DoD plans dry-run financial audit for 2015

Wednesday - 2/12/2014, 5:20am EST

Jared Serbu reports.

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As the Pentagon struggles to meet its latest Congressional mandates to get its financial statements in audit-ready condition, leaders say 2015 will be a major stepping stone. For the first time, the entire department will undergo a financial audit, even if it's a partial one.

DoD, the only department that has yet to pass a full audit, is facing two deadlines that began as internal policy goals and that Congress later enshrined in federal law.

The department must have its entire consolidated financial statement ready to run the gauntlet of independent auditors by fiscal 2017. A smaller-scale review, covering only the department's statement of budgetary resources for 2014, is supposed to be ready in the meantime.

DoD has experienced some setbacks since Congress established those goals, including new strains on the department's financial management workforce as a result of the past few years of federal budget upheaval and civilian employee furloughs. DoD says its current position remains that its 2017 statements will be ready to go.

To test progress toward that goal though, the department is telling all of its components to get ready for a "limited scope" financial audit in 2015, said Margo Sheridan, the new director of DoD's financial improvement and audit readiness directorate.

"We're going to learn a great deal from this. I'm not sure we're going to pass it, but we're going to learn a lot," she said. "We're going to broaden our scope after that, with the goal of undergoing a full-scale financial audit of the Department of Defense in early 2018."

DoD saw a small glimmer of hope toward its audit goals last month when officials announced that the Marine Corps had become the first military service ever to receive an unqualified opinion on its schedule of budgetary activity (SBA).

That endorsement essentially demonstrated that the Marines could provide sufficient documentary evidence of the money they received from Congress and what they spent in fiscal 2012. But the SBA is a slimmed-down version of the statement of budgetary resources DoD must produce for 2014.

All started at different points

Still, as Defense Secretary Chuck Hagel noted in a Pentagon ceremony to celebrate the accomplishment last week, progress is progress.

"I know it's unusual for us to be in the Hall of Heroes to mark a bookkeeping achievement," Hagel said in a venue usually reserved for recognitions of military valor. "But damn, this is an achievement."

During a panel discussion organized by the Association of Government Accountants Tuesday, the military services' financial management leaders did not offer timelines as to when they might be able duplicate the Marine Corps' limited success.

But James Watkins, the Army's deputy assistant secretary for financial operations, said each service began the effort from a different starting point, particularly with regard to transitioning their decades-old IT systems for financial accounting into modern enterprise resource planning systems that adhere to government accounting standards.

In the Army's case, service leaders decided they needed to hold off on letting auditors scrutinize their statements until their main ERP, the General Fund Enterprise Business System (GFEBS), was up and running.

"That's because our legacy systems are not auditable. It would take a lot of money and time and effort to get them auditable, and all of that money would all be wasted since we were going to throw those legacy systems away before 2018," Watkins said. "We had to wait until GFEBS was fully deployed to execute our strategy."

The Army first implemented GFEBS in 2012, and since then, has undergone four localized outside audits, dealing with its budgetary resources and inventories of assets, in order to begin to understand where the Army's main financial weaknesses lie. Watkins said that iterative process gave his service valuable lessons, and it's now expanding the process across the Army.

"What I've learned over the last few years is that deploying an ERP is very difficult in and of itself, but that's only the tip of the iceberg in terms of the work that has to be done," he said. "We fielded a system that changes processes, procedures, the organization, roles and responsibilities across the entire Army. In industry, you can trade out one ERP for another, and it's not so bad. When you're trading out an ERP for a legacy system that's 40 years old, there's a lot of other changes. What we're expecting the staff to do and the changes we're expecting from the staff are different."

Combination of new, old systems