In September 2014, the Defense Logistics Agency asserted that it was prepared to undergo formal auditing by an independent public accountant. The assertion meant that effective controls were in place for DLA processes and management oversight. Since then, DLA’s policies, procedures and financial statements have been analyzed by three IPAs and the Department of Defense Inspector General.
When auditors discover a deficiency with DLA’s processes or systems, a Notice of Findings and Recommendations is issued. An NFR is a formal opportunity to correct deficiencies identified by the IPA, improve overall DLA audit performance and ensure DLA is adhering to financial reporting requirements.
One NFR issued as a result of the fiscal 2018 Full Financial Statement Audit indicated that the IPA was dissatisfied with DLA’s method of ensuring inventory accuracy, specifically the frequency in which DLA performs inventory counts. To address the finding, DLA implemented the Annual Inventory Program, which requires 100 percent of items in DLA custody be counted each year. This increases accountability for DLA-owned items and items owned by the military services that are in DLA custody. To monitor the AIP, DLA Distribution performs a weekly review of distribution centers’ progress to ensure they are on track to complete the 100 percent inventory check by end of the fiscal year.
The AIP is expected to improve inventory accuracy for DLA Distribution by the end of fiscal 2020. And since reports sent to inventory owners includes details on each inventory adjustment transaction resulting from physical inventory counts, military owners can perform audit-required inventory reconciliations.
DLA Distribution’s Office of Management and Budget Circular A-123 and Quality Programs have also benefited from audit requirements with the completion of an A-123-compliant Risk and Controls Matrix. The RCM outlines risks and controls that affect auditability and includes risks identified by each distribution center.
Historically, DLA Distribution has focused on metrics such as time standards and accuracy rates to determine if mission goals are being met. While these are still important, the audit highlights risks that DLA Distribution had not previously focused on. Risks monitored using the RCM are aligned with the lines of effort in the DLA Director’s Strategic Plan. This allows DLA to identify areas where controls are working effectively and those where the agency lacks controls to support management assertions and mission requirements. Where risk is not already mitigated, DLA Distribution documents the deficiencies, takes timely action to correct them, then follows up with testing to demonstrate the risk has been mitigated.
The 100 percent AIP and the A-123 Compliant RCM show that DLA and DLA Distribution are implementing new processes to improve overall financial reporting and customer support.