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Office of the Under Secretary of Defense (Comptroller)Fourth Estate / Defense-WideUpdate SessionWashington-ASMC National Capital Region PDIMarch 14, 2019

WelcomeMr. Mark EastonDeputy Chief Financial Officer

An Evolving Fourth EstateBusiness EnterprisePriorities Acquire sufficient resources to support the National Defense Strategy Ensure legal and efficient execution of appropriated funds Recruit and retain a professional, highly motivated workforceCurrent Opportunities National Defense Strategy – senior leadership support for business reform Annual financial audits – demonstrating progress, leveraging lessons learned, andseeking an operational value Data-driven decision making – evolving towards the CFO of the FutureFourth Estate Missions May Vary but Backroom Operations ofHow We Do Business Must Be Much More Standard and Efficient3

BackgroundDoD FY 2018 Audit ResultsDoD-Wide Consolidated Audit Performed by DoD Office of Inspector General (DoD OIG)Included in the Consolidated Audit5% Budget, 3% AssetsStand-Alone Audits95% Budget, 97% AssetsDoD OIG (as the Consolidated Auditor) assumed responsibility for or madereference to the audit opinions of each Component auditor (performed by anindependent public accounting firm).ArmyGeneral FundArmy WorkingCapital FundNavyGeneral FundNavy WorkingCapital FundAir ForceGeneral FundAir Force WorkingCapital FundU.S. Army Corpsof Engineers –Civil WorksMilitaryRetirement FundDoD ClassifiedU.S.Marine CorpsGeneral FundMedicare-EligibleRetiree HealthCare FundDefenseCommissaryAgencyDLAGeneral FundDHPDISAGeneral FundDHA-CRMDLAWorking CapitalFundUSSOCOMDISA WorkingCapital FundDCAADoD OIGDFAS WorkingCapital iedThose DoD components not undergoing stand-alone auditswere included in the consolidated audit.DoD OIG performed internal controls and substantive testingover activities and balances.WHSMDADSCADoDEADARPADCMADTRACBDPJCS(incl. NDU)DHRADAUDSSDTICOEADMADOTEDPAADTSADFAS GFMHPIOther TI-97 FundsOther TI-97 FundsProvided to Army by Provided to Navy byOSDOSDOther TI-97 FundsProvided to Air Forceby OSDBurden SharingAccount by ForeignAllies, DefenseHost Nation Supportfor U.S. RelocationActivities, DefenseDoD EducationBenefits FundVoluntarySeparationIncentiveTrust FundSupport for U.S.Relocation to GuamActivities, DefenseEmergencyResp. Fund,DefenseHomeownersAssistance Fund,DefenseDefenseGift AccountNationalSecurityEducationTrust FundDisclaimer4

Panel Composition Mr. Mark Easton (Moderator), Deputy Chief Financial Officer Budget OverviewMr. Robert Rodriguez, Director, Investments OSD and Fourth Estate Financial Management UpdateMs. Mobola Kadiri, Director, Financial Improvement and AuditRemediation Financial Management Workforce InitiativesMs. Glenda Scheiner, Director, Human Capital and ResourceManagementThe Changing Business Environment withinthe Fourth Estate – an FM Perspective5

Budget OverviewMr. Robert RodriguezDirector, Investments

American Society of Military ComptrollersNational Capital RegionProfessional Development InstituteUS Department Of DefenseDEFENSE-WIDEOffice of the Under Secretary of Defense (Comptroller) / CFOMarch 14, 2019

FY 2020 PB REQUESTDEFENSE-WIDE ACCOUNTSDollars in BillionACCOUNTFY 2019FY 2020CHANGE80.281.5 1.3(44.8)(48.0)( 3.2)24.425.4 .1117.6116.6-1.0O&M(0100d)RDT&ETOTALPage: 8

FY 2020 PB REQUESTDEFENSE-WIDE ACCOUNTS Created the Space Development Agency (SDA) Funding increases in RDT&E (0400) for ArtificialIntelligence (AI), Hypersonics, & microelectronics. NGREA not extended into FY 2020. Increases in funding for missile defense for spacebased sensors and defensive capabilities. DISA O&M increase for Information SystemsSecurity Program (ISSP) for Cyberspace operationsPage: 9

OSD and Fourth EstateFinancial Management UpdateMs. Mobola KadiriDirector, Financial Improvement and Audit Remediation

FY 2018 Fourth Estate and Consolidated AuditResultsDoD Consolidated Audit FY 2018 Results At A Glance 6 entities received unmodified (clean) audit opinions429 of 974 audit notices of findings and recommendations (NFRs) pertained to IT367 NFRs related to financial reporting132 NFRs pertained to propertyAs of March 5, 2019 1,155 CAPs have been developed to address 948 (97%) the FY 2018 NFRs.NFRs by CategoryAudit OpinionsDoD Reporting EntityAudit OpinionMilitary Retirement FundDefense Health Agency – CRMDefense Finance & Accounting Services – WCFDefense Contract Audit AgencyU.S. Army Corps of Engineers – Civil WorksDepartment of Defense OIGDefense Commissary AgencyMedicare-Eligible Retiree Health Care FundDefense Information Systems Agency – WCFU.S. Special Operations CommandU.S. Transportation merDisclaimerDefense Information Systems Agency – GFDisclaimerDefense Logistics Agency – SMDisclaimerDefense Logistics Agency – GFDefense Logistics Agency – WCFDefense Health ProgramDoD Consolidated 3.6%46,4.7%429,44.0%367,37.7%ITFinancial ReportingOtherProperty11

Fourth Estate and Consolidated Audit Focus andWay Forward The Secretary of Defense issued a memo on February 5 stating Department’s priorities for remediationheading into the FY 2019 audit, including information technology, property and inventory. Given most of the Fourth Estate does not have large property or inventory balances, OUSD(C) is askingFourth Estate organizations to focus on the following priorities:–IT Access Controls – Ensuring that only appropriate personnel have access to necessary systems.o Example Metric: Reduction in the number of IT access control related audit findings/NFRs.–Fund Balance With Treasury – Working with DFAS to improve reconciliations with Treasury andestablish front-end controls to reduce problem disbursements.o Example Metric: Reduction in the dollar amount of differences between accounting records and U.S. Treasury.–Journal Vouchers (JVs) – Collaborating with DFAS to implement procedures and documentation tosupport JVs.o Example Metric: Reduction in the number and dollar amount of unsupported JVs.–Dormant Account Review – Quarterly (DARQ) – Continuing to utilize the DARQ process to identifydormant obligations and close out identified obligations.o Example Metric: Reduction in the number of dormant obligations.–Complementary User Entity Controls (CUECs) – Identifying and implementing necessary CUECsand work with stakeholders to ensure the controls are operating effectively.o Example Metric: Reduction in the number of CUEC-related audit findings/NFRs. OUSD(C) will continue to monitor and report on the number of auditor closed NFRs as an objectivemeasure of our progress toward achieving a clean audit opinion over the next several years.12

Service Organization Control Update The DoD has made significant progress in increasing the number of its audit-relevant systems that nowundergo SSAE No. 18 examinations.# of SOC Reports40293335FY 17FY 183830201023FY 05FY 12813160 FY 13FY 14FY 15FY 16FY 19The SOC reports from these exams potentially eliminate the need for redundant internal control testing byDoD Components.Looking Ahead SSAE No. 18 report qualifications need to be remediated. As of February 2019, 132 of the DoD’s more than2,600 audit NFRs were SSAE No. 18-related. ODCFO and DoD CIO will leverage the Department’s functional councils to collaborate with serviceorganizations to identify challenges and share solutions to audit NFRs. OCMO, ODCFO, and DoD CIO are developing guidance directing the review of major procurements of newsystem implementations/modifications, that contribute financial information to DoD financial systems includea provision for milestone decision review by a professional accountant. DoD has undertaken initiatives to utilize cloud services. A policy memo is currently in coordination to requirean SSAE No. 18 examination that meets audit support requirements.Components and auditors place reliance on controls in SSAE 18 (SOC 1) reports.Test Once - Reliance by Many13

Financial ManagementWorkforce InitiativesMs. Glenda ScheinerDirector, Human Capital and Resource Management

Agenda DoD FM Certification Program Department-wide Initiatives and Policies FM Professional Development & Training15

DoD FM Certification - % Certified byComponent**Percent of active members in the FM LMSAs of March 1, 201916

DoD FM Certification - % Certifiedby Component*38,717 FM Members Certified 68% of Active Members in the FM LMS*Percent of active members in the FM LMSAs of March 1, 2019

FM Professional Certifications andReimbursement PolicyUSD(C) updated policy December 13, 2018 Allows for reimbursement to civilian employees except for any employee excepted fromcompetitive service because of the confidential, policy-determining, policy-making, or policyadvocating character of the position Reimbursable expenses include test fees, test registration fees, application/issuance fees,and renewal fees for any of the 20 approved FM-related test-based certifications18

Learning Management Reform Initiative In July 2018, the IT Reform Team proposed to the Reform Management Group(RMG) to establish a DoD-enterprise training management structure for training Intent is to have a learning “ecosystem” of systems, software, courseware andother related IT tools to support the delivery of training, education and professionaldevelopment to the DoD workforce CMO approved the approach to establish an integrated framework for trainingmanagement across the Department via a directed assisted acquisition approachusing the Office of Personnel Management (OPM) USALearning team; OPM iscommitted to making the change work for the Department CMO plans to publish a memo directing all purchases of Training & Education todefault to the assisted acquisition USALearning process for “first right of refusal” inorder to ensure good category management Coordination/release of memo is pending19

Individual Development Plan (IDP) An annual training and development plan whose primary purpose is to help employeesreach short and long-term career goals, as well as improve current job performance New performance cycle for many GS employees begins 1 April; perfect time to develop yournew IDP!Career GoalsLeadershipDevelopmentTrainingFM /IDP/Default.aspx20

DoD FM Workforce Virtual Training ProgramLearn new techniquesProfessional growthKeep skills sharp Live, virtual classroom that allowsdirect interaction betweenparticipants and instructors Collaborative learning with FMersacross DoD Courses in FM and leadershiprelated topics provide 8-32 CPEs,depending on course Eligible participants: Currentparticipants in FM CertificationProgram FREE TO COMPONENTS:Course(s) funded by OUSD(C)21

DoD FM Virtual Training ProgramUpcoming CoursesCourse TitleFY 2019 Course schedule and additional information are available on FM 22

FM STARs – A Cross-component FMDevelopmental Assignment ProgramGoals: Enhance understanding of other operations, systems, and relationships Better understand the larger operational environment and individual roles insupport of the DoD FM mission Reinforce the important role of the civilian, inspire meaningful contributionsto the team, and improve effectiveness in the workplaceBackground: Available to DoD FM civilians, GS 12-15/equiv, in FM Certification Program Duration: 3- to 6-month cross-component assignments Funded by OUSD(C) Cross-Component development - Applicants may not apply to assignmentswithin their own Component Assignments may be independent or exchangesWay Ahead: DoD FM Senior Leader Group approved the program based on FY18 pilot’sresults Components should begin developing their FM STARs OpportunitySubmissions FY 2019 Program launching soon!STRONGTRAINEDAGILEREADY23

Open Discussionand Q&A

o Example Metric: Reduction in the number of CUEC-related audit findings/NFRs. . The SOC reports from these exams potentially eliminate the need for redundant internal control testing by DoD Components. Looking Ahead SSAE No. 18 report qualifications need to be remediated. As of February 2019, 132 of the DoD's more than