Getting the Pentagon to the point where it can finally pass a financial audit will take sustained commitment to the issue over the next several years—a commitment his predecessors had not always shown, the Defense Department’s chief financial officer told lawmakers Thursday.
Robert Hale, the Pentagon’s CFO and comptroller, told a special panel assembled to examine DoD’s progress toward audit readiness that there is a focus and commitment to the issue among the department leadership that has not existed in the past. But if DoD is to achieve the goal of auditable statements by September 30, 2017, Congress needs to do whatever it can to make sure future CFOs pay as much attention to the issue as he does, he said.
“Perhaps my biggest concern is sustained commitment to this over time. That really depends,” Hale told the House Armed Services Committee’s defense financial management and auditability reform panel at its inaugural hearing.
“We’ve got it right now. I care about this. But frankly, the people that sit in my chair have generally been budget junkies. It’s important that we have somebody that’s my successor who knows something about audits and cares about the audits. I won’t be able to do anything about that, and I urge you to do what you can. Sustained leadership over a couple of administrations will be required to make this happen.”
DoD is working toward 2017 with its Financial Improvement Audit Readiness plan, first published in 2006 and updated in May. It lays out specific areas of DoD that financial managers want to archive to clean audit opinions over the coming years.
Hale said there are some parts of the department, including the Army Corps of Engineers, the Defense Finance Accounting Service and the Defense Contract Audit Agency that are already capable of achieving clean audits. Getting any of the military services to that point though will take a lot more work.
“To pass an audit, an organization has got to have systems and processes that record financial results of business events in a consistent and reliable manner,” he said. “Our processes and systems don’t always meet that standard. Many of the systems are old, and they don’t record information in the level of detail that’s required for an audit. Our processes are sometimes variable across commands and sometimes even across bases. These issues are especially challenging for us, because DoD’s enormous size and geographical dispersion mean we just can’t rely on manual solutions or workarounds as many agencies have been able to do.”
It’s not that DoD doesn’t know where it’s spending its money, said Elizabeth McGrath, DoD’s deputy chief management officer. It’s that granular information on how much individual programs and procedures cost on a day-to-day basis is hard to track, given the department’s current systems and practices.
“The enterprise resource planning systems are being designed so we can capture that cost information, so we can do forecasting for maintenance and sustainment of those systems,” McGrath said. “We’re thorough the development of our business enterprise architecture, and we’re developing financial information standards along with logistics-based standards so that at the end of the day we can aggregate that data and have cost information.”
Hale said the department is able to come up with what he believes are fairly reliable cost estimates for its programs. It just isn’t terribly easy.
“Take the Joint Strike Fighter as an example. If you want its operating cost, you’re going to have to look at our personnel information, you’re going to have to look at our day-to-day operation and maintenance costs, you’re going to have to look at spare parts, and those are all in separate appropriations,” he said. “If you wanted that now, you could not punch a button and get it. You would have to have a team of experienced analysts go in and do a study. Yes, I can get something that would help a commander make a decision, but it would take a long time, and it will require specialized expertise from contractors and others. And there’s no audit to verify the data.”
Officials say there are plenty of problems with DoD as an enterprise that are keeping the Pentagon from getting clean audits. They’re trying to address those issues with stronger governance through McGrath’s office. But as far as the individual military services go, DoD is starting with the Marine Corps. Hale said the Navy and Marines are ahead of the other services in terms of dedicating money and resources to improving their financial information. They’re hoping to use the Marines as a “beachhead,” and export some of the lessons they learn to the other services.
“We don’t really understand in the Department of Defense what you have to do to pass an audit for a military service, because we’ve never done it,” he said. “You can’t learn to swim on the beach, and it’s hard to talk to other agencies because they’re different from us. As the Marine Corps jumped in to try to swim, they found out they had a number of problems. Some of them were system related, but the real issues were business processes. We were just doing things that were effective in terms of meeting warfighter needs, but they aren’t auditable. For example, we do bulk obligations of military pay. The auditors want it done in a much more detailed fashion. Sometimes we weren’t doing basic blocking and tackling appropriately, for example we weren’t taking people off of access lists to financial systems when they left the base.”
In addition to focusing on auditability from the top, Hale said the department is trying to make sure the issue is on the minds of people who work outside of DoD’s accounting organizations.
McGrath said the department’s progress toward auditability now plays a role in the take home pay of many of DoD’s senior executives, even those who don’t work in the comptroller’s office.
“We are ensuring that the financial auditability goals are part of the performance appraisals of people who aren’t financial managers. It’s because of their significant contribution to our ability to achieve audit readiness,” McGrath said. “It takes everyone. Every functional area must participate.”
Hale said DoD is also trying to make sure it has the workforce it needs to prepare for audits. There are about 60,000 financial management employees in the Defense department. He said the Pentagon is reassessing their knowledge and training.
“I think generally they’re well-trained, but we haven’t been as systematic about it as I would like. We are starting to do that in two respects. We completed a competency review to figure out what they ought to know. And second, we’ve asked for legislative authority to impose a course-based certification program for Defense financial managers, analogous to the Defense Acquisition Improvement Act. That would allow a framework. We’d require certain courses for certain jobs, and auditability and accounting would be one of them. I think it’s generally a well-trained workforce based on my experience, but a more systematic approach would be appropriate.”