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# From audit readiness to remediation: DLA continues path toward unmodified opinions

By DLA Finance

The Defense Logistics Agency’s audit readiness efforts began around 2012 when senior leaders first challenged employees to adopt new procedures and controls to produce accurate financial data and reports. DLA was the first Defense Department agency of its size and complexity to assert audit readiness in September 2015, two years ahead of the Congressionally mandated deadline.

In 2017, however, an independent audit firm issued a disclaimer of opinion on agency financial reports, indicating they could not give an opinion due to an inability to obtain sufficient, appropriate evidence that the financial statements were fairly stated and in accordance with generally accepted accounting principles.

The creation of a redesigned Audit Program Management Office led by Shawn Lennon, DLA’s director of financial improvement and audit remediation, recently transferred overarching oversight of DLA’s audit activities and progress back to DLA Finance from previous groups such as the former Audit Task Force. The office is working to achieve audit roadmap goals of an unmodified audit opinion of its Transaction Fund in fiscal 2024, General Fund in fiscal 2025 and Working Capital Fund in fiscal 2028.

Auditors from the independent public accounting firm Ernst & Young, contracted by the DOD Office of the Inspector General to audit DLA’s financial statements, typically issue thousands of requests throughout the fiscal year during the audit. In the fiscal 2022 audit cycle, the agency met timeliness goals by responding to such requests over 98% on time across the three funds.

The Transaction Fund includes the National Defense Stockpile, a repository of strategic and critical materials DLA manages for use in a national emergency. The agency recently established a beginning balance value of stockpile material and completed a 100% book-to-floor count.

The ongoing rollout of the Warehouse Management System at DLA Distribution and DLA Disposition Services sites, and the integration of automated internal controls, is an essential component of DLA’s journey to becoming auditable. WMS supports improved financial reporting by improving and streamlining some business processes and increasing reporting capabilities and communication between DLA and its customers. The standard capability of segregating and counting inventory by owner and the future capability for inventory adjustment reviews and approvals are a couple examples of how the new warehousing system will improve the agency’s internal control environment and financial data.

Other recent successes include more timely submission of monthly and quarterly financial data to the Office of the Under Secretary of Defense as well as better accuracy of that data.

“If we sold 100 parachutes and issued them to the Army in September but that transaction posts to the financial system in October, then our year-end financial statement isn’t accurate because it didn’t capture the business event in the right period,” Lennon said, adding that the accuracy of DLA’s sales data is crucial because it’s a key input to annual budget requests.

Data can now be submitted within 10 business days of the end of the quarter. DLA’s annual Agency Financial Report improved in terms of content, disclosures, design and presentation.

Lennon said most audit findings require synchronization among various DLA directorates and external organizations for remediation. Collaboration and communication are therefore essential to identifying root causes, creating alternate solutions, making decisions, and implementing corrective actions to solve the problem and sustain the process.

“DLA will continuously be under audit,” Lennon continued. “Even though audits of our financial statements occur annually, the agency must address issues found in previous audits while also working with the auditor on the current audits throughout each year.”

DLA Vice Director Brad Bunn said implementing and sustaining strong controls and ensuring data is accurate is not just for the sake of audit.

“It is commanders’ business and key to stewardship of the resources entrusted to us, as well as maintaining our financial credibility with our customers, Congress and taxpayers. It provides us with a reliable picture of our assets, our liabilities and our funds, all of which enable us to execute our mission in support of the warfighters,” he said.

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auditAudit ReadinessFinancial Stewardshipfinancial readiness