On October 13, 2011, then Secretary of Defense Leon Panetta issued a memorandum directing the Department of Defense (DoD) to meet the legal requirements to achieve full audit readiness for all DoD financial statements by September 2017. Secretary Panetta's memo noted that auditable statements are needed to reassure the public that DoD is a good steward of public funds. Thus far, DoD has not successfully obtained a clean audit opinion.
The Concept of Audit Readiness
What does it mean to achieve full audit readiness? Audit readiness is an agency's ability to demonstrate that systems, processes, and controls (i.e., process controls, financial controls, and information technology controls) are executed in accordance with applicable policies and accounting standards. Audit readiness is evaluated by an independent public auditor reviewing an organization's financial statements to ensure they are fairly represented in accordance with accounting standards. As a starting point for achieving the goal of audit readiness, the DoD developed the Financial Improvement and Audit Readiness (FIAR) plan, which focuses on improving processes, controls, and systems supporting information used to manage the DoD. The DoD's goal is to achieve an unmodified opinion on its financial statements. To meet that goal, leaders across the military departments, including the Department of the Navy (DoN and also referred to below as Department), have a responsibility to ensure processes and policies are in place that will result in auditable financial statements.
The Importance of Achieving Audit Readiness
Why is audit readiness important to the Department of the Navy? It is important because it increases the accuracy of financial data and produces more effective, transparent business processes. It enables the DoN to make more timely decisions based on accurate and reliable information. It can also help to accurately and timely allocate resources to build new weapon systems, maintain research facilities, recruit specialized workforces, and deploy forces-all in support of DoN operations and missions. The Department can maintain a constant state of audit readiness by having business processes that are sustainable, traceable, and repeatable.
Being able to undergo an audit-i.e., achieving audit readiness-will reassure Congress and the American people the DoN is a good steward of its funds. FIAR also supports the Department's need to improve business and financial oversight and transparency; be more efficient in how it uses resources; strengthen controls to deter fraud, waste, and abuse; and meet its cyber-security goals.
Most importantly, audits spotlight areas that still need improvement, such as strengthening...