ASMC Discussion May 2016 Joe Marshall Principal Deputy

ASMC Discussion May 2016 Joe Marshall Principal Deputy Assistant Secretary of the Navy (Financial Management & Comptroller) 1

Road to Auditability All DON Financial Statements Balance Sheet, Beginning Balances Schedule of Budgetary Activity (SBA) Audit Ready by 1 OCT 2017 Audit Ready by 1 OCT 2016 § Navy has defined the critical path to comply with NDAA & report the results of full audits by 2019 § Completed FY 15 SBA Audit Feb 2016 Audit Ready by 1 OCT 2014 § FY 16 SBA Audit underway--preparing for FY 17 Balance Sheet Audit

DON Audit Results To Date § § NOV ‘ 14 - Produced automated Transaction Universe DEC ‘ 14 - Public Accounting Firm Begins FY 15 SBA Audit SEP ‘ 15 - Commands produced documentation - 4953 samples FEB ‘ 16 - Received disclaimer of opinion on the audited SBA • Opinion not possible: control environment weaknesses Material weaknesses in disclaimer: 1. Ineffective Business IT Systems Controls – 181 system-related deficiencies on 30 business systems; security & access controls uniformly non-compliant 2. Ineffective Business Process Controls – multiple process control failures; documentation shortcomings. 3. Ineffective Controls over Financial Reporting – data does not reliably flow through compilation process, resulting in unexplained adjustments. Will the functional / technical “split” ownership of IT withstand audit? 3

DON Audit Results To Date Tactical: – Major commands met audit response timelines…across-the-board. Operational: – Commands are invested and committed. Flag /SES champion appointed to correct each deficiency. Strategic: – Senior leaders are recognizing what audit will require and moving to the challenge. But: audit needs more direct, plain-language discussion & explanation. 4

Audit the Pentagon 2015 Consequences if DOD fails to obtain an audit with an unqualified opinion: • Transfers DFAS from DOD to Treasury. • Provides higher reprogramming thresholds for Services that are auditable as a "carrot. " • Sticks: – Severe restrictions on reprogramming – No obligating funds for major defense acquisition programs beyond Milestone B – Cancellation of any ERP business computer system if procurement takes longer than three years from initial obligation of funds to full deployment and sustainment. Congress watching…HASC hearing on Audit 8 Jun 2016 5

Reimbursable Work Order Process “AS IS” PROCESS AGREEMENT • DD 1144 or MOA for Do. DOther Federal or Intra-Do. D • RWO for internal DON REIMBURSABLE WORK ORDER • SOW • Period of Performance • Appropriate Line of Accounting RECEIPT & ACCEPTANCE • No formal process to document receipt and acceptance INVOICE / DISBURSEMENT • Automated process with no validation CLOSE-OUT / RECON • Agreement regarding amount to be returned REIMBURSABLE WORK ORDER • Order(s) consistent with GT&C (work & amount) • SOW • Period of Performance • Appropriate Line of Accounting RECEIPT & ACCEPTANCE • Quarterly review (receipt & acceptance, reconciliation w/ disbursements) for all orders until complete. INVOICE / DISBURSEMENT • Automated process • Reconciliation with disbursements part of receipt & acceptance CLOSE-OUT / RECON • Final receipt & acceptance acknowledging work as complete • Agreement regarding amount to be returned “TO BE” PROCESS AGREEMENT • General Terms & Conditions (GT&C) • Single format for all levels of trade • Prerequisite to all orders ~FY 18 G-Invoicing: links GT&C, order(s), receipt & acceptance, & recon Red Font = Change/Deletion to “as is” process Green Font = Change/Deletion to “to be process w/disbursements.

Do. D FM Certification • Goal: implement standardized financial management competencies that describe the knowledge, skills & abilities needed to perform & achieve desired results. • FM Cert requirements are competency based; prior FM training courses are mapped to the cert competency requirements. • Course shortfalls exist in the FM Systems and Leadership areas • DON has provided “off the shelf” classroom leadership training courses, but lacks a long term solution. • DON has narrowed the FM Systems gap by mapping new SABRS training. • Many online training courses meet FM Cert requirements but lack Do. D classroom / virtual training. Shifting from startup into sustainment.

Questions Joe Marshall Principal Deputy Assistant Secretary of the Navy (Financial Management & Comptroller) 8