Office of the Under Secretary of Defense Comptroller

Office of the Under Secretary of Defense (Comptroller) Financial Improvement and Audit Readiness Directorate Do. D Financial Improvement and Audit Readiness (FIAR) Plan A process for improving financial information in support of the Warfighter Presented By: Mr. Robert Mc. Namara, Acting FIAR Director, OUSD(C) March 9, 2006

Agenda § Overview of the FIAR Plan and how it differs § How the Plan is: – Constructed – Integrated – Executed – Monitored § Accomplishments § Next steps § Why the Plan will succeed Financial Improvement and Audit Readiness Plan A process for improving financial information in support of the Warfighter 2

Overview of the FIAR Plan Comprehensive, integrated Plan that identifies, prioritizes and assigns accountability to: § Deficiencies, both financial and operational, that affect the Department’s ability to produce quality financial information § Corrective activities § § § Revising policies Improving processes and procedures Assessing risks, and improving and testing controls System solutions (changing existing or deploying new systems) Enhancing Human Capital (e. g. , certifications, training) § Dependencies integrated across Components and business operations § Opportunities for Collaboration to expedite change and minimize cost § Resource requirements to fund improvements Financial Improvement and Audit Readiness Plan A process for improving financial information in support of the Warfighter 3

How the Plan Differs § Supported and monitored by Do. D senior leaders – Deputy Secretary of Defense (DEPSECDEF) made its development and implementation a Do. D priority – Military Department Secretaries and Defense Agency Directors coordinate and approve the Plan – DEPSECDEF and Business Systems Management Committee receive quarterly updates, and USD(Comptroller) provided monthly progress reports – FIAR Committee, chaired by DCFO, decides Plan development and implementation steps, and monitors progress § Day-to-day management and oversight conducted by a dedicated OUSD(C) office of SMEs and supported by contractors and a powerful web-based tool Financial Improvement and Audit Readiness Plan A process for improving financial information in support of the Warfighter 4

How the Plan is Constructed - COMPOSITION on ati 13 Component Financial Improvement Plans (FIPs) gr § Business Transformation (ETP) solution key milestones e Int § 13 Component Financial Improvement Plans containing tasks essential to accomplishing FIAR key milestones 14 Key Milestone Plans n tio olu – 5 phase process – A-123 requirements PS ET The FIAR Plan consists of: § 14 FIAR key milestone plans setting critical paths Financial Improvement and Audit Readiness Plan A process for improving financial information in support of the Warfighter 5

14 Key Milestone Plans - COMPOSITION § Focus Areas Key Milestone Plans – Environmental Liabilities – Medicare-Eligible Retiree Health Care Fund - Military Equipment - Real Property § Other Key Milestone Plans – – – – Fund Balance With Treasury (also a Priority) Account Receivable - Accounts Payable Other Liabilities - Other Assets Cash and Other Monetary Assets Inventory and Operating Materials and Supplies Personnel Obligations Other Military Retiree Health Care U. S. Marine Corps Financial Improvement and Audit Readiness Plan A process for improving financial information in support of the Warfighter 6

How the Plan is Integrated Enterprise Transition Plan and Initiatives Component Transition Plans Do. D FIAR Plan Roadmap to Financial Improvement and Auditability Integration Facilitated by Web-Based FIAR Planning Tool Component Financial Improvement Plans OIG Assessment and Audit Plans Financial Improvement and Audit Readiness Plan A process for improving financial information in support of the Warfighter 7

How the Plan is Executed – PHASED METHODOLOGY Discovery & Correction Validation Assertion Assessment Audit Discovery & Correction: Deficiencies identified, corrective action plans added to FIPs in FIAR Planning Tool, progress tracked, and deficiencies corrected Validation: Management confirms corrective actions completed successfully Assertion: Management asserts to OIG the reliability of financial information Assessment: OIG performs limited review of controls and procedures to determine if ready for full audit Audit: OIG audits the organization’s financial information Financial Improvement and Audit Readiness Plan A process for improving financial information in support of the Warfighter 8

How the Plan is Monitored - TRACKING PROGRESS § Plan presently consists of over 1, 800 key milestones within 14 key milestone plans (complex Plan) § Components report monthly progress on current and subsequent quarter’s key milestones – – – Not Started On Schedule Completed Behind Schedule - requires identification of issue and get-well plan Not Completed - requires explanation and get-well plan with revised date § Currently tracking progress on 191 key milestones for FY 2006, Quarters 2 and 3 § Quarterly accomplishments are provided to DEPSECDEF, DBSMC, USD(C), DCFO, FIAR Committee and OMB Financial Improvement and Audit Readiness Plan A process for improving financial information in support of the Warfighter 9

Accomplishments to Date § Completed and documented the baseline for Do. D military equipment § Army, Navy and Air Force completed environmental liability estimates for DERP sites § Navy completed the identification of ships and submarines requiring environmental liability estimates § Air Force General Fund Balance with Treasury ready for audit § DLA completed a worldwide inventory of its fuel sites to improve its real property records § Corps of Engineers FY 2006 financial statements ready for audit Financial Improvement and Audit Readiness Plan A process for improving financial information in support of the Warfighter 10

Projected Accomplishments § Achieve favorable audit results: – Air Force General Fund Balance With Treasury – Corps of Engineers financial statements § Complete Management Assertions: – Army and USMC General Fund Balance with Treasury – Army General Fund Cash and Other Monetary Assets – Navy Environmental Liabilities for nuclear ships and submarines § Update Military Equipment baseline and report on June 2006 financial statements § Reengineer business and financial real property CIP processes Financial Improvement and Audit Readiness Plan A process for improving financial information in support of the Warfighter 11

Next Steps § Develop coordinated, single Real Property Transformation Plan for both financial and business improvement and modernization § Refine current key milestone plans – Identify critical path key milestones, fill gaps and level-set – Integrate OMB Circular A-123 Appendix A requirements – Expand automate integration with Business Transformation solutions § Expand: – Vertical integration (threads) between plans – Identification and alignment of dependencies – Partnership and engagement of functional/business operation communities Financial Improvement and Audit Readiness Plan A process for improving financial information in support of the Warfighter 12

Next Steps - Continued § Develop Do. D-wide audit strategy § Begin independent verification and validation (IV&V) of specific key milestones § Expand Plan for opportunities to improve financial and business data needed by decision-makers § Improve alignment of Component FIP tasks to ensure successful completion of Plan milestones § Determine FY 2008 President’s Budget FIAR Plan resource requirements § Prepare and issue the September 2006 version of the Plan Financial Improvement and Audit Readiness Plan A process for improving financial information in support of the Warfighter 13

Why the Plan will Succeed § Senior leadership is engaged and monitoring progress § Functional/operational communities are involved § Incremental strategic approach § Dedicated office/staff and support resources § Do. D-wide standard use of state-of-the-art plan management technology § Plan assists in budgeting, justifying and acquiring funds for financial improvement activities Financial Improvement and Audit Readiness Plan A process for improving financial information in support of the Warfighter 14

For Additional Information FIAR Directorate, OUSD(C), website: http: //www. dod. mil/comptroller/FIAR/index. mil Do. D Business Transformation Agency website: http: //www. defenselink. mil/dbt/ FIAR Planning Tool help email address: FIARSupport@osd. mil FIAR Directorate telephone number: 703 -607 -0300 Financial Improvement and Audit Readiness Plan A process for improving financial information in support of the Warfighter 15

BACKUP

Challenges § Do. D financial improvement encompasses an unprecedented scope and complexity: – Over 3, 000 worldwide facilities – Over 4, 000 IT systems – 3 million employees – 5. 2 million inventory items – $1. 3 trillion in Assets – $1. 9 trillion in Liabilities – $635 billion in operational costs Financial Improvement and Audit Readiness Plan A process for improving financial information in support of the Warfighter 17

FIAR Planning Tool § Web-based § Profile and password controlled § Over 600 users § Do. D-wide standard use § Used by/for: – – – FIAR Plan ETP A-123 Component FIPs Communication Financial Improvement and Audit Readiness Plan A process for improving financial information in support of the Warfighter 18

FIAR Planning Tool - Monthly Reporting § Web-enabled progress reporting § Status for prior month reported by 3 rd work day of following month § Process documents status, management decisions, and changes to Plan § Provides “audit trail” Financial Improvement and Audit Readiness Plan A process for improving financial information in support of the Warfighter 19

FIAR Plan Quarterly Progress Report § Highlights progress and slippage § Provided to Do. D senior leaders and OMB Financial Improvement and Audit Readiness Plan A process for improving financial information in support of the Warfighter 20

Projected Balance Sheet Accomplishments 2005 Assets 2007 Military Equipment Baseline Army 7. 5% of assets Navy 11. 1% of assets Air Force 7. 4% of assets Fund Balance With Treasury Army 7. 4% of assets Air Force 5. 0% of assets Liabilities Environmental Liabilities Army 2. 4% of liabilities Navy 0. 7% of liabilities

Projected Balance Sheet Accomplishments Assets 2007 Military Equipment – FASAB Compliant Army 7. 5% of assets Navy 11. 1% of assets Air Force 7. 4% of assets Fund Balance With Treasury Army 7. 5% of assets Navy 6. 9% of assets Air Force 5. 1% of assets Real Property Liabilities Army 1. 8% of assets Navy 1. 6% of assets Air Force 1. 8% of assets Environmental Liabilities Army 2. 4% of liabilities Navy 1% of liabilities Air Force 0. 5% of liabilities 2010