Department of Defense (DoD) Comptroller Robert F. Hale told the Senate Committee on Homeland Security and Governmental Affairs this week that the department is “on track to achieve audit readiness for all our financial statements by 2017.”
Testifying with senior financial management leaders of the military departments, Hale outlined the audit strategy designed to meet DoD’s auditability goals and detailed progress made to date.
Hale said DoD’s strategy concentrates on elements “that most often influence our decision making—namely budgetary dollars and the existence and completeness of property records.” First, DoD identifies major budget processes (e.g., funds distribution, military and civilian pay, etc.) that are documented and evaluated, he said. Then, controls are tested and an independent accounting firm performs an evaluation before proceeding to audit, Hale explained. DoD has set interim goals and has regularly reported progress to the Congress through Financial Improvement and Audit Readiness (FIAR) reports, Hale emphasized.
Hale said that DoD’s progress toward audit readiness has been significantly hindered by budgetary turmoil. DoD has had to plan for five potential government shutdowns and executed one 16-day shutdown last year, he said. The department has had to cope with two six-month continuing resolutions, a furlough, and is constantly planning and replanning budgets, he added. Sequestration (automatic across-the-board cuts) has led to severe budget cuts exacerbated wartime funding shortfalls, Hale said.
This budgetary turmoil has also “seriously damaged the morale of our civilian workforce, including those who work audit issues” and has “degraded military readiness,” Hale lamented. He urged the committee to help to stop this turmoil if they are serious about achieving audit readiness.
In spite of these serious challenges DoD has made significant progress toward achieving audit readiness, Hale said. He cited the major accomplishment by the Marine Corps in receiving a clean opinion on its Schedule of Budgetary Activity for FY2012, verified by two independent auditors. He emphasized that the Marine Corps expects to achieve a similar result in 2013.
Hale said that the entire DoD has been determined “ready for audit on our funds distribution process.” This is critical, he stressed, because “it provides verification that we are distributing funds in a manner fully consistent with the laws Congress passes.”
Hale said the controls for the Defense Civilian Personnel Data System (DCPDS) has received a clean audit opinion. He cited the accomplishments by the Defense Finance and Accounting Service (DFAS) in achieving favorable opinions for systems and processes for military and civilian pay and their standard disbursing service, which covers over half of DOD’s total disbursing activity.
He highlighted the Navy’s clean opinion on civilian pay and travel expenses, the Air Force’s clean opinion on processes for reconciling fund balance with the Treasury, and the Army’s completion of an examination of funds accounted for in its accounting system as significant examples of DoD’s progress toward achieving audit readiness.
Hale acknowledged that DoD still has work to do to improve business practices and systems, especially since the deadline for the next major goal—achieving audit-ready budget statements—is September 2014. He said he expects that most budget statements will be “ready for audit” by the end of FY2014. However, he cautioned that because of the continuing budgetary turmoil some may not be quite ready for audit by that date.
Because the Marine Corps audit showed that it is not possible to produce historical documentation quickly enough for auditors’ needs, DoD will focus on current-year budget activity and transactions, Hale said. This approach is the best and most cost-effective way ahead, he emphasized. And, he said, both the Government Accountability Office (GAO) and the DoD Inspector General agree,
Hale said meeting the September 2014 goal will be an” important step” to achieving audit readiness. He emphasized that Secretary Hagel has committed his full support. Earlier this year, Hagel recognized the Marine Corps and several other DoD organizations for progress in meeting audit readiness goals. At that time Hagel said “we want to be in a position to comply with the promises that we’ve made to the Congress and the American people that we would be audit-ready and audit-compliant, and we’re moving toward that, and every step we make, every accomplishment we achieve does that.”