Audit Perspective

By DLA Energy Public Affairs

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Defense Logistics Agency Inspector General, William Rigby, has direct responsibility for conducting and overseeing investigations, inspections, audits, inquiries, hotline complaints, and assistance visits affecting the agency resources and its workforce. He sat down with Energy Source to discuss his role in supporting the Department of Defense Office of Inspector General oversight of the financial statement audit conducted by Ernst & Young.

What is your role as the DLA Inspector General?

In my role as the DLA Inspector General, I provide the DLA director with leading indicators about challenges the organization either is facing or will face in the immediate future. The IG’s focus is to support DLA readiness and mission success by helping management make informed decisions by:

  • Providing impartial and unbiased findings and recommendations,
  • Supporting a respectful climate and culture for all DLA employees, contractors, and business partners,
  • Facilitating a risk-based approach to policy development and governance, and
  • Identifying and mitigating conditions conducive to fraud, waste, and abuse. 

The financial statement audit is being conducted by the independent public accounting firm Ernst & Young. DLA IG is precluded from conducting financial audits – that is the domain of DoD IG. Instead, the DLA IG focuses on operational readiness audits, which (when appropriate) are designed and executed to provide information about the level of readiness of specific areas that may be covered in future financial statement audits.

Currently, we have a couple of operational audits that have tangential implications for the EY audit in the real property and contracting areas. Additionally, we are focusing our audit and inspection efforts a year or two ahead of where we anticipate EY will be focusing their work in order to give management time to fix any areas where internal controls or accountability issues may exist.

How does your office support the audit?

DLA IG supports the DoD directed financial statement audit by performing internal inspections and audits that evaluate the effectiveness of internal controls. For example, we are currently completing an audit on cost-recovery rates for weapons storage at DLA Distribution Center Anniston, Alabama, which has implications for the process documentation for all of DLA. 

Additionally, we are reviewing the contracting officers roles and responsibilities in monitoring service contracts, with DLA Energy being one of the activities DoD OIG is reviewing. All of this work is outlined in our three-year audit plan, refreshed each year, and is based on our internal assessment of the highest areas of operational risk for the organization.

Is DLA strengthening its financial management? 

DLA has a very concerted effort, led by the DLA director, to remediate findings from the IPA. He has significant involvement with all the senior leaders on strengthening financial management within their DLA Major Subordinate Command or J-code. In support of this effort, DLA stood up the Audit Task Force to oversee and address notice of findings with corrective action plans.

What corrective actions is DLA taking based on Ernst & Young’s recommendations?

The main thing DLA is doing to address EY recommendations is to develop processes and procedures to remediate the findings from the IPA. This remediation is causing a systematic review of how we conduct and document our operations, specifically focusing on determining whether our processes are consistent, measurable, repeatable and documented.

This ties into another role of the IG – to teach and train. During audits, inspections and investigations, we coach people on what to do to be successful and meet the mark. This is not a ”gotcha,” you did this wrong, it’s more “hey, you’re not doing this accurately, here is how you can do it better” and “this is what the rules say you are supposed to be doing.”

As the DLA Inspector General, what are your insights and reflections for fiscal year 2019? 

DLA is entering its third year of financial statement audit and the military services are now entering their second year. I believe that DoD is starting to understand that the audit puts us on a new playing field with a new set of rules and that our past way of doing business simply isn’t good enough. This is because we’re being audited to a business standard – which is based around profit and loss – rather than typical government accountability. For example, the past government records could tell you that we have 100 gallons of fuel in a tank (purchased in 10 transactions) but not the actual cost of each gallon of fuel. To meet audit standards, we have to be able to document both the total number of gallons as well as the details of each of the 10 purchase transactions, as well as the details of all sales transactions.

What are the challenges in fulfilling the auditor’s requests? 

Overall I’d say it has been a positive experience for the organization, although there have been a lot of growing pains associated with it. The positive aspect, as I’ve mentioned before, is that we are moving towards DLA processes that are consistent, measurable, repeatable, and documented. The challenges with fulfilling the auditor’s requests are mostly associated with the lack of historical supporting documentation. For example, what is the correct value of our World War II era warehouses and where is the original supporting documentation. A better example for DLA Energy deals with tanks and the associated fuel delivery systems and the SRM appropriated to maintain them. I mentioned another DLA Energy example in my previous answer dealing with maintaining sufficient documentation to show the cradle to grave purchase and sale of fuel.

What would you say has been your biggest success so far?

Within the IG office, our biggest success so far has been our ability to engage earlier with either the GAO or DoD OIG external auditors. The external liaison team looks at every external audit and helps to guide the organizations, who are the focus of the audit. A J-code always has the lead and works with the MSCs.

Quite often, DLA Energy will be working through a DoD OIG audit that has J8, J3 or J7 involvement. As the DoD primary source of energy for both fossil fuel and renewables, there will always be a lot of scrutiny and review. The audit liaison team works with the Energy Internal Review office and the subject matter experts to put our best foot forward both to respond to requests for information and to close out any findings and recommendations. Currently, we are at our lowest level of open external audit recommendations for the entire agency.

What would you tell the DLA audience about audit readiness and financial stewardship? 

In closing, it’s about understanding the risks associated with your specific organization and business processes and how those risks relate to the larger organization and their risks, remembering that risks are dynamic. 

It’s important to have controls to mitigate risks and ensure the controls are effective. It’s also important that the organization has documentary evidence for every business transaction. While today’s automation and technology makes it easier and more efficient to maintain documentary evidence, it takes an entire workforce to make the audit successful.