The U.S. Army Corps of Engineers -- Aligning Our Business With the CFO Act (The Financial Management Journey Continues).

[Editor's Note: Armed Forces Comptroller (AFC) welcomed the opportunity to "deputize" a member of the Corps of Engineers' Finance and Accounting Office to rep resent AFC and conduct this interview with Mr. Butler, Finance and Accounting Officer for the Corps of Engineers.]

The following excerpts are from a recent interview with the Corps of Engineers Finance and Accounting Officer regarding the Corps' progressive financial management of their annual program of over $12 billion and their journey towards compliance with the requirements of the Chief Financial Officers Act of 1990.

Many AFC readers know something about the Corps and its impact throughout the United States and abroad. However, few know of how comprehensive and far-reaching its mission is and the impact it has on millions of lives each year. As a matter of fact, one-tenth of the U.S. population will visit a Corps project at least once a year, and they co-engineer with more than 90 other countries around the globe. AEC is providing a brief summary of the Corps mission as background for the interview.

The mission of the U.S. Army Corps of Engineers (USACE) is to provide quality, responsive engineering services to the Army and the nation. The Corps:

* Plans, designs, builds, and operates water resources and other civil works projects

* Manages engineering, construction and real estate programs for the U.S. Army and Air Force

* Provides design, construction management and real estate support for Defense, other federal agencies, and foreign governments

* Supervises research and development in support of its programs

* Manages and executes Army installation support programs

* Manages and executes civil works programs to develop and maintain capability to mobilize in response to national security emergencies, domestic emergencies, and emergency water planning programs

Additionally, the Corps is the nation's fourth largest provider of hydroelectric power and is also involved in the clean up of hazardous waste sites for the Environmental Protection Agency at hundreds of Superfund sites. Many readers may not know that the Corps was the proud builder of two of the most famous sites in Washington D.C.: the Washington Monument and the library of Congress.

AFC: The Corps obviously has a long and proud tradition of providing extensive services to the citizens of the United States. What is the approximate size of your program?

USACE: As you can see from our mission, we are involved in a great many things. This diversity requires that we handle a multitude of federal appropriations and customer funding as it deals with thousands of customers. For a quick snapshot, our $12.2 billion program for FY 00 includes $4.6 billion for Civil Works, $7.0 billion for Military, and $.7 billion for Support for Others.

With all of the complexities of our business, an initial understanding of our journey towards compliance and comprehensive alignment with the Chief Financial Officers Act begins with some recognition of the financial structure established within the Corps. To facilitate management of this diverse mission and the complexities involved in our financial business, we operate a revolving fund that contains approximately $1.7B in assets. This fund provides a financing vehicle for the wide range of financial transactions required to operate our business. You can imagine the vast array of requirements levied on our financial and program personnel to operate such a program.

AFC: We've heard about the Corps operating such a fund, but why is such a fund necessary, how was it initially funded, and would you briefly describe it?

USACE: The Corps has had some type of "special financing arrangements" for many years. Back in 1934, we were authorized a "Plant Allotment Account" to set aside funds from our regular civil works appropriations to be used to finance plant and equipment, stocks, accrued liabilities, and other items ultimately chargeable to projects of the parent appropriation and/or awaiting reimbursement. Overtime, the Corps began to realize that this arrangement was cumbersome and was also subject to the typical restrictions and limitations placed on each appropriation. These limitations had the potential for reducing our ability to complete certain projects, and so in the early 1950s, the Corps asked for legislation to establish a Revolving Fund (RF). Many of your readers may not realize that the Corps is entirely project funded, and that all of our costs are either charged direct to a project or distributed to a project. This makes us very similar to the manner in which a private sector business operates. Because of the ma gnitude of our program and the significant requirements of our financial transaction cycles, it is necessary to have a such a fund to finance our operations on a day-to-day basis as we pay for our in-house labor, purchase items that are needed for multiple projects, and make contractual payments as we await reimbursement for services.

As you can see, we use the RF for an "accounting expediency," and it is the keystone to our financial management efforts. Originally, Congress authorized a corpus of $140 million to "seed" the account, made up of both cash and existing assets. Over the years, the Corps has sought additional funding to cover increasing program requirements. Today, the corpus has grown to approximately $850 million in cash and $850 million in other assets.

Congress stipulates that we manage our RF to be self-sustaining--for every dollar that leaves the fund, a dollar must be recovered. Our goal and management processes are built to break even for our operations over a given fiscal year. All corps labor is paid from the RE and ultimately reimbursed from individual projects. In addition, we use the RF to maintain other accounts, such as our self-insurance account, capital budget (Plant Replacement and Improvement Program), inflation, and depreciation. Our Districts also use the fund for their distributive accounts, such as overhead and facility accounts.

AFC: Managing such a diverse program to include this dynamic RF is obviously a large challenge. What financial systems do you have in place to assist you in managing these diverse financial requirements and can you tie this to the CFO requirements?

USACE: We believe the Corps of Engineers Financial Management System (CEFMS) is one of the premiere cost accounting systems anywhere in the Government. In addition to providing cost accounting functionality, it is also the basis for our program management efforts within the Corps. We are proud of the fact that CEFMS has become the model for the new Defense Joint Accounting System. CEFMS is the hub that our CFO efforts revolve around, but let me start at the beginning.

The Corps has designed and developed its own financial management system using in-house resources and contractors spanning a 15-year period. We have invested approximately $76 million in its development, and fielding was completed in 1998. Currently, CEFMS resides at all 41 of our Districts, eight regional divisions, and Headquarters activities. Without question, it is the centerpiece of our efforts to successfully manage the financial resources of the Corps. We maintain a Systems Development Team in Huntsville, Alabama, that has the lead for the continuing development and enhancement of CEFMS.

AFC: Could you briefly describe the system and some of its functionality?

USACE: CEFMS includes a broad range of functionality and integrates Corps financial management with its programmatic counterparts. It also provides the necessary platform for required automated linkages to the Department of Army, Department of Defense, and the Office of Management and Budget, and other activities that either feed information or need information.

CEFMS is the primary source of our financial statements and upward reporting requirements necessary to comply with the CFO Act. it also supplies the labor data necessary to process our civilian payroll requirements that are paid to our employees by DFAS. Some of the most prominent features of CEFMS include:

* An Oracle-based relational database

* Sun platform mini-computers

* Electronic Signature System for our financial transactions

* Real-time or near real-time data

* Single data sources and single data entry via a series of commonly shared data tables

AFC: To what extent is your financial data integrated with other systems that provide program management data?

USACE: within the structure and functionality of CEFMS, the designers built in the capability to integrate financial data with a multitude of other types of data. We have over 800 automated, shared data tables that form the essence of a "corporate data repository" where any type of data can reside. Through integration and interface linkages, data can be accessed, updated, and/or provided to our users. Some current examples include: Army and Corps accounting structures, logistics data, property and inventory, program management data, personnel data, payroll information, and many other types. Through the use of shared software, platforms, databases, and tables, we have integrated the management systems used to track personal and real property with the financial management system. This has facilitated our ability to fully reconcile property to our financial records and has been a major hurdle to cross on our CFO journey.

AFC: What has been the result of implementing such a major system?

USACE: Without question, CEFMS is the link to a future unqualified audit opinion on our financial statements. We have worked feverishly for several years on our journey towards a clean opinion. Implementing CEFMS provided the financial system creditability that we needed to (ultimately) push us over the top. Converting to CEFMS was likely the biggest challenge that our field activities have had to face in 25 years or more. You can imagine the huge amounts of data we have compiled in our 225 years of doing everything from pouring concrete to building major buildings to maintaining massive waterway projects. While some would say that the largest benefit is our eventual ability to verify the individual lines on our balance sheet, the largest impact CEFMS has had is in the vast improvement in our management information for project managers. While the system is far from perfect, it is light years ahead of where we stood only a few years ago.

AFC: Many within the financial community were under the impression that FY 1999 would be the year that the Corps would cross the goal line and gain an unqualified audit opinion. What are the largest challenges that the Corps faces to gain the unqualified opinion and where do you currently stand?

USACE: The Corps is proud of the progress we have made towards gaining a clean audit opinion for our Civil Works program. Together with near-Herculean efforts from both our own Corps family and our co-performing audit activities (Army Audi Agency, General Accounting Office, and the DoD inspector General), we nearly pulled it off. Unfortunately, the clock ran out on us just before we could cross the finish line.

As you might guess, there are many challenges for an organization that is 225 years old and has never been required to have auditable financial statements. Valuation and proper documentation issues for our Property, Plant and Equipment head the list of challenges, but those are closely followed by several others, such as work-in-progress. Imagine your own activity placing assets in-service 50 or 100 years ago and, years later, throwing away much of the original documentation because the retention periods had lapsed. Then, after many more years passed, being held to the new standards mandated in the CFO Act. We are in complete agreement with the requirement, but full compliance is not simple. We continue to work to verify initial acquisition costs and other key financial values for our Civil Works assets, some of which have been in service for many, many years. We are currently working to gain agreement on alternative forms of valuation, but getting agreement from all parties involved on which alternative is a cceptable is not an easy task either. I often retort that this is like trying to prove the value of Mount Rushmore, and while that may be somewhat overstated, it is certainly analogous in some respects to the challenges that we face in substantiating certain values on our balance sheet.

Army Audit Agency has agreed to continue their fieldwork on the FY 99 audit samples so we can establish a baseline for the FY 00 audit work. Once this baseline is set and prior year issues are resolved, we will definitely be in a better position for a clean opinion. In the meantime, the auditors are thoroughly testing CEFMS at the transaction and general ledger level of detail, as well as trying to penetrate our communication linkages to gain access to the system. One of our major regional divisions has already been rendered a clean opinion (in FY 97), and we believe this sets an excellent foundation for an overall Corps opinion as early as this fiscal year.

AFC: What enhancements are you looking at to further improve your financial operations and position the Corps for future technologies?

USACE: Our CEFMS platform affords the Corps so many high tech opportunities that it boggles the mind. We have attempted to keep up with technology over the past 10 years or so as technology has evolved, but of course, this is nearly impossible. The design, development, and fielding of CEFMS was a lengthy journey, and it was made possible only through the foresight and perseverance of an entire group of individuals who saw the dream and made it happen. Those of us in the Corps today are benefiting greatly from their efforts and we are thrilled with the capabilities it offers. As I said earlier, though, we are not going to rest, as technology will continue to emerge and the requirements placed on the system will never cease. We are convinced, however, that the current system is a great launching point for increasing capabilities.

Some of the capabilities we have either recently added or are soon to field will strengthen our financial foundation and help us embrace the world of federal electronic commerce. Some examples are: On-Line Payments and Collections (OPAC). OPAC is an inter-governmental system to transfer disbursements and collections and is part of the U.S. Treasury's Government On-Line Accounting Link System. OPAC provides us with the capability to electronically transfer collections and disbursements between governmental activities without mailing hard copy checks.

Remittance Express (REX). REX is a Federal Reserve System that allows government agencies to receive collections from public vendors through the CA$H Link system. Once the funds are reflected in the CA$H Link system, our finance center certifies the collection and completes the deposit process in our financial system.

Electronic Funds Transfer (EFI). EFT for payments to vendors and travelers has been available for some time in CEFMS. We are working hard to eliminate the use of hard copy checks and EFT capabilities are a primary element of that initiative.

Automated MIPRs. We have recently introduced anew CEFMS functionality to automate intra-Corps MIPRS. This was a significant accomplishment and set the stage for future billing enhancements between Corps activities, and potentially other government agencies.

Future analytical tools. Front ends to our "corporate data repository" will be evaluated that will utilize 4th generation software analytical capabilities. This capability should tie to a future Executive Information System (Decision Support System).

Internet solutions and applications. We are also researching and considering various ways to use the capabilities of the internet to further improve our financial services. This is an area we are excited about and is certainly the "wave of the future."

AFC: All of this sounds really great, but you've spoken mostly of automated systems solutions that the Corps has developed. What is the Corps doing to strengthen the professionalism of Army analysts through efforts like professional certification programs and the evolution of the financial analyst concept?

USACE: Anyone who knows the Corps' integrity also knows that we view our employees as our most valuable asset. Many of them have spent their entire working careers dedicated to the mission of the Corps and are completely committed to our mission. In turn, we invest millions of dollars in training every year and are committed to helping make the Corps a "workplace of choice." The ability to achieve our vision is fundamentally held in the hands of Corps employees who will make it happen. Corps success is a partnership.

One initiative centers on our accountant community. Our Chief Financial Officer, Stephen Coakley has recently approved the concept of transitioning our District/Division level accounting positions that have traditionally been operating in nature to a new role of becoming managerial accountants. Many of your readers may not know that the Corps operates its own consolidated finance center with approximately 300 employees that provide centralized operational accounting support for all Corps activities. In addition, the Corps has another 300 or so accounting related positions in our Districts and Divisions. It is this latter group we have decided to focus on with an initiative to transition them to a new era of accounting within the Corps. Our vision for this group is: "To provide world-class finance and accounting services as a vital part of the Corps team, enhancing the Corps mission and its dynamic customers of the 21st century." Our future managerial accountants will provide a broad range of analytical skills and abilities through the use of their accounting competencies. The future Corps accountant will facilitate the decision-making needs of managers in a world-class, professional, and high-tech manner. They will focus on analysis, problem solving, and automated systems solutions to complex (accounting) problems. Please keep in mind that we are not solving an existing problem with this initiative. Our current accounting workforce works hard at providing their current services for their respective organizations. We are trying to look 10-20 years into the future to determine what skills will be needed for our customers. Certainly, there will be less focus on "debits and credits" as our financial systems (even now) take care of most of that level of work. We are currently defining the "gap" between where we are today and where we want to be in the future. The next step will be to develop strategies that will dose that gap over time. We have a difficult challenge before us, but one that is well worth the effort as we position ourselves to serve the increasing demands of 21st century customers.

We are excited about the future of the Corps and look forward to paving the way for the next 225 years of service to our great nation. The Corns team is here to serve! Essayons!

Steve Butler is the Finance and Accounting Officer fort the Corps of Engineers in Washington, D.C. He has held a wide variety of financial management positions, including four different Comptroller/DRM positions. He has served the Army as a civilian at the installation, MACOM, and HQDA levels, including overseas assignments in both Korea and Europe. Mr. Butler holds dual master degrees and will complete his MBA from Webster University this fall. He also holds the (GFM certification and is an active member of the Washington Chapter of ASMC.