Managers’ Internal Control Program Senior Level Steering Group Senior Assessment Team

1. Managers’ Internal Control Program Senior Level Steering Group Senior Assessment Team FY 2014, 1st Quarter Meeting Thursday, 17 October 2013 1300-1430 Pentagon Library Conference Center B1

2. Agenda • Opening Remarks • 2014 Schedule of Events • FY 2014 Status of Open Material Weakness • Way Ahead

3. Opening Remarks • 2014 Annual Statement of Assurance guidance • Impact of government shutdown on IR community • Update on audit readiness key events and milestones • Commander involvement

4. FY 2014 Schedule of Events

5. FY 2014 Schedule of Events

6. 2014 Material Weakness Status • Material weaknesses carried over from 2013 • 6 Open Internal Control over Operations • Expeditionary Contracting • Oversight of Service Contracts • Reporting of New Equipment in Transit • Second Destination Travel (SDT)….New • Reporting Accurate Obligations for the Permanent Change of Station (PCS) Program • Basic Allowance for Subsistence …New • 23 Open Internal Control over Financial Reporting (ICOFR) • General Fund – 13 • Army Working Capital Fund – 10 • 3 Open Internal Control over Financial Systems (ICOFS) • General Fund – Legacy Systems being subsumed by GFEBS. • Army Working Capital Fund – Legacy Systems being subsumed by LMP. • GCSS-A

7. 2014 Status of Material WeaknessesInternal Controls Over Operations • Second Destination Travel—G4 • Expeditionary Contracting – ASA(ALT) • Oversight of Service Contracts – ASA(ALT) • Reporting of New Equipment in Transit – G-4 • Reporting Accurate Obligations for PCS – ASA(FM&C) • Basic Allowance for Subsistence (BAS) – G1

8. Second Destination Transportation Description: Major problems exist with how field activities assign TACs resulting in substantial fluctuations in financial accounts. Primary SDT Audit Readiness Problems:1) Documentation nonexistent in GFEBS; 2) Bulk obligations with multiple invoices and transactions; 3) Communication between systems; 4) Non-Army transactions. Shipper/transportation level systems are not integrating well, either to the third party payment system (Syncada), or directly to the financial systems (GFEBS), so the documentation is lost. Purchase requests, purchase orders, and invoices (bulk in Syncada); documentation nonexistent in GFEBS; sampling did not specify a singular shipment or multiple shipments; DFAS consolidated invoices from Syncada. Documentation to approve; no documentation within GFEBS demonstrating the approval authority for shipment (e.g. Requisition and Invoice/Shipping Document); Receiving Report.

9. Transportation Fund Accountability ChallengesMateriel Weakness - The Second Destination Transportation (SDT) Fund • Two internal Army reviews of SDT in 2013 • Army Audit Agency (AAA) • Statement of Budgetary Resources (SBR) test • Major Findings • Shipping documents (GBL, etc) not linked to financial transactions • Shipping documentation distributed throughout hundreds of activities – no central access • Lack of controls over transportation account codes (TACs) and obligation of funds • Multiple lesser findings: Trans officer training and certification, reduce auto-approvals, reduce unlinked ebills, improve TAC usage • Material Weakness • Army declared SDT a material weakness in its Annual Statement of Assurance – Aug 2013 • Multiple shipping and payment process/systems • System not designed to be “audit-ready” • How do we determine what SDT is paying for?

10. Road to SDT Accountability What We Have done • Established TAC and SDT coordinators at Army commands • Require SDT execution reports from ASCCs and ACOMS • Emphasized policy and regulations through regular training and messages to the field • Restrict number of TACs and authorized users • Connect local resource managers to transportation officers to improve financial management What OSD is Doing • ASD-AT&L, Mr. Estevez directed the establishment of a joint IPT (06SEP13) • OSD Comptroller and Transportation Policy co-lead IPT • Objectives: • Link shipping transactions to financial transactions • Transportation Account Codes TAC) are easily misused – make TAC accountability robust • Common access to transactional data • Implement corrective action plans beginning 2nd QTR FY14. Completion: TBD What We Are Doing • Identify improvements to transportation and financial systems to link shipping and financial transactions (Discovery phase) • Institute training and certification program for transportation officers who obligate funds (by FY16) Army Audit Readiness Not Possible Without Joint / OSD Solution

11. Expeditionary Contracting Material Weakness Weakness: The Army’s acquisition workforce is not adequately staffed, trained, structured, or empowered to meet the Army’s need. The contracting process is not treated as a core competency. Audit reports conclude that internal controls to mitigate risks in the contracting process are ineffective or nonexistent. The Army is addressing this weakness through continued growth of the acquisition workforce, acquisition core training at the Army Acquisition Basic and Intermediate Course, Mission Ready Airman Course (MRAC), training exercises such as the Joint Contracting Readiness Exercise (JCRX), and the organizational alignment of the Army Contracting Command (ACC), Expeditionary Contracting Command (ECC), and United States Army Corps of Engineers (USACE) Military Contingency Contracting Teams (MCCT). Internal and external controls such as Independent Reviews (IR), Contract Management Reviews (CMR) and Procurement Management Reviews (PMR) have been implemented and are ongoing to mitigate risk in the contracting process.

12. Expeditionary Contracting Material Weakness

13. Expeditionary Contracting Material Weakness

14. FY 14 Training MRAC (LVL I) – 65 slots AABC (LVL I) – 85 slots (+45) AAIC (LVL II) – approx 85 slots (+ 45) NCOs Currently Accredited 127 (+19) Contracting Workforce is 87% Certified at the Required Level

15. Oversight of Service Contracts Description: Inadequate oversight. Corrective Measures focus on training, appointment of Contracting Officers Representatives, preparation of plans and conduct of surveillance.

16. Oversight of Service Contracts Description: Inadequate oversight. Corrective Measures focus on training, appointment of Contracting Officers Representatives, preparation of plans and conduct of surveillance.

17. Service Contracts COR Status Description: Inadequate oversight. Corrective Measures focus on training, appointment of Contracting Officers Representatives, preparation of plans and conduct of surveillance. Selection: Active service contracts and orders with a value > $150,000 awarded since 1 June 2012 Total percentage includes all Army Contracting Commands Total active service contracts and orders requiring a COR = 10343 (9065) Total with a COR assigned = 8456 (7283) Total without a COR assigned = 1887 (1782) • Plan of Action – • 1. Continue monitoring progress using VCE COR website data • 2. Added internal controls – quarterly review and Procurement Management Reviews now include this metric • 3. AAA Audit in progress Data as of 15 Oct 13

18. Service Contracts QASP Status Description: Inadequate oversight. Corrective Measures focus on training, appointment of Contracting Officers Representatives, preparation of plans and conduct of surveillance. 22.3% 19.7% Data as of 15 Oct 2013

19. Reporting of New Equipment In-Transit Description: The U.S. Army lacks internal controls to adequately monitor the shipment and receipt of equipment through the Supply System resulting in unreliable data on the value reported on the U.S. Army's financial statements. This error makes it difficult to gain visibility over the total number of major items, determine maintenance requirements, and redistribute equipment. AAA and G4 restructured the weakness in 2008 to address just Total Package Fielding (TPF) transactions to track equipment in-transit from the Program Management office to the unit.

20. Reporting of New Equipment In-Transit (Con’t)

21. Reporting Accurate Obligations for the Permanent Change of Station (PCS) Program – FY12 COMPLETED FY 2012 RQMTS • This is aninterimactive component PCS project for the Army pending ERP implementation. • Not building an order writing system. • Targeted SBR audit ready: Early 4th Qtr FY 2014. *Office of Primary Responsibility (OPR) Co-Sponsors: Director of Military Personnel & Facilities, ASA(FM&C) Director of Plans & Resources, G-1

22. Reporting Accurate Obligations for the Permanent Change of Station (PCS) Program – FY13 COMPLETED FY 2013 RQMTS

23. Reporting Accurate Obligations for the Permanent Change of Station (PCS) Program – FY14

24. Defect 1 Resolution: PCS Orders Log Data Entry Defect 1 • AFCOS • Validate Logs • Calculate RCE ODS Repository System of Record Entitlement systems PCS Orders Orders Logs Step 1: Data entry in Excel (with validation macros) 1. User Friendly 2. Early error identification 3. Error reason Step 2: Correct error(s), re-validate and save 4. Corrected data Step 3: Send Orders Log to ODS 5. Daily Orders Logs are sent to ODS, archive Logs are retained for audit support Secure upload

25. Defect 1 Dashboard Reports

26. Defect 2 Resolution: Reliable Cost Estimate (RCE) Defect 2 • AFCOS • Validate Logs • Calculate RCE ODS Repository System of Record Entitlement systems PCS Orders Orders Logs Orders Log file : ABERDEEN PROVING GROUND 13 Sep 2013 Orders Log.csv Example record: 256-0026 PATTERSON 410 XXX-XX-1116 4AE3 WBMLAA W383AA PAT1116PM60026 Data from other systems: Grade=E-6 Number of dependents=Y Losing zip code: 21005 (APG, Maryland) Gaining zip code: 09112 (APO: Germany) PCS Soldier Entitlements =

27. Internal Controls Over Operations: BAS • Soldiers have been routinely double-compensated for meals received in field conditions. (BAS plus field meals.) • In general, commands do not have internal controls in place to prevent soldiers being paid the subsistence allowance while receiving free meals in the field. • 2009 – AAA declares that units at Ft Bragg and Ft Benning are not collecting for government-provided meals during field duty. • 2010 – GEN Chiarelli issues guidance to ACOMs and other select commands to put controls in place. • 2012 – AAA audit reveals that controls are not being followed. • -- LTG Bromberg declares a Material Weakness • 2013 – Secretary McHugh issues guidance memo to ACOMs, ASCCs and select DRUs/FOAs directing that controls be put into place. • Ongoing - G-1 works with AAA and FM&C to monitor the compliance plan. • The current situation impedes the Army’s ability to achieve auditability of financial statements by 2017.

28. Internal Controls Over Operations: BAS

29. 2014 Status of Material Weaknesses – Internal Controls Over Financial Reporting (ICOFR) • General Fund: Briefer: Director, Accountability and Audit Readiness and Director, Financial Reporting, OASA(FM&C) • Army Working Capital Fund: Director, Army Working Capital Fund Audit Readiness, OASA(FM&C)

30. 2014 Auditor Identified Weaknesses • Statement of Budgetary Resources (GF & AWCF) • Fund Balance with Treasury (GF) • Inventory and Related Property (GF & AWCF) • General Property, Plant, and Equipment (GF & AWCF) • Environmental Liabilities (GF) • Intragovernmental Eliminations (GF & AWCF) • Accounting Adjustments/Accounting Entries (GF & AWCF) • Accounts Receivable (GF) • Accounts Payable (GF & AWCF) • Statement of Net Cost (GF & AWCF) • Abnormal Account Balances (GF & AWCF) • Reconciliation of Net Cost of Operations to Budget (GF & AWCF) • Contingency Payment Audit Trails (GF) 30

31. General Fund Statement of Budgetary Resources (SBR) – Plan of Action and Milestones

32. GF Fund Balance with Treasury (FBWT) – Plan of Action and Milestones

33. GF General Property, Plant and Equipment – Plan of Action and Milestones

34. GF Inventory and Related Property – Plan of Action and Milestones

35. GF Financial Reporting – Plan of Action and Milestones

36. GF Financial Reporting – Plan of Action and Milestones

37. AWCF Inventory – Plan of Action and Milestones

38. AWCF Real Property – Plan of Action and Milestones

39. AWCF Financial Reporting – Plan of Action and Milestones

40. AWCF Financial Reporting – Plan of Action and Milestones

41. FY 2013 Status of Material Weaknesses – Internal Controls Over Financial Systems (ICOFS) • Internal Controls Over Financial Systems (ICOFS) – GF, OASA(FM&C) • Internal Controls Over Financial Systems (ICOFS) – Office, Army Enterprise Systems Integration Program

42. ICOFS-Related Accomplishments (GFEBS)

43. ICOFS-Related Accomplishments (GCSS Army) 43

44. ICOFS-Related Accomplishments (LMP)

45. WAY AHEAD 2nd QTR SLSG: 16 Jan 2014, 1300-1430 PLCC B1 (Pentagon Library Conference Center)