department of defense agency financial report fiscal year 2012

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Department of Defense Agency Financial Report for FY 2012 1-1C. Achieving Financial Statement Audit Readiness A-4 Department Response The Department generally agrees with the IG’s assessment of DoD’s progress in achieving audit readiness. Over the last year, significant progress has been made by Military Departments, Defense Agencies, and other Defense organizations in support of audit readiness. At the beginning of FY 2012, Secretary Panetta directed the Department to accelerate several of the FIAR Plan goals with greater emphasis on the overall effort. Specifically, the Secretary directed the Department to: • Achieve audit readiness of the SBR by the end of FY 2014. • Increase emphasis on accountability of assets. • Execute a full review of the Department’s financial controls over the next two years and establish interim goals against which to assess progress. • Ensure mandatory training for audit and other key financial efforts and establish, by the end of calendar year 2012, a pilot certification program for financial managers – similar to the one now in place for acquisition managers. • Appropriately resource efforts to meet these goals. • Meet the legal requirements to achieve full audit readiness for all DoD financial statements by 2017. Achieving the 2014 SBR audit readiness goal will be challenging, but with the Secretary’s involvement, the Department’s ability to achieve this goal has increased significantly. The Secretary’s commitment to and personal involvement in auditability has elevated audit readiness to an “all hands,” DoD-wide effort. The impact can be seen in a variety of ways: • Warfighters, from flag officers to enlisted personnel, are more aware, engaged, and committed to audit readiness. • Appropriate senior executives across the Department, including those outside the financial community, have FIAR goals in their performance plans and are being held accountable. • Military Departments, Defense Agencies, and other Defense organizations have refined, modified or developed Financial Improvement Plans (FIPs) that include interim milestones to accomplish SBR audit readiness consistent with the Secretary’s direction for 2014. Progress is monitored and routinely reported in the FIAR governance process. • Component FIPs better conform to DoD FIAR Guidance and provide more detail regarding discovery and corrective actions. The FIPs are reviewed monthly by the Office of the Under Secretary of Defense (Comptroller), and the quality is routinely reported in the FIAR governance process. • Acquisition Decision Memorandums, issued by business information technology (IT) milestone decision authorities, now consistently contain FIAR goals and requirements. • Component commands and subordinate organizations are more actively involved. • Adequate funds for audit readiness activities have been maintained. • Participation in FIAR training courses has significantly increased. Addendum A
Department of Defense Agency Financial Report for FY 2012 Even with the Secretary’s commitment and involvement, the significant challenges to eliminating material weaknesses, strengthening internal controls, modernizing business and financial systems, and producing auditable financial statements remain. However, the Department is now better positioned to make meaningful progress, sustain improvements, maintain a strong control environment, and achieve auditability. In fact, progress has been made since the last AFR, as demonstrated by the following successful audits. • Defense Information Systems Agency (DISA) received an unqualified opinion on its FY 2011 Working Capital Fund financial statements. • TRICARE Management Activity – Contract Resource management received an unqualified audit opinion on its FY 2011 financial statements. • Medicare-Eligible Retiree Health Care Fund received a qualified audit opinion on its FY 2011 financial statements. • Navy received an unqualified audit opinion on its audit readiness assertion for existence and completeness of its ships and submarines, Trident missiles, and satellites. • Navy received an unqualified audit opinion on its audit readiness assertion for the E-2D Advanced Hawkeye aircraft acquisition program. • Air Force received an unqualified audit opinion on its audit readiness assertion for existence and completeness of aircraft, cruise missiles, and aerial targets/drones. Information on the DoD FIAR Plan can be found in the semi-annual FIAR Plan Status Report. 1-2A. Modernizing Financial Systems (Enterprise Resource Planning) A-5 IG Summary of Challenge In an attempt to standardize and develop an effective financial management process throughout the Department, DoD embarked on various efforts to implement new financial management systems and associated business processes. We believe that properly planned and integrated systems, with strong internal controls, are critical to provide useful, timely, and complete financial management data and to achieve auditability. However, timely and effective implementation of the Enterprise Resource Planning (ERP) systems is also critical for the Department to achieve its financial improvement and audit readiness goals. We believe the Department’s progress in implementing ERPs, especially in FY 2013, is a critical challenge, and any implementation delays or systems that do not meet the intended objectives could jeopardize the Department’s ability to meet its auditability goals. 1-2B. Modernizing Financial Systems (Enterprise Resource Planning) IG Summary of Progress The Department plans to spend more than $15 billion to further develop and implement ERP systems. These ERP systems have experienced cost increases and schedule delays ranging up to 13 years. Because of these schedule delays, the Department will continue using outdated legacy systems and diminish the estimated savings associated with transforming business operations through business system modernization. Schedule delays and poorly developed and implemented ERP systems also increase the risks that the SBR will not be auditable by September 30, 2014, and the goal of full financial statement audit readiness by September 30, 2017. Addendum A
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department of defense agency financial report fiscal year 2012

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