Fourth, we operate in a decentralized manner. Gathering the evidentiary documentation required to support the millions of financial transactions we execute and having that documentation readily 

available for audit review is a substantial effort. While these challenges are significant, we will have included in our detailed plan 

actions to address each of these challenges. 

In closing, I am encouraged by our forward momentum, the 

progress we have made, the relationships we have forged with our 

business process owners and service providers, the support they are 

providing, and the experience and knowledge we have gained to 

date. Thus, I am cautiously optimistic we will meet our goal. 

I will be pleased to answer any questions you might have at the 

appropriate time. 

Mr. WITTMAN. Very good. Thanks, Ms. Commons. 

[The prepared statement of Mrs. Commons can be found in the 

Appendix on page 52.] 

Mr. WITTMAN. We will go now to Ms. Thomas. 
10 

STATEMENT OF MARILYN M. THOMAS, PRINCIPAL DEPUTY ASSISTANT SECRETARY FOR FINANCIAL MANAGEMENT AND 

COMPTROLLER, U.S. DEPARTMENT OF THE AIR FORCE 

Ms. THOMAS. Thank you, Chairman Wittman and the members 

of the panel, for the opportunity to testify today. 

First, let me start by confirming the Air Force’s continued support of Secretary Panetta’s accelerated goal of achieving audit readiness of the Statement of Budgetary Resources by 2014 and for all 

financial statements by September 30, 2017. The Air Force is faithfully committed to maintaining the public’s trust in our stewardship of taxpayer dollars and developing a culture that values efficiency and resource stewardship. 

Air Force leaders have consistently emphasized the importance of 

an all-encompassing Air Force-wide effort which is, as Secretary 

Panetta puts it, an all-hands effort, to successfully reach audit 

readiness by established deadlines. 

Due to the commitment of leadership and to the dedicated professionals across the Air Force, we have made significant progress to 

date. However, due to the enormity and complexity of the task before us, we view reaching the 2014 and 2017 goals as having moderate risk. 

Before going into the challenges of reaching the goals, however, 

I want to share with this panel the progress the Air Force has 

made toward audit readiness goals. Over the last year we have received two independent opinions on previous assertions. 

In October an independent public accounting firm issued an unqualified opinion on our fund balance with treasury reconciliation 

process, a process reconciling over 1.1 million transactions with an 

accuracy rate of 99.96 percent, exceeding the 98 percent recommended. In June, the DOD IG issued an unqualified opinion on 

our aerial target drones and cruise missiles valued at approximately $86 billion, representing 41 and 14 percent of Air Force and 

DOD mission critical assets, respectively. 

We have also completed two assertions of audit readiness for 

uninstalled missile motors and spare engines which together represent 6,395 end items valued at approximately $11.5 billion. A 

DOD IG examination is under way for this effort and we anticipate 

a final report in November. 

Additionally, we have submitted our $4 billion space-based infrared radar system selected acquisition report assertion 2 months 

ahead of schedule and will contract with an auditing firm this 

month to perform an independent examination and issue an opinion. 

In the process going forward we have made significant progress 

on end-to-end business processes and are hiring additional contractor and organic resources with financial reporting and auditing 

expertise to allow us to continue making headway on more assertions and reduce overall schedule risk. 

Last August, for example, we earned an independent public accounting firm unqualified opinion on budget authority distribution 

to our major commands and are completing corrective actions on 

funds distribution to base, so that we can assert audit readiness on 

that early next fall. 
11 

We have also completed initial testing and corrective actions on 

reimbursable budget authority and civilian pay processes which 

will allow us to assert those two areas as audit ready in 2013. 

Later this fall we will kick off initial assertion testing for military 

pay and contracts. Our preliminary assessments in both areas are 

very encouraging. 

Despite the progress we have made to date, we face many challenges, most significant of which is the need to improve our legacy 

information systems in order to support the 2014 SBR assertion. 

With over 160 different systems recording, tracking and reporting 

information for financial statements, the challenge is to identify, 

prioritize and implement cost-effective improvements to support 

the statement of budgetary resource assertion goal. 

Our enterprise resource system, the Defense Enterprise Account 

Management System, otherwise known as DEAMS, which is our 

next generation accounting system, and is critical to full audit 

readiness by 2017, has had some development and deployment 

challenges. 

Recently the Air Force Operational Test and Evaluation Center 

completed an operational assessment of DEAMS and highlighted 

some concerns with accounting accuracy and consistency, software 

development and testing and change management of our workforce. 

We have corrective actions in place to address these issues and we 

are doing some preliminary testing, and I can tell you that what 

we are hearing is very encouraging on that. 

In closing, the Air Force appreciates this panel’s commitment 

and support to the Air Force audit readiness efforts and we look 

forward to continuing to work with you and achieving auditable financial statements. 

Again, thank you for holding this hearing and allowing me to testify today. I look forward to your questions. 

Mr. WITTMAN. Thank you. 

[The prepared statement of Ms. Thomas can be found in the Appendix on page 59.] 

Mr. WITTMAN. Thank you, panel members. We appreciate your 

efforts here. 

I want to welcome Mr. Cooper and ask if he might have any 

opening comments? 

Mr. COOPER. I have no opening comments. 

Mr. WITTMAN. Okay. With that, we will begin with our questions. 

Secretary Hale, I will begin with you and then ask the other panelists to give me their perspective. 

The Senate recently passed a bill which includes a number of 

sanctions if a full-scale clean audit isn’t achieved by September 

2017, and one sanction requires essentially the moving of jurisdiction from DFAS, the Defense Finance and Accounting Service, to 

the Treasury. 

I wanted to get your perspective on that, if you believe that you 

avoid that, or if you did get to that point, what your perspective 

would be on the transfer of that from DFAS to Treasury? 

Secretary HALE. Well, I think that transfer would be a bad idea. 

I think the goal Senator Coburn has and his cosponsors is to I 

guess try to reduce the oversight role for me, because I do provide 

oversight over DFAS. It is going to have the opposite effect. It will 
12 

increase the workload, I believe, because I mean they are day-today accounting firms. We need them working in the Department of 

Defense. 

But let me step back and comment on the Audit the Pentagon 

Act just briefly and more broadly. We support the goals of that act 

which are to get to audit readiness, you have heard us all say that, 

and we think we have a system of accountability. We are concerned 

about a number of the sanctions that are in there. You mentioned 

one. There are several others I can go into that are of concern to 

us. 

It is because there is some uncertainty here whether we will 

make this. You know, we have over-promised and under-delivered 

for years, I want to be honest with you. I am reasonably confident, 

but I can’t be absolutely sure, for two broad reasons. One, as we 

finish our discovery efforts, there may be problems that come up 

that we didn’t anticipate that will take longer than we think; and, 

two, frankly, because of all the uncertainty in the budgetary world 

that you have heard me mention. I mean, if we go through sequestration it will both affect the resources and drain away an enormous amount of time. 

Mr. WITTMAN. Secretary Hale, excuse me for just a moment. If 

you would, if you could pull the mike up a little bit closer. 

Secretary HALE. Is that better? 

Mr. WITTMAN. Very good. Thank you. 

Secretary HALE. So bottom line, we support the goals of the 

Audit the Pentagon Act. We are concerned about some of the 

means. 

Mr. WITTMAN. Thank you. I wanted also to get your perspective, 

the DOD IG recently published a report to talk about some of the 

problems with enterprise planning systems, schedule delays, cost 

overruns. I wanted to get your perspective on what the root causes 

of those might be, what the plans are to overcome those, to get 

things back on track. Obviously that is a critical element of longterm success in meeting the 2014 and 2017 milestones. 

Secretary HALE. If I may, I would like Ms. McGrath to answer 

that. She has got the oversight there. 

Ms. MCGRATH. Thank you. I think that the IG report highlights 

many different areas that are the root causes, if you will, with regard to scheduling delays. You have heard in our opening statements today some of the challenges. I mentioned in mine data conversion, the change in management challenge, the training aspects, 

all of which we absolutely are taking actions to ensure that, one, 

we understand very acutely what the root cause was and then the 

steps we need to take to correct those. So I think that for each program there is a slightly different scenario which is driving the 

schedule change, although those are consistent, in particular the 

data conversion and the change management aspects. 

What we have really learned with the implementation of these 

ERP solutions is that it can’t just be the accounting team with the 

financial management solution, it must be the entire operation understanding the role that this capability plays within their overall 

execution. And that, to be honest with you, has been one of the 

most challenging. You heard Ms. Matiella mention that in her 

opening, how do we use these systems and capabilities to really 
13 

execute our business? And it does require a change in what we do 

every day. We must move away from, frankly, the years of practices that we have had into the new environment. And there are 

a lot more controls in the new systems. 

So although a nice new modern system sounds a lot easier than 

sort of a legacy system, really there are a lot more internal controls 

and complexities such that you have got referential data integrity 

and all those other things that are so very important to achieving 

auditability and full accounting of the money. 

Mr. WITTMAN. Ms. Commons, let me ask, I know I have received 

some feedback from some contractors that are working with the 

Navy about the new accounting systems and some of the elements 

of timeliness in payment. Apparently there have been some delays. 

I think those delays have been addressed but have not been totally, 

I think, reduced to a satisfactory level. 

Can you give me some perspective on the Navy’s efforts there? 

I know we are putting in place obviously a new electronic system. 

In the transition there are always challenges there. But I think 

there is some concern out there from what I am hearing about the 

timeliness. I know previously there was a great amount of attention paid to making sure that payments got out in a timely way, 

but apparently with the new system there are some problems with 

that. So I just want to get your reflection on what you see as the 

challenge and what the solutions are in the future. 

Mrs. COMMONS. I am not really aware of any delay in payments 

within the Department of the Navy. We will deploy our ERP system fully on 1 October. We will go live on 1 October. I am not 

aware of any delay in payments. We are making our payments on 

time, and we are in fact moving more toward electronic payments 

so that we take the hands-on out and that it becomes a more automated process. 

Mr. WITTMAN. If you will take that question for the record. 

Mrs. COMMONS. I will be happy to look into it for you, sir. 

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

page 75.] 

Mr. WITTMAN. Thank you. Mr. Cooper. 

Mr. COOPER. I will pass to Mr. Andrews. 

Mr. ANDREWS. I thank my friend for yielding and I apologize for 

being slightly late this morning but I am happy to be with you. 

The chairman asked a question about the legislation, the Audit 

the Pentagon Act. And I appreciate the difference in approach that 

Chairman Conaway and the chairman of the subcommittee have 

taken on this issue because we believe that rather than pass the 

act, the Audit the Pentagon Act, we should act to audit the Pentagon. Introduce all the bills you want, the hard work of this is the 

work that you ladies and gentlemen have done and are doing, and 

we appreciate it. And frankly, on this committee, Mr. Conaway’s 

laser beam-like focus on this for a number of years is really the 

proximate cause of this. So I wanted to get into the progress that 

we are making and the problems that we have found on the act of 

auditing the Pentagon. 

The first has to do with the problem of a beginning balance. Obviously to get a clean audit letter, you need to have an accurate beginning balance. And this is a problem that you all inherited, did 
14 

not create. But obviously if we have had a history of no audits for 

centuries, at least decades, getting a good beginning balance is not 

an easy thing. 

So, Mr. Hale, what steps are being taken to try to deal with this 

inherited problem of the beginning balance? 

Secretary HALE. The problem—I am going to answer and then 

ask of my colleagues, perhaps Ms. Commons in particular will want 

to add to it. The problem is lack of our ability to document the 

transactions. The way we do financial management in the Department of Defense, some of these transactions in the beginning balance can go back 10 years or more. So we have, for example, 5 

years to obligate money for shipbuilding and then another 5 years 

to actually expend the dollars, and we just don’t have the records 

or we can’t get them quickly enough. That is another problem. The 

auditors expect a reasonable timeliness so that they can produce 

their opinion in a timely manner. 

And that caused problems. It caused us to decide that for this 

year in the Marine Corps Statement of Budgetary Resources we 

will focus on current resources. The plan here, frankly, would be 

to build up better documentation gradually as we move toward an 

audit effort. That will cause us to retain the documentation so that 

a few years from now we will have much more ready access to it 

and better documentation. But it will take a while before that is 

complete. 

Mr. ANDREWS. And let me say, I think you have leaned in the 

right direction on this. It is very important to know where the 

money has been, but it is also important to know where it is. And 

I think by focusing on the ‘‘where it is’’ question before the ‘‘where 

it has been’’ question, I think you have made the right judgment. 

We want to get the right answers to both, but really, you know, 

this is not an historic review. It’s meant to be a useful tool for the 

present and the future. 

The second question I want to ask was about the problem of software that would give us access to usable data, and that is really 

the whole ERP issue that the Inspector General looked at as recently as 2 months ago. 

Dr. Matiella, did I pronounce your name correctly? I am sorry. 

I want to know what lessons we have learned about GFEBS thus 

far. It has only been since 1 July, right? 

Dr. MATIELLA. It was fully deployed on 1 July. 

Mr. ANDREWS. But what did we learn in that period of time of 

full deployment, what is working, what isn’t, what lessons should 

we take from that to try to make GFEBS a success? 

Dr. MATIELLA. Well, it is all about change management. It is all 

about folks changing their practices from what isn’t auditable to 

what is auditable. And one of the ways that you approach change 

management is you train and train and train. So training becomes 

very important. 

I think one of the lessons that we learned in the very beginning 

of the GFEBS deployment was that we didn’t train enough, and 

this is what you may have heard in some comments from DFAS, 

they need to do more training in the MILPAY [military pay] report. 

So certainly that was a big lesson for us, was to be very mindful 
15 

of training, help desk, online tools, providing just-in-time training, 

all those different things. 

Mr. ANDREWS. To what extent do you think that the training provided by the vendors of the product is better or worse than the 

training provided in-house? I am sure there is a mix of the two. 

What is the quality of the training provided by the vendors of the 

products? 

Dr. MATIELLA. It is very good. The training provided by the vendors is very good. We just need to continually reinforce it and reinforce it. And so that is where our internal staff comes in, is that 

when we have these super users, those are the folks who are reinforcing that good training that was given. It is just one of those— 

it just has to be continuous. 

Mr. ANDREWS. Thank you. Mr. Chairman, I just also want to say 

that I have seen personally and up close that Secretary Panetta 

and Mr. Hale and this team have worked diligently and tirelessly 

on this project. I know that they are committed to overcome these 

obstacles and I am proud of them and commend them for it. 

Mr. WITTMAN. Thank you, Mr. Andrews. We will now go to Mr. 

Conaway. 

Mr. CONAWAY. Thank you, Mr. Chairman. I walked in the room 

and a couple of movies occurred to me. One is the Blues Brothers 

where the guy said let’s get the band back together, and then the 

one that you guys probably think about is Groundhog Day, which 

is over and over and over. I appreciate you being here. 

Mr. ANDREWS. Let’s just hope it is not the Titanic. 

Mr. CONAWAY. Exactly. I stay away from some of those. I, too, 

want to echo Mr. Andrews’ compliments to you guys. You have 

been very forward leaning throughout this process, particularly 

when Leon Panetta a year and a half ago, a year ago, I guess, said 

let’s get this done. Unprecedented leadership from the top. And I 

have personally seen that percolate down through many levels of 

the organization. And I do hope, Mr. Hale, that we do have the momentum going such that whatever leadership changes occur, and 

there will be some, no matter what, as you said, that one of the 

things I hope we can get the Senate to focus on as well as House 

Members and that is that new leadership, making sure they are as 

committed to making this work as you and your team have demonstrated over and over and over. There is a verse in Galatians, 

I think, that says don’t grow weary of doing good, and this could 

get wearisome because it is such a daunting task and has taken 

so long. 

Ms. Commons, I watched a video yesterday, the Navy’s, kind of 

a publicity pitch to get audit readiness done. Impressive. I hope we 

get more people to watch it, just go viral, but good job on that. 

Ms. Thomas, one of the things that I perked up on when you 

were giving your testimony was you have a challenge, you and the 

Air Force have a challenge, and it is how do you walk that fine line 

between continuing to maintain legacy systems in order to get 

audit ready by 2014 but at the same time a longer pitch to pivot 

to the permanent systems that will be in place year after year after 

year to be able to audit it. 

Can you give us some sense as to how you are going balance between being able to get ready by 2014 and your reliance on legacy 
16 

systems and not continuing to resource those things in ways where 

we in effect don’t need long term, they are not going to be there 

for the long term. 

Ms. THOMAS. Certainly. Thank you. Yes, up until April of this 

year, as you are well aware I am sure, the Air Force strategy was 

to be audit ready in 2017 with the full Air Force-wide implementation or deployment of DEAMS. And when we received the challenge 

from Secretary Panetta to accelerate the Statement of Budgetary 

Resources, we knew we weren’t going to have DEAMS deployed Air 

Force-wide in order to meet that timeline. So we have gone back 

and we have looked at our legacy systems to determine which of 

those we need to do some remediation on in order to achieve the 

Secretary’s goal of audit readiness in 2014. 

We have found the systems themselves for the most part, with 

some small modifications, will support SBR readiness in 2014. 

Where we have really had to do a lot of work and we are continuing to work is on the people and the processes because the controls really in order to remediate the use of the legacy systems, the 

controls in many cases lie outside the systems themselves. In addition to that, there is a lot of interfaces that we have had to closely 

monitor, document and implement tighter process controls on. 

So through a combination of those efforts and training of people, 

that is another, as we have learned as we have done funds distribution to base, sometimes it is an issue of just understanding 

what it is we are trying to do and obtain. And we have done a 

number of things where we have pulled funds managers in and 

conducted training courses, showed them this is a good audit product, this is a deficient one, and they are carrying that information 

back to their bases and installations and training the trainer. 

So through a combination of training, process controls, some system remediation on the legacy, in addition we are continuing our 

forward progress on DEAMS because we really need DEAMS to 

achieve full audit readiness in 2017 in a way that is sustainable. 

Mr. CONAWAY. Ms. McGrath or Bob, you put in place about this 

time last year the senior executive staff requirements that they 

meet certain criteria for the personnel evaluations as well as some 

commanders. When will those evaluations begin to happen and 

when will you be able to report to us, not on a person-by-person 

basis, but certainly where folks have exceeded expectations and/or 

not made progress that was set up for them and the impact of that 

success or failure has on their advancement and/or compensation? 

Secretary HALE. Why don’t I start and then I will ask if any of 

my other colleagues want to add. 

We have performance goals in the SES plans we believe now 

across the Department for those members of the Senior Executive 

Service that are relevant, that have audit involvement. I will say 

it is not the primary goal. If you are a logistician then the primary 

goal is still logistics, but it is a part of the subsidiary goals. And 

the performance evaluation process is starting right now and within a few months we will have that. How much we are going to be 

able to say with all the privacy rules, I am not sure. 

Mr. CONAWAY. I understand that. 

Secretary HALE. I understand you know that. But we are watching it too and would like to tie this as closely as we can to assess-
17 

ments and bonuses so that there is some tangible rewards for success and some stigma, if that is the right word, or some change in 

behavior if we are not making success. 

I think we have got people’s attention. I am a little less confident 

but beginning to believe that they know what they have got to do 

around the Department. So I think it is a major step forward. But 

I am humble about all the changes that we have got to pull off over 

the next couple years; hence the reasonably confident, moderate 

risk, you have heard various words up here. And like I said, Mr. 

Chairman, we have over-promised and under-delivered for a long 

time. I don’t want to be part of that. I want to tell it as best we 

can and try to meet these goals. 

Ms. MCGRATH. I would just add that the performance period, the 

rating period ends at the end of this month for the year for the 

Senior Executive Service and then the evaluation process starts. So 

as Mr. Hale indicated, it is probably a month and a half or so before that is all finalized. 

Secretary HALE. If time permits, Mr. Chairman. 

Mrs. COMMONS. If I may, 250 of our 303 senior executive leaders 

have an audit readiness objective in their performance plan. With 

the cooperation that I am getting, I believe that they are performing and that they will continue to perform. I think we all see 

the benefit of audit readiness, not just to produce a financial statement, but to improve our business processes across the board. So 

I am getting very good cooperation within the Department of the 

Navy and I think those senior executives, the fact that we have 

that audit readiness objective in their plan, that they are taking it 

seriously. 

Mr. CONAWAY. Thank you. 

Mr. WITTMAN. Thank you, Mr. Conaway. 

Mr. Critz. 

Mr. CRITZ. Thank you, Mr. Chairman. 

Ms. McGrath, I think I misheard and I just want to clarify, you 

talked about the retirement of legacy systems. Did you say 200 or 

2,000 in 2011? 

Ms. MCGRATH. I said 120 for 2011 and approaching 200 for 2012 

and about 150 in 2013. 

Mr. CRITZ. I must have zoned out at that point. So these legacy 

systems, and I would like to ask this to the service representatives 

as well, part of the move to auditability was the implementation 

of the Enterprise Resource Plan, ERP, and I know there is delays 

in that, although Secretary Hale mentioned that you feel very confident that you are going to meet goals in the timeframe allotted. 

So I am trying to figure out, are we going to have a mix of systems 

and how does that play out going forward? 

Ms. MCGRATH. I will certainly start and then ask the service representatives to add additional details. I think that is exactly right. 

There is a mix of IT solutions and capabilities that will enable the 

audit readiness to happen I believe in both 2014 and 2017. Some 

of the strategies include ERPs as the centerpiece. Of the Army, for 

example, it is very much an ERP-based strategy for their entire 

business environment. So they are using that as their lead. It is 

not the same in the Department of the Navy or Marine Corps, and 

then I think with the Air Force we have heard with their schedule 
18 

delays to date they are assessing both how they get to 2014 and 

then what 2017 looks like. 

But at the end of the day it is a combination of the entire business capabilities, be it the new or the—I will call it the legacy, but 

some of the legacy is still pretty good IT capability. And the importance that you have heard is not just the system piece, it is understanding how you do what you do and the execution of your business process and how does the IT enable that to happen. So ITS 

[information technology services] is extremely important, but if you 

don’t know how you do what you do, the process piece, the IT, is 

not nearly as important nor is it relevant. So really getting at that 

process piece and the data flow is extremely important and all of 

the military departments are focused on that as they implement 

whatever their IT solutions are. 

Mr. CRITZ. Would your analysis be that most of the legacy systems were populated through the different branches or was it more 

focused at the Pentagon and in sort of the overall management of 

it? 

Ms. MCGRATH. Definitely the former. And it wasn’t even necessarily at the military department head of the department level, 

it was very much a bottoms-up, met a local need, I had a function 

I needed to perform at my base/installation and I did what I needed to do to execute my piece. 

I think the difference today and I have seen in the last few years 

is that we really are taking an enterprise perspective and sort of 

lifting up, if you will, and looking across the organization, not only 

at the military department level but also at the DOD enterprise to 

say, well, what do I have and how is it helping or not? And it really 

achieves again the business outcomes that we want today. We are 

talking about audit readiness. 

Mr. CRITZ. Secretary Hale, moving on, I had a question earlier 

and I understand that obviously we need to drive to this 

auditability so that it will help us plan and help us work with you 

in future planning. But I also have a concern of as we drive to 

these reports, the separation of items that have to remain at the 

secret and top secret level and how these reports will impact sort 

of the cross-pollination, I guess you could say, or will we have to 

be that much more cautious when it comes to making sure that the 

data can’t be mined to determine some of that secret information. 

Secretary HALE. This is a man bites dog problem. We are finally 

getting better systems, we are getting visibility of our data, but 

that is a problem, and we are actively looking at it, and I want to 

be careful what I say here. But we are very conscious of this problem and are actively looking for ways to solve it. It may mean that 

we have to have separate systems that are classified, although that 

will proliferate systems to some extent. There may be other approaches. I am being a little vague. 

Mr. CRITZ. No, it is just a concern because obviously the more 

data available—— 

Secretary HALE. I don’t want to tell people I don’t want to help. 

But it is an issue and one we are addressing. 

Mr. CRITZ. Thank you, Mr. Chairman. 

Mr. WITTMAN. Thank you, Mr. Critz. 

Mr. Coffman. 
19 

Mr. COFFMAN. Thank you, Mr. Chairman, and thank you all for 

being here today and thank you for your service to our country. 

Maybe I will start with Mr. Hale. 

It would seem to me that every branch of service is allowed to 

do its own contracting in terms of computer systems and it seems 

to me that we have all these disparate systems. Now, I understand 

that you are trying to consolidate now. But are we moving to a single system when it comes to financial management? 

Secretary HALE. Well, if you mean a single system throughout 

the Department of Defense, the answer is no. The departments 

have different business practices and I believe it would be a bridge 

too far to try to get them on one single system, and it would frighten me a bit because it would be so large and size is itself sometimes a problem in terms of implementation. We are trying to move 

to many fewer systems. There probably won’t be just one per department, there won’t be, throughout financial management. But 

as Ms. McGrath said, we are trying to retire a lot of these legacy 

systems and greatly reduce the numbers. 

Beth, do you want to add to that? 

Ms. MCGRATH. I would add to what Mr. Hale said, we are taking 

a standards-based approach, so you have heard I believe mentioned 

the standard financial information structure, so instead of mandating a single solution, IT solution, we are mandating the implementation of standards in each one of those solutions so that at the 

end of the day you can aggregate the data. And so it is sort of both 

a standards process base and then the implementation of standards. 

Mr. COFFMAN. Where are we in that process again? 

Ms. MCGRATH. With regard to the standard financial information 

structure, which is the main financial standard, all of the ERPs, 

the ones the military departments—actually all of them—have implemented what we call the SFIS, the Standard Financial Information Structure, and we did validation for each of the ERPs on their 

implementation. I believe Ms. Matiella mentioned 90-some percent 

in terms of compliance. Each one of these is I am going to say compliant with the standards. And it is not only the financial system, 

because the logistics and other systems feed the financial systems. 

So we really are doing a full audit of all of the ERP solutions in 

their implementation of the standard. We completed that I think 

in the last couple of months. 

Mr. COFFMAN. Are we aware of in terms of looking at major commands, it was mentioned that some of them are auditable and obviously the majority of them probably right now are not. Is there a 

list in DOD of those major commands or programs that are 

auditable? 

Secretary HALE. Yes. It is not commands. We have a couple of 

agencies that are auditable; Defense Finance and Accounting Service, Defense Contract Audit Agency, Defense Commissary Agency 

all have auditable statements. The Defense Information Services 

Agencies, DISA, has achieved partially auditable statements. Within the services, it is pieces so far that are auditable. The one that 

is furthest along is the Marine Corps, not auditable yet, but we 

hope close. 
20 

But as you have heard all of my colleagues say, the strategy we 

have taken is to try to bite off pieces of this and get independent 

public accountants, auditors involved, because we learn so much 

from them. They know how to do it. We don’t. So as we bring them 

in, we often learn a great deal. We have certainly learned a lot 

from the Marine Corps and I think we have in the other audits 

that have been done. So pieces of each service have been done. 

Do you want to add to that? 

Dr. MATIELLA. I would like to add that the Corps of Engineers 

has been auditable for a few years now and we are using their 

audit approach and their audit lessons learned to guide us. So they 

are a huge success. 

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

Mr. WITTMAN. Thank you, Mr. Coffman. 

Mr. Andrews. 

Mr. ANDREWS. Thank you, Mr. Chairman, for giving us a little 

further opportunity to explore this. I also want to ask about the 

personnel training in a bit more detail. One thing that our work 

together has really taught us is that we can have really well 

thought out software systems and we can clean up some of the 

other problems, but if the people are not properly trained to use 

the systems, it doesn’t work. 

What would each of you identify as our principal problem right 

now in the personnel training area, what is our biggest deficiency 

or flaw, and what do you think we need to do to fix it. What would 

be the number one problem you would point to? 

Secretary HALE. Well, I will start, and then again this is an organize, train and equip issue, so I would ask my colleagues, those 

that want to, to comment. 

We don’t right now have a framework in the defense financial 

community that allows us to require training across the board. We 

have a lot of courses and I think our training is generally pretty 

good, but it is not—as I say, there is not a framework. And one of 

the things we can’t do easily is ensure that everybody gets appropriate training, say, an audit appropriate to their needs. Everybody 

doesn’t need to be a CPA. They can’t and never will be and 

shouldn’t be. But everybody probably should have some familiarity 

with the importance of this and their general role. 

Mr. ANDREWS. Is that a collective bargaining issue, or why can’t 

we have it? 

Secretary HALE. Well, it is influenced by it. We started this 

course-based certification program. We are really copying essentially what the acquisition community did a number of years ago. 

You gave us legal authority to do it a couple of years back. We are 

actually just beginning pilot programs now. What it will do is establish a framework. We will set levels for each position, and depending on the level they will need to complete certain courses and 

other requirements in order to be certified at that level. And one 

of the things we will do is create an FM–101 course that we hope 

essentially everybody coming into our community will be required 

to take, and part of that will have an audit module. So that will 

move toward everybody understanding why this is important and 

the general requirements of audit, which for many people will be 
21 

all they need to know, and then there will be more advanced requirements for varying groups. 

So we have done some special training for the financial improvement and audit readiness. We have hired a contractor, so we call 

it FIAR–101 training that is focused on audit. 

Let me ask Marilyn, would you like to start? 

Ms. THOMAS. Sure. Thank you. 

Well, one specific example I can provide in an area that we have 

learned a considerable amount here recently is with the implementation of DEAMS. One of the things that the operational assessment pointed out was that we had some issues with change management, particularly in the area of training. And as we peeled the 

onion back to find out what the core issue was, we talked to the 

workforce that was using the system. And the key thing they provided us feedback on was you taught us how to use the software, 

you taught us about the software; you didn’t teach us how to do 

our job with the new system. 

So in response what we have done is we have developed training 

manuals for each of the respective jobs, each of the desks, and they 

have that training manual on their desk. Additionally, our plan 

going forward is we are actually going to forward deploy people 

who have implemented the system before on location to help the 

people when they receive the new software learn how to use it 

along with those training manuals. 

So I think sometimes our challenge is we are introducing something new and we think because we have been in the development 

process of that and the oversight process, that the people who receive it are going to understand it the way we do. 

Mr. ANDREWS. This is the cultural change that many of you mentioned in your testimony, part of it, right? 

Ms. THOMAS. Yes, sir, exactly. 

Mr. ANDREWS. Any other takers? 

Mrs. COMMONS. I would like to comment. We have done several 

things to make sure that our workforce, that they are trained in 

audit readiness. And certainly I would like to thank the FIAR team 

who came over and actually did several training sessions for our 

nonfinancial managers to train them on what it meant to be audit 

ready. 

Mr. ANDREWS. It does strike me that one hurdle we have got to 

get over, it is not just the financial and accounting people have to 

be audit ready, it is all operational people. If they don’t understand 

why they are collecting these documents, it doesn’t work. It is not 

a financial practice. 

Mrs. COMMONS. Absolutely. And we have what we call regular office hours where we have people who can call in and we can have 

discussions about the things that we need to do in audit readiness. 

And I would like to say we have some very enterprising, energetic 

people who are working for us. What we have found is that they 

like to establish ways that they can get the job done quicker. However, they do not realize the impact that it is having on the overall 

organization when they invent their own methodology and practices. 

So what we have done is we have a major effort to standardize 

our processes and to publish those standards so that everyone 
22 

knows what they need to do in their part of the process. It has 

been very beneficial. We have had lots and lots of discussions. So 

it is not something that is new to them. It is not something that 

we are pushing to them. They have been engaged in the process 

throughout, so they themselves had a part in determining what 

that standard process would be. 

Mr. ANDREWS. Thank you very much. Thank you, Mr. Chairman. 

Mr. WITTMAN. Thank you, Mr. Andrews. 

Mr. Conaway. 

Mr. CONAWAY. Just one follow-up thing that is going to be patently unfair, but that is what Members of Congress get to do. 

We have got to convey to our constituents and others a sense of 

how far you have come versus how far you have to go. And I don’t 

know if you want to put it on a percentage basis or what, Bob, and 

each of the folks, with respect to the SBR. We could go global and 

say 2017, but that is meaningless at this point. But with respect 

to the auditing the Statement of Budgetary Resources, being audit 

ready for that, can you give the committee and our constituents a 

sense, and maybe percentages that—anyway, but we got to have 

something to take away from this morning that says we are halfway there, we are two-thirds there, something that we can in a 

short 30 seconds talk to folks who just want the answer. They don’t 

want how to build a watch, they just want to know what time it 

is, and that clock doesn’t work up there. 

Secretary HALE. Can I get away with a football analogy? 

Mr. CONAWAY. Sure. 

Secretary HALE. So, look, I will regret this, but I think we are 

in midfield, but I also think we just got Robert Griffin III and he 

is looking good and that we have some momentum on our side. I 

would invite my colleagues—we didn’t practice this answer—I 

would invite my colleagues to question this. I think we are kind of 

crudely halfway there, but we have the ball and we are on the offense would be the analogy I would offer you. 

Mr. CONAWAY. Can I get just each of you just down the line? Ms. 

Commons, what do you think down the line? What do you think for 

the Navy? 

Mrs. COMMONS. Well, in terms of dollar value, and I will use that 

as the metric, I think we are probably about 30 percent there relative to the dollar value. Our big areas of contract vendor pay and 

military personnel pay, we are still working. Those are big areas 

for us. So I think we are about 30 percent there. But I am encouraged by the momentum that I am seeing in the Department of the 

Navy. We are working those issues constantly to make sure. I am 

reasonably optimistic by the end of 2013 that the Navy will be 

audit ready for its Statement of Budgetary Resources. 

Mr. CONAWAY. Ms. Matiella. 

Dr. MATIELLA. To get audit ready, we chunked it. We are going 

through three exams. The first exam, we have already finished it 

and that we got a qualified opinion on the first exam. The second 

exam is underway. And then the third exam starts next year. So 

I believe that, again, the same thing, we are about midfield in 

terms of getting us ready to be auditable. 

I did want to say though as far as implementing our ERP, we 

are 80 percent there. Eighty percent of our current funds are in our 
23 

new system. The only part that is not in the new system to a large 

extent is sensitive activities, and that is why we are waiting for 

that authorization to be able to start working on sensitive activities 

versions. 

But we are almost there in terms of fully deployed. Only sensitive activities is not done. But we are making a lot of progress 

in terms of looking at ourselves. 

Mr. CONAWAY. Ms. Thomas. 

Ms. THOMAS. The Air Force Statement of Budgetary Resources in 

our approach is divided into about, well, 15 units, accessible units. 

Of that we have completed audit assertion on five. But we have 

several others that are in progress, one which is very close, we expect to assert this fall. So I think midfield is probably a pretty fair 

assessment of where we are. 

Mr. CONAWAY. All right. Anything else on that? 

Secretary HALE. No. 

Mr. CONAWAY. Again—— 

Secretary HALE. One more thing. The defense agencies, they are 

almost 20 percent of our budget, and, frankly, we hadn’t paid as 

much attention to them as we should have. A few of them have 

auditable statements already. But under the guidance of my Deputy Chief Financial Officer back here, Mark Easton, who I might 

add has done many helpful things, a great deal of attention to this, 

we are now kind of acting as their belly button, if you will, to try 

to get all of them to move toward audit readiness. Many of them 

are a lot smaller, they are all smaller than the services for sure, 

and so have easier problems, but there are a lot of them. And so 

I think we are making progress there. We may not quite be to midfield with them, but we are getting there. 

Mr. CONAWAY. Offline you will have to explain to me what being 

their belly button means. I am not sure I got that one. But please 

convey to the hundreds and hundreds of people sitting behind you 

and throughout this whole system that is having to do the heavy 

lift every single day to make this happen, our heartfelt thanks for 

not only what they have done to this point, but all that hard work 

yet to get ahead to get to that red zone and then score by getting 

this thing done. 

I for one know how hard it is, how difficult it is, what the scope 

is. It is stunning once you begin to look at it. So at least for me, 

thank you so very much for what you have done already and I am 

looking forward to the success of getting this thing done. Thank 

you very much. 

Mr. ANDREWS. Mr. Chairman, if I might, I would like to associate 

myself with Mr. Conaway’s remarks and say the same thing. I do 

want to raise one objection on the record. The Washington Redskins reference I found offensive. 

Secretary HALE. I stand by my remarks. 

Mr. ANDREWS. As a devoted Philadelphia Eagles fan, I just want 

to let the record show my objection to that reference. 

Mr. WITTMAN. Well, I was expecting the gentleman from Texas 

to maybe object to that, too. 

Mr. CONAWAY. I don’t have a dog in that fight. 

Mr. WITTMAN. Are there any other questions for the panel members before we conclude? 
24 

Hearing none, I do have two specific questions, Secretary Hale, 

I would like for you to address for us, and you don’t have to do it 

here, if you could do it for the record. One is that, and you can let 

me know this and provide this to the committee if this is where 

things are going. 

The IG evaluation or the challenges pointed out there, is there 

a plan to have a formal response to the IG findings to go back, and, 

if so, it would be nice for the committee to have that so we can get 

that to our members. 

Secondly, as you go through this process, and we all have heard 

from each of the branches here and yourself of the many challenges 

that are out there, and what we would like from each of you are 

any suggestions that might be appropriate in authorization language next year that would help you in achieving the path that you 

are on to meet your 2014 and 2017 milestones. So we would like 

to have specifics there, and then again with the response to the IG 

report for us to get a copy of that. 

Secretary HALE. We will do it. 

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

page 75.] 

Mr. WITTMAN. Thank you, Mr. Hale. If there is nothing else to 

come before the committee for this hearing, we will adjourn. 

[Whereupon, at 10:15 a.m., the subcommittee was adjourned.] 
A P P E N D I X 

SEPTEMBER 14, 2012 

PREPARED STATEMENTS SUBMITTED FOR THE RECORD 

SEPTEMBER 14, 2012 

(29) 

Hearing: "Department of Defense Auditability Challenges" 

September 14,2012 

Chairman Wittman -- Opening Statement 

Welcome to today's hearing on challenges facing the Department of Defense 

as it works toward audit readiness in 2014 and 2017. 1'd like to welcome our 

distinguished panelists: 

- Mr. Robert Hale, Under Secretary of Defense, Comptroller 

U.S. Department of Defense; 

- Ms. Elizabeth McGrath 

Deputy Chief Management Officer 

U.S. Department of Defense; 

- The Hon. Gladys Commons 

Assistant Secretary of the Navy 

Financial Management and Comptroller 

U.S. Department of the Navy; 

- Dr. Mary Sally Matiella 

Assistant Secretary of the Army 

Financial Management and Comptroller 

U.S. Department of the Army; and 

- Ms. Marilyn Thomas 

Deputy Assistant Secretary for Financial Management and 

Comptroller 

U.S. Department of the Air Force. 

Thank you very much for being here today. Collectively, you share 

responsibility for managing nearly 700 billion dollars of net operating costs and 

accounting for nearly 2 trillion dollars in assets. These are weighty responsibilities, 

particularly when you consider the importance of your mission to our nation's 

national security and our warfighters. 1 want to thank you for your service and for 

the commitment you have demonstrated on this issue. Achieving audit readiness, 
30 

when considered against this backdrop, is both complex and challenging and it's 

clear to me that you are making tangible progress forward. 

This hearing is meant as a follow-up to the "Defense Financial Management 

and Auditability Reform Panel" which was appointed by Chairman "Buck" 

McKeon and Ranking Member Adam Smith in July 2011 to carry out a 

comprehensive review of the Department's financial management system. The 

purpose ofthe review was to oversee DOD's financial management system and its 

capacity for providing timely, reliable, and useful information needed for making 

accurate decision-making and reporting. 

I would like to thank Mr. Conaway, who served as Chairman of the Panel, 

and Mr. Andrews, who served as Ranking Member. Because of your diligent 

efforts and outstanding leadership, we now have a much better understanding of 

the issues surrounding audit readiness and the path that lies ahead. 

Audit readiness is important for many reasons, but for me it's most 

important because of what it means for our national defense strategy. Put simply, 

every dollar we corral for our defense budget matters, especially because of 

impending cuts and fiscal constraints. The budget shapes not only our discussions 

on force size, structure, and capability, but ultimately determines whether our 

warfighters have the tools and equipment they need to do their jobs. This is the 

prism through which I view discussions about audit readiness and why I'm pleased 

to be having this discussion. 

Before we get started with questions, I have a quick administrative matter to 

address. I anticipate a number of members from other subcommittees will join us, 

and I'd like to ask for unanimous consent that they be allowed to participate. 

2 
31 

Absent objection, it is so ordered. I'll recognize these members at the 

appropriate times for five minutes after all 0&1 subcommittee members have had 

an opportunity to question the witnesses. 

Now I'll tum things over to the distinguished Ranking Member of the 

Subcommittee, Mr. Jim Cooper. Would you like to make a statement? 

3 
32 

Statement of 

The Honorable Robert F. Hale 

Under Secretary of Defense (Comptroller) 

and 

The Honorable Elizabeth A. McGrath 

Deputy Chief Management Officer 

Department of Defense 

before the 

House Armed Services Committee 

Subcommittee on 

Oversight and Investigations 

September 14, 2012 

Embargoed until released 

by the House Armed Services Committee 
33 

Mr. Chairman, Congressman Cooper, Members of the Subcommittee, thank you 

for the opportunity to discuss the challenges we face in achieving audit readiness at the 

Department of Defense (DoD). We'll focus on areas where we seek improvements in 

our financial processes; these areas also capture the challenges we face. 

We agree that audit readiness matters. In the first place, it is a matter of law, 

beginning with the CFO Act of 1990 and followed by the Government Management and 

Reform Act of 1994 that established the specific requirement to prepare and have 

financial statements audited. 

But also, we need to make the most of the taxpayer resources that are provided 

to us for purposes of national defense. That is especially important in time of fiscal 

stress and declining budgets. Financial accountability is also essential if we hope to 

maintain the public's trust in our stewardship of taxpayer dollars. 

While DoD's financial statements are not auditable, I want to assure you that we 

are spending the dollars that you have provided us for the purpose intended. With rare 

exceptions, we pay our people and our contractors accurately and on time, and we 

regularly record obligations accurately. If we did not, we would experience serious 

mission problems, and you would hear about it. Neither is occurring. 

Nonetheless, we currently lack the ability to consistently provide auditable 

documentation and to demonstrate reliable and well-controlled business processes. 

These capabilities are required to pass a financial audit. We know this. Part of the 

challenge lies with DoD's unique size and mission. Moreover, until fairly recently, there 

has been neither sustained attention nor a plan that is widely supported within DoD. 

Today we have both and are moving forward. 

FIAR Plan Shows the Way Ahead 

In May, we released our semi-annual Financial Improvement and Audit Readiness 

(FIAR) Status Report, including details on how we will meet our objectives. This was the 

first full status report detailing our plans for realizing Secretary Panetta's accelerated 

goal of achieving audit readiness for the Statement of Budgetary Resources (SBR) for 

General Funds by 2014, and for all financial statements by September 30,2017. 

The report reflects the fact that Army and Air Force audit readiness target dates 

for the SBR were moved up -- to 2014, from 2015 and 2017 respectively. The Navy's 

audit readiness target date remains in compliance with the Secretary's accelerated goal 
34 

and allows for implementation of efforts to capitalize on lessons learned from the 

Marine Corps' SBR audit experience. 

2 

For the first time the FIAR report also highlights the activities of Defense Agencies 

and the role played by service providers in achieving audit readiness. These include the 

Defense Finance and Accounting Service, which provides accounting services to the 

Components, and the Defense Logistics Agency, which manages many of the 

Department's enterprise-wide systems. The services they provide influence the 

auditability of the amounts reported on Component financial statements, and their 

audit readiness efforts are becoming more integrated in the Component efforts. 

The defense agencies and other organizations are making progress. Four of our 

Defense organizations are under audit and receiving clean opinions already, and three 

more will assert audit readiness during the upcoming fiscal year. "Appropriations 

Received", the initial audit element for the SBR, will undergo an examination or "mock 

audit" beginning in a few weeks. As I will refer to later in my statement, these 

examinations under audit conditions provide us with invaluable experience in evaluating 

both our current business and our progress. 

Leadership Making a Difference 

In this Department-wide effort, Secretary Panetta's leadership and personal 

commitment to auditability have been invaluable, beginning with his directive last 

October to accelerate the drive to audit readiness. What's more, his involvement did 

not end there. The Secretary has reviewed the Department's accelerated plans with 

Service leaders. In May, he summarized his guidance in a videotaped message to the 

Department. And he directed Deputy Secretary Carter, in his role as Chief Management 

Officer (CMOl, to conduct periodic reviews to ensure that our audit readiness goal is 

achieved in FY 2014. 

The Deputy does this in Defense Management Action Group (DMAG) meetings, 

where the Military Department CMOs are present along with other military and defense 

leaders. At the meetings, the CMOs commit to, and are held accountable for 

accomplishing, specific FIAR near-term goals and milestones. The next DMAG on audit 

is scheduled for later this month. 

We are also working to involve our civilian and military managers. In May, we 

joined Dr. Carter hosting an SES Town Hall meeting on audit readiness. We called on 

these civilian executives to pass the word that audit readiness is an all-hands effort. 
35 

3 

On the military side, the Service Secretaries and Chiefs of Staff of the Armed 

Services have committed themselves to specific goals for achieving auditable financial 

statements. Senior leadership is deliberately reaching out to express the importance of 

taking action and making progress: 

• General Raymond Odierno, Chief of Staff of the Army, issued an audit 

readiness message to all General Officers in April, stating, 

"I will routinely review the [FIAR] plan's key milestones and readiness 

review results to ensure we remain on track. We must make every dollar 

count and be accountable to ourselves, the Congress, and the American 

people." 

• General Gary North, Commander of Pacific Air Forces (PACAF), got the 

word out in a memorandum to his command in March. He wrote, "The Air 

Force's ability to undergo and obtain a clean audit opinion of our financial 

statements is a direct reflection of how well we manage the entire Air 

Force." 

• Vice Admiral Dave Architzel, former Commander of the Naval Air Systems 

Command, included a specific reference in his "Commander's Intent," 

referring to the need to "standardize financial processes in accordance 

with the Navy's Financial Improvement Program to provide accurate and 

auditable information that supports program execution decisions." 

• General Robert Cone, Commander of the U.S. Army Training and Doctrine 

Command (TRADOC), put it this way in a memo to his command: 

"Achieving audit readiness is not optional and is the direct responsibility of 

every commander, leader and program manager throughout TRADOC." 

To capitalize on this leadership commitment, and to measure our progress, we 

have established interim goals for each FIAR objective. The FIAR Governance Board, 

which we jointly chair, monitors the plans of each Military Department, the Defense 

Agencies, and the other Defense organizations. Through this group, appropriate 

political appointees and senior executives serving at OSD and in the Components are 

held accountable for achieving FIAR goals. These goals have been incorporated in Senior 

Executive performance plans. Leadership is taking action and is confident that we will 

meet the Secretary's accelerated goals. 
36 

4 

000 is Maturing its Business Environment 

One of the focus areas for our leadership is efforts to improve and mature our 

business environment. Over the past year, the Department has taken a number of steps 

to improve its overarching business environment. These steps include advancements in 

Business Enterprise Architecture, business process reengineering, strategic planning and 

performance management, acquisition oversight, and investment management. Our 

forward progress has been greatly enabled by the tools provided to us by the Armed 

Services Committees, particularly in regard to the management of our defense business 

systems, which provide key support to our audit efforts. 

Specifically, and most recently, Section 901 of the Fiscal Year 2012 National 

Defense Authorization Act (NDAA), will significantly advance our efforts to create a 

rationalized, interoperable DoD business systems environment by reviewing the 

planning, design, acquisition, development, deployment, operation, maintenance, 

modernization, and project cost benefits of all defense business systems that have total 

costs greater than $1 million across the current future-year defense program, including 

legacy systems. To do this effectively, the Department has created a single Investment 

Review Board (IRB) chaired by the DCMO. This single, cross-functional board provides 

significantly greater visibility of the IT investments planned for the Business Mission 

Area and will better integrate end-to-end and functional business strategies with 

investment decisions. This greater understanding of our business systems environment 

will significantly aid our audit efforts. This forum will help make better investment 

decisions, ask the right questions when it comes to things like duplicative systems and 

the number of interfaces, and reinforce the relationship of this business environment to 

the audit. 

Additionally, with the new IRB reviewing all defense business system 

investments, rather than just development or modernization, it will allow us to more 

readily retire legacy systems that are no longer needed when we make targeted 

investments in IT systems. We also want to ensure that we are optimizing the 

capabilities inherent in the modern IT solutions, taking full advantage of the robust 

internal controls and data integrity. While we were pleased with the Department's FY 

2011 progress in eliminating 120 legacy systems, we anticipate that the changes 

introduced by Section 901 will help to further accelerate the transition away from our 

legacy environment. 

Additionally, many of the Department's major Enterprise Resource Planning (ERP) 

acquisition programs have delivered important capability to DoD users, enabling 
37 

5 

improved business outcomes. For example, the Army's Logistics Modernization 

Program (LMP) Increment One has retired more than 40 legacy inventory and asset 

systems, significantly reduced the time it takes Army maintenance planners to schedule 

maintenance, from 2-3 weeks to 2-3 hours, and reduced the time it takes the Army 

Materiel Command to complete its year end close, from 4-5 days to 8-12 hours. As an 

additional example, the Air Force's Defense Enterprise Accounting and Management 

System (DEAMS) technology demonstration currently fielded at Scott Air Force Base and 

Defense Finance and Accounting Service Limestone, Maine has improved financial 

management operations by reducing late interest payments within the U.s. 

Transportation Command from approximately $161 per $1 million to approximately $7 

per $1 million. Finally, the Global Combat Support System - Marine Corps (GCSS-MC) 

Release 1.1 is now fielded to 85 percent of the Marine Corps and has generated 

business benefits such as: "Time to First Status" has been reduced from over 36 hours to 

an average of 10 hours; "Order Ship Time" has been reduced 26 percent; "Repair Cycle 

Time" has been reduced 43 percent; and "Logistics Response Time" has been reduced 

40 percent. 

DoD's modernized systems environment, including each of the Department's 

ERPs, provides the opportunity for improvements in financial management and 

accounting operations by providing users with standardized financial and business 

processes, a single authoritative data source, and real-time posting to external sources. 

In the past, we had to rely on manually-generated summary information; we now have 

increased access to transaction-level data that will help support future audits and 

provide leaders with information for better business decisions. These programs and 

their organizational sponsors are committed to realizing this significant potential. 

Signs of Progress Are Visible 

With senior leadership clearly highlighting the priority and need, and a more 

capable business environment emerging, the Department of Defense has made 

significant progress towards auditable financial statements. Our strategy focuses the 

Department's efforts first on the financial information we use most to manage. As we 

have discussed with the House Armed Services Committee on several occasions, the 

priorities are budgetary information and the existence and completeness (E&C) of 

mission critical asset records. DoD Components are committed to meeting interim and 

long-term milestones, and we have seen significant accomplishments over the last year. 

Perhaps our most noteworthy effort is the audit of the U.S. Marine Corps SBR. 

While they have yet to achieve an opinion for the statement, the audit effort continues 

to uncover and resolve process and systems issues that are applicable to all DoD 
38 

Components. We believe the USMC will achieve their goal of an audit opinion on FY12 

budgetary activity by this December for its current resources. 

6 

Most of our SBR audit readiness efforts are focused on improving the documentation 

and controls within major business process cycles. Recent achievements have included 

the following: 

• An unqualified opinion on the audit readiness of the budgetary information for 

the Navy's E2-D aircraft - a major defense acquisition program. This 

achievement shows that the underlying data and controls exist to a large degree 

in the Navy's major acquisition process. 

• Unqualified opinions on the E&C audit readiness of the vast majority of Navy 

and Air Force Military Equipment. This proves that we have control over some 

of the most expensive and important assets in the Department. 

• Unqualifed Opinion on Air Force Reconciliation of Funds Balance with 

Treasury. In partnership with DFAS, Air Force becomes the second military 

service that has demonstrated that they can balance their checkbook, serving as a 

model for others. 

• Audit opinions on the controls of two key processes supported by our major 

internal service providers - DFAS and DISA. Business processes in DoD always 

involve shared service providers who furnish common services to the Military 

Departments and other Components. These audits paved the way to develop the 

coordination ofthe audit effort and also demonstrate that in key areas the 

Department has controls in place that already support auditable financial 

statements. 

These achievements are important in and of themselves. They demonstrate that we 

have moved beyond planning to actually assess and improve processes, and we have 

done so to such a degree that independent auditors agree on our audit readiness. The 

Department has commitments to build on these successes and to demonstrate 

substantial audit readiness progress over the coming months. Examples of audit 

readiness validations presently underway include: 

• 10 Army sites that were among the early adopters of their General Funds 

Enterprise Business System. The Army approach is to move installation-byinstallation to test the audit readiness of nine business processes at the same 

time, providing feedback to the Army of the extent of progress on most material 

business processes. 
39 

• Navy Civilian Pay and Transportation of People. Validating these significant 

spending streams will prove that Navy now understands audit requirements and 

can focus on applying their knowledge and experience to other business areas. 

7 

• Defense Agencies funds receipt and distribution processes. Coming on the heels 

of clean audit readiness opinions for the Military Departments' funds receipt and 

distribution processes, this validation will prove for the first time that a business 

process across the entire Department is audit-ready. 

We also see progress in resolving the cultural impediments to audit readiness in 

the Department, including the erroneous perception that audit readiness is the sole 

responsibility of the Comptroller community. Secretary Panetta's insistence that audit 

readiness is an "all hands" effort has engaged leadership at all levels and has helped to 

create awareness in non-financial communities. 

We are seizing this golden opportunity. Efforts are underway to check that the 

information needed by an auditor is readily accessible at the command level, and we 

have stepped up our effort to get the word out through more targeted communications, 

including a monthly Defense Audit Readiness Newsletter. We are reaching out to 

commanders and managers throughout the Department to help them understand how 

audit readiness will help to ensure more-informed decisions on resource expenditures 

and requests. 

Another important DoD-wide development is the progress we have made in 

instituting a course-based certification program for Defense financial management 

professionals. This program will provide a vehicle for audit training as well as other 

financial training. We announced our plans last year, having in mind a certification 

system similar to the one in the Defense acquisition community. Since our 

announcement, we have developed a framework for the program and carried out the 

many steps necessary to bring it to reality. We are introducing pilot versions of the 

program for several Components this year, with large-scale implementation planned to 

begin in 2013. 

Challenges to Audit Readiness ... and Our Responses 

Progress is visible on a variety of fronts that provides us with confidence that the 

challenges that stili confront us can be overcome. These challenges, and our responses 

include: 
40 

8 

Driving culture of audit into the organization. The sheer size of DoD exacerbates the 

challenge of translating changes into day-to-day routine. Using the existing "chain of 

command" is critical. For example, we have provided our commanders with an Audit 

Readiness Checklist which provides Defense managers with a tool like the operational 

readiness checklists employed by military commanders. It provides leaders with a 

definitive list of questions to help ensure that organizations have the records needed for 

sound resource decisions and success in coming audits. The checklist provides 

commanders with the basic actions an organization should take to determine whether 

they are audit-ready and to identify areas for improvement. Our culture values mission 

readiness. We need a similar view of business readiness-one that highlights efficiency 

and resource stewardship in every field organization. 

Building the skills and experience of our people. We know how we do business now, 

but we have little experience in presenting it for financial audit. For this reason, we also 

have made significant progress in training both financial and non-financial managers on 

the requirements of audit readiness. We are reinforcing these lessons through a 

partnership with private sector auditors who are experienced in financial audits. As 

mentioned earlier, we are using examination engagements that are an integral part of 

our audit readiness methodology to familiarize DoD personnel with the requirements 

for audits. The audit firms performing these engagements employ the same procedures 

used in an actual audit, but on a smaller scope and scale. These exercises provide our 

employees with experience that is otherwise difficult to gain. 

In addition, the DoD Financial Improvement and Audit Readiness (FIAR) 

Directorate has developed a series of professional development training courses 

designed to enhance Department-wide knowledge and understanding of goals and 

priorities, as well as instructions to become audit-ready and to reinforce the 

Department's internal control over financial reporting requirements. Since we began 

this program in FY 2011, nearly 1,900 DoD personnel have received this training. 

Additional professional development courses have been added since, including "FIAR 

100" which focuses on training DoD senior leaders to understand the impact of 

operations on financial management and audit readiness, as well as to identify 

initiatives they can undertake to assist the Department with its auditability objectives. 

Providing adequate resources. Over the next few years the Department plans to spend 

$300 million to $400 million per year on improving business operations and achieving 

auditable financial statements. In a time of tight budgets, this commitment is a 

measure of our seriousness. 
41 

9 

Implementing modern, compliant IT systems. Today, DoD is implementing multiple 

business systems across the Military Departments and Defense Agencies to serve as the 

business backbone of their operations. Each of these implementations is at a different 

stage of its lifecycle and most have experienced challenges as they have moved from 

design to implementation. These challenges have led to cost and schedule overruns of 

varying degrees and include issues such as insufficient business process reengineering 

being conducted early and upfront in their lifecycles, data quality/cleansing, and 

changing scope and requirements. While some of these programs continue to 

experience challenges, the Department has taken, and continues to take, steps to put 

itself on a path to success. Specifically, over the past two years the Department has 

implemented a number of important improvements, incorporating lessons learned, to 

its overall defense business systems acquisition process, its individual ERP system 

programs, and its overarching business processes. As previously discussed, these 

improvements are generating results and capability is being delivered to DoD users. 

Additionally, we believe that improvements will accelerate as the result of the recent 

changes to the IRB process, allowing us to more readily retire legacy systems. While the 

Department recognizes additional opportunities for improvement, these ERP programs 

remain a vital part of the Department's long-term efforts to improve its business 

systems environment and overall operations. This will allow us to develop a sustainable 

business environment that can be cost-effectively audited. That said, it is also important 

to recognize that the Department is planning to achieve the 2014 audit goal with a 

combination of both target and legacy systems. 

Implementing comprehensive and meaningful controls. While critically important, 

improved financial systems will not by themselves eliminate our weaknesses or 

guarantee auditable statements. Achieving auditability also requires consistent process 

controls that cross organizations and functional areas. Business and financial 

information that is passed from system to system must be subject to adequate controls. 

This environment ensures that only authorized personnel are using the system and that 

these systems protect the data quality and maintain an acceptable audit trail within the 

end-to-end business process. This process must be controlled at the transaction level, 

all the way from the source to the general ledger postings and to accurate trial balances 

and reliable period closeouts. Only by completing these steps can we prepare financial 

statements that an auditor can review and verify without the need for audit sample 

sizes that are unaffordable. Many elements of our current business environment must 

be changed to allow us to meet these kinds of routine financial audit standards. This 

includes more work in improving our financial reporting controls. Sound internal 

controls over financial reporting are the foundation of audit success, but we have 

sometimes found that ours are inadequately documented and inconsistently executed. 
42 

10 

The primary improvement we have already made in this area is to enlist more 

help from the Service audit agencies. They have the personnel qualified to assess 

internal controls and to make sound recommendations for corrective actions. Each 

Service has developed a strategy and is applying significant personnel resources that will 

focus solely on evaluating controls at the operational level. Solutions are recommended 

for issues identified, with follow-up to ensure rapid implementation of those solutions. 

Sustained Momentum During Leadership Transition. The final challenge, one that was 

highlighted by your Panel on Financial Improvement, is that of maintaining momentum 

during periods of leadership transition. These transitions tend to occur regardless of the 

outcome of Presidential elections. Civilian SES leaders will help during transitions and 

are being held accountable through inclusion of FIAR goals in performance plans and 

organization strategic plans. We also have a strong governance structure that provides 

direction to Components and reviews status to ensure goals are being met. 

Congressional attention is another effective means to keep FIAR a priority despite 

leadership changes. 

Conclusion 

In sum, we are providing personnel, training, tools, and support to achieve 

auditable financial statements. There are significant challenges, but they are not 

insurmountable. We are making meaningful progress. We see substantive challenges in 

effecting some major changes within a very compressed timeframe. 

That said, there is a lot to do, and very little time available. We plan to use this as 

an opportunity to encourage both concurrency in our efforts along with efficiency and 

focus. We must leverage what we are already doing and doing well, making those nearterm adjustments in processes and controls that are both cost-effective and sustainable. 

While we are mindful of the work that remains, we are reasonably confident that 

we will achieve our audit goals. As we look ahead, we appreciate the support we have 

received here in Congress. Your Financial Improvement Panel was an unprecedented 

investment that represented your genuine interest in understanding our challenges and 

providing meaningful recommendations. We anticipate continued Congressional 

oversight and will use it to help ensure that audit readiness remains a high priority. 

There is one additional way that Congress can help. In recent years we have 

encountered unprecedented budgetary uncertainty, including no fewer than four 

threats of government shutdown, which generated time-consuming and unproductive 

planning efforts. Now the shadow of possible sequestration is falling across our path. 
43 

11 

Dealing with these uncertainties drains valuable time and leadership attention from 

important initiatives, including our commitment to audit readiness. Congress could help 

a great deal by returning to a more orderly budget process. 

We close by reiterating our commitment to the financial management goals of 

the Department of Defense, including - and especially - auditability. We owe it to you. 

We owe it to the troops. And we owe it to the American taxpayers. 
44 

R.obert f. Hale 

Under Secretary of Defense (CI~mnh·nll .. r) and Chief 

Financial 

As Under Secretary of Defense (Comptroller), Robert F. the principal 

Secretary of Defense Leon E, Panetta on all budgetary and fiscal 

matters, induding the development and execution of the Defense Department's 

annual budget of more than $600 billion, As Chief Finandal Officer, Hale 

also oversees the Department's financial polley, financial management systemsi 

and bUSiness modernization efforts. 

At the time of his nomination by President Barack Ohama in January 2009, 

Robert Hale was Executive Director of the Amelican Society of Military 

Comptrollers (AS~1C), the professional association of Defense financial 

managers, For three-and-a-half years, he led the society's certification program 

(the Certified Defense Financial Manager program), as well as training 

programs, professional journal/ and other activities, induding ASMC's National 

Professional Development Institute, an annual conference which attracts more 

than 3,500 participants, 

to 2001, Mr. Hale served in the Pentagon as the Assistant SecretalY of the Air Force (Financial Management and 

Comptroller), where he was responsible for annual budgets of more than $70 billion, efforts to streamline Air 

management, and compliance with the Chief Financial Officers Act, 

financIal 

12 years plior to his Air Force service, Mr. Hale headed the National Security Division at the Congressional Budget 

Office (CBO), developing quantitative analyses of major defense budget issues and testirying frequently before Congressional 

committees, 

in his career, Mr. Ha!e was a senior fellow and head of the acquiSition and grants management group at LMI, a 

consulting firm specializing in service to the federal government. He also spent three years as an active duty officer !n the 

Navy and served as a staff analyst and study director at the Center for Naval Analyses, 

Me. Hale graduated with honors from Stanford University with a B.S, in mathematics and statistics, He also holds a Master's 

in operations research from Stanford and an MBA from the George Washington University, He is a Certified Defense 

Financial Manager (CDFM), a fellow of the National Academy Public Administration, and a past member of the Defense 

Buslness Board, 
45 

[,~fens.e>gov Biography: Elizabeth A McGrath 

Elizabeth A. McGrath 

Deputy Chief Management Officer for Department of 

Defense 
46 

RECORD VERSION 

STATEMENT BY 

THE HONORABLE DOCTOR MARY SALLY MATIELLA 

ASSISTANT SECRETARY OF THE ARMY FOR FINANCIAL MANAGEMENT AND 

COMPTROLLER 

BEFORE THE 

HOUSE ARMED SERVICES COMMITTEE 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS 

SECOND SESSION, 112TH CONGRESS 

ON DEPARTMENT OF DEFENSE AUDITABILITY CHALLENGES 

SEPTEMBER 14, 2012 

NOT FOR PUBLICATION UNTIL RELEASED BY THE 

HOUSE ARMED SERVICES COMMITTEE 

o 
47 

Congressman Wittman, Congressman Cooper, Members of the Subcommittee, 

thank you for the opportunity to testify today regarding the Army's work to achieve 

financial statement audit readiness. I want to convey to you that Secretary of the Army 

McHugh, the Chief of Staff General Odiemo, and Undersecretary of the Army Dr. 

Westphal, the Army's Chief Management Officer (CMO), and I commit unequivocal 

support of improving financial management and meeting audltability requirements in 

law. 

The Army will have auditable financial statements by September 30,2017 as 

required by Section 1003 of the National Defense Authorization Act for Fiscal Year 

2010. The efforts to increase financial accountability and achieve audit readiness go 

hand in hand with Secretary McHugh's call for a leaner, faster, and more adaptable 

Army. A more agile Army is only possible if we have timely, accurate, and reliable 

financial information to inform our resourcing decisions. 

We began transforming our business environment several years ago and 

recently achieved a significant miiestone that simultaneously supports our audit 

readiness and business transformation objectives. On July 1, 2012, the Army completed 

the scheduled deployments of the General Fund Enterprise Business System (GFEBS); 

this system is designed to comply with audit requirements. Each day more than 52,000 

users are leveraging GFEBS, the Army's business and financial system, across 28 

Army Commands, Component Commands, and Direct Reporting Units. 

Of course, in an organization as large and complex as the Army, a transformation 

that requires a change in our day-to-day business and a fundamental shift in our culture 

faces significant challenges. Both houses of Congress and the Government 

Accountability Office (GAO) have been valuable partners in our transformation 

endeavors. In July 2011 Mr. Asif Khan outlined for the 000 Financial Management 

Panel, six specific challenges 000 faces in achieving audit readiness. including: 1) 

Sustaining continuous leadership; 2) Accountability and oversight; 3} Internal controls; 

4) A competent financial management workforce; 5) A well-defined business 

1 
48 

architecture; and 6) Compliant and Sound Financial Systems. The Army's approach 

audit readiness strategy addresses each of these concems. 

We are building continuous leadership through the visible support of audit 

readiness from the Secretary of the Army, the Chief of Staff of the Army, me, and other 

top Army leaders. Audit readiness is part of the Army Campaign Plan and aligns to the 

Secretary's "Top 10" priorities. Top leadership has communicated, through memoranda 

and other means, the critical nature of audit readiness across the enterprise and our 

intent to hold all personnel, military and civilian, accountable for conducting business in 

an auditable fashion. For example, in April the Chief of Staff sent a message to all 

general officers informing them of the importance of audit readiness, stating, "Leaders 

at alltevels are responsible for instilling proper levels of discipline and oversight into all 

business processes within their command." 

Sustained leadership requires accountability and oversight and we have greatly 

increased accountability and oversight by embedding audit readiness criteria in the 

annual performance plans for all Army Senior Executive Service (SES) civilians. In 

addition, we are engaging commanders and holding them accountable for implementing 

effective intemal controls. These controls are inherent in their daily business; are 

practiced in a predictable, controlled manner; and are auditable with appropriate 

supporting documentation. My office conducts monthly intemal controls tests across 

the Army's business processes to identify any deficiencies prior to audit. Finally, I chair 

the quarterly meetings of the Army Audit Committee, which oversees the Army's audit 

readiness efforts and interim independent examinations. At these meetings the Army's 

top leaders must report their progress in meeting audit readiness objectives. 

Building a competent workforce requires comprehensive communications and 

training efforts. In 2012 alone we have trained more than 8,000 personnel across all 

business functions in audit readiness principals and implementing the intemal controls 

within the Army's bUSiness processes. We have expanded this training online using the 

Army Leaming Management System to broaden our reach in a cost-effective manner 

2 
49 

while enabling users to access the training content 24 hours a day. Finally, I 

established the Army Financial Management Workforce Transformation working group 

to identity the to-be workforce skills and staffing levels that will support the Army's 

financial management transformation. 

We are strengthening intemal controls through installation-level process and 

control assessments, corrective action Implementation, and business process and 

controls training. Our efforts to create an effective business control environment comply 

with the DoD's Financial Improvement and Audit Readiness (FIAR) criteria, and 

requirements established by Office of Management and Budget Circular A-123 

Appendix-A. At the end of June we reached two major milestones that demonstrate 

how far we have come in implementing internal controls. 

First, we asserted audit readiness for nine process areas at 10 different locations 

for the Statement of Budgetary Resources (SBR). An independent auditor will validate 

the assertion through the second of three SBR exams leading up to the Secretary of 

Defense's 2014 SBR mandate. The first SBR exam in 2011 resulted in a qualified audit 

opinion that highlighted the standardization of bUSiness processes across locations, 

which is a major achievement for the Army. The second SBR exam evaluates our 

internal control environment. 

Second. in June the Army asserted audit readiness for three missile programs 

(Javelin, Hellfire, and Tube-launched, optically tracked, wire-guided (TOW», 

representing approximately 16 percent of the Operating Materials & Supplies category 

of assets. The DoD Inspector General will conduct the exam to validate the assertion. 

This interim milestone supports the validation of all existence and completeness of 

mission critical assets by the third quarter of fiscal year 2015. 

For the remaining two GAO challenges we developed a well defined business 

architecture which enables our ERP systems to better support Army audit readiness 

objectives. The Army Office of Business Transformation (OBT) oversees IT and 

3 
50 

business system strategy and chairs regular govemance board meetings of aU 

stakeholders to ensure business system-related decisions are made in accordance with 

the Army's defined strategy. We are also conducting intemal assessments of our ERPs 

and material feeder systems using the GAO Financial Information Systems Control 

Audit Manual (FISCAM), which provides the guidelines an auditor will follow when 

conducting a financial statement audit of a federal agency. The FISCAM assessments 

of GFEBS and the Army's Global Combat Support System (GCSS-Army) are well 

underway. I am confident the Army's ERPs will fully support the Army's audit readiness 

goals as independent auditors have already confirmed GFEBS to be substantially 

compliant with the Federal Financial Management Improvement Act (FFMIA) and DoD 

Standard Financial Information Structure (SFIS). 

We have achieved some significant accomplishments in the past 12 months, but 

our work is far from over. I recognize the challenges we face, but I am confident we are 

executing a sound plan that will achieve the NDAA 2010 mandate. Our plan is 

sufficiently resourced, has the full support of the Army's top leadership, and has 

resulted in successfully achieving several milestones to date. In addition, the 

independent feedback we receive from the DoD Comptroller's office, GAO, DoD IG, 

Army Audit Agency, and independent auditors allows us to fine tune our audit readiness 

efforts and stay on track to meet the 2014 and 2017 deadlines. I am personally 

committed to this effort and look forward to working with the members of this 

Subcommittee, GAO, and Comptroller Hale to ensure the continued improvement of the 

Army's business environment. 

4 
51 

Honorable Matiella 

Dr. Matiella, Management 

Comptroller (ASA FM&C), advises ortlle Army and Chief of Stan: on all matters 

related Army financial management She oversees the development, formulation. and 

implementation and tor improving the efticicncy 

"fT;~"';vr'n"cc of overall of the is also responsible 

fllrmulation and submission ortlle Army budget to Congress and American people, 

nominated Dr. Maticlla Assistant 

Management and Comptroller, and she conl1rmed by the 

to her appointment, Dr. Matiella served as 

Accounting the Department of I-lousing and Urban Development 

responsible lor payment $40 billion in annllal grants. and 

subsidies, and the consolidation and submission of quarterly and allnual financial statements to 

the and Budget (OM B). She ensured HUD in full with 

Accounting Principles (GAil P), and 

cM.VlltHlllil! standards. Under her leadership, HUD earned "unqualified" 

from OMB tor its accounting 

practices. 

200 L Dr. Maticlla entered and served the 

Ofncer for USDA 

execution ora $4 billion annual budget, which funded management of200 million acres of 

national forest and Under her leadership. the Forest Service its tlrst 

and the April repon, recognized the Forest 
52 

NOT FOR PUBLICATION UNTIL 

RELEASED BY THE HOUSE 

ARMED SERVICES COMMITTEE 

STATEMENT OF 

THE HONORABLE GLADYS J. COMMONS 

ASSISTANT SECRETARY OF THE NAVY 

(FINANCIAL MANAGEMENT AND COMPTROLLER) 

BEFORE THE 

HOUSE ARMED SERVICES COMMITTEE 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS 

ON 

DEPARTMENT OF DEFENSE AUDIT ABILITY CHALLENGES 

14 SEPTEMBER 2012 

NOT FOR PUBLICATION UNTIL 

RELEASED BY THE HOUSE 

ARMED SERVICE COMMITTEE 

1 
53 

Chainnan Wittman, Congressman Cooper, thank you for the opportunity to appear before 

you today to discuss the Department of the Navy's drive to achieve and sustain financial audit 

readiness -- and the challenges we face as we move forward. Our Navy-Marine Corps efforts 

continue to build momentum as we follow our detailed roadmap to achieve auditability in the 

Department of the Navy (DON). Achieving audit readiness, and subsequently maintaining it, 

requires a fundamental change in the way we execute our Departmental business processes. 

The Department of the Navy's senior leaders are solidly committed to our audit readiness 

efforts. The Under Secretary of the Navy and Chief Management Officer, the Vice Chief of 

Naval Operations, and the Assistant Commandant of the Marine Corps have actively and 

repeatedly emphasized the importance of audit readiness to the entire Department. Under 

Secretary Robert Work stresses the mandate for audit readiness at each of his Town Hall 

meetings with senior executives and the inclusion of audit readiness ohjectives in their annual 

performance plans. The Vice Chief of Naval Operations, Admiral Mark Ferguson is visiting 

each major command, discussing their audit readiness efforts and how they are contributing to 

the overall success of the Departmental plan. The Assistant Commandant of the Marine Corps, 

General Joseph Dunford has stressed the importance of audit readiness to his general officers and 

senior executives and oversees the ongoing Marine Corps audit. 

Financial audit readiness depends on the actions of thousands ofleaders, managers and 

employees throughout the Department of the Navy and outside the Department. We have 

actively engaged the many stakeholders who playa critical role in Navy-Marine Corps business 

processes and systems, enlisting their immediate participation in our plan for auditability. Senior 

functional managers have been assigned to lead Departmental audit readiness efforts for their 

respective business processes. Nurturing and maintaining this cross-cultural engagement, a most 

2 
54 

essential element of our recent successes, is also one of our biggest challenges in achieving audit 

readiness. 

Recognizing the need to keep the cross-cultural engagement active and growing and to 

ensure that all our employees understand their role in audit readiness, we have launched an 

aggressive education, training and communication plan. These efforts include one-on-one, face 

to face communications on a number of fronts, and using our internet website, training seminars, 

video presentations, technical workshops, newsletters and town hall sessions to reach the widest 

cross-section of employees. 

We are moving forward to meet the goals we have established. Over the past year, the 

Department of the Navy (DON) has received unqualified opinions on our Funds Receipt and 

Distribution process, our E-2D Hawkeye aircraft major acquisition program process executed 

through Navy Enterprise Resource Planning (ERP), and on our asset management processes for 

our ships, submarines, satellites, ballistic missiles, and aircraft. We have asserted audit readiness 

for our Civilian Pay and Transportation of People processes and expect that examinations on 

these business segments will start this month. The Marine Corps' audit engagement on its 

Statement of Budgetary Resources (SBR) continues. This audit engagement serves as a guide as 

we undertake broader efforts within the Department of the Navy and has yielded lessons for the 

DON and the rest of the Defense Department. 

We continue to use our detailed plan to achieve Navy-Marine Corps SBR auditability as 

our guide and adjust it as necessary based on our findings and experience. OUf steady progress is 

bringing increased confidence that the Department of the Navy will meet Secretary Panetta' s 

goal ofSBR auditability by Fiscal Year (FY) 2014. 

3 
55 

We realize that Department of the Navy audit readiness efforts are also dependent on the 

assistance from our primary service providers - defense agencies which provide support to our 

business processes. We rely on these outside organizations to pay our bills and our people, 

receive and accept goods and services on our behalf; provide us consumable material, manage 

our major contracts, and to do our accounting, including preparing our financial statements. The 

Department of the Navy's audit readiness will depend directly on the audit readiness of these 

service providers' processes and systems. We have drawn them into our widening circle of 

accountability, forming alliances, obtaining their support, and incorporating their organizational 

efforts into our detailed plan of action. 

We have learned that some business processes, while designed and used to meet specific 

needs of the entire Defense Department, do not comply with financial audit standards. An 

example is the material receipt and acceptance procedure that comes with hiring one government 

agency to provide goods and services to another. The process as currently practiced, does not 

promote a disciplined receipt and acceptance process prior to the payment for the goods and 

services. In this case, we are working with the Defense Comptroller's staff to ensure that 

governing policies are clear and lead to consistent and repeatable process execution, that is 

compatible with a financial auditor's expectations. 

Achieving the requirements of auditability and then being able to demonstrate this 

readiness to an outside auditor is a new skill that we are developing. To hone this ability, we are 

relying on the lessons we have learned from the Marine Corps audit. In addition, we are actively 

engaged with the Defense Department's Financial Improvement and Audit Readiness 

Directorate. This close and regular collaboration has increased the collective expertise guiding 

our efforts and is raising the quality of our audit readiness. 

4 
56 

Information technology (IT) systems remain a significant challenge. Our systems were 

not designed to account for our resources in a way compatible with financial statement 

requirements. Currently, we do not have documented assurance that major business systems 

producing our financial data have the necessary controls to ensure the data's accuracy and 

reliability. We have begun assessments of these information systems within our Department to 

identify control weaknesses and are making system changes as necessary for auditability. 

Concurrently, our management team is conferring with outside service providers to ensure that 

similar assessments (which will support Navy-Marine Corps audit readiness timelines) are 

underway on the (IT) systems they manage and which affect our audit readiness. 

We discovered that a consistent deficiency in our audit readiness is the ability to 

consistently produce appropriate documentation to substantiate a transaction. In some instances, 

we found that auditing standards required a longer retention period than normally required by the 

business process. Earlier this year, the Department of the Navy issued guidance on required 

documentation to support auditability, complete with retention timelines. This policy will add 

needed discipline to our day-to-day business practices. 

We also need to strengthen the internal controls surrounding our business processes and 

to verify that they have been tested. We have begun testing the internal controls in each of our 

business processes to ensure that they are effective and that they will enhance our financial 

auditability. 

To ensure we preserve our gains as we overcome the challenges to audit readiness, we are 

building the audit response infrastructure needed to house, retrieve, and evaluate the large 

volumes of electronic audit documentation required during an audit. This scalable repository 

5 
57 

doubles as an audit management tool, supporting assertion preparations, audit engagements, and 

sustainment activities. This is one of the more valuable lessons learned from the Marine Corps 

audit of their SBR. This capability will be indispensible as our auditability pace accelerates to 

encompass the entire DON. 

I noted earlier that our Department is making progress in asset management, with 

unqualified audit opinions on the management of most of our military equipment. We are 

expanding our scrutiny to other assets classes. We have established a senior-level, Department 

of the Navy Property Council, which will oversee audit readiness policy for property throughout 

Department. 

Over the past year, I have seen our functional managers embrace audit readiness not only 

to achieve auditable financial statements, but as a mechanism to correct long standing 

deficiencies in our business processes. We are aggressively addressing numerous challenges as 

we encounter them, and our efforts are increasingly effective. In closing, achieving audit 

readiness and subsequently maintaining it is challenging. Given our accomplishments over the 

past year, our growing level of knowledge, and the breadth and depth of audit readiness activities 

across the DON, I am cautiously, but increasingly, optimistic that we will achieve the ambitious 

audit readiness goals we have set for our Department. I would be happy to answer any of your 

questions at the appropriate time. 

6 
58 

1 

The Honorable J. Commons 

Mrs, Gladys J, Commons Sv'Vorn-in as the Assistant Secretary of the Navy 

Management Comptroller) on Nov, 2009, She started her federal service career in 

July 1969 with the Social Security Administration as a Claims RepresentatlV8, !n 1971, she 

Joined the Comptroller staff at the Office of Naval as Budget Analyst In 

was selected as Budget Analyst for the Operations ProgramfBudget Dlvision in 

the newly formed Naval Data Automation Command, Washington, D.C. !n 1980, Commons 

became the Supervisory Budget Analyst and Branch Head of the Budget and Operations 

the Naval Facilities Command (NAVFAC). In 1983, she the 

Officer and of the Materiel Program and Budget Materiel Division, 

Installation and Logistics Department Headquarters Manne Corps. In 1986-87 she 

attended the !ndustrial College of the Armed Fort McNair, Washington, A!so in 

1987, Commons the Comptroller of the Marine Corps Development and 

Acquisition Comrnand ".- currently the Marine Corps Systems She was 

promoted to the Senior in August 1991, 

Commons served Deputy Assistcmt Secretary of the Navy for Financial Management and Comptroller from 

February 1994 to and Acting Assistant of Navy for FinanC18! Management and 

Comptroller March to October 1998, ComptroJier of the Military Sealift Command from October until 

retkement from federal 

Commons received numerous awards during federal service, including various Outstanding and Sustained Superior 

Performance Awards, the Department of the Navy Distinguished Civilian A\A.tard, the Depmtrnent of Defense Meritorious 

Civillan Award, and the Rank Award of Mentonous Executive, 

Commons graduated from Bache!or's degree and f'lolds a Master of Public 
59 

Presentation 

Before the House Armed Services 

Committee, Subcommittee on 

and 

Statement of 

Air Force 

NOT FOR PUBLiCA TlON UNTIL RELEASED 

BY THE COMMITTEE ON ARMED SERVICES 

UNITED STATES HOUSE OF REPRESENTATIVES 

afDefense 

Challenges 

M. Thomas 

Assistant of the 

and 

2012 
60 

Thank you for the opportunity to brief the subcommittee regarding the Air Force's progress 

toward transparent and auditable business processes. We have had a remarkably successful 

year due to the commitment of senior leadership and dedicated professionals across the Air 

Force, however we continue to view the 2014 and 2017 goals as having moderate risk. Before 

delving into the challenges, I want to assure this committee of our commitment and provide 

you with tangible evidence of our progress. 

Over the last year we received two independent opinions on previous assertions. In October, 

an Independent Public Accounting (IPA) firm issued an unqualified opinion on our Fund Balance 

with Treasury Reconciliation process. This process reconciles over 1.1 million Air Force 

transactions monthly with Treasury with an accuracy rate of 99.96 percent, exceeding the 98 

percent threshold recommended by the Federal Chief Financial Officers Council. In June the 

Department of Defense Inspector General (Do DIG) issued an unqualified opinion on our military 

equipment, aerial target/drones and cruise missiles valued at approximately $86 billion and 

representing 41 and 14 percent of Air Force and DoD mission critical assets respectively. 

So far this fiscal year we have completed two assertions of audit readiness for Uninstalled 

Missile Motors and Spare Engines. Together, these represent 6,395 individual items with an 

acquisition value of approximately $11.5 Billion. The DoDIG began an examination of these two 

assertions in July and we anticipate receiving the final report in November. 

In December, the Air Force submitted its plan to OSD to accelerate audit readiness on the 

Statement of Budgetary Resources from FY17 to FY14. Since then, we have made significant 

progress on several business processes and are hiring additional contractor and organic 

resources with expertise in federal financial reporting and auditing. This will allow us to work 

additional assessable units simultaneously and reduce overall schedule risk. 

We submitted our assertion covering the Selected Acquisition Reports for our Space Based 

Infrared Radar System (SBIRS) acquisition program two months ahead of schedule. This 

assertion covers approximately $4 Billion in obligations and expenditures from 2008 through 

2011. We expect to award a contract to an auditing firm this month to perform an 

independent examination and issue an opinion on our assertion. 

In addition, we are making important progress on improving several other end-to-end business 

processes. 

Last August, the Air Force earned an unqualified opinion from an IPA on our process for 

receiving and distributing budget authority down to our Major Command echelon. We 

identified and implemented a series of corrective actions including establishing a standard 

document numbering system, which improves our ability to reconcile transactions between 

systems. This was a relatively inexpensive process control to implement; however, successful 

1 
61 

implementation required additional training and guidance. Our initial testing results could not 

support an assertion. We hosted a workshop with Major Command personnel to clarify the 

guidance and provide training. Since then, several commands have tested and implemented 

the new procedures. A second round of service-wide testing showed dramatic improvement 

which will allow the Air Force to assert audit readiness later this month. 

We also completed initial testing on the Air Force's Reimbursable Budget Authority and Civilian 

Pay processes and are implementing corrective actions that will allow us to assert audit 

readiness for them in the coming year. Our acquisition community is working with us to 

implement additional accounting detail allowing us to easily track reimbursable authority with 

the start of the new fiscal year. We are working with the Personnel Community to enhance 

control over the civilian pay process by implementing a standard time and attendance system 

across the Air Force. In addition to the two corrective actions described above, we have 

improved the consistency and quality of supporting documentation through regular meetings 

with our Major Commands and feedback from ongoing test efforts. 

Finally, we will be kicking off the initial testing for our Military Pay and Contracts assertions this 

Fall. I am heartened by early assessments from our Air Fore Audit Agency (AFAA) on our 

military pay process. AFAA conducted targeted quick look audits on the Military Pay processes 

at six locations this past Spring. They examined 771 military pay transactions and our Financial 

Services Offices were able to provide supporting documentation for 98 percent of these 

transactions within four days. We are looking to our SBIRS examination as an early indicator of 

the status of our contracting assertion and look forward to engaging with the auditors later this 

month. 

Despite tremendous progress to date, we do face challenges to include the need to improve 

our legacy systems in order to achieve the accelerated timeline, educate our airmen on what 

they need to do to achieve audit readiness, and build the skills and experience required to 

achieve and maintain audit readiness in all of our resource management specialties. 

A primary challenge facing the Air Force is adhering to the schedule for modernizing our legacy 

information technology systems and deploying the targeted Enterprise Resource Planning (ERP) 

systems. Recently, General Welsh reiterated this same concern during his confirmation 

hearings. Over the last two years, we have identified over 160 different systems that record, 

track, and report information used to support the financial statements. Many of these systems 

are legacy systems which have been in a "brown-out" mode while the Enterprise Resource 

Planning (ERPs) were developed and deployed. Our challenge over the next two years is to 

identify, prioritize and implement cost-effective improvements to these systems so that we can 

meet the accelerated audit timeline for the Statement of Budgetary Resources. 

2 
62 

Simultaneously, we must continue to develop and deploy the Defense Enterprise Account 

Management System (DEAMS), our new, modernized, accounting system which will support full 

audit readiness in 2017. The Air Force Operational Test and Evaluation Center recently 

completed an Operational Assessment of DEAMs highlighting several issues in the system and 

our implementation. We have been working many of these issues and have completed many of 

the corrective actions. The assessment also confirmed problems with data conversion and user 

training. We revised the training guidance and have phased our deployment schedule so that 

we will not convert legacy data into the new environment. This should eliminate many of the 

data conversion issues experienced in past implementations. Educating our Airmen on audit 

expectations is also critical to our success. Like many other large organizations, the Air Force 

executes financial transactions worldwide in a decentralized manner. Our uniformed and 

civilian resource managers execute their responsibilities in a disciplined and efficient manner, 

however we have not previously been able to provide the evidence an auditor requires in order 

to render an opinion. For example, we are preparing documents to assert audit readiness on 

our processes and systems for distributing funding throughout the Air Force. These 

transactions largely occur at bases located around the world. In March, we tested the 

supporting documentation for these transactions and the results were untimely and 

inconsistent. We held a workshop with our Major Commands reviewing each test sample and 

explaining in clear direct terms why a particular sample either passed or failed. Equipped with 

this understanding, many of the MAJCOMs subsequently implemented ongoing testing. As 

described above, we have seen a dramatic improvement in overall results and will assert audit 

readiness on this process later this month. 

My third concern involves the enduring challenge of annual audits. In order to be successful for 

the duration, we must grow financial reporting and audit understanding across our workforce. 

We are taking some of those steps with the FM Certification program; however, achieving audit 

readiness involves everyone in the resource environment, not just those in the FM career field. 

A related concern is the compressed timeline allowed for preparing financial statements and 

completing the audit. Federal agencies must submit their audited financial statements by 

November 15, 2012, or 45 days after fiscal year end. In contrast, large publically traded 

corporations have 60 days to submit their audited annual report to the Securities and Exchange 

Commission. In 2006 when the SEC was evaluating the accelerated filing dates, numerous 

parties including many well-known accounting firms, claimed that the accelerated deadline will 

increase costs without incremental benefits. In a period of constrained budgets, I would 

recommend reconsidering the reporting deadline to coincide with the submission of the 

President's Budget. This would allow the statement preparers and the auditors to fulfill their 

responsibilities more thoroughly without any degradation in the timeliness of the data. 

3 
63 

In conclusion, the Air Force is aggressively working this effort and looks forward to the 

continued support from this committee in our efforts to continuously improve our stewardship 

over the resources entrusted to us. 

4 
64 

THm~.AS 
DOCUMENTS SUBMITTED FOR THE RECORD 

SEPTEMBER 14, 2012 

(67) 

DEPUTY CHIEF MANAGEMENT OFFICER 

9010 DEFENSE PENTAGON 

WASHINGTON. DC 20301·9010 

AUG 10 2012 

MEMORANDUtvf FOR ACTING DEPARTMENT OF DEFENSE INSPECTOR GENERAL 

SUBJECT: Comments to Final Report, "Enterprise Resource Planning Systems Schedule Delays 

and Reengineering Weaknesses Increase Risks to DoD's Auditability Goals" (project 

No. D2012-DOOODE-0057.000) 

This memorandum responds to your request for comments on the subject audit report 

issued on July 13,2012. While I concur with the intent of the report's recommendations, as 

explained in the attached comments, I do not agree with the final report because, in certain 

places, it contains incorrect statements and technical errors, fails to place ongoing efforts in their 

proper context, and mischaracterizes ongoing efforts across the Department to continuously 

improve DoD business operations in general, and, in particular, Enterprise Resource Planning 

(ERP) systems. These issues lead to the report painting a far bleaker picture than is appropriate 

and overstating the impact of its conclusions. While the Department acknowledges the 

significant challenges that it has faced over the years with its ERP system implementations and 

broader financial audit efforts, it has, and continues to take, steps to put itself on a path to 

success. Specifically, over the past two years the Department has implemented a number of 

important improvements to its overall defense business systems acquisition process, its 

individual ERP system programs, and its overarching business processes. I request that you 

amend the final report to address my specific comments and concerns including; 

With regard to Finding A -

• 'The report inaccurately characterizes LMP cost and schedule growth. In December 2011, 

the Under Secretary of Defense for Acquisition, Technology and Logistics 

(USD(AT&L» authorized the deployed/operational baseline ofLMP to enter 

sustainment. As part of the acquisition decision, the USD(AT&L) designated the 

deployed/operational baseline LMP Increment One. The USD(AT&L) also authorized a 

separate LMP increment, LMP Increment Two as a stand-alone acquisition progrdIl1. The 

report combines both programs and therefore significantly overstates cost and schedule 

delays - exaggerating a 6.3 year delay into a 12.5 year delay. While 6.3 years is not an 

acceptable delay, there is a significant difference between it and the 12.5 years identified 

in the report. Additionally, the report should acknowledge the business improvement that 

LMP Increment One is currently delivering. LMP Increment One has retired more than 

40 legacy inventory and asset systems, significantly reduced the time it takes Army 

maintenance planners to schedule maintenance, from 2-3 weeks to 2-3 hours, and reduced 

the time it takes the Army Materiel Command to complete its year end close, from 4-5 

days to 8-12 hours. 

• 'The report discusses in great detail the cost increases and schedule delays that have taken 

place in the past without discussion of the Department's remedial actions or recent 

successes. This leaves the report without balance and implies that the Department has 

not taken steps to address these problems, which is not the case. The Department 
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continues to mature its business transformation related processes and governance bodies 

to together support our transition to a more modern and disciplined business and systems 

environment, all in line with GAO's recommendations. The report should acknowledge 

DoD's efforts to improve oversight of its ERP programs, including implementing more 

focused oversight through Overarching Integrated Product Teams, more closely linking 

business and financial outcomes with the acquisition process, putting in place success 

criteria tied to obligation authority, sharing and implementing lessons leamed and best 

practices across programs and components, and proactively identifying and remediating 

weaknesses, deficiencies, and duplication in its systems implementations. GAO has 

given the Department credit for many of these steps, but this IG report does not. The 

report should also indicate that these efforts are actively bearing fruit through increased 

fielding of capability into the hands of users who are realizing true business benefits. 

• The report wrongly implies that ERP delays will jeopardize the Department's efforts to 

achieve an auditabJe Statement of Budgetary Resources (SBR) by 2014. Although ERPs 

are essential for reaching Fiscal Year (FY) 2017 financial audit goals, these systems are 

generally not part of DoD's FY 2014 target systems environment necessary to achieve an 

auditable SBR by 2014. 

With regard to Finding B -

• The report does not properly take into consideration the timing of the FY 2010 National 

Defense Authorization Act (NDAA) Business Process Reengineering (BPR) requirement. 

The NDAA BPR requirement was mandated after a majority of the ERP programs had 

already completed design, development, and in some cases, deployment activities. It is 

misleading to state that the Department did not meet a legislative mandate that was put in 

place after the identified programs had progressed past the time when most BPR would 

have been conducted. For example, when the NDAA BPR requirement was passed into 

law, the Navy Enterprise Resource Planning System (Navy ERP) was post Milestone C 

and had already retired 18 legacy systems. As an additional example, the Army's 

General Fund Enterprise Business System (GFEBS) was also post Milestone C, had been 

deployed to almost 4,000 users, and had obligated over $6.4 billion through the system. 

While the report is correct in stating that in some cases, adequate as-is process maps were 

not provided as part of the BPR Assessment process, it would have been an inefficient 

and wasteful use of time and resources to pursue the collection or reconstruction of these 

artifacts for systems that were already quite far along in their lifecycles. As is clearly 

stated in my April 30,2011, Guidance/or the Implementation o/Section 1072 Business 

Process Reengineering, "it is not the intent of this process to ask programs to complete 

work out of cycle of their acquisition approach." BPR is most effective when 

accomplished early and upfront in the design and development phase of a program's 

acquisition lifecycle. The Department was fully committed to its ERP programs when 

the NDAA BPR requirement was passed into law and so it focused on ensuring that the 

programs conducted the appropriate activities for their place within their lifecycles. 

Ensuring that these appropriate activities occurred is not only accomplished through the 

BPR Assessment process, but also through my detailed reviews of these programs in my 

role as Milestone Decision Authority in the acquisition process. As I indicated in my 

April 30, 2012 guidance, "the Department also sought to align its BPR approach with 

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other, existing oversight processes." Additionally, despite these timing issues, the 

Department continues to make process and system changes, as appropriate and in line 

with BPR principles, to capitalize on lessons leamed, even post-deployment. 

• The report does not properly take into consideration the unique relationship between ERP 

systems and BPR. Fundamentally, BPR is about radically redesigning your business 

processes to take advantage of opportunities for efficiency in the to-be state. However, 

ERP programs, by their very nature are designed to handle transactions in a defined endto-end process, enforce process and execution standardization among implementing 

organizations, manage consolidated business data in a single repository that allows 

centralized access control, and facilitate the flow of infOimation both within an 

organization and with outside stakeholders. These design principles within an ERP 

directly enable capabilities essential to auditability, such as traceability of all transactions 

from source to statement, the ability to recreate a transaction, documented, repeatable 

processes and procedures, demonstrable compliance with laws, regulations and standards, 

and a control environment that is sufficient to reduce risk to an acceptable level. 

Essentially, ERPs are acquired with industry best-practice to-be processes embedded 

within them. Each of the Department's ERP programs went through significant up-front 

blueprinting and gap analysis to determine what configuration or customization was 

necessary for the systems to work within the business environment it was to be fielded in. 

Therefore, again, while the report is correct in stating that in some cases, adequate to-be 

process maps were not provided as part of the BPR Assessment process, in many ways, 

the ERP system itself was the to-be process. Consequently, the Department has focused 

on properly capturing and enforcing the to-be financial management environment, built 

on a backbone of core ERP systems, in the Business Enterprise Architecture's end-to-end 

processes. This, in concert with the new Investment Review Board process currently 

being implemented as required by the FY 2012 NDAA, will ensure the retirement of 

legacy systems and the reduction of interfaces and necessary customization, as required 

by the NDAA BPR requirement. This approach is fully consistent with the goal outlined 

in my April 30, 2012 guidance, "to implement a useful and tailored approach to BPR." 

• The report does not properly credit the Department for the BPR Assessment process that 

was put in place following the passage of the FY 2010 NDAA. Since the NDAA BPR 

requirement was passed, my office and the offices of the Military Department Chief 

Management Officers have conducted hundreds ofBPR Assessment package reviews, 

performed significant follow-up work with programs to seek additional information, and 

imposed BPR conditions on a number of programs through internal Military Department 

processes and the Investment Review Boards. Additionally, in my role as Milestone 

Decision Authority for many of the ERP programs that were the subject of this report, I 

conducted multiple, detailed programmatic reviews. So, while the Department 

recognizes that it has opportunities to improve the BPR Assessment process, it is not 

correct to imply that we are not in compliance with Section 1072 of the FY 2010 NDAA, 

which does not contain a requirement for a DCMO determination memorandum. 

• The report contains mistakes regarding oversight of the Defense Enterprise Accounting 

and Management System (DEAMS) program and does not provide proper context around 

its current status. First, the report mistakenly identifies DCMO as the BPR determining 

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70 

official for the DEAMS program. As a program that primarily supports the Air Force, it 

was decided that the Air Force Chief Management Officer would be the determining 

official for BPR. Second, the report does not recognize efforts to realign the DEAMS 

program to an agile acquisition model that provides continuing opportunities for BPR and 

agile development. In March 2012, DEAMS was baselined as a two increment, multi 

release acquisition program. Increment One authorized the Air Force to stabilize and 

independently test the technology demonstration already fielded to Scott Air Force Base 

and the Defense Finance and Accounting Service operating site in Limestone, Maine. 

The Air Force corrected documented weaknesses using a cross functional end-to-end 

view of the business process supported by DEAMS and the program is currently 

undergoing an independent operational evaluation. This approach is aligned to best 

practices for ERP implementations and is an accepted methodology for BPR. DEAMS 

was also authorized to begin blue-printing and design activities for future releases and the 

Air Force was directed to seek my approval before beginning deVelopment of future 

DEAMS releases. In this way, an additional "gate" was established as a check and 

balance in the acquisition oversight process to ensure appropriate BPR has occurred. 

Additionally, the report should acknowledge the business improvement that DEAMS is 

delivering. For example, the Air Force's DEAMS technology demonstration currently 

fielded at Scott Air Force Base and Defense Finance and Accounting Service Limestone, 

Maine has improved financial management operations by reducing late interest payments 

within the U.S. Transportation Command from approximately $161 per $1 million to 

approximately $7 per $ [ million. 

While the Department recognizes additional opportunities for improvement, analysis has 

been completed and these ERP programs remain a vital part of the Department's efforts to 

improve its business systems environment and overall business operations. We take seriously 

the mandate to continually improve our business and look closely at all factors that influence 

successful system implementations that are a vital part of the Department's efforts to improve its 

business systems environment and overall business operations. 

My staff is standing by to review the fmal report in detail with your office. My point of 

contact is Mr. Tom Cowley at thomas.cowley@osd.mil or (703) 692-8170. 

Elizabeth 

~~ A. McGrath 

Attachment: 

As stated 

cc: PRINCIPAL ASSISTANT INSPECTOR GENERAL FOR AUDITING (DEPARTMENT 

OF DEFENSE INSPECTOR GENERAL) 

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71 

DEPARTMENT OF DEFENSE OFFICE OF THE INSPECTOR GENERAL (DoDIG) 

DRAFT REPORT DATED MAY 29, 2012, PROJECT NO. D20l2-DOOODE-00S7.000 

"ENTERPRISE RESOURCE PLANNING SYSTEMS SCHEDULE DELAYS AND 

REENGlNEERING WEAKNESSES INCREASE RISKS TO DOD'S AUDIT ABILITY 

GOALS" 

DEPUTY CHIEF MANAGEMENT OFFICER (DCMO) 

COMMENTS TO DODIG RECOMMENDATIONS 

RECOMMENDATION B.1.a: "We recommend that the DoD Deputy Chief Management 

Officer and Chief Management Officers of the Army, Navy, and the Air Force develop 

procedures to independently review the business processes and verifY that the information 

contained in business process reengineering assessment forms is accurate, complete, reliable, and 

supported in accordance with Office of Deputy Chief Management Officer, "Guidance for the 

Implementation of Section 1072 - Business Process Reengineering," April 30. 2011." 

DCMO RESPONSE: Concur. While the final report fails to place proper context around the 

timing of the Fiscal Year (FY) 2010 National Defense Authorization Act (NDAA) requirement 

for Business Process Reengineering (BPR) and does not properly credit the Department for the 

BPR assessment process that was put in place following the FY 2010 NDAA. we nevertheless 

concur with the intent of this recommendation and believe that there is still more that can be 

done with regard to the proper conduct and assessment of BPR. Especially in light of recent 

changes to the Investment Review Board process contained in the FY 2012 NDAA, DCMO will 

develop additional comprehensive BPR guidance for dissemination to all of the appropriate precertification authorities, including the Military Department CMOs. DCMO will provide 

oversight of Enterprise level BPR efforts and conduct random validation assessments on 

Component level efforts to ensure appropriate BPR is applied across the DoD in accordance with 

the FY 2012 NDAA. 

RECOMMENDATION B.l.b.: "We recommend that the DoD Deputy Chief Management 

Officer and Chief Management Officers of the Army, Navy, and the Air Force develop 

procedures to limit funding to programs that are not demonstrating adequate business process 

reengineering. " 

DCMO RESPONSE: Concur. DCMO is already working with all of the appropriate precertification authorities, including the Military Department CMOs, to use the new Investment 

Review Board process mandated by the FY 2012 NDAA to ensure funding is limited or not 

certified for investment proposals that have not demonstrated adequate BPR. The Department 

will continue to take a tailored and useful approach to the conduct ofBPR and ensure that it does 

not impose urmecessary and wasteful requirements on programs for which they are not 

appropriate due to their place in the acquisition lifecycle. 

WITNESS RESPONSES TO QUESTIONS ASKED DURING 

THE HEARING 

SEPTEMBER 14, 2012 

(75) 

RESPONSES TO QUESTIONS SUBMITTED BY MR. WITTMAN 

Mrs. COMMONS. I have reviewed the timeliness of payments on contracts accounted for in the Navy Enterprise Resource Planning (ERP) system. For Fiscal 

Year 2012 (FY12), payments on these contracts met the prompt payment standards 

set by the Office of the Secretary of Defense. However, this overall on-time performance does not mean that there are not challenges in meeting these standards. For 

example, during FY12 Navy ERP implementations, some Working Capital Fund organizations including Naval Surface Warfare Center Dahlgren experienced abnormally long lead times for issuing contracts and a delay in payments during the 

start-up period. This problem was remedied through additional training, was procedural, and not caused by a shortcoming in the Navy ERP system. I continue to monitor timeliness of contract payments, and I would be pleased to look into any specific 

instances which have come to your attention. 

We continue to move forward, aggressively executing our detailed plan to improve 

the Department of Navy’s, end-to-end contracting business process, making it more 

efficient, better controlled, and in compliance with financial audit standards. Our 

strategy applies both to our legacy business environment, as well as to our target 

Navy ERP system. We continue our efforts to strengthen internal controls over business processes and systems, enforcing more discipline, consistency and adherence to 

established standard procedures. We are also improving the flow of data passing 

end-to-end in an electronic commerce format resulting in reduced errors, processing 

times and costs. [See page 13.] 

Secretary HALE. DoDIG Report on ERP Implementation—The final Department 

of Defense Inspector General (DoD IG) report on Department Enterprise Resource 

Planning (ERP) system implementations (http://www.dodig.mil/audit/reports/fy12/ 

DoDIG-2012-111.pdf) includes the formal responses of the Office of the Under Secretary of Defense (Comptroller) and each Military Department. The response from 

Ms. McGrath, the Deputy Chief Management Officer, was provided to the IG separately and is attached. 

[The information referred to can be found in the Appendix on page 67.] 

In general, we do not agree that the DoD IG has accurately depicted significant 

facts and has mischaracterized ongoing actions to improve business operations and 

ERP system implementations. The Department does acknowledge challenges implementing ERP systems but the report does not acknowledge the significant capability 

delivered by many of the ERP systems nor does it sufficiently discuss the improvements the Department has already made to our ERP acquisition processes and controls. 

While schedule delays and cost growth are almost never acceptable, the Department didn’t buy these ERPs for just the audit readiness capability. These modern 

systems, when properly implemented, provide more operational support capability 

as well as better financial fidelity leading to audit success. In the past, many were 

convinced that the ERPs were a ‘‘silver bullet’’ required to achieve audit readiness. 

Now, we understand this is not the case. 

We can no longer afford the schedule delays and cost growth, but we can only influence the future . . . not the past. We have audit goals (2014 and 2017) to achieve 

and we must apply the lessons of the past to make appropriate adjustments as we 

move forward. This applies to both FIAR planning and implementing ERP Acquisition Program Baselines. 

NDAA Language to Support Audit Readiness—The Department of Defense (DoD) 

is fully committed to meeting the audit deadlines established in law and by the Secretary of Defense. The prioritization on improving information used to manage the 

department, and the clear message from Secretary Panetta that audit readiness is 

an important goal, have the Department making more progress than ever before. 

The Department feels the necessary resources, authorities, and incentives are in 

place to have success in this effort. No further legislation is needed. 

There is one way that Congress can help. In recent years we have encountered 

unprecedented budgetary uncertainty, including no fewer than four threats of government shutdown, which generated time-consuming and unproductive planning efforts. Now the shadow of possible sequestration is falling across our path. Dealing 
76 

with these uncertainties drains valuable time and leadership attention from important initiatives, including our commitment to audit readiness. Congress could help 

a great deal by returning to a more orderly budget process. [See page 24.] 

Æ