The DHS Story. DHS Lessons Can Enable More Rapid DoD Progress

Transcription

1 The DHS Story David Norquist (CFO ) Peggy Sherry (CFO ) Scot Janssen (Lead Partner IPA ) ASMC 2015 PDI May DHS Lessons Can Enable More Rapid DoD Progress

2 The DHS Story Department of Homeland Security (DHS) formed in Components brought together/created Different cultures, different missions, different business processes Law Enforcement, 1 st Responders, Military, Scientists Mandatory spending, fees, insurance, pensions, grants, loans Inherited Multiple Legacy Financial Systems Inherited 30 Significant Deficiencies, 18 Material Weaknesses 15 Components preparing financial statements Disclaimer of Opinion Fiscal Year (FY) 2004 FY 2010 In 2013 DHS attained an unmodified opinion on its financial statements. This is the story of that journey

3 Where We Started Internal Control Component Departmental Operations and Other U.S. Customs & U.S. Coast Guard Border Protection U.S. Immigration & Customs Enforcement Federal Emergency Management Agency Transportation Security Administration U.S. Citizenship & Immigration Services Federal Law Enforcement Training Center U.S. Secret Service Science & Technology Inspector General Entity Level Controls General Ledger Management Fund Balance with Treasury Management Financial System Security???????????????? Budgetary Resources Management Property Management Grants Management Payment Management Insurance Management Revenue Management Receivable Management Human Resources and Payroll Management?????????????????????????????????

4 Internal Control Component Where We Started Departmental U.S. Customs & U.S. Coast Guard U.S. Immigration Federal Transportation U.S. Citizenship & Federal Law U.S. Secret Operations and Border Protection & Customs Emergency Security Immigration Enforcement Service Other Enforcement Management Administration Services Training Center Agency Science & Technology Inspector General Entity Level Controls???????? General Ledger Management??? Fund Balance with Treasury Management????? Financial System Security Budgetary Resources Management Property Management Grants Management Payment Management Insurance Management Revenue Management Receivable Management???????????????????????????? Internal Control Component Departmental Operations and Other U.S. Customs & Border Protection U.S. Coast Guard Human Resources and Payroll Management????? Entity Level Controls? General Ledger Management? Fund Balance with Treasury Management? Financial System Security Budgetary Resources Management? Property Management? Grants Management

5 Where We Started Internal Control Component Departmental Operations and Other U.S. Customs & U.S. Coast Guard Border Protection U.S. Immigration & Customs Enforcement Federal Emergency Management Agency Transportation Security Administration U.S. Citizenship & Immigration Services Federal Law Enforcement Training Center U.S. Secret Service Science & Technology Inspector General Entity Level Controls General Ledger Management Fund Balance with Treasury Management Financial System Security???????????????? Budgetary Resources Management Property Management Grants Management Payment Management Insurance Management Revenue Management Receivable Management Human Resources and Payroll Management?????????????????????????????????

6 Internal Control Playbook Track One: Internal Controls Over Financial Reporting Mission Action Plans Track Two: Internal Controls Over Financial Reporting Management Assurances

7 Many disappointments, trial & error, new approaches, steep learning curve disclaimer of opinion (OIG )

8 Addressing Internal Control Weaknesses Military FY Material Weakness Conditions Civilian Components Material Weaknesses USCG OCFO CBP FEMA ICE MGMT Financial Management Financial Reporting Financial Systems Security Fund Balance With Treasury Capital Assets & Supplies Actuarial & Other Liabilities Budgetary Accounting U.S. Visit TSA FLETC

9 Addressing Internal Control Weaknesses Military FY Material Weakness Conditions Civilian Components Material Weaknesses USCG OCFO CBP FEMA ICE MGMT Financial Management Financial Reporting Financial Systems Security Fund Balance With Treasury Capital Assets & Supplies Actuarial & Other Liabilities Budgetary Accounting U.S. Visit TSA FLETC

10 Addressing Internal Control Weaknesses Military FY Material Weakness Conditions Civilian Components Material Weaknesses USCG OCFO CBP FEMA ICE MGMT Financial Management Financial Reporting Financial Systems Security Fund Balance With Treasury Capital Assets & Supplies Actuarial & Other Liabilities Budgetary Accounting U.S. Visit TSA FLETC

11 Addressing Internal Control Weaknesses Military FY Material Weakness Conditions Civilian Components Material Weaknesses USCG OCFO CBP FEMA ICE MGMT Financial Management Financial Reporting Financial Systems Security Fund Balance With Treasury Capital Assets & Supplies Actuarial & Other Liabilities Budgetary Accounting MW MW U.S. Visit TSA FLETC

12 Lessons Learned Don t fight the audit It is part of your path to success Look for the problems that you don t know exist (yet) Get in front of the auditor Don t wait for the perfect plan But have a plan with milestones Who can explain the plan? Find ways to measure progress Helps with Leadership and Hill Role for Inspector General (IG)/Auditor

13 Never the Perfect Time

14 Audit is Critical to Core Mission Something important is always going on If you wait until you have enough time and resources, it will never happen Audit needs to be seen as essential to supporting the agency s mission Approach audit like an operating mission Understand endgame Have the right people and enough resources Have the right plan Execute the plan Correct as you go

15 Leadership Commitment Is Critical Once it was important to the Secretary, it became important to everyone Message was clear: Audit success was everyone s responsibility Component leadership embraced the challenge and it became theirs Authority granted to those who needed it

16 Right People with the Right Skills Technical proficiency matters a lot Not an extra duty as assigned Must have professional staff with accounting, reporting, and audit proficiency Need to understand operations, reporting, internal controls, and risk Need to be able to diagnose and fix the problems Allowed DHS to develop innovative solutions

17 Know Where You Stand Primary Impact Area Audit Risk Compone nt 1 Compone nt 2 Compone nt 3 Compone nt 4 Statement of Net Cost Statement of Budgetary Resources Balance Sheet Other Risks Challenges due to complex cost allocation to 4 or more strategic goals Proper accounting of reimbursable agreements, including unfilled customer orders Budgetary posting logic for systems limitations Ability to provide transaction-level detail to support balances Inability to record receipt of goods and services; potential understatement of delivered orders unpaid (systems and processes) Proper classification of and completeness over feerelated revenue Insurance adjustments to actuarial estimate; agreement between DHS actuaries and external audit actuaries PP&E audit readiness for personal property, real property, and/or internal use software Inability to determine environmental liabilities and cleanup costs, potential impact undetermined Audit-readiness deliverables and management commitment Legend: High Risk level of effort to remediate is high and area is material Medium Risk Risks exist but effective mitigation strategies are in place Low Risk Risks exist but they have been mitigated or are not material No known risks have been identified

18 Need the Right Plan The right people will develop the right plan Don t wait until audit ready, get balances audited now Focus on material items. What will make a difference? Need an innovative plan (Fund Balance with Treasury [FBWT], property) Must know the root cause, otherwise plans won t work Need to know the balances are good before giving them to auditor

19 Bi-Weekly Dashboard Randomly selected time-period during annual audit. Fiscal Year FY 2012 FY 2011 FY 2010 FY 2009 FY 2008 FY 2007 FY 2006 FY 2005 FY 2004 CBP CIS FEMA ICE OCFO MGT TSA USCG USSS Legend 5 On-schedule. No significant audit/accounting issues. 4 Have audit/accounting issues, but can recover in 30 days. 3 Have audit/accounting issue, recovery beyond 30 days. 2 Audit/accounting issues may Potential qualification of Auditors report. 1 Major problems Likely qualification of the Auditors report.

20 Communication is Critical Promote constant, open communication With leadership, financial operations team, auditor, IG, Hill, Office of Management and Business (OMB) Contracting staff need to be part of the solution. All need to work together for the same intended outcome Work with auditors, not against them Notices of Findings and Recommendations (NFR) key Do you understand the cause of the problem and how to solve?

21 Not Everything is Material Take full advantage of the auditing standards Use the 80/20 rule Break all financial statement accounts into one of 5 groups: Transactional (e.g., payroll, routine disbursements) Beginning/end of year balance sheet balances from routine transactions (e.g., accounts receivable, accounts payable, etc.) Cumulative beginning balances more than 1 year (e.g., Plant, Property, & Equipment [PP&E], Operating Materials & Supplies [OM&S], Inventory, Pension, etc.) Estimates (e.g., environmental liability, PP&E (Federal Accounting Standards Advisory Board [FASAB] #35) Technically complex (e.g., sub-allotments, service provider, retirement, unfilled customer orders) Don t forget about Generally Accepted Accounting Principles (GAAP), and non-gaap. Expect restatements

22 Road to the Opinion

23 Expect More From Your Audit The Independence Rules allow the auditor room to be helpful to management The auditor must change the way they audit Don t stop the audit early Report in a manner that is helpful to management Raise technical issues early Provide examples from other Federal agency audits

24 NFRs - Unique Approach to Help DHS Used NFRs as quick response mini-report Sample of NFR statistics Total NFRs issued (all Components) : > 2,200 NFRs issued at FEMA > 400 NFRs issued at USCG > 450 NFRs issued at TSA > 250 Total conditions cited on NFRs > 6,000 Total pages of NFRs > 9,000 Management would respond with recommendations Basis of corrective action plans (CAP)

25 Summary 1. Don t fight the audit 2. Look for the problems you don t know exist 3. Not everything is Material 4. Take time to identify the root cause 5. Don t wait for the perfect plan 6. Leadership commitment counts 7. Have enough people with the right experience 8. Expect more from your audit 9. Find a way to measure progress 10. Promote constant, open communication.

26 Overview