WASHINGTON -- The Defense Logistics Agency took an important step toward achieving audit readiness when Chief Financial Officer Tony Poleo signed the agency’s first audit assertion letter, Sept. 30.
The assertion letter was DLA’s signal to the Office of the Secretary of Defense that it believes a portion of its financial operations is ready for audit, Poleo said. This first assertion letter covers the “Appropriations Received” area, which includes all funds appropriated by Congress to the agency.
DLA’s appropriated accounts represent a very small portion of its overall funding – about $1 billion out of $40 billion – Poleo said, but this first step is important because it shows Congress and the public that taxpayer money is being distributed and managed properly.
“It is important that the Congress and the public has a reasonable level of confidence that taxpayer dollars the [Defense Department] spends are being used for their intended purpose and, more importantly, that we can prove it,” he said.
“Appropriations Received” covers the appropriated funds process from receipt by DLA to subsequent distribution, Poleo noted. The assertion letter confirms that the funds were distributed to the correct organizations in the correct amounts and that our systems are reflecting the correct information, he said.
Poleo likened it to a parent supporting several college-age children by transferring money to their individual bank accounts or debit cards. In this case, Congress is the “parent” and wants to make sure that the “children” received their appropriate shares of funding.
The Defense Department has been striving to achieve audit readiness for many years, Poleo said, and DLA has been involved in that work. As financial stewardship has become a major focus area for the department, the Defense Department comptroller, Robert Hale, has set some concrete goals for financial compliance.
“Mr. Hale is trying to convince the Congress that, while we have a lot of issues that have to be solved to attain an overall financial opinion, we’ll try to bite off some pretty decent-sized pieces of this and work our way to that full opinion,” Poleo said. “One of those pieces is to assure the Congress, as they appropriate money every year, that we do the right thing with it, for its intended purpose.”
Now that the audit assertion letter has been signed and submitted to DoD, a team from the department’s Financial Improvement and Audit Readiness Directorate will review DLA’s documentation and either agree or disagree that the Appropriations Received area is ready for audit, said Lisa Yeagle, deputy director of financial compliance and process management in DLA Finance. After that process, in appropriate cases, an independent public accountant will perform an actual audit, she said.
Because this is the first assertion letter DLA has submitted, it is too early to say what will happen next, Poleo said. If DoD agrees that this area is ready for audit, it is possible that an audit will be performed, and that could happen as early as fiscal 2011, he said. However, no matter what happens, the real benefit of this assertion will come from the lessons learned, he said.
“One of our biggest challenges is that right now we don’t know what success looks like, and that makes it very challenging,” he said, referring to the audit process. “So what this assertion will do for us is it will be informative from the standpoint that right now, because we’ve never externally tested ourselves, we don’t know if we’ve set the bar too high, if it’s about right, or if it’s even too low. And I think when we have this area reviewed, because we think we’re prepared, to have somebody come in and really give us our grades, we’ll be learning no matter what happens.”
“It goes to our future credibility, our ability to defend the budget,” he said. “It would be a very positive thing for us to be able to say, ‘We account for the funding you give us. It is going for the intended purposes, and here’s what you’re getting back, in program, for that.’”
Even as this first assertion letter was signed and submitted, DLA has been working in other areas of its business operations to validate audit readiness, and its progress and timelines for those areas are included in DoD’s Financial Improvement and Audit Readiness status report, which goes to Congress twice a year, Yeagle said. Right now, DLA has a “very conservative estimate” that most of its business cycles will have asserted audit readiness by the second quarter of fiscal 2017, she said.
“This is definitely the first one out of the chute for asserting audit readiness, so … I think DLA will learn specific lessons from this particular assertion, which hopefully is successful,” she said.
Poleo agreed that this assertion will be a springboard for future work by providing real-life feedback from an outside source. Also, it shows Congress that DoD is making progress toward audit readiness, he said, and it gives DLA officials a better picture of the agency’s funding.
“This is $1 billion, and every year we’re asking the director to make choices and decisions based on the information we’re giving him about this $1 billion. The more confidence we have in our process, the better our advice will be,” Poleo said.