It has been a challenging yet rewarding road since the Fiscal Year (FY) 2010 National Defense Authorization Act (NDAA) mandated the Department of Defense (DoD) be audit ready for all financial statements by September 30, 2017. As the Department currently undergoes its first DoD-wide audit, some reporting entities are preparing to receive their first financial audit opinions, while others have already received full or limited scope audit results. With a greater scale of assessment in FY18, the question of how to move forward from an audit opinion will reach new financial communities. How DoD responds will have lasting implications for future audits to come.
DoD leadership has strategically prepared for this pivotal change from an audit readiness environment to one in which full-scale financial audits have initiated and will occur annually agency-wide. The Association of Government Accountants speaks to this audit sustainment strategy, highlighting DoD’s intent to drive sustainment through committed tone from the top, sound audit infrastructures, focused remediation efforts, and employment of Manager’s Internal Control Programs (MICPs). If executed correctly, a committed tone will enforce accountability and empower progress; a strong audit infrastructure will facilitate an efficient and cumulative audit response capability; and focused remediation will address prioritized audit deficiencies—all familiar audit tenets that will have to adjust and expand to absorb the results of a full-scale audit.
Similarly evolving in application is the MICP. While many organizations have designed and implemented a MICP, there is not a unified understanding of the program’s objectives nor are there standardized assessment methodologies being implemented across the program. Without a clearly understood objective and standardized evaluation methodologies, how can the MICP be an effective tool? As the Army continues down the path of financial transformation, the maturation of MICP principles and touchpoints to expanding financial audit operations across the enterprise will be critical to MICP being a comprehensive and effective tool for continuous improvement. Observing MICP principles in a comprehensive, structured, and standardized fashion will enable DoD components to facilitate audit sustainment by raising stakeholder awareness, identifying and addressing financial risks early, providing a comprehensive picture of the control environment, and increasing audit confidence. However, commitment to sound audit leadership, infrastructure, remediation, and MICP individually will not be enough. Increased integration, not just implementation, of these concepts will be of increasing importance to organize internal control, audit response, and remediation activities for the first financial audit ever of this scale—and not just during the thick of the audit, but on an ongoing basis.
A topic of growing interest that aligns to this sentiment is continuous process improvement (CPI). After all, during the less rigorous parts of an audit, sustainment activities will need to continue in order to mitigate issued findings and seek progress before the next audit cycle. These activities include responding to audit findings, developing and implementing corrective actions, testing, and monitoring progress. The concept of CPI isn’t new, but its integration into the current and future phases of audit sustainment is a relatively recent notion.
At a Defense Logistics Agency (DLA) Town Hall in 2016, DLA Senior Analyst Heather Vickers spoke about CPI. “Through CPI,” she said, “good ideas can be uncovered, executed, and appreciated at all levels of DLA, with the overall purpose of being able to make a difference to our warfighters.”
She urged employees to see the problem, solve the problem, and then share what they find. It will be of utmost importance for DoD leaders to continue to spread this message and characterize audit sustainment beyond its literal end of meeting a financial requirement and more towards an embedded operational purpose of continuously improving and innovating for our warfighters.
Juggling the demands of prior, current, and future financial requirements during audit sustainment is no light undertaking for DoD management, but the time is now to further prepare. MorganFranklin Consulting recommends utilizing the processes and procedures described in OMB Circular A-123, Appendix A and adhering to the requirements of the Department’s MICP to assist in bringing structure to the control environment. MorganFranklin has firsthand experience developing and implementing effective MICP. Additional expertise can help advise on how audit infrastructure and continuous assessment and process improvement principles can be integrated with controls frameworks to build a comprehensive sustainment strategy that is prioritized and successfully meets the demands of ongoing audit.
MorganFranklin’s team of subject matter experts can assist in the analysis, design, implementation, and execution of processes to help our DoD clients in this pivot from an audit readiness to full-scale audit sustainment mentality. No, “Now what?” Our goal is for there to be no question in how to move forward after receiving an audit opinion.