Oct 06 Luncheon Presentation (Mr. Mark Easton)

1
Department of the Navy DON Business
Transformation Update The Role of OMB A-123,
Appendix A (Federal Version of Sarbanes-Oxley)
Presented to ASMC Washington Chapter 11 October
2006
2
Accounting irregularities in the private sector
led Congress to tighten reporting requirements
for businesses. OMB Circular A-123 (Appendix A)
establishes comparable Internal Controls
reporting for the federal sector. FIAR, FIP, and
Managers Internal Control Program are all
integrated.

• Sarbanes-Oxley (SOX) Act of 2002 and FMFIA/OMB
  A-123
• Enron, WorldCom, and Tyco accounting scandals
  resulted in a decline of public trust
• Public should also have trust in how their
  government is using taxpayer dollars
• Both Acts require management (CEOs, CFOs,
  Secretaries) to certify, or attest to the
  effectiveness of internal control over financial
  reporting. However, SOX prescribes criminal
  penalties.
• Relationship to the DoD
• DoD Component Heads must provide certification to
  OSD that controls are effective
• Reported separately in the Annual Statement of
  Assurance (SOA), under the purview of FMFIA Over
  Financial Reporting
• Implementation is integrated into the FIAR effort
• Relationship to DON Financial Improvement Program
  (FIP)
• Serves as the validation process of the FIP
• Provides sustainment of FIP efforts
• Implementation of OMB A-123, Appendix A is
  integrated into DON FIP effort

3
A clean audit on private sector financial
statements is mandatory and ingrained it
reflects high-quality financial information and
organizational credibility.

• Consider that
• In the private sector, achieving an unqualified
  or clean opinion is considered normal business
  but with some recent problems (e.g., Enron)
• If DON were a Fortune 500 Company, we would be
  5, just above General Electric
• DoD is the most significant Cabinet-level
  Department without an acceptable audit opinion
• We apply rigor and discipline to operational
  missions (e.g., nuclear power, flight safety,
  etc.). Why not be as thoughtful, methodical, and
  accurate in financial management?

4
Business process transformation recognizes the
need for an enterprise-wide, integrated effort,
aligning DON with the Presidents Management
Agenda, DoD Business Transformation, and
Congressional intent.
DoD Business Enterprise Architecture (DoD
Financial Improvement and Audit Readiness (FIAR))
Current Environment (Stove-piped)
DON Business Transformation
Future Environment (Integrated)
5
The Departments Business Transformation Program
will continually mature as DoDs Enterprise
Transition Plan is executed.
DON Business Transformation Council Oversight
Internal Controls
As-Is Environment Existing Processes Discovery
Correction Non-standard Controls Legacy
Systems Audit Disclaimers
To-Be Environment Best Practices A-123
Certified Controls N-ERP BTA/BEA Unqualified
Audits Opinions
Transition Plan Business Process Transformation
6
To summarize, DONs Financial Improvement Program
(DON FIP) integrates several initiatives
advancing business processes, systems, and
people.

• Key Success Factors
• Business rules and documentation
• Sound systems environment
• Ready access to audit trails and audit evidence
• A paradigm shift management takes ownership of
  the financial integrity of its processes
• Human Capital Processes supported by a
  performance-based culture
• Implementation, testing, and certification of
  Internal Controls over Financial Reporting
  (required by OMB A-123, Appendix A)

7
The methodical trail to an audit opinion
prescribed by the FIAR process incorporates
continual testing of controls, as A-123 Appendix
A calls for. Focus Areas are at different stages
along the audit continuum Investments and Debt
are the Focus Areas most advanced.
FIAR/A-123/FIP are all inter-related.
FIAR
FlowchartRisksControls
Test Controls
StatementofAssurance
Appendix A
Real Property Military Equipment Accounts
Payable Accounts Receivable Inventory and OMS
Environmental Liabilities FECA Liability Fund
Balance with Treasury Appropriations Received
Investments Debt
FIP Focus Areas
8
DON FIP Validation Approach Aligns with A-123
Financial Reporting Requirements
Continuous Monitoring
A-123 Certification in SOA / Audit Readiness
9
To conclude Internal Controls Over Financial
Reporting (A-123, Appendix A) involves all
business managers-- not just financial managers.

• Keys to DoD/DON Success
• Awareness
• Relevance
• Execution