What does it mean to be audit-ready?
Audit readiness is a state of being prepared at all times to demonstrate proper manual and automated processes and documentation of financial transactions through process controls, financial controls and information technology controls that are executed in accordance with policy and appropriate accounting standards.
The Department of the Navy (DON) is working to achieve full financial auditability by 2017 and be prepared for an audit of the Statement of Budgetary Resources (SBR) by
2014. Everyone — every Sailor, every Marine, every civilian — across the department is responsible for meeting this goal. You may say that you are not in a position that executes a financial transaction, but you may be surprised to learn that entering your time and attendance, requesting leave or simply certifying an invoice for payment are all examples of financial transactions that an auditor would review to ensure proper controls are met.
A financial audit is an independent evaluation of whether an organization’s financial statements are fairly presented and in accordance with appropriate accounting standards. The DON’s annual budget of $150 billion would place it near the top of the Fortune 500 list. All U.S. companies are required by law to regularly undergo a financial audit. The DON has not successfully completed a financial audit on several attempts.
One of the key challenges in the audit readiness effort is the difficulty in tracing the flow of transactions and individual data elements from initiation through reporting. Many DoD and
DON systems, particularly older legacy feeder systems, were not designed to capture transactions at a level of detail that readily supports a financial statement audit. Additionally, newer enterprise resource planning (ERP) systems do not guarantee auditability. ERP systems may not fully support audit readiness or may not yet be fully operational at the time of audit.
Another common challenge is insufficient system process and data flow documentation. Documentation is often incomplete or does not reflect system updates, resulting in an inability to
determine whether controls exist and/or are suitably designed. When system documentation is incomplete, inaccurate or unavailable, an auditor is unable to design or execute procedures to assess the operational effectiveness of system controls. The Defense Department is the only major federal agency that cannot pass a financial audit. Now, more than ever, the DON must manage its money as tightly as it manages its operational mission. The Secretary of Defense has challenged the DON to achieve audit readiness with its SBR by the end of calendar year 2014.
Senior leadership across the departments of Defense and the Navy have made it clear that audit readiness is a top priority for all commands and personnel. As these leaders have repeatedly emphasized, improving the DON’s financial processes and systems is a critical goal that is important to every member of every community within the DON — not just the department’s comptrollers and budget offices. Everyone is expected to contribute to this goal.
Not only is it important to improve the DON’s financial management to meet the Congressional mandate for audit readiness, but it is also crucial to make the DON a responsible steward of taxpayer dollars, to improve the efficiency and reliability of the DON’s business, to provide accurate data for decision-makers, and to allow the DON to effectively execute its missions in an era of fiscal limitations.
The Office of the Assistant Secretary of the Navy (Financial Management and Comptroller) Office of Financial Operations (FMO) is leading the DON’s efforts to comply with DoD’s mandate for audit-readiness. FMO, with the support of several other Navy organizations, has created the first DON audit readiness video. The video serves as an excellent standalone product or as a stage setter for follow-on audit readiness discussions and presentations.To access the video, go to the FMO website at www.fmo.navy.mil/auditready.
FMO’s Audit Readiness Information Center located at www.fmo.navy.mil provides resources detailing how the DON is systematically working toward its audit-ready goal and how you and your command can contribute to these efforts.
How can YOU support audit readiness in your day-to-day actions?
- Ensure your processes are standardized, well-documented, sustainable and support accountability;
- Verify your work steps and ensure transactions are fully documented, correct and available on demand;
- Identify issues that arise in transaction processing that may cause auditability related issues;
- Educate yourself with resources provided on the Audit Readiness Information Center website at
- Ensure the DON can maintain a constant state of audit readiness by having business processes that are sustainable, traceable and repeatable.
Everyone Must Be Onboard
In a video message (www.fmo.navy.mil/AuditReadiness/senior_leadership_memos.html.)
regarding audit-readiness, Secretary of Defense Leon Panetta stressed the need to maintain military strength as the department is tightening its belt to reduce the defense budget by $487 billion during a 10-year period. This means the DoD must become more efficient and effective in managing its resources, he said. In this regard, the secretary asked personnel to follow several precepts, including:
- Maintain complete and accurate records of financial transactions;
- Maintain complete and accurate inventories of assets and equipment; and
- Spend every dollar as if it were your own. Before you order supplies or equipment make sure it is truly necessary.
Sharon Anderson is the CHIPS senior editor. She may be reached at firstname.lastname@example.org.