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News | Nov. 2, 2017

Vice director: Audit disclaimer an opportunity to improve rather than a failure

By Beth Reece DLA Public Affairs

Recent news that independent auditors Ernst & Young issued a disclaimer of opinion on the Defense Logistics Agency’s financial records isn’t good, but was not unexpected, DLA Vice Director Ted Case told members of the agency’s audit advancement team in an All Hands meeting Oct. 31. 

He urged employees to think of the disclaimer as a challenge to improve rather than a failure.

“It simply means that Ernst & Young was unable to completely perform its work and the agency has difficulty providing certain information in a timely manner. Disclaimers of opinion are common for agencies undergoing a first-year audit,” he said, adding that it took the Department of Homeland Security over 10 years to receive a clean audit opinion. 

DLA’s audit-readiness efforts began five years ago when Case and other senior leaders first challenged the agency’s more than 25,000 employees to adopt new procedures and controls to ensure the accuracy of DLA’s financial statements. DLA was the first government agency of its size and complexity to assert full financial statement auditability in September 2015, two years ahead of schedule.

The findings by Ernst & Young shouldn’t overshadow achievements already made, such as the creation of a central repository for key evidential matter and audit-readiness training provided to all DLA employees, Case said. Rather than feel discouraged, employees must continue to forge ahead because leaders are determined to attain and sustain auditability.

In an Oct. 5 memo, Department of Defense Secretary Jim Mattis outlined the department’s preparations for its first full-scope financial audit in fiscal 2018. 

“A memo like that is direct evidence that auditability is critically important to our DoD leaders. Fortunately, thanks to your efforts, DLA is well ahead of the game in that regard,” Case said. 

DLA’s 2018-2026 Strategic Plan, which is scheduled to be released Nov. 16, will reflect DLA’s renewed commitment to auditability. The previous financial stewardship initiative will become “Always Accountable,” and stresses the interrelation of processes across supply chains. 

The plan will “plainly state that we will achieve this objective by using thoroughly documented processes, automated tools and general controls that are secure and compliant,” Case said. 

The work that lies ahead includes establishing supportable baseline balances, producing timely reconciliations and improving internal controls. It also means reevaluating business processes and systems, and employees who are aware of local behaviors and business processes that hinder progress must become champions of change, Case said.

“This team must take the initiative to identify and advocate for best audit practices in every aspect of the agency’s operations to set up the agency for success. Each IPA [independent public accountant] audit report will help DLA build a better foundation that will serve as a stepping stone toward a clean audit opinion,” he said.