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Lead, follow, or get out of the way: the Marine Corps is way ahead in its goal to achieve financial improvement and compliance with the Chief Financial Officers Act.

The Chief Financial Officers (CFO) Act, the President's Management Agenda, and recent authorization and appropriation acts all contain the same basic theme: Produce financial reports that are accurate, timely, and relevant to leadership and that will stand up to independent audit review. There is no easy fix to solving our financial recording and reporting problems. The Marine Corps has recognized this fact and is taking a multifaceted approach to comply with the CFO Act. Auditable financial statements should be nothing more than the by-product of sound processes and procedures at each segment of a financial event. The entire cycle of obtaining goods and services, from Private Jones's "needing stuff" to paying company XYZ for providing that "stuff," requires process review and improvement.

Determining the Problem

Within the Marine Corps, we started the financial improvement review by asking a very basic question: Is the accounting system the problem? The Marine Corps uses the Standard Accounting, Budgeting, and Reporting System (SABRS) to record all general fund appropriations. To answer the question, the Marine Corps requested the Logistics Management Institute (LMI) to evaluate SABRS for compliance with standards established under the Joint Financial Management Improvement Program. The LMI completed this evaluation, and SABRS passed the certification process with a few required corrections that are in the process of being resolved. With assurance that SABRS meets the required standards, the improvement focus shifted to other stakeholders outside the financial community (for example, contracting, facilities, supply, and personnel). Our stakeholders also extend beyond the Marine Corps since numerous DoD-wide systems are integral to financial improvement.

The majority of business events having a financial impact occur outside our Marine Corps financial management community. Financial managers, for the most part, are not determining requirements, placing orders, receiving goods, etc. Those events happen through other communities such as manpower and logistics. Any sustainable improvements in financial management must include buy-in from them. There has to be a compelling WIIFM (What's in it for me?) proposition to change from the status quo. Our fundamental WIIFM for other Marine Corps stakeholders was simple: We were losing financial opportunities to support our marines because of our current business practices.

Simply put, we are not getting the maximum bang for our limited bucks.

During peacetime, the typical Marine division's annual operating budget and exercise support is about $20 million. With our current business practices, the Corps is wasting (via reverted balances of expired funds), more than this amount each year. Improvements by our stakeholders in their systems, policies, and procedures will help to identify these assets while they are still available for reuse and, thereby, enhance our primary goal of support to our marines and our warfighting missions.

With unity of effort achieved, our next step was to determine the criteria used for compliance and improvement reviews. Every business event has a cause and effect relationship. These relationships impact or are impacted by five key areas: Information Systems; Management Controls; Policies and Procedures; Organization and Infrastructure; and People. The interaction among these five key strategic areas determines the accuracy and propriety of every business event. For us, each process review focuses on these five areas for compliance, improvement, and mitigation efforts. Figure 1 shows the actions to be taken in each process review.

Figure 1. Five Key Strategic Areas and Actions to Be Taken in Each Process Review

Change Management

Five Key Strategic Areas

Information Systems

* Identify management systems

* Update information systems inventory

* Leverage and integrate enterprise architecture

* Document "To-Be" environment

* Conduct systems compliance assessments

* Conduct systems migration

Management Controls

* Monitor compliance

* Identify assessable units

* Document preventive detective controls

* Develop management control checklists

* Conduct management Control

Policies & Procedures

* Document "As-Is" business processes

* Collect, analyze, and review applicable process references

* Perform "gap analysis" between the "As-Is" process flow and applicable references

* Develop standard operating procedures (SOPS)

Organization & Infrastructure

* Identify key stakeholders and process owners

* Document assign roles and responsibilities

* Identify training requirements

* Develop training materials

* Conduct training classes


* Perform workforce analysis

* Determine staffing requirements

* Conduct competency assessments

* Determine retention requirements

* Implement management procedures

At this point, we had buy-in from our stakeholders and a template for reviewing our processes for compliance and improvement. Then the really hard work began. Where do you start? What is broken? What should our priorities for improvement be to maximize the benefit to the Corps?

Determining Solutions

Our starting point was the Fiscal Year (FY) 2002 Performance and Accountability Report issued by the Department of Defense (DoD) Inspector General. This report identified 13 material weaknesses applicable to DoD financial statements. Our next step was to bring together subject matter experts from our field commands to discuss financial management problems and weaknesses. From these reviews and discussions, we determined the following areas most critical to Marine Corps financial improvement. These improvements are on track to be completed and implemented prior to the beginning of FY 2007:

* Standardize document processing

* Simplify and standardize fiscal codes

* Integrate all phases of the programming, budgeting, and execution cycle

* Create environmental liability policy and procedures

* Update policy and procedure manuals

* Standardize fund holder training

* Field compliance with process and procedure changes

Making It Work

To date, we have made significant progress on many of these issues. Policy and procedures were developed and implemented in conjunction with the Deputy Commandant for Installations and Logistics on environmental liabilities. With very few changes, the Office of the Secretary of Defense (OSD) used the Marine Corps product to create the standard policy for environmental liabilities reporting for use across the Department.

Closer to home, in our finance and accounting organization, we formed a working group with representatives from each major installation and command to review step by step how each type of source document is processed. Our review found that over 700 different practices were being used by commands to process source documents. These have been reduced to 57 standard processes that cover every source document or financial transaction condition encountered throughout the Marine Corps and will be implemented Corps-wide in FY 2006.

We found that the Marine Corps used over 3,000 detailed cost accounting codes to classify execution by purpose in the accounting system. How these codes were being used varied from command to command, resulting in execution information at the detail level being extremely inaccurate and of little value to program managers in meeting reporting requirements. We reduced the number of codes to 310 and provided detailed guidance on how and in what circumstances the codes would be used. In addition, we mapped these codes to specific budget line items to reduce significantly the miscoding of cost account information. As a result, we've achieved simplicity and greater accuracy of data.

To assist in our ongoing Activity Based Costing (ABC) efforts, we reviewed the coding structures used by each command to identify internal organizations, that is, engineering support, supply, contracting, comptroller, etc. These codes have been standardized for all bases and have been associated with 37 standard business processes, which are the heart of our ABC efforts. This change has dramatically improved the verification and reliability of reported execution data.

We are currently pursuing approval through the Business Management Modernization Program process with OSD to invest funding in development of an authorization database that will seamlessly link the Program Budget information System (a Department of the Navy system), SABRS, and the Marine Corps Programming and Budget Development Database. This new database will distribute funding during the fiscal year and will eliminate the current manual processes: spreadsheet maintenance, manual entries into the accounting system, and the manual creation of authorization messages and letters. This effort will close the loop on integration of programming, budgeting, authorization, and execution information while providing leadership with useful information upon which to base resource decisions.

We also have updated the Marine Corps Order (MCO 7540.2E) on resource evaluation and analysis, thereby providing more teeth to the requirement for reviewing and reporting compliance with established financial policy and procedures. A new unit, the Marine Corps Financial Evaluation and Assistance Team, was established and chartered to develop and provide standardized fund holder training. Further, once all training to units is completed, that team will be providing an outside evaluation or inspection of commands' financial management compliance.

Because of these and other efforts, OSD has selected the Marine Corps to be the test case for demonstrable financial improvement within the Department. We have been tasked to develop standalone financial statements for Marine Corps appropriations (as a subset of the Department of the Navy's single official audited financial statements) and to obtain an audit opinion using the current accounting system, SABRS. Our roadmap for meeting the improvement mandates has been codified in the Executive Report: Marine Corps Financial Improvement Plan and submitted to OSD. (See more information.)

By our multifaceted approach of assessing the five strategic areas of business practices, engaging the stakeholders, and beginning at the source where financial transactions are generated, the Marine Corps has come a long way in a relatively short time toward improving our financial management capability. However, there is still quite a way to go before we accomplish the final goal of providing timely, accurate, useful, and auditable financial information to our leadership and external organizations. Until that goal is reached, the Marine Corps will continue its all-encompassing approach to strive for deeds, not just words, concerning financial improvement.

RELATED ARTICLE: DFAS begins its journey of transformation via BRAC (From a DFAS press release).

In December 2005 site directors at Defense Finance and Accounting Service (DFAS) Sites conducted briefings to update employees on the agency's approaching transformation, including DFAS implementation of the 2005 Base Realignment and Closure (BRAC) Commission's recommendations. DFAS's strategy is to use BRAC as a tool to facilitate its transformation, the most obvious feature of which is to reduce the number of operating sites from 30 to less than 10.

Said DFAS Director Zack Gaddy, "The DFAS mission to provide accounting and finance services for the military departments and Defense agencies will remain constant. And the change is in keeping with the DFAS vision: transforming today to be the trusted financial partner for tomorrow's warfighter. BRAC 2005 provides the opportunity to implement site consolidations, streamline DFAS operations, and support our goat to provide best value to the warfighter."

The transformation, which is underway, will implement changes to DFAS's organization structure, including rollout of High Performing Organization initiatives, establishing Centers of Excellence, and executing the National Security Personnel System (NSPS). NSPS Will improve the way Department of Defense hires, assigns, compensates, and rewards its employees while preserving core merit principles, veterans preference, and important employee protections and benefits of the current system. The DFAS transformation will reengineer business processes and retool skill sets necessary to perform critical functions.

These changes will satisfy the objectives required to meet DFAS's strategic goals, including the implementation of best business practices to increase productivity and reduce costs and reshaping its workforce to meet mission needs.
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Author:Chadwick, John M.
Publication:Armed Forces Comptroller
Geographic Code:1USA
Date:Jan 1, 2006
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