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Financial Improvement and Audit Remediation (FIAR) for Product Support

ALCL 004


Alternate Definition

Audit remediation/readiness is defined as having the capabilities in place to allow an auditor to scope and perform a full financial statement audit that results in actionable feedback.

General Information


DoD is the largest and most complex organization in the world. Each of the Military Departments is larger than most American companies. The Department’s annual budget represents almost half of the Federal Government’s discretionary budget and it holds more than 70 percent of the Federal government’s assets, as reported on the Federal Government’s Consolidated Financial Statements. Despite the size and scale of the Department of Defense, and the extremely talented workforce comprised of uniformed, career civilian and contractor professionals, DoD is the only cabinet level agency that has never achieved an acceptable Agency-wide financial statement Opinion on its annual financial statements.

With over $1 trillion in combined budgetary resources, producing auditable financial statements requires an “all-hands effort.  Supporting annual financial audits is not just a Financial Management or Comptroller evolution.  If you receive or issue material, approve timecards or travel claims, or approve purchase requests, your work is reviewed or “sampled” to some extent each year.

The Financial Improvement and Audit Remediation—or “FIAR”-- goal is to improve the Department’s financial and business management operations, allowing it to successfully produce “auditable” financial statements. To the taxpayer and our representatives in Congress, success will be demonstrated through annual financial statement audits performed by independent auditors that result in an unmodified (or “clean”) audit opinion on the Department’s financial statements.  To our primary customer, the warfighter, this outcome should also produce better enterprise visibility of our limited financial resources, better enterprise visibility of material, and ultimately improved operational readiness.

So what is a financial audit?  

Unlike program audits (conducted by GAO, DoDIG or service audit agencies) that occur periodically and  focus on a specific aspect of our business or a specific program, a financial audit is an annual exercise that examines all of the DoD business operations that use appropriated funds or have accountability for material or equipment.  It also assesses who and how much we “owe” or our liabilities, whether they result from a contract that will eventually be paid, or from our operations (e.g. Environmental impacts of doing business).

 In short, everything we do to support the warfighter is examined through a financial auditor “lens”.  It is not just the responsibility of the Comptroller or your Financial Manager—it is an “All-Hands” evolution. Because of the size and scale of our worldwide operations, auditors will review and sample documentation and transactions to include evaluating the controls that we have built into our processes and business systems.  They will focus on the largest elements, because as they state in their final reports, they seek to determine that our statements “materially” represent the financial condition of the entity that prepares the report.

It’s a little bit like an inspection but doesn’t have a “checklist” per se.  It allows for the auditor to exercise some amount of judgment but also follows a set of accounting and audit standards.  The Comptroller team within organizations or financial personnel in organizations like DFAS that provide financial services can assist in helping to better understand the standards and how they relate to our current business, but in general, the audit is trying to assess the level of discipline and controls in how we do business. Do we consistently follow our own policies?  Are our processes well documented and well-controlled?  Is material and equipment accounted for in a system of record, and is that information current?

And finally, the audit is the same each year.  The individuals auditing may change, and we know that we have our own regular turnover, but the annual audit regimen and rules never change.  This is why we need to learn and adapt each year and keep a step ahead by doing the kind of control checks that we know will be used.


Why is the audit imortant?  

In the private sector, financial audits reflect directly on the organization (and organizations’ management) under audit.  US taxpayers and their elected representatives who provide our appropriations are making that investment each year and may be wondering how much longer they make the large investment in our national security when we cannot provide them with what is required by law and what is routine in the private sector.  Simply stated, this is important because of the public trust and confidence it provides.

Beyond that, the information that is required by, and prepared for the auditors, provides tremendous power when used with data analytics tools.  The repository referred to as Advana was originally developed to support a universe of all transactions, linking financial information with feeder information that is generated by other functional communities such as human resources, logistics, or contracting. Timely and accurate information is the key to better decision-making—driving improved operational effectiveness and efficiency.  For example, accurately knowing what we have on-hand before we order allows us to make sure we are using our funds as effectively as possible. 

Auditing will be easier with fewer systems and more standard processes---both difficult to achieve in a large, dynamic, and decentralized organization that we know exists within DoD.  This kind of back-office operation will allow us to ensure that the warfighter is getting the benefit of the limited resources we have available.

Why is this important to logistics and acquisition professionals?  

Accountability and accurate enterprise information relating to material and equipment supporting our warfighting mission is a force multiplier.  That is exactly what the financial audit is looking at. Ask any logistics professional, and they will tell you that they “know” what they have….at least locally or what they have on their own property books.  Our inspections may provide feedback on how we are doing at the local or organization level.

For a financial audit that aggregates the financial status of material or equipment across entire departments, we need to be operating consistently across many organizations and then reliably aggregating and reporting this information.  Auditors are working to develop confidence in our processes and controls across many organizations to include organizations beyond our own organization.

The most important element is typically ensuring we know the quantity, location, condition and ownership of material or equipment and that this information is maintained in an Accountable Property system of record.  If material has been procured with government funds, and then turned over to a contractor that is supporting a program, it is not enough to have the information in the contractor’s system.  It also needs to be visible in a government system as that is the system that supports the DoD financial reporting process.