Air Force officials say the service is making up the most ground of any of the military services as part of the push to finally get the Defense Department to successfully close its financial books.
But government auditors say this entire Pentagon effort is at risk because of shortcomings in the services’ technology systems.
Jamie Morin, the assistant secretary of the Air Force for financial management and comptroller, said he is more optimistic than ever before because the service put money and people behind the problem.
Morin said during a hearing Tuesday before the Senate Homeland Security and Governmental Affairs Committee that there is an increased likelihood that the Air Force will meet the 2017 deadline to have its financial statements fully auditable and the September deadline of being able to assert audit readiness for its schedule of budgetary activity.
“Over the last several years, the Air Force has asserted audit readiness on a variety of processes — you’ve seen those — including civilian pay, budget authority and distribution, military equipment, spare engines and other components of our operating materials and supplies,” Morin said. “In some cases, we have received clean bills of health from independent auditors, and in other cases, as with the other services, we’ve received a list of things that we need to fix, specific control weaknesses. And now we have well-developed plans to resolve those. Your Air Force is strongly committed to this effort. It’s the law. We believe it enhances our readiness, and we believe it’s an important sign of good financial stewardship.”
New focus from leadership
He said Secretary Deborah Lee James mandated audit readiness as one of her top three priorities for the Air Force. She recently gave key leaders across the service specific directions about what they need to do to help.
“Our chief of staff, Gen. [Mark] Welsh, has also been a strong supporter and has engaged in many of our major command commanders,” Morin said. “Our four-star leadership have integrated audit readiness into their own personal management control structures in a way that simply wasn’t the case years ago.”
This is a major change since last October when Morin told Senate Armed Services Committee members that the Air Force would struggle to meet the 2014 deadline, and 2017 wasn’t going to be any easier.
But over the last six months, the Air Force has accomplished specific tasks one- by-one to meet the congressionally mandated deadlines.
Each of the services and DoD on the whole remain at different points in the process to achieve audit readiness. DoD is the only federal department that can’t successfully account for its spending to meet third-party auditors requirements. The Marines Corps in fiscal 2012 received an unqualified opinion on its schedule of budgetary activity (SBA) — the first DoD service ever to receive that result.
Robert Hale, the out-going DoD comptroller, said he expects the Marines Corps to earn the same result for 2013.
While each of the services is at different points, the one common major challenge the Army, Navy, Air Force and the Office of the Secretary of Defense all face is updating and integrating their technology software, specifically the enterprise resources planning (ERP) systems, to meet the audit readiness requirements.
Take the Air Force as one example. It’s still using a system from 1968.
Successful ERPs are key
Morin said the Defense Enterprise Accounting Management System (DEAMS), is under development to replace that 40-year-old system.
He said the service received a positive assessment from the Air Force Operational Test and Evaluation Center on DEAMS as currently deployed at more than six bases.
The Air Force plans to complete DEAMS deployment to all Air Mobility Command in the next couple of weeks and then more bases by Oct. 1. Morin said the Air Force also is on track to complete deployment Air Force-wide before the full financial statement audits begin.
The Army, on the other hand, is in better shape.
Robert Speer, the Army’s acting assistant secretary for financial management and comptroller, said the general fund enterprise business system (GFEBs) is used by 53,000 service members and civilians at 200 locations worldwide.
“An independent public accounting firm recently examined and delivered a report on the general fund’s statement of budgetary resources, focusing on 2013 transactions within the Army’s Enterprise Resource Planning environment. Although not a clean opinion, the independent public accounting firm was able to complete the examination, was able to provide us and confirm confirmation of improvements, and throughout the examination identify areas we need corrective action,” Speer said. “In response, the Army has been implementing a plan of action to remediate those findings prior to the 2015 audit of scheduled budgetary activities. In addition, during fiscal year 2014 the Army received a clean opinion from a public accounting firm on the examination of real property. That is, assets of 23 different Army installations, which accounted for over 50 percent of the book value of the Army’s real property assets. This audit supports the second DoD audit readiness priority, verifying the existence and completeness of our assets.”
He added one of the approaches the Army is taking to ensure its ERP system isn’t another black hole of money and wasted time like so many other ERP programs across government is taking the development process in small increments.
Speer said the Army examined five different business processes and did it at the first three installations that adapted to GFEBs. The next year, the service broadened it out to 10 installations, did an audit of eight of those business processes, and this year Speer said they audited the whole Army across all business processes for the statement of budgetary resources.
Despite incorporating many lessons learned, government auditors say the lack of quality ERPs are their biggest concerns.
“The reliability of data or the unreliability of data certainly complicates the audit process, makes it extraordinarily difficult to get done. If we can’t take information from systems on its face value, if we have to spend an excessive amount of time verifying data, that, in many cases, makes audits undoable,” said Jon Rymer, the DoD inspector general. “So the continued focus by not just the financial leadership, but the operating leadership, the IT leadership of the department, on implementing those systems, and those systems become test — operationally accurate is critical. So I think the focus has to be on improvement in IT capabilities, not just financial management.”
Rymer said that the associated problems with the ERPs are the more than 140 feeder systems that connect to them. He said there often seems to be a reluctance to change entry-level systems by DoD, because it requires a significant amount of training. It also brings in volatility, because many of the legacy systems were built for purposes other than financial management, so moving them toward counting dollars isn’t easy.
Asif Khan, the Government Accountability Office’s director of financial management and assurance, said systems always are a concern, but DoD also needs a workforce that can use the systems.
He said proper training around systems and the more broad goal of auditability requirements could take as much as two years — time DoD just doesn’t have.
80 to 90 percent there
Despite these challenges and hills to climb, Hale said he feels good that DoD will meet both the 2014 and 2017 deadlines. He said the military may not be 100 percent there by September across every statement of budgetary readiness, but he said 80 percent to 90 percent completed would be a great accomplishment.
And while the 2017 deadline still is far off, Hale and others said they feel good about their chances for that, too.
“Independent auditors have verified progress in many specific areas but will soon face a broader goal that we’re all aware of — audit-ready budget statements by September 2014. By audit-ready, we mean that we have made significant, sufficient progress in processes and data, so that we can withstand an independent audit in the view of management. Audit readiness provides most of the benefits of the audit process,” Hale said. “The audit itself attests to our success. It’s too early to know for sure the audit-ready status for every budget statement but Sept. 30. We’re still in the process of remediation. We’re going to use every moment we have to try to make fixes. However, we expect that most of DoD’s budget statements will be ready for audit by Sept. 30, including statements in all of the military services, and I believe that is an enormous accomplishment for this department. We are finally getting to the real issue of the military services. We had not done that before, and we need to do it.”
Hale added DoD will deliver its ninth installment of an audit progress report to Congress later this week as a sign of just how much effort and focus is on audit readiness.
But Hale’s optimism is not shared by Rymer and Khan.
“It looks increasingly unlikely that DoD is going to be able to meet the auditability goal for 2014 on the complete statement of budgetary resources, for the reason I mentioned earlier on. There’s not enough time to make corrective actions to have an efficient audit of the entire SBR, like the NDAA asks for,” Khan said. “Some of these time slippages are also going to impact the 2017 data as well. More importantly, like Mr. Rymer mentioned, the system issues are going to get in the way if they’re not implemented successfully before then. And the other one is the workforce issue. They have to be trained and be ready to support an audit.”
Rymer said he agreed with Khan that it will be difficult to meet the deadlines, but has a little more hope. He said so much of this will depend on those IT systems and whether they can get them on working correctly.
Sen. Tom Coburn (R-Okla.), the ranking member of the committee, said in no uncertain terms if the ERPs don’t work, this effort is in real trouble. Coburn has asked both the IG and GAO to continue looking at DoD’s ERP efforts.