Department of the Navy Financial Statements.

Before 1998, nearly any discussion related to when the Department of Defense (DoD) would achieve "clean" financial statements included the comment, "So goes the Department of the Navy, so goes DoD." (Often, this statement also elicited a chuckle from the most stoic decision-makers.) We had so many systems we didn't know what to do! That was then...and it was true!

Fast forward to today (Spring 2000) and a similar discussion would give way to another opinion--that the Department of the Navy has made significant progress toward achieving compliance and, in some areas, has led the way. What has changed? We have, from the top to the bottom.

Starting at the top, the changes begin with the Secretary of the Navy SMARTWORK initiative to improve how we live, how we work, and how we fight. Similarly, the Revolution in Business Affairs initiative led by the Under Secretary of the Navy has provided the forum to modify and change our business processes. Within these initiatives, we are creating an environment where new organizational structures, processes, and systems will enable the enterprise to stay abreast with the challenges in the rapidly changing global environment.

The time and effort required to deal with these challenges varies. In some cases, we have responded to the challenge, changed the culture, and adapted a new strategy. In others, we are still researching the solution. A number of working groups have been established to confront these challenges, each consisting of functional area experts and headed by a senior Department of the Navy official.

In the short term, these groups focused on the issues identified in the Biennial Financial Management Improvement Plan and the Department of Defense Implementation Strategies for "clean financial statements." In the longer term, our focus is toward a fully integrated systems approach, such as Enterprise Resource Planning (ERP). The term ERP refers to commercially available business software solutions that enable automation and integration of business processes across the entire organization. Potentially, ERP offers a long-term solution which complements our current efforts.

Working Group Composition

The working groups include a broad representation of program and financial personnel from the Secretariat, Navy and Marine Corps Headquarters, the audit community (General Accounting Office (GAO), DoD Inspector General (DODIG) and the Naval Audit Service (NAS)), Defense Agencies, and, where appropriate, contractor support. The audit community expertise has been beneficial in that alternatives are validated from an accounting and audit perspective as they are being discussed.

Initially, progress is slow. Consider the language barriers that exist when professionals from diverse backgrounds (such as auditing, accounting, acquisition, logistics, budgeting and information technology) are brought together. From these humble beginnings, momentum builds and ideas take shape to transform the business process. Even more notable, the ingrained organizational stovepipes begin to fade.

The working groups examined the need for changes in business practices as well as the modifications necessary to bring systems into compliance with Federal Accounting Standards to achieve the Administration's goal of auditable financial statements. All the teams made progress, but may be at a different stages of completion, given the complexity of a particular implementation strategy. For example, the process is accomplished more quickly where a standard system is used for accountability and financial reporting, such as Real Property, in contrast to Personal Property where the information resides in multiple databases. The following section highlights the progress during FY 1999 and outlines the FY 2000 plans.

Highlights

Real Property. FY 1999 efforts focused primarily on the accuracy of data (existence, completeness, and valuation) and remedies to bring the Naval Facilities Asset Database (NFADB) into compliance with federal accounting standards. A priority effort was asked of our staff Civil Engineers and Public Works Center staffs to physically measure and inspect a number of buildings and land parcels (some in remote locations and under harsh weather conditions). In addition, it was necessary to search for property records (difficult when the age of the asset pre-dates the Civil War)-a burdensome but necessary task, which the engineers responded to with "Can Do" spirit.

Auditors from the General Accounting Office, Department of Defense Inspector General, Naval Audit, and PriceWaterhouseCoopers visited select facilities to validate the surveys, including re-measuring and inspecting available documentation. The end result...we passed.

The work, however, did not end there. The team also identified the necessary system modifications to calculate depreciation, facilitate Heritage Asset requirements, and determine internal controls necessary to sustain accurate financial reporting over the long term. The team plans to complete these actions in FY 2000. In addition, the team has partnered with the Office of Financial Operations and the Defense Finance and Accounting Service to develop an electronic interface with our standard accounting and reporting system (STARS).

Time and Attendance. There are numerous Time and Attendance systems of varying origin and complexity employed throughout the Navy. Some of these are fully integrated with major automated information systems, while others (at lower echelon commands) are stand-alone systems. The team identified twenty existing systems that could be used as a standard system and conducted a detailed functional analysis. One system, the Standard Labor Data Collection And Distribution Application (SLDCADA) system was selected as the Department's standard time and attendance system. Implementation is underway and should be completed by the end of FY 2001.

Personal property. This area is unique in that it represents fielding a totally new system and a significant change in our business culture and process. The Department selected the Defense Property Accountability System (DPAS) as the standard system in lieu of investing resources to modify a myriad of local systems with only a marginal improvement in terms of overall asset accountability.

The DoD strategy focused primarily on capital assets (acquisition value of $100 thousand or higher). Recognizing an opportunity to attain full accountability and reliable financial reporting, our plan incorporated property and equipment at the minimum threshold ($2,500 and above). As details of the plan emerged, we gained the full support of the Office of the Secretary of Defense staff and unprecedented support from the audit community. The Marine Corps implemented DPAS during FY 1999, a notable achievement in a period of about nine months. Starting in FY 2000, Department of the Navy will begin implementation at more than 900 activities.

DPAS implementation is a true partnering effort that includes the Defense Logistics Agency, Defense Finance and Accounting Service, Defense Information Systems Agency, the audit community, and the accounting firm KPMG Peat Marwick.

Additional work in FY 2000 will focus on development of standard operating procedures, a comprehensive personal property catalog, standard barcode system, and development of computer assisted training tutorials. The challenges have been many, ranging from resistance to change, resources to conduct physical inventories, and technology issues related to network "firewalls." We have met these challenges and implementation is proceeding.

Inventory and Logistics. The team has reviewed the system for accuracy, compliance and utility. Working closely with representatives in the Office of the Under Secretary of Defense (Comptroller), the Defense Finance and Accounting Service, and the audit community, the team is developing a valuation model, which would factor in historical prices to calculate net inventory value. Completion of this unprecedented effort would bring us closer to a qualified audit opinion.

Operating Materials and Supplies (OM&S). The implementation strategy is similar to Inventory and Logistics, but more complex, since there are multiple systems in use throughout Department of the Navy. The team identified more than 45 different OM&S inventory systems in use for aviation, ships, submarines, tracked vehicles, electronic warfare, and other support systems. The plan is to evaluate eight of these systems for compliance with federal accounting standards and, where appropriate, eliminate redundant systems, thus improving both asset visibility and financial reporting. Perhaps more important is the cultural change of the organizations involved. The weapons platforms these inventory systems support are diverse, but we are beginning to learn that the business processes share many common elements.

National Defense Plant Property and Equipment (NDPP&E). The team identified 17 different systems that are used to manage National Defense assets. A detailed assessment of each system is being conducted for compliance with laws and regulations. In addition the team is considering alternatives to reduce the workload associated with the manually intensive process of reporting and accounting for National Defense assets, such as data warehousing.

Personnel Systems. There are a number of unique and diverse systems in use for managing military manpower, including diverse systems for accessions, promotions, training, operational assignment, and career progression. Most of the systems are linked in some fashion, but are obsolete with today's technology standards. The objective of this team is to develop a hybrid fully integrated military manpower management system.

Heritage Assets. The team contributed to the overall DoD implementation effort to clarify definitions and reporting requirements. The team performed a department wide inventory of Heritage Assets in an effort to identify and evaluate systems. During FY 2000, the team will make recommendations regarding the overall business process, selection of a standard system and transition plan and develop internal controls to ensure sustainability over the long term.

Department of the Navy is committed to this effort. Our approach significantly redefines core business processes and provides additional tools for decision makers.

Department of the Navy is on course to achieve auditable financial statements...and so goes DoD.

Greg Barber has been assigned to the staff of the Deputy Under Secretary of the Navy (Institutional Strategic Planning) since January of 1998. He previously worked in the Office of Budget in the Office of the Assistant Secretary of the Navy (Financial Management and Comptroller).