Managing DFAS Operations Like a Business Rick Davis

Managing DFAS Operations Like a Business Rick Davis Deputy Director for Compliance, Standards & Compliance May 20, 2009 Integrity - Innovation - Service

DFAS – What We Do (2008) Sales & Service - $1. 5 B • • Military Pay Civilian Pay Retiree Pay Travel Pay Commercial Pay Accounting Services Support to Others $ 247. 5 M $ 73. 3 M $ 57. 6 M $ 50. 3 M $ 162. 2 M $ 466. 1 M $ 124. 7 M $ 320. 2 M People • 12, 572 employees * (Civilian and Military) • Located in: • 13 sites • 9 states • 3 countries Scope of Business • Processed 169 million pay transactions (6. 5 million people) • Made 7. 5 million travel payments • Paid 14. 4 million commercial invoices • Maintained 55. 7 million general ledger accounts • Managed military retirement and health benefits funds ($394 billion) • Made $591 billion in disbursements to pay recipients • Made $26. 5 billion in foreign military sales (reimbursed by foreign governments) • Account for 927 active Do. D appropriations Integrity - Innovation - Service 2

DFAS Operations Org Chart Deputy Director Operations (Steve Turner) Standards & Compliance (Dave Mc. Dermott) Cleveland Center (Martha Smith) Columbus Center (Jonathan Witter) Japan (LTC Barry Eddins) Denver Center (Roxanne Nowling) Limestone (Wayne Ingle) Integrity - Innovation - Service Indianapolis Center (Edna Knight) Texarkana (Mitch Covington) Rome (Aaron Gillison) Europe (Larry Lovelette) 3

DFAS Standards and Compliance Org Chart Standards and Compliance (Dave Mc. Dermott) Program Manager, Accounting HPO Deputy Director for Standards (Greg Schmalfeldt) Deputy Director for Compliance (Rick Davis) Post Pay Review & Analysis Accounting Mission Area Network Compliance Finance Mission Area Financial Improvement & Audit Readiness Corporate Reporting Metrics & Initiatives Business Management Integrity - Innovation - Service 4

Strategy Execution Integrity - Innovation - Service 5

DFAS STRATEGIC PLAN (2008 -2013) MISSION Direct, approve and perform finance and accounting activities for Do. D VISION Transforming with the Warfighter to remain the trusted financial partner for Do. D GOALS OBJECTIVES Customer Perspective Support Do. D in prevailing in • Support Customers in the Overseas Contingency Operations Lead transformation of finance and accounting functions throughout Do. D • Establish business requirements for Do. D transformation initiatives related to finance and accounting activities • Execute and/or support deployment of Do. D transformation initiatives Financial Perspective • Use DFAS resources efficiently and effectively to achieve expected results Perform the DFAS mission at best value for Do. D • Achieve expected financial results from transformation initiatives Internal Perspective • Optimize processes to meet or exceed industry and government standards Attain operational excellence • Increase productivity and deliver products and services on time in finance and accounting services • Identify and mitigate risks to improve processes and internal controls Learning & Growth Perspective Attract, develop, and retain a highly capable workforce with • Raise the level of relevant skills and competencies to meet anticipated needs • Attract and retain employees with needed skills and competencies relevant skills and competencies Integrity - Innovation - Service 6

HOW DO WE EXECUTE STRATEGY? Strategy and BSC Process ensures clear linkage between: P Each Goal and its Objectives P Each Objective and its Measures P Each Measure and the Initiatives that will close the gap to the Targets STRATEGY FINANCIAL PERSPECTIVE Goal Objectives ACTION Measures Targets Initiatives Each Objective has at least one measure Perform the DFAS Mission at Best Value for Do. D Achieve Expected Financial Results from Transformation Initiatives Initiative Impact on Productivity: Work Counts / Productive Hr Charged to Travel Initiative Impact on Savings: % Actual Execution of Budgeted Accounting Operations Work Years Each Target has an associated initiative 2009 2010 2011 ≤ FY 08 Rate ≤ FY 09 Rate ≤ FY 10 Rate <100% <FY 09 Rate <FY 10 Rate Integrity - Innovation - Service Defense Travel System Implementation Accounting HPO Implementation 7

Operationalizing the DFAS Strategy Strategic Objectives Corporate Initiatives Support Do. D in prevailing in the Overseas Contingency Operations Costs Pay service members, civilians and vendors supporting Overseas Contingency Operations Provide finance and accounting expeditionary support in theater FY 09 Tactical Activities Manage Wounded Warrior pay accounts Supply accounting data related to Overseas Contingency Operations Costs Integrity - Innovation - Service Quarter 1 G G 8

Operationalizing the DFAS Strategy Strategic Objectives Lead transformation of finance and accounting functions throughout Do. D Corporate Initiatives Enterprise Resource Planning FY 09 Tactical Activities Quarter 1 Support implementation of : General Fund Enterprise Business System (GFEBS) –Army High Performance Organization (HPO) Global Combat Support System (GCSS) – Army Business Activity Monitoring (BAM) Logistics Modernization Program (LMP) – Army G G G Defense Agencies Initiative (DAI) – 26 Defense Agencies Defense Integrated Military Human Resources System – Army, Air Force Y Apply BAM to Vendor Pay Systems (MOCAS, CAPS, One. Pay) Y Implement HPO initiatives across Accounts Payable; Accounts Receivable; and Accounts Maintenance and Control Integrity - Innovation - Service G G 9

Operationalizing the DFAS Strategy Strategic Objectives Perform the DFAS mission at best value for DOD Corporate Initiatives FY 09 Tactical Activities Quarter 1 BRAC Link work years/counts with budget, performance, and manpower Meaningful productivity measurements Monitor and achieve Lean 6 savings Lean 6 Conduct business case analysis of Foreign Military Sales Most Efficient Organization G Implement Deputy Director of Operations’ Metric and Performance Indicator Tools Y Y G Complete transition of Air Force Military Pay workload Manage budgetary and manpower resources to achieve missions on time and within approved resource restraints Integrity - Innovation - Service Y G 10

Performance Management Integrity - Innovation - Service 11

Key Accomplishments Travel Pay Debt & Claims Decrease in TAT Inventory Reduction Integrity - Innovation - Service Civilian Pay Military Pay New Accounts On Board Performance Sustained 12

Key Challenges Travel Pay Civilian Pay Approaching Summer Surge Unacceptable ASA Summer Surge Improvement Plan • • • Flexible Workforce Outside Assistance Improved Workflow Integrity - Innovation - Service 13

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TI Agency Level Accounting Integrity - Innovation - Service 17

Field Level Accounting Integrity - Innovation - Service 18

Process Improvements and Controls Integrity - Innovation - Service 19

FY 2009 ERMP Objectives Execute Enterprise Risk Management Program (ERMP) for critical customer programs Validate and document key processes/controls/risks Test risks and controls by core area (travel pay, civ pay, etc. ) Standardize key processes/controls/risks Develop Internal Control Questionnaires (ICQ) by core area Evaluate internal controls across mission using the ICQ Establish Foundation for Integrating FMFIA and Appendix A programs with ERMP Integrity - Innovation - Service 20

ERMP Fortifies Internal Controls Up/Down and Across the Agency Senior Level Manager • create Sub-CA IC questionnaires (ICQ) • ensure standard IC aligned to business objectives for CA • assign Sub-CA Leads • review self evaluations • identify & review risks FMFIA Coordinator • request self evaluation using the IC questionnaire • report to senior manager • report to FMFIA • recognize trends and report Mission Centric Core Area Manager Organizational Centric Risks are managed enterprise wide with an enhanced Mission Focus • review IC matrix evaluation results • appoint AU managers at an agency specified level • identify & review risks Sub-Core Area Lead • create Sub-CA IC questionnaires • review self evaluations • identify & review risks AU/Process Manager • provide input to the ICQ • utilize the standard ICQ • perform self evaluation • identify & review risks • Corrective Action Plan FMFIA Office • consolidate ICQs • submit SOA Statement of Assurance Technician/Analyst • identify risks • provide input to the ICQ Integrity - Innovation - Service 21

Planned CA Schedule w/Prioritization Criteria Most Critical Sub-Core Areas • Military Pay • Civilian Pay • Accounts Payable CRITERIA: • Top 10 Risks • DIMHRS & ERMP Focus Area • FMFIA Deficiency Mitigations • FIAR Support (A/P) • HPO Initiative • Departmental Operations • Accounts Receivable • Travel Pay • Retired and Annuitant Pay CRITERIA: • FIAR support • End to End Segment Strategy • FMFIA Deficiency Mitigation • High IPIA Percentages • HPO initiative 3 QTR 09 4 QTR 09 • Trust Funds • Disbursing • Transportation Pay • Security Assistance Accounting CRITERIA: • Do. D AFS Strategy • Top 10 risks • Standard Disbursing Initiative • FMFIA support 1 QTR 10 Integrity - Innovation - Service • Additional Prioritized Core Areas (e. g. Civ Pay, Debt & Claims, AM&C) 2 QTR 10 22

Examples of Critical Customer Programs Fund Balance With Treasury (FBWT) - Cash Risk Condition: Process: Controls: FBWT understated by the amount of cash disbursed but not recorded/Cash overstated Agents make cash payments and provide documentation supporting transactions intheater Require agents clear within 30 day window; specific documents for cash payments; reconciliation payments and documents Integrity - Innovation - Service Risk Mitigation Plan/Risk Rating: Reduce cash payments; transfer vendor operations to CONUS via EFT; improve visibility of agent cash in financial reports 23

Lean 6 Process Improvements: Accounts Receivable Project Title Out of Service Debt and Claims Management Credit Card Process Out of Service Debt Customer Service Email Inquiry Process Reduction of time to prepare management reports in Debt and Claims Case Management Status Completed On-Track Potential Savings $379 K $57 K $1 M Estimated Completion February 2009 April 2009 July 2009 Integrity - Innovation - Service Comments Initial phase complete, will next expand current credit card initiative with DCMO from phone payments to online payments. Changed email to paper process for inquiries to fully automated process. Reduced turnaround time on inquiries from 20 days to 3 days or less. Customers receive immediate confirmation of received inquiry. Reduce the number of management reports required to two all inclusive reports, in addition to changing the employee production reports from a manual to electronic process. 24

ERMP Customer Outcomes Integrate and support other DFAS initiatives Verify internal controls are properly tested Improve Internal Controls and Compliance Across Operations Reduce Risk and Ensure Effective Risk Mitigation Standardize processes, Controls, and Structures (HPOs) Increase Program Reliability and Timely Delivery of Information Ensure Reporting Audibility and Supportability Internal control programs absorbed by ERMP and integrated to eliminate redundant efforts and costs DFAS asserts processes are compliant and auditable Integrity - Innovation - Service 25

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