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Mr. Mark E. EastonDeputy Chief Financial OfficerOUSD(C)/DCFO
FY 14-15: Agency Priority Goal
DoD Financial Statement Audit Readiness
Priority Goal
Goal Overview
The National Defense Authorization Act of 2010 mandates that the Department of Defense (DoD) have audit ready financial statements by 2017. Audit ready means the Department has strengthened its internal controls and improved its financial practices, processes, and systems so there is reasonable confidence the information can withstand an audit by an independent auditor.
DoD’s four principle financial statements include:
Statement of Budgetary Resources - Provides information about how budgetary resources were made available as well as their status at the end of the period. It is the only financial statement exclusively derived from the Department’s budgetary general ledger.
Balance Sheet - Reflects the Department’s financial position as of the statement date. The assets are the amount of future economic benefits owned or managed by the Department. The liabilities are amounts owed by the Department. The net position is the difference between the assets and liabilities.
Statement of Net Cost - Separately reports the components of the net cost of the Department’s operations for the period. Net cost is equal to the gross cost incurred by the Department less any exchange revenue earned from its activities, further adjusted for net gains and losses.
Statement of Changes in Net Position - Presents the total cumulative results of operations since inception and unexpended appropriations at the end of the fiscal year. The statement focuses on how the net cost of operations is financed. The resulting financial position represents the difference between assets and liabilities as shown on the consolidated balance sheet. This statement is supported by achieving an audit ready Balance Sheet and Statement of Net Cost.
APG challenges include:
- Valuation of Assets: Valuation of General Property, Plant, and Equipment and of Inventory and Related Property is critical. Many of the Department’s assets were acquired decades ago and before there was a requirement to produce financial statements. As a result, the acquisition (cost) documents required for supporting valuation and audit are often no longer available. For these assets, the Department must use alternative valuation methods.
- Fund Balance with Treasury: Due to the size of the Department’s budget and the enormous amount of funds expended and collected, the number of accounting transactions that must be reconciled between the Department’s accounts and Treasury is very large and the task complex.
- Statement of Budgetary Resources:
- Universe of Transactions- Providing complete universes of transactions is especially challenging for the Components because of the numerous accounting systems used to initiate and record transactions as well as hundreds of feeder systems where most transactions originate.
- Beginning Balances-Components must verify that open obligations for all active and expired appropriations are supported before beginning Statement of Budgetary Resources (SBR) audits, and many hundreds of open and expired appropriations must be reviewed.
Strategies
The Department has completed audit readiness efforts for the Appropriations Received line item on the SBR. This effort is currently in sustainment.
The Department will design and implement corrective actions for identified Budgetary deficiencies throughout FY 2015 and FY 2016.
Mission Critical Asset audit readiness will be completed in two phases. The first phase focused on the Existence, Completeness and Rights and Obligations financial statement assertions. Phase 2 focuses on Valuation and Presentation and Disclosure. The Department plans to complete Mission Critical Asset audit readiness activities by Q4 FY 2017.
The Department plans to complete audit readiness efforts for the remaining Proprietary accounts by FY 2016.
The OUSD(C) FIAR Directorate is revising the FY 2016-2017 APG measurements/goals to provide a more direct focus on progress measures for specific critical path/risk areas aligned to ensuring the Departments’ financial statements are audit ready by 2017.
Progress Update
DOD 2015 Financial Audit Readiness - Goal Attainment Statement
The Department of Defense will continue to assess and make appropriate adjustments as we work to achieve the “DOD Financial Audit Readiness” agency priority goal.
To provide a more direct focus on progress indicators for specific critical path/risk areas aligned to ensuring the Departments’ financial statements are audit ready by 2017, DOD will revise the current performance indicators and add additional indicators to the 2016-2017 “DOD Financial Audit Readiness” agency priority goal.
DOD is committed to complete and accurate reporting of the financial improvement efforts; the following reports provide insight into the progress the Department in making to towards Financial Audit Readiness.
Financial Improvement and Audit Readiness (FIAR) Bi-annual status reports can be found at:
http://comptroller.defense.gov/fiar/plan.aspx
DOD Annual Financial Reports can be found at:
http://comptroller.defense.gov/FinancialManagement/reports/afr2015.aspx
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The Department’s FY 2015 progress updates include:
Existence and Completeness of Mission Critical Assets
- The Department has collaborated with Independent Public Accountants and the Federal Accounting Standards Advisory Board to issue policies governing Existence, Completeness, and Rights. (Fourth quarter, FY2015)
- The Department exceeded the Q3 2015 target goal based on achievements in Q2 2015. The Department also drafted guidance to address completeness of Internal Use Software and Environmental Liabilities. (Third quarter, FY2015)
- The Department exceeded the Q1 2015 target goal as one Military Service asserted audit readiness for existence and completeness for Real Property and one Defense Agency asserted audit readiness for existence and completeness for Internal Use Software and Equipment. (Second quarter, FY2015)
- Two military services and one Defense agency asserted audit readiness for existence and completeness of portions of their Inventory and Operating Materials.(First quarter, FY2015)
Valuation of Mission Critical Assets
- The Department has collaborated with Independent Public Accountants and the Federal Accounting Standards Advisory Board and has issued policies governing valuation baselines for inventory/operating material and supplies, real property assets, and internal use software.
Several reporting entities are working to develop valuation methodologies for new for acquisitions. (Fourth quarter, FY2015) - The Department drafted multiple policies to address complex valuation issues for Real Property, General Equipment, Inventory, Internal Use Software, and Environmental Liabilities. (Third quarter, FY2015)
- The Department continued to define requirements and started developing implementation guides to address deficiencies. (Second quarter, FY2015)
- Defined requirements and started developing implementation guides to address deficiencies. (First quarter, FY2015)
- Developed guidance to merge Mission Critical Asset existence and completeness with valuation audit readiness tasks. (First quarter, FY2015)
Funds Balance with Treasury
- The Department continues to analyze FBWT differences and processes to identify root causes for corrective action. (Fourth quarter, FY2015)
- In Q3 2015, the Department received feedback from the DoD IG for two military services’ Fund Balance with Treasury. (Third quarter, FY2015)
- Implemented the automated Fund Balance with Treasury reconciliation tool(s) for the 3 of 4 of the military services, to include procedures to reconcile the unmatched transactions. (First - Second quarter, FY2015)
- All three military departments are currently under SBA exam. (First - Second quarters, FY2015)
Statement of Budgetary Resources (SBR)
- Continued audits for the Military Services’ current year, general fund budgetary activities. (Fourth quarter, FY2015)
- Continued examinations for Military Services’ current year, general fund budgetary activities. (Third and Fourth quarters, FY2015)
- Continued to implement corrective actions impacting the Defense Agencies budgetary activities. (Third and Fourth quarters, FY2015)
- Initiated process for scheduled FY2015 Defense Agency examinations. (Third quarter, FY2015)
- Defined requirements for audit readiness activities for beginning balances. (First - Second quarters, FY2015)
- Commenced examinations for the Military Services’ current year, general fund budgetary activities. (First - Second quarters, FY2015)
- Continue to implement corrective actions impacting the Defense Agencies budgetary activities. (First - Second quarters, FY2015)
- Initiated contracting process for scheduled FY2015 Defense Agency examinations.(Second quarter, FY2015)
Next Steps
No Data Available
Expand All
Performance Indicators
Existence and Completeness of Mission Critical Assets
Funds Balance with Treasury
Statement of Budgetary Resources (SBR)
Valuation of Mission Critical Assets
Contributing Programs & Other Factors
Contributing partners include:
- Office of the Under Secretary of Defense (Comptroller)
- Military Departments
- Defense Agencies
Contributing partner outside the agency:
- U.S. Department of Treasury
No Data Available
