DOD’s efforts to improve its financial management and achieve audit readiness have evolved over a number of years into its current FIAR effort. In 1995, we first designated DOD financial management as one of the federal government’s programs at high risk of waste, fraud, abuse, or mismanagement because of long-standing and pervasive weaknesses in DOD’s internal control, and it still carries that designation today. Over the past two decades, DOD has initiated efforts to strengthen its internal control, become auditable, and improve its financial management. However, as we stated in our most recent high-risk report, DOD has emphasized asserting audit readiness by set dates over assuring that processes, systems, and controls are effective, reliable, and sustainable. DOD submitted its biennial strategic plan for the improvement of financial management (Biennial Plan) to Congress on October 26, 1998, as required by section 1008 of the National Defense Authorization Act (NDAA) for Fiscal Year 1998. This Biennial Plan was an important first step toward DOD improving its financial management operations. The Biennial Plan included, for the first time, a discussion of the importance of the programmatic functions of personnel, acquisition, property management, and inventory management to the department’s ability to support consistent, accurate information flows to all information users. Although the Biennial Plan included a number of initiatives that would help improve DOD’s financial management plans, we reported that it lacked critical elements necessary for producing sustainable financial management improvement over the long term. Another initiative that preceded the FIAR effort was DOD’s 2003 Financial Improvement Initiative, which was intended to fundamentally transform DOD’s financial management operations and achieve clean financial statement audit opinions. While DOD’s former Comptroller started the 2003 Financial Improvement Initiative with the goal of obtaining an unqualified audit opinion for fiscal year 2007 on DOD’s department-wide financial statements, the initiative lacked a clearly defined, well- documented, and realistic plan to make the goal a reality. As we previously reported, although most of the DOD components, including the Army, Navy, and Air Force, had submitted improvement plans to the DOD Comptroller, DOD had not yet developed an integrated departmental strategy, key milestones, accountability mechanisms, or departmental cost estimates for achieving its fiscal year 2007 audit opinion goal. In 2005, the DOD Comptroller established the DOD FIAR Directorate to develop, manage, and implement a strategic approach for addressing the department’s financial management weaknesses and achieving auditability and to integrate those efforts with other improvement activities, such as the department’s business system modernization efforts. DOD’s first FIAR Plan was issued in 2005 and is updated semiannually through the FIAR Plan Status Reports, which also summarize the current status of DOD and its components in executing the FIAR Plan. DOD’s FIAR strategy and approach have evolved since the issuance of the first FIAR Plan in 2005. The DOD Comptroller announced in August 2009 that in DOD’s effort to improve its financial management information, priority would be given to improving those processes and controls that produce information on which DOD managers rely most heavily to run the agency. Because budgetary information is widely and regularly used for management, the DOD Comptroller designated as one of DOD’s highest priorities the improvement of its budgetary information and processes underlying the Statement of Budgetary Resources (SBR). The United States Marine Corps was selected as the pilot military service for an audit of the SBR. The Secretary of Defense underscored the department’s SBR priority with an October 2011 memorandum directing the Comptroller to provide a revised plan for achieving audit readiness of the SBR by September 30, 2014, with the aim to provide DOD managers with auditable General Fund information to track spending, identify waste, and improve DOD’s business processes. In response to component difficulties in preparing for an audit of the SBR, the November 2014 FIAR Plan Status Report and the November 2013 revised FIAR Guidance included a revision to narrow the scope of initial audits to only current year budget activity and expenditures on a General Fund Schedule of Budgetary Activity. The NDAA for Fiscal Year 2002 required DOD to minimize the resources spent to develop, compile, report, and audit financial statements that the Secretary of Defense assesses as expected to be unreliable. Additionally, the NDAA for Fiscal Year 2008 designated the Deputy Secretary of Defense as the department’s Chief Management Officer (CMO), created a DCMO position, and designated the under secretary of each military department as the CMO for the respective department. The act also required the Secretary of Defense, acting through the CMO, to develop a strategic management plan that among other things would provide a detailed description of performance goals and measures for improving and evaluating the overall efficiency and effectiveness of DOD’s business operations and actions under way to improve operations. To establish statutory objectives for DOD to achieve financial statements that are validated as ready for audit by a certain date, the NDAA for Fiscal Year 2010 mandated that DOD develop and maintain a FIAR Plan that includes, among other things, the specific actions to be taken and costs associated with (1) correcting the financial management deficiencies that impair the department’s ability to prepare timely, reliable, and complete financial management information and (2) ensuring that DOD’s financial statements are validated as ready for audit by not later than September 30, 2017. In addition, the 2010 NDAA required that DOD (1) provide semiannual reports by no later than May 15 and November 15 on the status of the department’s implementation of the FIAR Plan (which DOD provides as FIAR Plan Status Reports) to congressional defense committees, (2) develop standardized guidance for DOD components’ financial improvement plans (FIP), and (3) define oversight roles and assign accountability for carrying out the FIAR Plan to appropriate officials and organizations. The NDAA for Fiscal Year 2013 amended the legal requirement to additionally require that the FIAR Plan Status Reports should include (1) a description of the actions military departments have taken to achieve an auditable SBR for DOD by September 30, 2014, and (2) a determination by each military department’s CMO on whether the unit is able to achieve an auditable SBR by September 30, 2014, without an unaffordable or unsustainable level of onetime fixes and manual work- arounds and without delaying the auditability of the financial statements. In the event that the CMO of a military department determines that the military department would not be able to achieve an auditable SBR by that date, the CMO is required to explain why the military department cannot meet that date and provide an alternative date for meeting the target date. In the November 2014 FIAR Plan Status Report, DOD acknowledged that it did not meet the September 30, 2014, target date for achieving audit readiness of the SBR, but stated that the three military departments asserted Schedule of Budgetary Activity audit readiness in the last quarter of fiscal year 2014. In January 2015, independent public accountant (IPA) firms began auditing the military departments’ General Fund Schedules of Budgetary Activity for fiscal year 2015. For the first- year Schedule of Budgetary Activity audits, the scope is the schedules containing only current year appropriations and all related activity, such as obligations and outlays, against those appropriated funds approved on or after October 1, 2014. As a result, these first-year Schedule of Budgetary Activity audits exclude unexpended amounts, whether obligated or unobligated, carried over from prior years’ funding as well as information on the status and use of such funding in subsequent years (e.g., obligations incurred and outlays). These amounts will remain unaudited. Over the ensuing years, as the unaudited portion of SBR balances and activity related to this funding decline, the audited portion is expected to increase. The NDAA for Fiscal Year 2014 mandates that upon the conclusion of fiscal year 2018, the Secretary of Defense shall ensure that a full audit is performed on DOD’s fiscal year 2018 financial statements and submit the results of that audit to Congress not later than March 31, 2019. DOD’s FIAR Plan is DOD’s strategic plan and management tool for guiding, monitoring, and reporting on the department’s financial management improvement efforts. As such, the plan communicates incremental progress in addressing the department’s financial management weaknesses and achieving financial statement auditability. The plan focuses on several goals: 1. achieve and sustain unqualified assurance on the effectiveness of internal controls through the implementation of sustained improvements in business processes and controls addressing the material weaknesses in internal control, 2. develop and implement financial management systems that support effective financial management, and 3. achieve and sustain financial statement audit readiness. The department has envisioned achieving financial statement auditability in four waves of concerted improvement activities described in its FIAR Plan. The activities of these four waves are within groups of end-to-end business processes, which are further broken down into discrete units, called assessable units. DOD defines an assessable unit as any part of the financial statements, such as a line item or a class of assets, a class of transactions, or a process or a system, that helps produce the financial statements. The four waves are as follows: Wave 1: Appropriations Received Audit Wave 2: Schedule of Budgetary Activity/SBR Audit Wave 3: Mission Critical Asset Existence and Completeness Audit Wave 4: Full Financial Statements Audit Waves 1 through 3 started concurrently, and an IPA firm validated Wave 1 as audit ready in August 2011.