The Defense Department says it’s making reasonable progress toward achieving auditable financial statements. But Congress isn’t helping much by constantly keeping the department guessing about what its actual financial resources will be.
Pentagon comptroller Robert Hale said he doesn’t want to overpromise, but the department is fairly confident it can meet the 2014 and 2017 deadlines Congress and the Defense secretary set for audit readiness. But he said it would help a lot if the financial management professionals in the department — the same ones responsible for guiding the audit preparation effort &mdash ;weren’t constantly scrambling from one budget crisis to the next.
“We’ve encountered unprecedented budgetary uncertainty in recent years, including no fewer than four shutdown drills and a long-term continuing resolution in 2011. Sometimes I think I spend most of my time planning for things I hope don’t happen,” Hale said. “Now we face the prospect of sequestration and yet another long-term continuing resolution. Dealing with these extraordinary actions is sapping the time we could be spending on other things including audit readiness. The single biggest thing Congress could do to help me is to return to a more orderly budget process.”
DoD on track for 2014 audit
Hale’s remarks came at a Friday hearing at which the House Armed Services Committee questioned department witnesses on progress toward Defense auditability deadlines. The department’s first audit target is in 2014, when it’s required to develop an auditable statement of budgetary resources.
“Look, I’ll regret this, but I think we’re at midfield,” he said. “But we’ve got momentum on our side, we’ve got the ball and we’re on the offense.”
The government’s largest department is one of just two of the 24 CFO Act agencies that haven’t yet received a clean opinion on its consolidated financial statements. And while’s it’s going to be a heavy lift, DoD financial managers say there have been numerous important turns in the road over the past year.
The Air Force and Navy received unqualified opinions on the existence and completeness of the vast majority of their equipment. Two major Defense agencies, the Defense Finance Accounting Service and Defense Information Systems Agency, received clean opinions on their own statements of budgetary resources. In addition, many of the department’s senior executives had their own contributions to audit readiness incorporated into their performance reviews this year.
“It’s not the primary performance goal,” Hale said. “If you’re a logistician, your primary goal is still logistics, but it’s part of the subsidiary goals and we’d like to tie this as closely as we can to assessments and bonuses so that there’s some tangible rewards for success and some change in behavior if we’re not making success. I think we’ve got people’s attention, but I’m a little less confident that they know what they need to do throughout the department. It’s a major step forward, but I’m humble about all the things we need to do to get to audit readiness. We’ve overpromised and under delivered for a long time, and I don’t want to be part of that. I wasn’t to tell it as best we can and try to meet these goals.”
Beth McGrath, DoD’s deputy chief management officer, said the huge enterprise resource planning systems, which will be key to getting the department’s books in shape, are now all meeting one standard. Within the past few months, DoD has finished testing the military services ERPs against a single Standard Financial Information Structure so that the data they produce can be integrated into a single departmentwide financial statement without extra workarounds.
Nonetheless, in the short term, she said, audits will rely on a mix of modern ERP systems and legacy IT solutions that grew up around specific business needs.
“I think the difference today, though, is that we truly are taking an enterprise perspective,” she said. “We’re lifting up and looking across the organization to say, ‘What do I have, and how is it helping or not to achieve the business outcomes that we want?'”
Whole organization must be a part of the financial management solution
The department’s various ERPs have a troubled history in terms of meeting their original cost and schedule estimates, as a recent DoD inspector general’s report pointed out in detail. But McGrath said in many cases, where the systems have failed to meet their objectives, it wasn’t an IT problem. Rather, it was because military organizations business practices didn’t match up with the auditable, commercial business practices for which the systems were designed.
“What we’ve really learned is that it can’t just be the accounting team with the financial management solution. It must be the entire operation understanding the role that this capability plays within their overall execution,” she said. “That, to be honest, has been one of the most challenging things. We must move away from the years of business practices that we’ve had into the new environment. There are a lot more controls in the new systems, such that you’ve got referential data integrity that are so important to achieving auditability and full accounting of the money.”
But Marilyn Thomas, the Air Force comptroller, said ERP setbacks aren’t necessarily the fault of the workforce or individual business process owners. Thomas said an assessment of problems with the Air Force’s Defense Enterprise Accounting and Management System found that training was a big issue.
“The operational assessment pointed out that we had some big issues with change management,” she said. “As we peeled the onion back, we talked to the workforce. The key thing they told us was, ‘You taught us how to use the software. You taught us about the software. You didn’t teach us how to do our job with the new system.'”
Gladys Commons, the Navy Department’s comptroller, said her service had a similar experience with their ERP, which the Navy plans to roll out across the service at the beginning of October. She said leaders learned it’s critical to communicate to the workforce that there are important reasons that business processes need to be standardized across the service.
“What we found is that they liked to establish ways to get their jobs done quicker, but they didn’t realize the impact that it’s having on the overall organization when they invent their own methodology and local business practices,” she said. “So we have a major effort to standardize our processes and publish those standards so that everyone knows what they need to do.”
The Navy also is circulating a five-minute YouTube video among sailors and marines emphasizing the notion that every part of the workforce has a hand in auditability, not just the financial management community.
Commons said she’s hopeful both Navy Department services will beat the 2014 audit target. The Marine Corps expects to have an audit-ready statement of budgetary resources for fiscal 2012. The Navy hopes to follow at the end of 2013.
This story is part of Federal News Radio’s daily DoD Report. For more defense news, click here.