Headquarters U S Air Force Headquarters U S

Headquarters U. S. Air Force Headquarters U. S. Force Integrity - Service - Excellence Air Force Financial Management & Comptroller Update Steve Herrera SAF/FMP 1

Overview Audit Readiness Budget Update Cost Challenges Integrity - Service - Excellence 2

FIAR Update Integrity - Service - Excellence 3

Congress’ Desire – Fix it FY 02 NDAA 1990 CFOA 1994 1996 GMRA FFMIA Landmark Legislation: FY 05 NDAA FY 10 NDAA FY 13 FY 14 NDAA The Chief Financial Officers Act of 1990: Created CFO position within cabinet level agencies, directed OMB to prepare a 5 -year Federal Financial Management Improvement Plan and established pilots for agency financial statement audits The Government Management Reform Act of 1994: Expanded CFO Act of 1990 by requiring annual auditable financial statements The Federal Financial Management Improvement Act of 1996: Required agencies to implement compliant financial systems Refined Guidance: NDAA FY 02: Directs Do. DIG to stop auditing financial statements until management asserts they are ready for audit NDAA FY 05: Directs 1 st Financial Improvement and Audit Readiness (FIAR) Plan NDAA FY 10: Legislates Do. D’s established audit readiness dates NDAA FY 13: Legislates SBR by SECDEF goal of September 30, 2014 NDAA FY 14: Legislates audit of FY 18 financial statements NLT March 31, 2019 Continued Congressional interest Integrity - Service - Excellence 4

Financial Improvement Audit Readiness (FIAR) Why is FIAR Important? FY 2013 NDAA, P. L. 112 -239 Codifies requirement for Statement of Budgetary Resources to be audit ready by September 2014 Comply with Laws – Law requires financial statement audits Verify Correct Allocation of Funds – Verify that all resources are allocated to approved mission priorities in a legal manner Make Better Use of Resources – Provide better information for timely, informed decision-making and identify funds for other purposes Increase Public Trust – Reassure the public and Congress that the Air Force is a good steward Understanding the value proposition extends beyond auditable financials – accountability, cost control, operational improvement Air Force Identified as Highest Risk Agency Due to Reliance on Legacy Processes & Systems Integrity - Service - Excellence 5

Audit Strategy • Air Force Strategy • Achieve audit readiness for the Statement of Budgetary Resources (SBR) by the end of 2014 • Increase emphasis on accountability for assets • Execute a full review of the Department’s financial controls over the next two years and establish interim goals to assess progress • Appropriately resource efforts to meet these goals • Achieve audit readiness for all financial statements by the end of 2017 • Approach includes investments in: • • • Processes Systems People "To assist in accomplishing the Do. D mission, we need to continue to improve the Department's financial processes, controls and information. The Financial Improvement and Audit Readiness (FIAR) Plan outlines the strategy, priorities and methodology for achieving these objectives. ” - Robert F. Hale, Under Secretary of Defense (Comptroller) Integrity - Service - Excellence 6

Investment in Processes Schedule of Budgetary Activity (SBA) Assertion – June 30, 2014 Existence & Completeness of Mission Critical Assets Assertion – June 30, 2016 Schedule of Budgetary Activity: Discovery complete. Planning for corrective actions Engaged functional owners in implementation of the corrective actions and sustainment activities Significant progress made in correcting IT control deficiencies Existence & Completeness: Munitions (Held by the AF) – Completed walkthroughs and Internal Control Testing. Executing Dual Purpose Testing. Preparing for assertion by July 31 st Real Property – Substantially completed walkthroughs for Real Property Focus efforts on addressing audit readiness “deal breakers” through September 30, 2014: Ensure completeness of financial transactions through reconciliation of feeders systems to the general ledger Ensure journal vouchers are adequately validated and supported. Address root cause in order to eliminate as many JVs as possible Establish audit infrastructure to support the SBA audit Continue with implementation and monitoring of the internal controls, supporting documentation and complimentary user entity control considerations Legacy environment and lack of data standardization requiring manual data calls, cross-walks and reconciliations Reliance on Service Providers to have an audit ready system and process environment Depth of audit readiness expertise Integrity - Service - Excellence 7

Air Force FIAR Timeline Integrity - Service - Excellence 8

Air Force FIAR Timeline Integrity - Service - Excellence 9

What Have We Learned Through Examinations Common deficiencies across business processes have been identified through examinations & self-assessments: Lack of documentation supporting existence and validity of financial transactions, such as: Management review of business events resulting in financial transactions are documented (e. g. , orders and vouchers are signed and dated) Delegated authorities for certifying officials (DD Form 577) Business events impacting payroll – Hiring actions, promotions, separations, entitlements Timely certification of employee timesheets and travel vouchers Journal vouchers not supported Inability to validate all transactions resulting in obligations posted to the accounting systems (e. g. , contract actions are not completely and timely recorded) Weak Segregation of Duties & Weak Access Controls TWO KEY TAKE AWAYS: 1) Comply with Policies & Procedures; 2) Retain Supporting Documentation Integrity - Service - Excellence 10

SBA Priorities Going Forward Aggressively work corrective action plans through Sep 30, 2014 SAF/FM will engage with the process owners to validate and prioritize corrective actions Process owners are responsible for execution of the corrective actions SAF/FM will validate and monitor that corrective actions are implemented correctly Process owners are responsible for sustainment of the corrective actions Prepare for the SBA audit Develop an audit support infrastructure – People, process & technology Define roles & responsibilities Establish communication protocol Train As we prepare for the SBA FY 2015 audit, we continue to learn from executing AND preparing for the audit. Integrity - Service - Excellence 11

Investment in Systems -- Multiple financial feeder systems and current 1960 s core accounting system does not meet federal requirement to use the USSGL at the detailed transaction level. – Defense Enterprise Accounting and Management System Integrity - Service - Excellence 12

Defense Enterprise Accounting and Management System (DEAMS) Timely, accurate and reliable information for decision makers Fully auditable system to meet statutory requirements Oracle -based solution with standardized business rules, processes and language Captures data once and uses it across the enterprise ® As DEAMS is deployed, legacy data remained in legacy systems; new data/transactions are conducted in DEAMS Operational Assessment 2 noted DEAMS is on track towards suitability, effectiveness, mission capability, and making progress towards readiness for IOT&E DEAMS provides us Accurate, Reliable and Auditable Financial Information Integrity - Service - Excellence 13

DEAMS Materiality at Deployment $180 $163, 5 $160 Budget Authority in Billions $140 $121, 2 $120 $100 AFGF Direct Budget Authority $80 $60 $35, 1 $41, 7 $43, 5 $45, 1 $40 $20 $3, 9 $4, 0 May-09 Oct-12 $4, 2 $4. 4 $5. 5 $12, 1 $0 Oct-13 Apr-14 Jun-14 Oct-14 Mc. Connell Dover JB Mc. Chord Mac. Dill Scott ACC Travis (+. 1 K Grand Forks Fairchild DFAS – LI AFGSC (+. 3 K Charleston (+ 2. 9 K (. 8 K Users) Little Rock Users) JB Mc. Guire Users) Pope DFAS-Rome (+. 4 K Users) (+. 8 K Users) AMC deployed bases reflect actuals and others are projected based on FY 12 final distribution Jan-15 Apr-15 AETC AFDW AFRC (+ 2. 5 K Users) ANG GSUs (+ 3 K Users) Oct-15 Jan-16 Apr-16 Oct-16 Complex AFSPC USAFA PACAF, (ACC USAFE DFAS-JA AFMC AETC SDDC DFAS-CO (+ 2 K AFDW DFAS-EU Users) (+ 10. 2 K AFSOC) (+ Users) (+ 2. 4 K 4. 2 K Users) Integrity - Service - Excellence 14

Deployments - FY 15 Oct FY 15 15/Est 2. 9 K No change ACC • Beale • Davis-Monthan • Dyess • Ellsworth • Holloman • Mountain Home • Moody • Seymour-Johnson • Shaw • Tyndall AFGSC • Barksdale • Malmstrom • Minot • FE Warren • Whiteman 2/14/2022 Feb FY 15 Was 20/Est 2. 5 K Now 13/Est 4. 1 K AETC • Altus • Columbus • Goodfellow • Keesler • Laughlin • Luke • Sheppard • Vance Add: • Maxwell • JB Lackland (LSHR) • JB Randolph (LSHR) • JB Langley (LE) • Offutt • Nellis Financing the Fight May to Jun FY 15 Was ANG/Est 3 K Now ANG and 10 AFRC/Est 3. 6 K (~17 trng teams) AFRC • Carswell • Dobbins • Grissom • Homestead • March • Minn - St Paul • Niagara Falls • Pittsburgh • Westover • Youngstown ANG ~ 67 GSU sites 15

Deployment Summary - FY 15 • Feb Deployment • Moves up 3 additional AETC bases – Maxwell, JB Lackland JB Randolph • Moves up 2 additional ACC bases – JB Langley and Offutt • Further incorporates new Training/SME personnel • Jun Deployment: • Moving to Jun will incorporate Release 4 in May which addresses significant workarounds for AFRC/ANG travel • Deploys to AFRC (10 bases) and ANG GSUs (~ 67 units) • Realigns Andrews with Bolling (AFDW) in FY 16 • Realigns Cannon with Hurlburt (AFSOC) in FY 16 • AF will have 5 addt’l MAJCOMs on DEAMS by EOY FY 15 2/14/2022 Integrity - Service - Excellence 16

Investment in People “Working a single system is definitely ideal. We only need to log in to one system; another time efficiency. It is very easy to forget a step in any process when you are using three or four systems to process a single document. ” – Ms. Joy Clifford, 436 th CPTS “I can see how DEAMS, serving both as the document management system and accounting system, gives FM a congruency that it has lacked in prior years. ” – Sr. A Jeffrey Lowder, 319 CPTS DEAMS Audit Readiness Changes the entire way we do our jobs through improved business process re-engineering Training plan is standardized and focuses on user roles and responsibilities Time saving and fully supports audit readiness Airman engagement in monthly testing Investing in building the right skills and knowledge to operate in a complex modern fiscal environment Integrity - Service - Excellence 16

Do. D FM Certification The Air Force is leading OSD in the implementation of the FM Certification program. By improving our functional competency training, and solidifying common training plans and courses, we increase the intentional training on the fundamentals of our business and advance our efforts to obtain auditable financial statements. Areas of Focus: Course Gaps Systems Interface Policy Clarification Tools/Communications Share. Point Site: https: //cs 3. eis. af. mil/sites/26786/DODFMcertification/default. aspx Integrity - Service - Excellence 18

Budget Update 2/14/2022 Integrity - Service - Excellence 19

National Fiscal Environment Federal Budget Surplus/Deficits Federal Outlays 2015 % of GDP % of Federal Outlays Net Interest Revenues and Outlays National deficit and debt are risks to national security Budget Control Act I n tofe g 2011 r i t ymandated - S e r v i c. Do. D e - to E xdo c eits l lpart e n c in e debt reduction 2015 % of GDP Federal Debt 20

Historical Budget Trends (Includes supplemental & OCO funding $800 $700 Iraq/Afghan AF Do. D Buildup/Cold War (FY 86 -98) Do. D: -32% AF: -44% Vietnam $600 Vietnam (FY 68 -76) Do. D: -30% AF: -38% $500 Iraq/Afghan (FY 08 -13) Do. D: -23% AF: -17% Reagan Buildup $400 $300 $200 Integrity - Service - Excellence 2018 2016 2014 2012 2010 2006 2002 1998 1994 1990 1986 1982 1978 1974 1970 1966 $0 1962 $100 21

FY 15 PB: Request Billion $140 $120 $100 $80 $60 $138. 3 $137. 8 Non. Blue $29, 5 Non. Blue $28. 5 MILPERS $29. 2 $29. 1 MILCON $1. 8 MILCON $1. 4 RDT&E $16. 0 Procureme nt $16. 8 OCO Transfer RDT&E $16, 0 Procureme nt $18. 5 $40 FY 15 PB Guiding Principles ■ ■ We must remain ready for the full-spectrum of military operations by providing Airmen with the right training & equip When forced to cut capabilities (tooth), we must also cut the associated support structure and overhead (tail) We sought to maximize the contribution of the Total Force Our approach will focus on the unique capabilities the Air Force provides the joint force, specifically against a fullspectrum, high-end threat Tough Choices…Striking the Balance First: Seek efficiencies and cut overhead Reduce major HQ operating budgets to achieve savings Support military compensation recommendations Re-invest savings into readiness and quality of work/life Take risk in MILCON, FSR&M & installation support Limits on TDYs and contract services continue Second: Balance capability, capacity and readiness $20 O&M $42, 2 O&M $44, 3 FY 14 Enacted FY 15 PB $ Divest fleets (A-10 & U-2) to achieve maximum savings Reduce some tactical fighters, Command Control, electronic attack & intra-theater airlift Favored new capabilities over upgrading legacy equip BL: Keep no more force structure than we can afford to keep ready…requires tough choices to absorb $B’s in reductions “We're going to build the most capable AF against a high-end threat that is affordable in 2023. To do that we'll have to balance capability, capacity, and readiness. ” I n t e g r i. Gen t y Welsh, - S e r v. December i c e - E 2013 xcellence 22

Cost Challenges 2/14/2022 Integrity - Service - Excellence 23

Rising Costs, Shrinking Force AF TOA $200 The Military Personnel Appropriation has been a relatively consistent percentage of overall Air Force Budget Authority but … g ndin u F l Tota $150 $100 $50 MILPERS 360 $90 $ 340 $80 $70 320 $60 300 $50 Integrity - Service - Excellence Thousands 2013 $100 1999 2001 2003 2005 2007 2009 2011 2013 Housing Base Pay Retirement 2011 2009 2007 2005 2003 2001 Major drivers are… End Strength Thousands The cost per Airman has increased while End Strength has decreased 380 Cost Per Airman 1999 $0 TY $B 25% 24% CY 14 $ 24

Aircraft Operations and Support (O&S) Growth • • • Air Force experiencing significant Operations and Support (O&S) cost growth Fuel has largest growth; price varies Weapon system sustainment (WSS) and flying hour (FH) program are largest cost areas; sources of growth complex • Air Force managed repair costs continue to rise • Contractor managed repair insight limited by data • Contractor logistics support and organic costs growing at similar rates on a normalized cost per total aircraft inventory (CPTAI) basis Sustainment growth will slow as budgets decrease, drivers of I n t e g r i tgrowth y - S e r v iwill c e - not Excellence 25

Investment Cost Assessments Trends/Goals 120 $ Billions 100 $4. 7 B $1. 3 B $1. 0 B $8. 1 B 80 60 $99 $11. 9 B Cost Risk $60 $93 $90 $77 61% 40 64% ■ ■ High confidence, realistic estimates Improve cost/schedule performance Better posture top-line pressures Strengthen contract negotiation position/buying power 60% 42% 20 0 33% of RDTE/ Proc PB 11 PB 12 PB 13 PB 14 PB 15 # of pgms 20 47 42 51 * “Cost risk” is the difference between valid cost estimate and the available funding 65 Continue I n t e g r i t yto - Sdrive e r v i cdown e - E x ccost e l l e nrisk! ce 26

Shaping Budgets with Analysis Groundwork for the AF’s FY 15 and FY 16 POM ~50 cost assessments, increased O&S focus Earlier delivery to shape MAJCOM resource plans SAF/FMC continues portfolios I n t e gto r i treduce y - S e r vcost i c e -risk E x cin e lacquisition lence 27

Final Thoughts The Air Force remains steadfastly committed to achieving a clean audit Our audit readiness efforts are designed to achieve lasting financial improvements, not just a one-time clean opinion based on unsustainable efforts Our biggest challenge will be that our current 1960 s accounting system does not comply with the federal requirement to use the standard general ledger structure of accounts at the detailed, transaction level The AF is fully committed to audit readiness and will not treat any single set back or achievement as a defining moment--we are on a marathon to achieving full audit readiness by 2017 and we will not relent Tough Fiscal Climate…The challenge is to balance capability, readiness and capacity to support the fight tonight and a high-end fight in 2023 Reinvest in Airmen readiness: train, equip…core people programs Begin the gradual road to recovering full-spectrum readiness Shield highest-priority capabilities Forced to make difficult capacity trade-offs Integrity - Service - Excellence 28

Back Up Integrity - Service - Excellence 29

FIAR - a Matter of Trust, Not Money $18 000 $16 000 $14 000 $10 000 $8 000 $6 000 $4 000 $2 000 Mil Spending Other Govt 2013 2011 2009 2007 2005 2003 2001 1999 1997 1995 1993 1991 1989 1987 1985 1983 1981 1979 $0 1977 $Billion $12 000 GDP Integrity - Service - Excellence 30

DEAMS Today As of April 2014 § DEAMS Software Complies with FFMIA 1996, is widely-used across the federal government and enables end-to-end auditability § ~ 1, 400 users at 8 AMC bases, 2 ANG units, tenant organizations, and DFAS-LI § Operational Assessment 2 Findings Positive § Dual Processing using legacy and DEAMS § Old transactions in legacy; new transactions in DEAMS § Mix of training options to maximize learning opportunities § Classroom, OJT, WBT, webinar § Conducting pre-deployment activities for 1 Jun “go-live” Integrity - Service - Excellence

Mission & Vision Mission “Serve with integrity as the commander's trusted financial advisor by providing high-quality support to decision makers on budgetary, financial, cost and economic issues while continuously improving the quality, efficiency and customer-focus of Air Force financial services and operations. ” Vision “Maximize the combat effectiveness achieved with each dollar of taxpayer resources through continuous improvement in resource allocation, analysis, financial services, and execution. ” Integrity - Service - Excellence 32

Our Goals § Properly resource the nuclear enterprise § Support combatant commanders through effective budget formulation, execution & analysis § Provide responsive financial operations to support commanders, Airmen and their families § Drive transparency and reduce costs through standardization and continuous process improvement § Support cost estimation, program control and other acquisition processes § Provide AF leadership effective decision support Integrity - Service - Excellence

SAF/FM Role SAF/FM is the financial advisor to Sec. AF/CSAF– not just the banker How can we efficiently and effectively accomplish our goals? SAF/FM is a Designated ASAF Direct/manage financial management activities and operations Supervise/direct the preparation of Service Cost Positions and Non-Advocate Cost Assessments Approve/supervise any project to design or enhance a financial management system Approve the establishment and supervise the operation of any asset management system Integrity - Service - Excellence 34

Our Customers § § § § § Top 4 Air Force 2 -letters AF Corporate Structure (AFCS) Office of the Secretary of Defense (FM, CAPE, AT&L) Congress Service FM Executives AF & Joint Requirements Oversight Councils MAJCOMs & Installations Do. D/Industry FM Community Integrity - Service - Excellence

SAF/FM – Who we are… SAF/FMB SAF/FMC-AFCAA Co-chairs AF Board w/ AF/A 8 P on programmatic, Provide cost, economic, financial and business case basing and budget issues to provide recommendations for AF Council approval Provide guidance and direction to the Secretariat, Air Staff, and Major Commands for the development of funding requirements AF lead on budget issues with OSD/OMB/Congress analysis support to the Secretariat and Air Staff. Directing special studies for SECAF, CSAF and Air Force senior leaders in response to internal, OSD, OMB and Congressional inquiries. Review and comment on technical propriety and sufficiency of cost, economic, financial or business case analysis for the SECAF, the Under Secretary of the Air Force (USec. AF), CSAF or the Vice Chief of Staff of the Air Force (VCSAF), OSD, OMB or Congress. Prepare or delegate Non-Advocate Cost Assessments (NACA) of all AF pre-MDAP, MDAP and MAIS to support the Planning, Programming, Budgeting and Execution (PPBE) process, source selections, analyses of alternatives, program cost and schedule breaches. Responsible for budget and funds control of procurement, RDT&E, MILCON, MFH, and BRAC Provide full service accounting support to classified programs and designated national customers Responsible for O&M and MILPERS budgets Maintain liaison with appropriations committee members, professional staff, and personal staff Integrate, formulate and present supplemental budget submission, unfunded lists, Program Budget Review, Overseas Contingency Operations budget and President’s Budget; interface into AF Corporate process for submission to OSD Manages the Air Force’s Force and Financial Plan (F&FP) data base and submitting finalized Air Force positions to the OSD automated systems. Developing and administering cost, economic and business case analysis policy, guidance, standards and templates, training, education and professional certification programs and analyst qualification criteria. Integrity - Service - Excellence 36

SAF/FM – Who we are… SAF/FME SAF/FMP Is responsible for all matters pertaining to operations Serves as the designated Air Force internal control and administrative support functions for the Office of the Assistant Secretary of the Air Force for Financial Management and Comptroller and it’s staff. administrator. Managing the SAF/FM operating budget and providing Resource Advisor support to SAF/FM. Manages the FM Awards Program Responsible FM Manpower & Human Resource Mgt manpower Allocation, serves a the HR liaison Financial Improvement Plan/Financial Improvement Audit Readiness (FIP/FIAR FM Officer development management and FM War Planning oversight/Unit training management Responsible for the implementation of AF FM Certification and FM Certification Learning Management System (LMS) Responsible for Course Development & FMDLC Mgt, DT Support, SAF/FM Primer, SAF/FM Comptroller Magazine & Newsletter and FM Social Media Campaigns. Manages the NCR Palace Acquire (PAQ) Program. Directs and manages the Air Force Management Internal Control Program (MICP) to ensure compliance with the Federal Manager’s Financial Integrity Act (FMFIA), OMB Circular A-123, Management’s Responsibility for Internal Control, Comptroller General standards, and Do. D guidance. Is the Air Force cash management official and designated Audit follow-up official. Is the Air Force’s Anti-deficiency Act (ADA) program manager for identifying, investigating, reporting, and processing ADA violations. Is the SAF/FM CIO responsible for FM Information Assurance, Portfolio Management, Financial Improvement Plan and Business Enterprise Architecture (BEA) assertion, including the development, implementation and standardization of data. Oversight/mgmt of AF accounting & finance activities/Liaison between AF and DFAS Integrity - Service - Excellence 37

SAF/FM - Where we are… 605 positions across US; 535 positions encumbered FMP Ellsworth AFB, SD (122) FMP & FMC Dayton, OH (58) FMC Hanscom, MA (7) Pentagon, DC & Andrews AFB (302) FMC Los Angeles, CA (7) FMP Denver, CO (76) FMC Eglin, FL (8) FMP Gunter Annex, AL (20) FMP San Antonio, TX (5) Integrity - Service - Excellence 38