News | May 1, 2019

The U in Audit

By DLA Energy Public Affairs

A financial audit isn’t just about dollars and cents. It’s about understanding how operational improvements help achieve clean financial statements. 

At the end of the day, a clean audit supports DLA readiness and mission success. Greater performance, accountability and affordability means better support to the Warfighter.

“Obtaining a clean financial audit is a team effort requiring commitment from all levels across the organization,” said DLA Energy Deputy Commander Guy Beougher. “It is a process of continuous improvement, and we all must embrace the process, commit to fixing the problems and become champions of change.” 

The audit is a major step in achieving an accurate count of DLA Energy assets and liabilities. While financial records are important, other records including the quantity, location and condition of inventory; the business processes used for ordering, receiving and storing the inventory; and whether inventory-related internal controls are in place, documented and operating effectively are all examined by auditors. 

“Audits can assist in detecting waste and fraud by providing a starting point for the costs and rates of spending,” Beougher said. “It establishes a baseline to allow management to detect anomalies that could help identify waste, fraud and abuse.”


There are currently 353 Notice of Findings and Recommendations being remediated. Examples include facilities that have been physically demolished but remain on real property records listed as active facilities. Other examples include facilities that physically exist but were not listed in the real property records.

These findings show that Department of Defense components lack adequate systems and controls to provide assurance over the existence and completeness of inventory.

In order to fix these problems, internal controls are necessary. Activities such as authorization, documentation, reconciliation, security and the separation of duties are examples of internal controls and they can be both preventative and detective.

Preventive controls can help deter errors or fraud from happening and include documentation and authorization practices. Additionally, the separation of duties ensures that no single individual is in a position to authorize, record and be in custody of a financial transaction and the resulting asset. 

What happens when internal controls are weak or nonexistent? Material weaknesses can lead to duplicate payments, excess purchases, excess inventory stockpiles, or other hidden or excessive costs.

Detective controls detect problems before they happen and include things like reconciliation, corrective actions and internal audits. 

“While internal controls are the foundation of an accountable and defensible organization, they are still limited by human judgment,” Beougher said. “We must assess risk and only deviate from established documented practices when absolutely operationally necessary. When deviation is authorized, we must still follow up to ensure the transaction is properly and fully documented.” 

Khalid Hamidi, the chief of the DLA Energy Auditability & Sustainment Office, echoed Beougher’s sentiment. 

“The agency’s goal to obtaining an ‘unmodified’ opinion is to have a strong internal control program,” Hamidi said. “Know your business processes and your role within such processes. Make sure that it aligns with current, documented policies and regulations. If you have standard operating procedures, use them. If you don’t, get one in the works.”

Improving our internal controls and paving the way to an unmodified audit opinion is not an easy task and certainly won’t happen overnight, Beougher added. It took the Department of Homeland Security over 10 years to receive a clean audit opinion. DLA Energy must work to address the root causes of problems and fix them, he added. 


Beougher and the DLA Energy audit team stressed several key factors in helping to obtain an unmodified opinion. 

First, the entire agency must properly document, save and store evidential matter as well as be ready to immediately and fully respond and assist with requests for evidential matter. 

“While there is an audit cycle, these requests can come at any time,” Hamidi said. “We cannot delay, as just a few extensions can snowball into many, causing missed deadlines and lead to more discrepancies. Getting to a clean audit opinion requires our full, devoted attention.”

In addition, the agency must have basic protocol and etiquette standards for walking auditors through our processes to help them get all the information they need. 

“We know you are busy, but these walkthroughs speak volumes about our organizational culture and professionalism,” Beougher said. “Be patient, courteous and – above all – responsive.”

The agency must also manage risk by identifying and addressing potential gaps and updating policies, standard operating procedures, and any other doctrine that supports day-to-day operations.

“The audit team’s goal is not to identify findings or issues at DLA, but rather to help identify areas of improvement,” said Tony Ras, an Ernst & Young partner and a key auditor in the audit of the DLA financial statements. “If DLA knows and believes that there is an issue in certain areas, our team would like to know in advance. If we know that there are issues that DLA is aware of and is working to remediate, our team will not perform any procedures in that area until DLA states that the issue has been remediated.”


Beougher said DLA Energy’s ability to produce transactions that are accurate and complete is important for several reasons.

“The overall audit opinion is an important testament to our organizational health,” he said. “Not only will it improve DLA Energy’s financial statements, it will also improve its operations.”

Hamidi added that an accurate and complete understanding of DLA Energy’s purchases, payments and inventory will lead to accurate financial information and enable us to develop better cost-control decisions. 

“We know there are and will be deficiencies identified, but we must make progress on fixing those deficiencies and improving our processes,” he said. “Continued progress requires sustained effort across the agency.”

“We don’t have to wait for a clean audit report to find benefits,” Beougher said. 

Phase II of the fiscal year 2019 audit, which runs from approximately March through August, is focused on internal control.

“During this phase, we will update our understanding of significant internal control processes and perform walkthroughs of all significant processes,” Beougher said. “We will continue to identify corrective action plans and determine whether controls are operating as designed.”

Phase III, which runs from approximately July to October, will lead to the substantive testing phase. This includes sampling of transactions to be supported with evidential matter along with fiscal year-end inventory assessments to be conducted at the Defense Fuel Support Points. 

Phase IV occurs between October and December and is the reporting phase where a summary of audit differences and uncorrected misstatements are reviewed.

“Despite discrepancies, there is value-added by going through the process,” Beougher said. “Findings will drive enterprise-wide improvements, standardize business processes, improve services and forecast costs.”

“As we drive forward on our audit journey, each one of us is instrumental in achieving real progress,” Beougher added. “We are committed and dedicated to the journey knowing that our destination is a more judicious, enduring and stable Warfighter supporter.”