To establish statutory objectives for DOD to achieve financial statements  that are validated as ready for audit by a certain date, the NDAA for Fiscal  Year 2010 mandated that DOD develop and maintain a FIAR Plan that  includes, among other things, the specific actions to be taken and costs  associated with (1) correcting the financial management deficiencies that  impair the department’s ability to prepare timely, reliable, and complete  financial management information and (2) ensuring that DOD’s financial  statements are validated as ready for audit by not later than September  30, 2017. FIAR strategy and methodology (6 recommendations). In its May 2015 FIAR Plan Status  Report, DOD stated that 9 recommendations were met and the remaining  20 were partially met. While DOD is making progress, it is important  to note that implementation of the panel’s recommendations may not  include all of the actions that the department must take to achieve  auditable financial statements. For example, as the DOD IG and the IPA  firms perform examinations and audits, they may identify deficiencies in  internal controls that were not previously known and therefore were not  addressed by the panel’s recommendations. Two of these relate to the area on challenges to  achieving financial management reform and auditability. DOD has  also met the requirements of four financial management workforce- related recommendations. DOD’s Actions Have Partially Met 20 of the Panel’s Remaining Recommendations

We agree with DOD that the department’s actions partially met the  remaining 20 panel recommendations, described below by the four areas  of the panel’s review, and continued actions are needed. ERP System Implementation Efforts

The panel made nine recommendations in this area, and we agree with  DOD that all of these recommendations have been partially met and none  have been fully met. Conclusions

The panel’s report and its recommendations touch on some of the most  critical challenges the department faces in achieving lasting financial  management improvements and financial statement audit readiness. DOD is monitoring its progress implementing the FIAR Plan  against interim milestones. However, as the target date for validating  DOD’s audit readiness approaches, as we have previously stated, DOD  has emphasized asserting audit readiness by set dates over assuring that  processes, systems, and controls are effective, reliable, and sustainable. While time frames are important for measuring progress, DOD should not  lose sight of the ultimate goal of implementing lasting financial  management reform to ensure that it can routinely generate reliable,  auditable financial information and other information critical to decision  making and effective operations. Recommendation for Executive Action

To help meet its financial management improvement and audit readiness  goals, we recommend that the Secretary of Defense direct the Under  Secretary of Defense (Comptroller) to reconsider the status of the three  panel recommendations that DOD classified as met that we determined  were partially met and take the necessary actions to reasonably assure  that these recommendations have been met. Appendix I: Status of DOD’s Actions to Implement the Panel on Defense Financial Management and Auditability Reform Recommendations

This appendix contains our assessment of the Department of Defense’s  (DOD) progress in addressing the House Armed Services Committee  (HASC) Panel on Defense Financial Management and Auditability  Reform’s (the panel) recommendations, organized by the four areas the  panel reviewed. The status of each recommendation is based on our  assessment of information received prior to or as of May 2015 and DOD’s  reported status as of the May 2015 Financial Improvement and Audit  Readiness (FIAR) Plan Status Report. For example, DOD’s components must first  determine the existence of these assets. DOD Actions: The department, in its May 2015 FIAR Plan Status Report,  stated that it has a three-pronged approach for addressing risk  management in which DOD has (1) identified audit readiness deal- breakers by reviewing past audits, (2) defined the critical path to  achieving financial statement auditability and included related tasks and  milestones in the April 2015 FIAR Guidance, and (3) reinforced the  importance of internal controls over areas of significant risk by including a  new chapter on internal controls in the FIAR Guidance and implementing  a centralized tracking database to monitor corrective actions developed in  response to notices of findings and recommendations generated from  examinations and audits. Moreover, because the panel recommendation is addressed to the  department, the FIAR Governance Board members need to attest for their  individual components and the DOD Comptroller needs to attest for the  department whether they are on track to achieve audit readiness in 2017  in each FIAR Plan Status Report to fully meet this recommendation. GAO Status: We consider this recommendation partially met because  the department has not yet assessed the competencies of all civilian,  military, and contracted personnel performing financial management- related functions, as recommended by the panel. 3.
Why GAO Did This Study

A congressional panel examined the capacity of DOD's financial management system for providing timely, reliable, and useful information for decision making and reporting. The panel, in its January 2012 report, included 29 recommendations addressed to DOD in four areas: (1) FIAR strategy and methodology, (2) challenges to achieving financial management reform and auditability, (3) financial management workforce, and (4) enterprise resource planning systems implementation.
GAO was asked to review the status of DOD's actions to implement these recommendations. This report examines the extent to which the recommendations have been implemented. GAO reviewed pertinent legislation, including the National Defense Authorization Acts for Fiscal Years 2010 through 2015 as well as the department's FIAR Guidance and FIAR Plan Status Reports. GAO analyzed relevant information and interviewed officials from the Office of the Secretary of Defense, the military departments, and two service providers. Using the three status categories developed for GAO's high-risk work—met, partially met, and not met—GAO determined the extent to which DOD implemented the panel's recommendations.

What GAO Found

The Department of Defense (DOD) has made progress toward implementing each of the 29 recommendations made by the House Armed Services Committee Panel on Defense Financial Management and Auditability Reform (the panel). GAO determined that DOD's actions met 6 of the panel's recommendations and partially met the other 23. In its May 2015 Financial Improvement and Audit Readiness (FIAR) Plan Status Report, DOD reported that 9 recommendations were met and 20 were partially met. The 3 recommendations for which GAO disagreed with DOD's reported status of met related to (1) attestations on audit readiness in each of the FIAR Plan Status Reports; (2) inclusion of FIAR-related goals in Senior Executive Service performance plans, and rewarding and evaluating performances over time based on those goals; and (3) the review of audit readiness assertions by component senior executive committees. For example, while each FIAR Plan Status Report is coordinated among FIAR Governance Board (Board) members, including the Comptroller/Chief Financial Officer among others, in these reports Board members do not explicitly attest to whether DOD is on track to achieve audit readiness in 2017 as called for by the panel's recommendation and not all Board members provide signed statements about component audit readiness in the reports.
GAO and DOD agree that the remaining 20 recommendations were partially met and continued actions are needed, but GAO found that additional actions are needed to address some recommendations. These 20 partially met recommendations cover such diverse topics as a strategy for the consolidation of component financial information, valuation of historical asset costs, and assessing the competencies of the civilian financial management workforce. For example, DOD has made progress in assessing the competencies of its civilian financial management workforce in the financial management community, but has not yet assessed the competencies of all civilian, military, and contracted personnel performing financial-related functions, as recommended by the panel. Other recommendations are related to the implementation of enterprise resource planning systems—automated systems that perform a variety of business-related financial management tasks. DOD officials have stated that these systems are critical to DOD's ability to achieve audit readiness, but none of these recommendations have been fully met.
The panel's report and its recommendations touch on some of the most critical challenges DOD faces in achieving lasting financial management improvements and financial statement audit readiness. However, it is important to note that implementation of the panel's recommendations may not include all of the actions needed for DOD to achieve auditable financial statements. As auditors perform examinations and audits, they may identify deficiencies that were not previously known and therefore were not addressed by the panel's recommendations. DOD is monitoring its progress for implementing the FIAR Plan against interim milestones included in its April 2015 FIAR Guidance. However, as the audit readiness date approaches, DOD has emphasized asserting audit readiness by set dates over assuring that processes, systems, and controls are effective, reliable, and sustainable. While time frames are important for measuring progress, DOD should not lose sight of the ultimate goal of implementing lasting financial management reform, among other things, to ensure that it can routinely generate reliable, auditable financial information.

What GAO Recommends

GAO is recommending that DOD reconsider the status of three panel recommendations that it determined to be met but that GAO determined to be only partially met. DOD concurred with the recommendation and described planned actions to address it.