The Defense Department’s effort to better manage its finances has the right strategy, governance process, resources and leadership support, the deputy chief financial officer said today.
Mark Easton testified before the House Oversight and Government Reform Committee subcommittee on government organization, efficiency and financial management.
Joining him were Daniel Blair, deputy inspector general for auditing in the DOD Inspector General’s office, and Asif Khan, director of financial management and assurance at the Government Accountability Office.
“We recognize the challenges associated with improving financial management in the department,” Easton told the committee.
“To meet those challenges we have developed promising partnerships across the enterprise,” he added, “ … [and] have implemented a new focused approach that includes near-term goals in addition to the long-term goal of achieving auditable statements by 2017.”
The National Defense Authorization Act for fiscal 2010 requires the financial statements of DOD — one of the world’s largest, most complex organizations — to be validated as ready for audit by Sept. 30, 2017.
“These challenges prevent DOD from collecting and reporting financial information that is accurate, reliable and readily available for decision makers,” Blair said.
“Over the past few years the department has worked diligently to address its financial management challenges; however, more progress is required to be good stewards of the taxpayers’ money,” he added.
For more than a decade, DOD has dominated GAO’s list of programs and operations that are vulnerable to waste, fraud, abuse and mismanagement because of deficiencies in financial management processes.
“In the last 20 years,” Khan said, “as the result of significant financial weaknesses, none of the DOD military services — the Army, Navy or Air Force — have been able to prepare auditable financial statements.”
But, he added, recent DOD initiatives are encouraging.
“Changes to DOD’s plan for Financial Improvement and Audit Readiness, the FIAE plan, if implemented effectively, could result in improved financial management and progress toward auditability,” he said.
DOD issued its FIAR plan in 2005. By 2009, the refined plan required DOD components to improve processes, controls and systems supporting information most often used to manage the department.
At the same time, financial managers were to continue to make improvements that would allow DOD financial statements to receive positive audit opinions.
In November, a FIAR Plan Status Report will offer more detailed information, filling gaps in components’ plans and adding plans for organizations not yet covered by the FIAR plan.
“2017 is a long time from now,” Easton said, “so we recognize that we have to show specific interim progress and that’s what in fact we’re doing.”
One test under way is an audit of the Marine Corps Statement of Budgetary Resources, he added, “which we believe will result in a positive audit opinion. If successful, this will be the first military service ever to achieve an audit of a single financial statement.”
Other examples of progress, Eastman said, include:
- An examination and validation by an independent public accountant of DOD’s funds distribution and control process, which resulted in a favorable, or clean, opinion;
- An in-process audit of the Defense Information Systems Agency’s books for fiscal year 2011 that is expected to result in a clean opinion;
- An audit this year of the Defense Finance and Accounting System’s Civilian Pay Entitlement System received a clean opinion; and
- An in-process audit begun in July of the Air Force Fund Balance and its reconciliation with Treasury Department accounts, which would indicate that DOD can reconcile its checking account statement at least at the transaction level.
Despite such progress, Easton said, “there is an enormous amount of work still to do to achieve and sustain auditable financial statements.”
Success will require sustained attention on the topic by senior leaders, workforce competence with an emphasis on financial audits, and updated information technology systems.
Achieving auditability will also require a fourth element, Easton said, “a consistent level of internal controls [that] may be the key … priority.”
The department is determined to meet the congressionally determined 2017 deadline, he added.
“It’s an ambitious but achievable goal,” Easton said, adding, “We have the strong support and commitment of [Defense] Secretary [Leon E.] Panetta and anticipate an equivalent level of energy and interest throughout the department.”
