Army prepares to undergo its first large-scale financial audit

The Army hopes to follow behind the Marine Corps in successfully passing a partial audit of its financial statements. While the service acknowledges it's unlike...

The Army says within the next few months, it will assert that a large chunk of its financial statements are ready to undergo an audit. That forthcoming claim is the result of incremental progress the service says it has been making toward getting its books in order for the past several years.

While asserting audit readiness and actually passing an audit are two very different things, the Army thinks it has beefed up its internal controls to a sufficient level that it’s ready to submit its full current-year statement of budgetary resources (SBR) to the scrutiny of outside auditors.

The steps that led up the decision included the full deployment of the Army’s largest enterprise resource planning system (ERP), the General Fund Enterprise Business System, and several years of piecemeal examinations by independent accounting firms, said Kristyn Jones, the deputy assistant secretary of the Army for financial information management.

“We’ve been working very closely with them to figure out what’s ready and what’s not,” she told an AFCEA conference in Tysons Corner, Va., Tuesday. “It would be a pretty miraculous feat if we got a clean audit on our first go-around, and I don’t think anyone’s going to guarantee that. But what I think we can say is that our control environment is sufficient, we’ve learned enough over the past couple years to make the investment to bring in an independent accounting firm to do an audit, and that we will be moving ever closer to the 2017 goal of having all of our statements audit-ready. The Army has never been able to audit our books in our 240-plus year history, and now we’re going to be able to assert that we’re able to do that for our appropriated funds in just the next couple months. To me, that’s a pretty big deal.”

Congress has told the Defense Department to have its entire consolidated financial statement ready for audit by the end of fiscal 2017, and DoD remains the only agency whose financial practices can’t stand up to an audit. The interim requirement for 2014 is a full SBR audit, and the Pentagon already has acknowledged it won’t completely achieve that task. Instead, it hopes to have “most” of the department ready for that partial audit, but only based on statements reflecting the current year’s financial information.

Reducing sample size

The Marine Corps became the first military service to pass such an audit earlier this year. Jones said the Army has taken lessons from the Marines’ experience, including the need for robust IT systems with internal controls that are strong enough to be taken seriously by auditors. “One of the key things the controls in our ERP systems will do is to reduce the number of samples we have to give to our auditors,” she said. “That may not sound like a big deal, but for the Marine Corps, which is significantly smaller than we are, they had so many samples during their first year under audit that they basically had to stop. They couldn’t get a clean opinion. If the Army can rely on the controls in our IT environment, it reduces the number of samples and we have a chance to actually get through an audit. It means there’s less work for the workforce to pull all those samples and less cost to pay the auditors to do the audit.”

Unlike the other military services the Army decided it could not reach auditability while relying on legacy financial systems, most of which were not constructed with modern accounting standards in mind. Its primary ERP, GFEBS, has been fully deployed to Army locations in more than 70 countries since 2012. A follow-on program to handle classified programs, GFEBS-Sensitive Activities, is in the planning stages after navigating through a bid protest.

Real-time accounting data

“But setting aside the IT community, I think what’s helped us succeed is the tight connection between the functional community and the IT and acquisition communities,” Jones said. “In a weapons system, physics are going to determine how far a missile can fly. But in a business system, there are so many different dimensions that can determine the outcome. It takes a tight partnership to get that done right, and you have to have those communities working all the way through the process with the program manager. If we didn’t have that, I don’t think we would have had a product that was acceptable to the users.”

Jones said Pentagon and legislative mandates for auditability were a key driver toward getting GFEBS up and running, but as the defense budget has become more and more squeezed, it, and other systems that finally give the service access to real- time accounting data are beginning to show operational value to Army leaders outside the financial management world.

“What’s most interesting to our commanders is better business intelligence,” she said. “When they’re looking at all of our force structure changes, our readiness issues, civilian furloughs, they’re not concerned as much about auditability. They want to know, ‘How do I spend my next dollar, what are the decisions I need to make, and what information do I have to make them in a smart way?’ In my mind, what this means is that we should be getting out of the era of doing salami- slicing every time there’s a budget cut. Instead of cutting everything equally, we can stop doing certain things. We have the ability to make smarter decisions if we can leverage the capabilities in our ERPs.”

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