NEW CUMBERLAND, Pa. –
For the past nine years, Defense Logistics Agency Distribution has been on a financial audit journey to prove the agency’s ability to comply with regulations, policies and procedures across the board. Proof will come in the form of successful on-site audits by the independent public accountant coupled with notable increases in material accountability and reductions in inventory adjustments in both quantity and dollar value.
Each year, DLA Distribution Headquarters develops a theme and commitment to help advance physical and financial operations to pass audit. As a reminder to every employee that everyone is involved in the audit process, the fiscal year 2021 theme is, “We all are accountable and responsible to deliver quality results.”
As part of the annual audit journey, DLA Distribution Headquarters reviews its progress and accomplishments against goals to assess both successes and challenges, then documents shortfalls. From there the organization develops strategies and corresponding actions to close the gaps and mitigate both new and persisting risks within its operations.
With 2.6 million items in stock valued at $147 billion, DLA Distribution takes audit readiness seriously and has steadfastly continued the audit journey throughout the COVID-19 worldwide pandemic. One example of this is the first virtual business process overview audit hosted by DLA Distribution in August. While the planning of audits does fall to other DLA organizations, the DLA Distribution team led the effort for the planning, coordination, and execution of this fiscal year’s inventory and revenue/expenses business process overview held virtually due to the pandemic.
The task was a huge undertaking and DLA Distribution’s Chief of Financial Audit & Compliance, Denise Parker-Kanelos, wondered if they were going to be able to pull it off virtually. “We did,” she said.
It took about three weeks to prepare and pull all the evidentiary matter and computer screen shots. “We received data from DLA Finance, Information Technology, Operations, Contracting, distribution centers and our own team here at DLA Distribution headquarters. It takes transaction information from every element, department and major subordinate command within the agency to respond to a virtual audit. It’s a huge amount of coordination; it’s not just a DLA Distribution venture. It’s just a phenomenal amount of data,” said Parker-Kanelos.
The effort included personnel going into systems and grabbing items and scanning those items into documents. Additionally, validation was required of every piece of data. Then the team pulled all the information into PowerPoint briefs, which were organized into one very large briefing ending up with over 83 files and over 700 charts.
“Everybody is pulling pieces of data that go with the same specific transaction, as requested by the auditors,” said Parker-Kanelos. “My auditing team would have to make sure that we ordered all the data, screens and evidential matter correctly so that the final product told the story of the transaction for DLA – good, bad or otherwise.”
“I think the great part about it was instead of just observing live transactions, and only seeing one part of the transactions ‘story,’ the auditors selected transactions in advance that were posted in the agency’s books, and then the DLA team performed the research of what occurred. It was a great way to accomplish the goal, but virtually was more effective than the many physical trips performed in the past years, and it was much more cost effective and thorough in the quality of information provided on each transaction, because the ‘complete’ story was assembled. Information was pulled from procurement, inbound receiving, physical inventory, storage, shipping, revenue and expense data from our financial folks to include postings in the ledgers. It was phenomenal, we are talking thousands of charts of information just to demonstrate a handful of transactions.”
The live audit went very smooth, start to finish, said Parker-Kanelos. “We used the defense collaboration system and telephone call-in lines that connected briefers aligned to their respective sessions. It took about a week to walk the auditors through all the transactions and we had very little follow-on taskers because everybody across DLA did such a great job of pulling the data the first time around. Also, with everyone working from home it was pretty amazing, as we had no problems with defense collaboration services or the phone lines, everything worked like clockwork and there were zero glitches. COVID forced us to figure it out and it worked.”
“It just shows how far the agency has come in understanding when an auditor requests something we now know what we need to provide,” said Parker-Kanelos, adding, “If we would have done this five years ago, it would have been a disaster, but now you can tell people really are starting to understand the financial audit and know what transactions to pull for specific requests. People can go in and find the evidential matter. In the old days – which are only just a couple of years back – we would not have been able to find all that evidential matter in our data repository, but now it's very easy to do. Our Information Technology division does a great job with all that scanning and retention – I’m impressed with how far the agency has come as one team.”
“I think virtually walking thru the transactions and explaining to the auditors what occurred in our business process is much better than a physical walk thru where you only see one piece of a transaction and you aren’t able to see the complete picture of the entire transaction,” said Parker-Kanelos. “I think this a more successful way for the auditors to perform that portion of the audit work. Certainly they have to go on-site and do other types of audits for other audit elements, but for business process walk throughs, I think this should be an annual requirement to do it virtually, because then you really can put together the entire story of a transaction.”
The audit process is improving the quality of DLA Distribution’s enterprise data used to drive decision-making and ensures the organization remains good stewards of government resources – and accountable to the American people.
DLA Distribution has completed its second year of performing an annual inventory count and can now see that combined efforts are working. The enforcement of adherence to standard procedures, organization wide general audit readiness awareness and annual refinements in compliance and audit controls are resulting in tangible improvements that are demonstrated to the materiel owners.
In fiscal year 2020 and in comparison, with fiscal year 2019, DLA Distribution has reduced volatility (total adjustments) which is the impact (losses/gains) to military services, whole of government and DLA material owners' records. The reduction in overall adjustments is down by 44%. Additionally, the detailed reporting/monitoring of high dollar value adjustments (a subset of all adjustments) is down by 50%, signaling a movement in the right direction.
DLA Distribution will undergo three major audits in fiscal year 2021. One focuses on DLA's materiel in our custody and financial records, and the other two focus on DLA Distribution’s role as the custodian of Military Services' owned materiel. The goal is to achieve a Modified Opinion in all three. To do this, DLA Distribution must perform its core processes correctly, every time:
• Receive materiel timely into the correct ownership and assure it is properly stowed.
• While in our custody, maintain stock in correct condition code, execute disposition instructions timely, and complete associated stock readiness workload to standard.
• Ensure items on the shelf are on the books, and what is on the books is in location and quantity recorded (physical inventory processes and floor to book/location validations).
• Pick items in correct quantity/condition/owner (where applicable) and ship within the proper time standard.
• Retain evidential matter for the prescribed period for all activities to include any changes to material ownership.
DLA Distribution leaders are responsible for process compliance, producing quality results and adjusting behavior to achieve the assigned performance expectations. Shortfalls need to be identified with significant root cause analysis to determine the appropriate countermeasures and corrective actions that will rapidly correct the problems identified.
Financial accountability is an objective supporting DLA's ability to be a world class provider to our nation's warfighters. Each manager, supervisor and employee in DLA Distribution must understand the standard, follow the process, and hold each other accountable to meet the expectations for audit. The outcome is improved warfighter support while retaining confidence and trust from our nation's leaders and taxpayers.