Achieving & sustaining audit readiness.
As a member of a federal agency that tops even the biggest earners on this list, I believe there should be no reason not to uphold the same expectation. Moreover, as numerous proponents of audit readiness have pointed out, the DoD remains one of only two Cabinet-level department that has not been able to produce acceptable financial statements that garner clean audit opinions.
Like many of us, I have been thrust into a world of audit readiness over the past several years. Terms and acronyms such as financial improvement and audit readiness (FIAR), Federal Information System Controls Audit Manual (FISCAM), assessable unit (AU), Statement on Standards for Attestation Engagements (SSAE) 16, etc., have become so common place in our everyday work that it seems hard to imagine the DoD without an audit readiness stance.
In this article, I will attempt to lay out the why, what, when, and how of FIAR for the Air Force Materiel Command (AFMC) and others.
You have all seen the standard organizational goals: improve processes; ensure work is done accurately, timely and efficiently; get better; etc. What does it all mean? Organizations, whether public or private, have mission and vision statements that make it seem like they are going to take on the world. Unfortunately, the reality seems to be that people get comfortable no matter how many pep rallies they attend. Flow many times have we all heard, "This is the way we've always done it"? Fortunately, not everyone is so lackadaisical and, for those who are, times are a changin'. It's late 2013 and the taxpayers, through their representatives on the Hill, have spoken. The DoD needs to get a handle on its finances.
Drum roll please ... in comes FIAR! Most DoD personnel by now should at least be somewhat acquainted with FIAR since it is not a new concept. The Department issued its first FIAR plan in 2005, with the first priorities being set in 2009. The FIAR Guidance, (2) issued by the Office of the Under Secretary of Defense (Comptroller)/Chief Financial Officer (OUSD(C)), was originally released in 2010. In its own words, the FIAR Guidance serves to outline "the Department's goals, priorities, strategy, and methodology to becoming audit ready. Furthermore, this guidance details the roles and responsibilities of reporting entities and service providers, as well as the processes they should follow to achieve audit readiness. (3)" As a worker bee among worker bees in an audit readiness shop, the FIAR Guidance has become our rock. Our work, the way we interact with our customers, the way we progress and how we shape our conversations all are affected by the FIAR Guidance.
The Hon. Robert F. Hale, Under Secretary of Defense (Comptroller), has stated, "As you know, this audit effort is important for two reasons. First, we need a clean audit to ensure that managers have accurate financial information to make these important decisions. But second--and I think the most important thing--we need to reassure the public and the Congress that we are good stewards of the public funds. (4)" In even more basic terms, we need to be audit ready because it is the law and because we have no excuse not to be audit ready.
The Air Force has been engaged in financial management since its inception in 1947. It hardly seems like anyone can say that auditability of our financial statements is too much to ask.
How then are we wrapping our heads around this concept of FIAR? Many people have trouble keeping their personal checking accounts in order, so how can we confidently grasp Air Force financial statements that include a net position of over $300 billion?
I probably can speak for most inside and out of AFMC when I say, "it's a challenge."
At the most basic level, we know we have to accomplish four tasks. We need to know what we're doing, what we should be doing, how to get there, and how to sustain what we've learned and changed. At AFMC, knowledge of these requirements led us to develop the Compliance Learning Training Model (CLTM) shown below.
I fully acknowledge that, at first glance, this seems like an "eye chart." Nevertheless, it actually is quite simple and offers a framework to follow for all of the assessable units we are reviewing. Not to lose focus, but it even reminds me of the iterations my husband and I go through when working on math homework with my daughter. Anyway, the content of the CLTM can be embraced in the following bullets:
* Determine what the "optimum" product (the item/situation) being tested should look like.
* Look at what is being done to see where areas of improvement may be needed.
* Instruct/train the field.
* Use a sample population to test/grade the results.
* Communicate the results.
* Continue to instruct, test and grade until the results have reached an acceptable level (This has been affectionately dubbed the "washing machine"--Thank you, Dr. Butler!). (5)
* Sustain what has been achieved.
There you have it, the CLTM in a nutshell--the heart of our work. Going beyond the CLTM, we in AFMC have established four guiding principles to keep us focused as we seek to embrace the culture change that will be needed to get to auditable and "clean" financial statements through FIAR.
In order to be successful, we need:
1. CHAIN OF COMMAND OWNERSHIP
It must be noted that, in the Air Force, decisions are made by commanders. In order to make informed, reasonable and good decisions, the commander must have visibility of what is being accomplished and what needs to be accomplished. For AFMC, this direction can be found in the Air Force Materiel Command 2013 Strategic Plan. (6) Here, the AFMC Commander lays out several priorities. Most relevant to FIAR is the priority to, "demonstrate cost effectiveness across all mission areas," and its associated goal to "achieve and maintain financial accountability/auditability."
However, none of this will be possible unless FIAR is accepted throughout the Air Force as a necessity to achieve success. This does not imply thateveryone needs to understand the technicalities of FIAR. Rather, they should have a general awareness of its intent and the sense that a cultureshift may be needed in terms of improving and standardizing processes to achieve and sustain an audit ready state. This will be accomplished when the acceptance of FIAR has occurred at the highest levels and is effectively pushed down.
2. ENTERPRISE EFFORT
Chain of Command Ownership is essential since FIAR must be an enterprise-wide effort. In our drive to achieve audit readiness, the behaviors and practices that will lead to success must be institutionalized at the major command level. In AFMC, this is being accomplished via the Air Force Materiel Command (2013) Strategic Plan, (7) with the senior FIAR leadership team spearheading the effort together with FIAR field teams/focal points.
We must have a solid governance structure in place that supports this mission. To emphasize the importance, the AFMC manages and executes approximately 38% of the Air Force's budget (approximately $54 billion). The graphic below is based on the structure that AFMC has implemented to drive audit readiness.
3. ENDURING REQUIREMENT
FIAR, once achieved, will need to be sustained. This will require full support from functional stakeholders across the AFMC, with ownership of FIAR objectives remaining with these stakeholders. For example, logistics is the core function of our counterparts in the AFMC/A4 community. In order for lessons learned to be sustained from the FIAR efforts for those mission critical assets within AFMC/A4's purview, the functional stakeholders must maintain a vested interest. Otherwise, we run the risk of losing what we have accomplished.
The topic of sustainment has been noted by some to be the biggest challenge to come, so much so that it has weaved its way into the OUSD(C))'s Financial Improvement and Audit Readiness (FIAR) Plan Status Report, (8) the DoD Office of Inspector General (IG) Fiscal Year (FY) 2014 Audit Plan, (9) and many other relevant documents supporting the FIAR effort.
4. ASSESS PROGRESS TRANSPARENTLY
In Dr. Spencer Johnson's book, Who moved my cheese? An amazing way to deal with change in your work and in your life, (10) he discusses our ability to adapt and progress with change. The only way we will be able to sustain the changes that have been made and the lessons that have been learned through FIAR is to ensure we remain organized to focus on goals, objectives and results, Johnson writes (of course he is using mice in a maze as the basis for his story), "Smell the cheese often so you know when it is getting old." Granted, you must think a little abstractly, but the same is true for FIAR. If we do not make a point constantly to review the lessons we have learned and continue to look for areas of improvement, our efforts will have been for naught.
Now that the guiding principles have been established, how do we hold it together and make sure that everyone stays "in the loop"? The dreaded metrics. Ah, metrics. 5% of us love them, the other 95% percent of us hate them. 80% of us appreciate their value (a little sarcasm never hurts, right?). Of course, with any major effort comes another effort to develop metrics to make sure we stay on course. I am not going to list every metric we are responsible for, nor am I going to spell out every effort made to keep the stakeholders of each assessable unit informed. Nevertheless, they are worth mentioning. Using the CLTM as a framework, metrics show us in a picture where we stand. They can put the work that is being done in a warehouse by area of responsibility (AOR) in front of the four-star general. In essence, metrics tie together the four guiding principles previously discussed.
Probably the most important metric tool we maintain is the Commander's Report Card (see below). This is a living scorecard that allows the commander and other users to look at the details of our FIAR efforts arrayed by assertion package from the highest level (simply, are we on track?) down to the detailed transaction level. At any moment, the commander is able to know what testing has taken place, what the results were and how they compared to previous tests. In essence, the report card delivers the visibility discussed in the guiding principles.
As a final example, please look at the following chart. It represents how much the guiding principles--and most specifically commander involvement --play a role in ensuring we are audit ready. This version of bar chart excludes the names of AFMC installations, but is a real comparison of AFMC's overall performance on five corrective action plans (CAPs) identified in the Air Force Real Property effort through the beginning stages of the CLTM. We developed training to address the needed corrective actions. The effort was communicated and institutionalized in the field. Then it was tested to ensure the lessons learned were being incorporated into daily practices. The individual bars depict each AFMC installation's performance and how each contributes to the overall AFMC percentage. The final bar in each graph represents the overall Air Force performance as it relates to the CAPs identified, to include the AFMC effort.
AFMC's audit readiness division, HQ AFMC/FMI, began providing detailed feedback and training on the Air Force Real Property audit assertion package to the installations in February 2013. The charts depicted here show the improvement realized by capitalizing on our commander's involvement, following the guiding principles discussed above, and utilizing the CLTM.
Over the five-month period, there was a marked improvement across all installations and across all corrective actions. We eventually achieved the 95% accuracy/success threshold through continued use of the CLTM, thus repeating testing monthly and providing feedback to the installations for improvement.
The changes needed to achieve the auditable financial statements that the public is demanding will require a complete culture change across the DoD. In AFMC, we have established the four guiding principles to help us accomplish this change: (1) Chain of Command Ownership, (2) Enterprise Effort, (3) Enduring Requirement, and (4) Assess Progress Transparently. I recently read an anonymous quote that said, "If you always do what you've always done, you'll always get what you've always got. (11)" The point here is that we know we can do better and unless we are willing to embrace these principles and the lessons that will be learned through the use of the CLTM, we will not achieve auditable financial statements.
The guiding principles and CLTM were indeed developed under the "audit readiness dome," but they are intended to lead us on a path of continuous improvement, success and transparency. John F. Kennedy stated, "Change is the law of life and those who look only to the past or present are certain to miss the future. (12)" In the event of an audit, we are hopeful the lessons we have learned and the constructs we have implemented may be useful to others.
(1) CNN Money, "Fortune 500", http://money.cnn.com/magazines/fortune/fortune500/, Accessed 9/26/13. (2013)
(2) FIAR Guidance, Office of the Under Secretary of Defense (Comptroller)/Chief Financial Officer, March 2013
(3) FIAR Guidance, Office of the Under Secretary of Defense (Comptroller)/Chief Financial Officer, March 2013
(4) Hon. Robert F. Hale, Financial Management and Business Transformation at the Department of Defense, Hearing, Committee on Armed Services, United States Senate, 4/18/12.
(5) Dr. Steve Butler, Senior Executive Service, Executive Director, Air Force Materiel Command, Wright Patterson Air Force Base, Ohio
(6) 2013 Air Force Materiel Command Strategic Plan
(7) 2013 Air Force Materiel Command Strategic Plan
(8) Financial Improvement and Audit Readiness (FIAR) Plan Status Report, Office of the Undersecretary of Defense (Comptroller), May 2013.
(9) FY 2014 Audit Plan, DoD Office of Inspector General, October 2013.
(10) Johnson, S. (2002). Who moved my cheese? An amazing way to deal with change in your work and in your life. New York: Putnam.
(11) Top 20+ awesome quotes on change management (2002), http://www.torbenrick.eu/blog/changemanagement/20-awesome- quotes-on-change-management/. Accessed 12/2/13. (2013)
(12) Top 20+ awesome quotes on change management (2002), http://www.torbenrick.eu/blog/changemanagement/20-awesome- quotes-on-change-management/. Accessed 12/2/13. (2013)
Sara Connolly-Somich is an Accountant in the Audit Readiness division of the HQ AFMC Financial Management Directorate, Wright-Patterson AFB, OH. She previously served as an Accountant and Financial Analyst at the Defense Finance and Accounting Service in Cleveland, OH. She holds an MBA from Cleveland State University, is a graduate of Air Command and Staff College, and is a Certified Defense Financial Manager. She is a member of ASMC's Aviation Chapter.
* The author thanks David McKenney, Greg Ulmer, Susan Bridgewaters, Tom Obringer and Mr. Don Kendrick for their helpful information and/or review of drafts of this article.
Fortune 500--Top 10 Companies Rank Company Name Revenues ($B) Department of Defense 527.5 1 Wal-Mart Stores 469.2 2 Exxon Mobile 449.9 3 Chevron 233.9 4 Phillips 66 169.6 5 Berkshire Hathaway 162.5 6 Apple 156.5 7 General Motors 152.3 8 General Electric 146.9 9 Valero Energy 138.3 10 Ford Motor 134.3 Commander's Report Card SBR Readiness Status SBR Assessible Units AFMC AFLCMC AFNWC AFRL AFSC AFTC Funds Distribution 1 N/A N/A N/A N/A N/A to MAJCOM Funds Distribution 2 2 2 2 2 2 To Base Civilian Pay 2 2 2 2 2 2 MILSTRIPS 4 4 4 4 4 4 Military Pay 2 2 2 2 2 2 Travel Pay 2 2 2 2 2 2 Vendor Pay 4 4 4 4 4 4 Reimbursable Budget 3 3 3 3 2 3 Authority & Execution Contract Pay 3 3 3 2 3 3 Blue: 1 Opinion Green: 2 On Track/Pass Red: 3 Off Track/Fail Gray: 4 Not Graded Real Property Testing Progress Jan to May 2013 January May AFMC 75% 90% Base "A" 85% 95% Base "B" 50% 95% Base "C" 83% 70% Base "D" 94% 100% Base "E" 71% 95% Base "F" 59% 93% Base "G" 49% 66% Base "H" 42% 95% Base "I" 93% 93% Overall AF 61% 74% Note: Table made from bar graph.
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|Publication:||Armed Forces Comptroller|
|Date:||Sep 22, 2013|
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