Improving Financial Performance
Financial Improvement and Audit Readiness (FIAR)
The Department of Defense (DoD) is committed to having fully auditable financial statements by 2017, the deadline established by Congress in the National Defense Authorization Act of 2010. In addition, Secretary Panetta outlined an accelerated goal of achieving an auditable Statement of Budgetary Resources (SBR) for General Funds in 2014. The Department is:
- Using a streamlined approach that focuses on improving and auditing the information most often used to manage.
- Holding leaders accountable to achieve long and short-term FIAR goals through a governance process.
- Providing funding to DoD Components to improve systems, processes, and controls.
The FIAR Plan organizes and prioritizes the financial improvement efforts of the Military Departments and Defense Agencies (the Components). It ensures the Components' Financial Improvement Plans are aligned with the business transformation initiatives and systems modernization efforts identified in the Enterprise Transition Plan (ETP). Integration with the ETP is essential because audit readiness cannot be achieved by most of the Components until system improvements identified in the ETP are successfully completed.
Since 2005, when the FIAR Plan was first issued, much has been accomplished to improve financial management. Although DoD cannot produce auditable financial statements today, the Department effectively manages its budgets, appropriations and expenditures, as verified by its ability to effectively support the nation's warfighters and worldwide operations.
FIAR Goals and Priorities
The FIAR strategy has evolved and matured since the plan was first issued in 2005. Its evolution, based on lessons learned, now encompasses the breadth of process, control, and system improvements, and more fully addresses internal control testing and remediation efforts. This strategy supports the portion of the Office of the USD(C) mission to:
Improve business and financial processes, controls, systems and data to achieve accurate, reliable and timely financial and managerial information for decision makers and citizens.
The Department's FIAR goals in support of this mission are to:
- Achieve and sustain audit readiness.
- Achieve and sustain unqualified assurance on effectiveness of internal controls.
- Attain Federal Financial Management Improvement Act (FFMIA) compliance – financial management systems that support effective financial management.
- Budgetary information
- Mission critical asset information.
Budgetary information is the first priority because of its importance to daily decisions made across the Department (e.g., status of funds received, obligated and expended). By focusing improvement activity on budgetary information and ensuring it is timely and accurately produced, the Department will accomplish the USD(C) objective to improve information most often used by management. It also supports the goal of obtaining auditable financial statements starting with the Statement of Budgetary Resources (SBR) for General Funds by the end of CY 2014.
The benefits of focusing improvement efforts on budgetary information and the SBR include:
- Improving the visibility of budgetary transactions resulting in more effective use of resources,
- Providing for operational efficiencies through more readily available and accurate cost and financial information,
- Improving fiscal stewardship (ensures that funds appropriated, expended and recorded are reported accurately, reliably and timely),
- Improving budget processes and controls (reduces Antideficiency Act violations), and
- Linking fund execution to the President's Budget (more consistency with the financial environment).
Mission Critical Asset Information
The second priority focuses improvement and audit readiness work on information essential to effectively manage the Department's mission critical assets. For purposes of this priority, mission critical assets include:
- Military Equipment (e.g., ships, aircraft, combat vehicles)
- Real Property (e.g., land, buildings, structures, utilities)
- Inventory (e.g., rations, supplies, spare parts, fuel)
- Operating Materials and Supplies (e.g., ammunition, munitions)
- General Equipment (e.g., training equipment, special tooling and test equipment, shipyard cranes)
The benefits of focusing improvement efforts on mission critical asset information include:
- Moving the Department closer to achieving its long-standing goal of total asset visibility.
- More reliable and accurate logistics supply chain and inventory systems.
- Improved ability to timely acquire, maintain and retire assets.
- More effective utilization of assets.
- Better control over assets preventing their misuse, theft or loss.
- Reducing unnecessary reordering.
Accomplishing this priority will not only improve important management information, it will also move the Department closer to auditability as existence and completeness of assets are two of the five financial statement assertions that auditors test in a full financial statement audit.
Financial Performance Improvement Accomplishments
The Department has made measured progress in improving financial information and in achieving full auditability, as demonstrated by the financial statement audit opinions identified below:
- FY 2011 Unqualified Audit Opinions:
- U.S. Army Corps of Engineers – Civil Works
- Defense Contract Audit Agency
- Defense Commissary Agency
- Defense Finance and Accounting Service
- Defense Information Systems Agency Working Capital Fund
- Military Retirement Fund
- Office of the Inspector General
- TRICARE Management Activity - Contract Resource Management
- FY 2011 Qualified Audit Opinion:
- Medicare-Eligible Retiree Health Care Fund
- Medicare-Eligible Retiree Health Care Fund
The DoD expects the unqualified audit opinions to carry forward through FY 2012 and future years. Other accomplishments for FY 2011 include:
- Army, Navy, and Air Force received unqualified examination opinions on Appropriations Received audit readiness assertions.
- Army asserted audit readiness of General Fund Enterprise Business System (GFEBS), an Enterprise Resource Planning (ERP) system, Wave 1 sites.
- Navy asserted audit readiness of the E-2D Advanced Hawkeye Major Defense Acquisition Program.
- Air Force received an unqualified examination opinion on the Fund Balance with Treasury reconciliation process audit readiness assertion.