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DLA leads the pack in audit readiness.

The Defense Logistics Agency (DLA) mission is to provide globally responsive, operationally precise, and cost-effective logistics support for America's warfighters. Customers frequently express how satisfied they are with DLA's exceptional support. Through responsive and effective processes, DLA ensures supplies get to the warfighters when and where they need them.

Our audit readiness efforts have helped the Agency perform our jobs even better; our processes are well controlled and the data is accurate. Audit readiness is far from an administrative exercise; it affects the mission and functions of DLA.

DLA asserted full financial statement auditability in September 2015, two years ahead of the congressionally-mandated fiscal year 2017 target--the first Department of Defense entity of its size and complexity to do so. For the last four years, we have prepared to be audit-ready by performing all the necessary steps to pass an audit. When we identified gaps, we engaged an independent public accountant (IPA) firm to develop corrective action plans to ensure compliance.

We established a centralized program management structure, involving the entire Agency. We focused on the workforce, employing an intensive change management component to our plan, which helped the average employee understand, "what's in it for me." The DLA director was "all in," making it clear to top senior leaders (not just the financial ones) that becoming audit ready was non-negotiable. Every three weeks top DLA leaders meet to discuss the status of corrective actions (e.g., Acquisition Executive would describe our plan to fix "procure to pay" problems). Practice really does make perfect!

All these activities helped us create a more agile, integrated, and transparent business environment. We documented and assessed our major business processes--to include both system and manual processes--which helped to identify internal controls. This documentation helped DLA realize our standard processes were being done differently across the global enterprise so we developed standard operating procedures and associated training courses. These not only helped DLA employees understand how to do their jobs in a compliant way, but also ensured DLA had a robust knowledge management program in place for continuity purposes.

A consistent problem across DoD is obtaining evidential matter (EM) within the auditors' timeframe. To combat this problem, DLA created an EM guidebook to identify:

* Who are the individuals needing to store EM

* What is considered key EM and what it looks like

* When EM needs to be stored

* Where EM should be stored

* Why it's important for the audit

Most processes at DLA are highly automated; to accommodate this, we established a central data team to act as "first responders" when an auditor requests EM within the short "provide by client" timeframe. This team helped to improve DLA's response time and decrease the need for human intervention. The Agency still has manual processes that need to be improved, such as when Military Interdepartmental Purchase Requests are used for intergovernmental purchases. To help with EM awareness and education, DLA established intensive training sessions on how and where to store EM. In addition, we are now modifying our performance management system to hold our first line of defense, supervisors, more accountable for compliance.

Through DLA's audit readiness physical counts, our inventory is 99 percent accurate on average; that's better than most private-sector companies! However, having accurate physical counts is only a third of what the auditors will request. We will also need to prove that the quantity is accurately depicted in our property system (or as an auditor would call it, the Accountable Property System of Record), and that the quantity and value of the inventory is reflected correctly in the financial system. This requires a lot of system hand-offs that are by no means seamless. To ensure the warfighters gets what they need, it is imperative that the physical count matches the property record and the financial system correctly.

What Happens When the Hand-offs Aren't Seamless?

Take a hypothetical example. A distribution worker counts the bins in his assigned area; let's say they are all critical nuclear weapons system parts. In one bin, he notices there are only 1,000 parts. When he enters the exact count, he realizes the bin should have had 1,500 parts. He records the inventory into the property system, which triggers an inventory loss and another job is notified to start researching the discrepancy. Meanwhile, there is a system glitch that day in the interface between the property system and the financial/planning system. As a result in the loss of the signal to the planning system, there are 500 fewer parts for this critical item. In this circumstance, having 500 less parts in inventory would normally trigger the need to buy more or DLA won't get them in time to deliver them to the warfighter. Is this an audit readiness roblem? Yes, the financial books would be off by 500 parts, but that isn't the biggest problem in this scenario. Without having the part, a critical weapon system could go down and a warfighter could be in harm's way! We did not have this level of awareness before our audit readiness efforts, nor the operational focus needed to clean it up.

DFAS recently awarded an audit contract to an IPA, with the intent of starting in June 2016; unfortunately, the award is currently under protest. Once that matter is resolved, the Agency is confident that we're ready; it's time to stop practicing and start the game. DLA awaits the IPA findings and hopes for a positive audit opinion. The Agency has improved our business processes and has proved to Congress and the American taxpayer that we are good stewards of their money. In the end the warfighter will receive the biggest benefit--better and more responsive support.

Isn't that what it's really all about?

by Simone Reba, DLA Audit Readiness Program Manager

Simone A. Reba Deputy Director DLA Finance

Ms. Simone Reba was inducted into the Senior Executive Service on June 11, 2007 and became the Deputy Director for DLA Finance, Defense Logistics Agency, on April 30, 2007. The Defense Logistics Agency, headquartered at Fort Belvoir, VA, provides the Army, Navy, Air Force, Marine Corps and other federal agencies with a variety of logistics, acquisition and technical services in peace and war.
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Author:Reba, Simone
Publication:Armed Forces Comptroller
Date:Jun 22, 2016
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